MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
Contents
7 Introduction
7 Forward-Looking Statement Advisory
8 Business Overview and Strategy
16 Outlook and Current Business Environment
18 Corporate Responsibility and Sustainability
18 Adoption of New Accounting Standards
20 Summary Consolidated Information and Highlights
21 Business and Operations Review
21 Real Estate Investments
21 Investment Property Categories
22 Reconciliation of Investment Properties -
Shopping Centres, as presented, to the
Company’s Proportionate Interest
22 Portfolio Overview
32 Valuation of Investment Properties Under IFRS
33 Shopping Centres Valuation Method
34 Development Land Valuation Method
34 Investment Properties — Shopping Centres
35 Investment Properties — Development Land
35 2013 Acquisitions
37 2013 Dispositions
38 Impact of Acquisitions and Dispositions on
Continuing Operations
38 Investment Properties Classified as Held For Sale
38 Acquisitions and Dispositions Subsequent
to December 31, 2013
39 2012 Acquisitions
42 2012 Dispositions
43 2013 Investment Property Development and
Redevelopment Activities
50 Investment Properties Cost by with Bifurcation of
Income Producing and Development Activity
Components
52 Residential Inventory
53 Capital Expenditures on Investment Properties
55 2013 Leasing and Occupancy
58 2012 Leasing and Occupancy
60 Lease Maturities
62 Top 40 Tenants
63 Loans, Mortgages and Other Real Estate Assets
64 Results of Operations
64 Net Income
64 Reconciliation of Consolidated Statements of
Income, as presented, to the Company’s
Proportionate Interest
65 Funds from Operations and Adjusted Funds
from Operations
69 Net Operating Income
72 Interest and Other Income
73 Interest Expense
74 Corporate Expenses
75 Other Gains (Losses) and (Expenses)
75 Income Taxes
76 Capital Structure and Liquidity
76 Capital Employed
78 Credit Ratings
78 Consolidated Debt and Principal Amortization
Maturity Profile
79 Mortgages and Credit Facilities
81 Senior Unsecured Debentures
82 Convertible Debentures
83 Shareholders’ Equity
83 Liquidity
84 Cash Flows
85 Contractual Obligations
85 Contingencies
86 Dividends
86 Quarterly Dividend
86 Summary of Financial Results of Long-Term Debt
Guarantors
88 Related Party Transactions
89 Quarterly Financial Information
90 Fourth Quarter 2013 Operations and Results
103 Summary of Significant Accounting Estimates and
Policies
105 Future Accounting Policy Changes
106 Controls and Procedures
106 Risks and Uncertainties
Management’s Discussion and Analysis of
Financial Position and Results of Operations
INTRODUCTION
This Management’s Discussion and Analysis (“MD&A”) of the financial position and results of operations for First Capital
Realty Inc. (“First Capital Realty” or the “Company”) is intended to provide readers with an assessment of performance
and summarize the results of operations and financial position for the years ended December 31, 2013 and 2012. It
should be read in conjunction with the Company’s audited annual consolidated financial statements for the years ended
December 31, 2013 and 2012. Additional information, including the current Annual Information Form, is available on the
SEDAR website at www.sedar.com and on the Company’s website at www.firstcapitalrealty.ca.
All amounts are in Canadian dollars, unless otherwise noted. Historical results and percentage relationships contained in
the Company’s 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, and is dated as of February 20, 2014.
First Capital Realty was incorporated in November 1993 and conducts its business directly and through subsidiaries.
FORWARD-LOOKING STATEMENT ADVISORY
Certain statements contained in the “Business Overview and Strategy”, “Outlook and Current Business Environment”,
“Business and Operations Review”, “Results of Operations”, “Capital Structure and Liquidity”, “Summary of Significant
Accounting Estimates and Policies” and “Controls and Procedures” sections of this MD&A constitute forward-looking
statements. Other statements concerning First Capital Realty’s objectives and strategies and Management’s beliefs, plans,
estimates and intentions also constitute forward-looking statements. 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. Forward-looking information involves numerous assumptions such as rental income (including
assumptions on timing of lease-up, development coming on line and levels of percentage rent), interest rates, tenant
defaults, borrowing costs (including the underlying interest rates and credit spreads), the general availability of capital
and the stability of the capital markets, amount of development costs, capital expenditures, operating costs and corporate
expenses, level and timing of acquisitions of income-producing properties, number of shares outstanding and numerous
other factors. Moreover, the assumptions underlying the Company’s forward-looking statements contained in the “Outlook
and Current Business Environment” section of this MD&A also include that consumer demand will remain stable,and
demographic trends will continue.
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 in the “Risks and
Uncertainties” section of this MD&A and the matters discussed under “Risk Factors” in the Company’s current Annual
Information Form from time to time.
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 referenced above, include, but are not limited to: general
economic conditions; real property ownership; the availability of new competitive supply of retail properties which may
become available either through construction, lease or sublease; First Capital Realty’s ability to maintain occupancy and to
lease or re-lease space at current or anticipated rents; repayment of indebtedness and the availability of debt and equity
financing; changes in interest rates and credit spreads; changes to credit ratings; tenant financial difficulties; defaults and
bankruptcies; the relative illiquidity of real property; unexpected costs or liabilities related to acquisitions, development
and construction; increases in operating costs and property taxes; residential development, sales and leasing; compliance
with financial covenants; changes in governmental regulation; environmental liability and compliance costs; unexpected
costs or liabilities related to dispositions; challenges associated with the integration of acquisitions into the Company;
FIRST CAPITAL REALTY ANNUAL REPORT 2013
7
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
uninsured losses and First Capital Realty’s ability to obtain insurance coverage at a reasonable cost; risks in joint ventures;
matters associated with significant shareholders; geographic concentration of assets; investments subject to credit and
market risk; loss of key personnel; and the ability of health care tenants to maintain licenses, certifications and
accreditations.
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 February 20, 2014 and are qualified by these cautionary
statements.
BUSINESS OVERVIEW AND STRATEGY
First Capital Realty (TSX:FCR) is Canada’s leading owner, developer and manager of well-located, high quality urban retail-
centered properties where people live and shop for everyday life. As at December 31, 2013, the Company owned interests
in 164 properties, including four ground-up development projects, totalling approximately 24.5 million square feet of
gross leasable area (“GLA”) and one land site 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 the Company’s strategic objectives, Management
continues to:
• undertake selective development, redevelopment and repositioning activities on its properties including land use
intensification;
• be focussed and disciplined in acquiring well-located properties, primarily centres where there are value creation
opportunities and sites adjacent to existing properties in the Company’s target urban markets;
• proactively manage its existing shopping centre portfolio to drive rent growth;
• increase efficiency and productivity of operations; and
• maintain financial strength to achieve the lowest cost of capital.
Shopping for Everyday Life®
The Company owns, develops and manages
properties that provide consumers with products and
services that are considered to be daily necessities or
non-discretionary expenditures. Currently, over 80%
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, fitness, medical and other personal
services.
Management looks to implement a specific complementary tenant offering at each of its properties to best serve the
needs of the local community. The Company is highly focussed on ensuring the competitive position of its assets in
various urban and retail trade areas and closely follows demographics and shopping trends for both goods and services.
8
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The Company continues to observe several demographic trends that may affect demand for retail goods and services:
first, a younger generation of consumers whose shopping patterns are influenced by wireless communications and on-line
business and information; second, an aging population whose needs will increasingly focus on convenience and health
related goods and services. Another trend that Management observes relates to lifestyles in urban markets, where
consumers choose to incorporate visits to gyms, coffee shops and local restaurants into their everyday life. In
Management’s view, shopping centres and mixed-use properties located in urban markets with tenants providing daily
necessities, including non-discretionary services and other personal services, will be less sensitive to both economic
cycles and the current demographic trends, thus providing stable and growing cash flow over the long term.
At December 31, 2013 the tenant store count and percent of annual minimum rents by tenant type at the Company's 164
properties are as follows:
FIRST CAPITAL REALTY ANNUAL REPORT 2013
9
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 areas; the greater Vancouver area, including Vancouver Island;
the greater Montreal area; the Ottawa and Gatineau region; and Québec City. Approximately 95% 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 local 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.
As at December 31, 2013, the Company's property
portfolio demographics (in a five kilometre radius) by
market size, based on annual minimum rents are as
follows:
10
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Acquisitions
Management seeks to acquire well-located, high quality urban retail-centered properties in the Company’s target urban
markets focussing on the quality, sustainability and growth potential of rental income. These properties are acquired
when they complement or add value to the existing portfolio or provide opportunity for redevelopment or repositioning.
Once the Company has acquired a property in a specific retail trade area, Management will look to acquire adjacent or
nearby properties. These adjacent properties allow the Company to provide maximum flexibility to its tenant base to
meet changing formats and size requirements over the long term. Adjacent properties also allow the Company to expand
or intensify its existing property, providing a better retail product and service offering for consumers. Management
believes that its adjacent site acquisitions result in a better mix of goods and services offered and, ultimately, 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 continue to look for strategic
acquisitions, in both existing markets and markets where the Company does not yet have a presence.
The Company also recycles its capital to fund new investments by selling assets in certain markets that are no longer
aligned with its core strategies.
Development, Redevelopment and Land Use Intensification
The Company pursues selective development and redevelopment activities including land use intensification projects,
primarily on its own, but also with partners, in order to achieve a better return on its portfolio over the long term. The
redevelopment activities are focussed primarily on the older, well-located shopping 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 market
risk due to the urban locations, existing tenant base and the land use intensification opportunities. Redevelopment
projects are carefully managed to minimize tenant downtime. Typically, tenants continue to operate during the planning,
zoning and leasing phases of the project with modest “holdover” income from tenants operating during this period. The
Company will sometimes carry vacant space in a property for a planned future expansion of tenants or reconfiguration of
a property.
Management believes that the Company’s shopping centres, along with its portfolio of adjacent sites, gives it a unique
opportunity to participate in urban land use 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 land use 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 land use intensification activities to increase over the next several years. To a lesser
degree, the Company develops new properties on ground-up sites and typically has at least one ground-up development
project in the planning stage or underway in each region.
Investments in redevelopment and development projects are generally less than 10% of the Company’s total assets (at fair
value) at any given time. Development activities are strategically managed to reduce leasing risks by obtaining lease
commitments from anchor and major tenants prior to commencing construction. The Company also uses experts including
architects, engineers and urban planning consultants, and negotiates competitive fixed-price construction contracts.
These development and land use intensification activities provide the Company with an opportunity to use its existing
platform to sustain and increase cash flow and realize capital appreciation over the long term through its ownership and
development activities.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
11
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Proactive Management
The Company views proactive management of its existing portfolio and newly acquired properties as a core competency
and an important part of its strategy. Proactive management means the Company continues to invest in properties to
ensure that they remain competitive by attracting 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 the Company’s properties. The Company’s proactive management strategies have historically contributed
to improvements 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, legal, construction management and tenant co-ordination functions, are directly
managed and executed by experienced real estate professionals. Corporate financing, human resources, and most of
senior management are centralized at the Company’s head office location in Toronto. Property management and
operations are centralized in order to ensure that consistent standards of operation and maintenance are achieved. Real
estate acquisitions, development and redevelopment, leasing, and construction are executed through local teams located
in the Company’s offices in Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver in order to effectively serve the
major urban markets where First Capital Realty operates. In addition, the Company’s management team possesses
significant retail experience, which contributes to the Company’s in-depth knowledge of its tenants and market trends.
The Company operates solely in Canada, in three operating regions, reporting to a regional executive, as follows: Eastern
region, which primarily includes operations in Quebec and the Ottawa area; Central region, which includes the Company’s
Ontario operations, excluding Ottawa; and Western region, which includes operations in Alberta and British Columbia. On
July 1, 2013, the Company completed a managerial realignment of its Ottawa properties from the Central region to the
Eastern region that resulted in a change to these segments. Prior periods have been restated to reflect this change. This
change in segment reporting did not have an impact on the Company’s consolidated results for any periods.
Increasing Efficiency and Productivity of Operations
The Company continues to focus on operating efficiency as it grows its business. Management is continuously
implementing and improving processes and systems necessary to capture, record and report both operating and financial
results, and effectively manage business execution while achieving higher levels of efficiency.
Cost of Capital
The Company seeks to maintain financial strength to achieve the lowest cost of debt and equity capital over the long
term. The Company’s capital structure is key to financing growth and providing sustainable cash dividends to its
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 capital composition of senior unsecured debt, mortgage debt, convertible
debentures and equity in its capital base provides financing flexibility and reduces risks, while generating an acceptable
return on investment, taking into account the long-term business strategy of the Company. The Company uses convertible
debentures where both the interest and principal are payable in shares. The Company also recycles capital through
selective disposition of full or partial interests in properties. Where it is deemed appropriate, the Company will raise
equity to finance its growth and strengthen its financial position.
On November 14, 2012, DBRS Limited ("DBRS") upgraded the ratings of the Company’s senior unsecured debentures to
BBB(high), and on November 20, 2012, Moody's upgraded these debentures to Baa2, giving the Company the highest
rating on unsecured debentures for a real estate entity in Canada (presently held by the Company and one other public
Canadian real estate entity). Management believes that this, along with the quality of the Company’s real estate portfolio
and other business attributes, contribute to reducing the cost of capital.
12
FIRST CAPITAL REALTY ANNUAL REPORT 2013
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. These metrics are discussed below:
FFO and AFFO
The Company’s FFO and AFFO have shown consistent performance, resulting primarily from growth in net operating income.
FFO and AFFO for the years ended December 31, 2013 and 2012 are as follows:
Year ended December 31
FFO per diluted share (1)
FFO per diluted share excluding other gains (losses) and (expenses)
AFFO per diluted share (1) (2)
AFFO per diluted share excluding gains (losses) and (expenses) (2)
$
$
$
$
2013
1.03 $
1.03 $
1.00 $
0.97 $
2012
1.00
1.00
0.95
0.93
(1) FFO and AFFO are measures of operating performance that are not defined by IFRS. See the “Results of Operations - Funds from Operations and Adjusted Funds from
Operations” section of this MD&A.
(2) AFFO for the year ended December 31, 2012 has been restated. See “Results of Operations - Funds from Operations and Adjusted Funds from Operations” section of this
MD&A for further discussion.
The Company achieved growth in FFO and AFFO while continuing disciplined execution of its strategy, including:
• development and redevelopment activities, which sometimes result in lower going-in yields than a stable, more mature
portfolio carries, in order to best position properties for the expected growth in returns;
• acquiring properties in new retail trade areas and buildings adjacent to existing shopping centres that are well-situated,
add strategic value and/or operating synergies, and are located in urban markets with strong demographics. Typically
they do not provide material accretion in the immediate term;
• capital recycling from dispositions of non-core assets where properties sold typically had higher short-term yields than
those in the Company's core urban portfolio;
• the Company's unsecured debt strategy and commitment to stagger and extend its maturities, which historically tend to
increase interest costs compared to secured and short-term financing; and
• investing in the business infrastructure to increase the Company's efficiency of operations and the quality of the
management platform to facilitate growth.
Management believes that these activities are fundamental to a long-term strategy of a best-in-class shopping centre
company and will maximize shareholder value by generating sustainable cash flow and capital appreciation in its shopping
centre portfolio over the long term.
Leverage
The key leverage ratios demonstrate that the Company has continued to maintain a conservative balance sheet with
relatively stable ratios while growing the portfolio. Management believes that maintaining financial strength will continue
to provide the Company with financial flexibility, which is critical against a backdrop of changing debt and equity markets.
Year ended December 31
Debt to total assets – at year end (1)
Debt to total assets (based on unsecured debt covenants) (1)
Debt to enterprise value – at year end (1)
Debt/EBITDA (1)
Debt/EBITDA – run rate (1)
2013
42.9%
44.6%
44.3%
8.32
8.03
2012
42.1%
45.3%
41.8%
8.58
7.89
(1) For further discussion refer to the “Capital Structure and Liquidity” section of this MD&A. Debt, EBITDA, enterprise value and run rate are not defined by IFRS. Refer to
“Capital Structure and Liquidity - Capital Employed” section of this MD&A.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
13
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
In addition to these annual metrics, FFO, AFFO and leverage, the Company looked to achieve its long term objectives
through the following activities in 2013 and 2012:
• development, redevelopment and repositioning activities including land use intensification;
• selective acquisitions of strategic assets and adjacent sites;
• selective dispositions of non-core assets;
• proactive portfolio management that resulted in higher rent growth;
• increasing efficiency and productivity of operations; and
• maintain financial strength to achieve the lowest cost of capital.
The Company’s activities in 2013 and 2012 for each of the above are summarized below:
Development, redevelopment and land use intensification activities
The Company continued to invest in development, redevelopment and repositioning of its existing properties and
residential inventories, as well as ongoing portfolio capital improvements, which include access, facades, lighting,
signage, roofing, parking lots, bicycle racks and pedestrian amenities. The investments in these activities during 2013
and 2012 totalled $282 million and $335 million, respectively. Development investments have decreased in 2013 due to
the completion of a number of projects in the year. However, the Company has a number of projects in the pre-
development stage in which investment will be made over the next two to five years. The Company’s development
activities are typically on existing or adjacent properties rather than on ground-up sites and may include additional
retail use, ancillary office uses and, in certain projects, residential density. Currently, the Company has two residential
density projects underway, and three more in the pre-development/entitlements stage with municipalities. The
residential density projects are ancillary to the Company’s retail projects and are typically completed with a partner.
The Company completed and brought on line gross leasable area of 518,000 square feet and 853,000 square feet during
2013 and 2012, respectively. As at December 31, 2013, 497,000 square feet were under development.
Selective acquisitions
In 2013, the Company invested $225 million in acquisitions compared to $794 million in 2012. The Company expanded
within its urban markets to two new retail nodes located in Victoria and Vancouver. The Company has also increased its
footprint in its existing retail nodes where it already has a property through the acquisition of 17 adjacent sites.
Year ended December 31
Total investment in acquisitions (millions)
Income-producing properties
Number of properties in new retail trade areas
Square feet (thousands)
Additional space and adjacent land parcels in existing properties
Number of acquisitions
Square feet (thousands)
Acres
Additional interests in the existing portfolio
Number of additional interests
Square feet (thousands)
Development lands
Number of parcels
Acres
14
FIRST CAPITAL REALTY ANNUAL REPORT 2013
2013
225 $
$
2
108
17
178
3.6
—
—
5
9.0
2012
794
16
1,494
28
903
7.4
1
150
12
8.0
Dispositions
During 2013, the Company recycled capital through the dispositions of 10 shopping centres comprising 1.1 million square
feet and six adjacent parcels totalling 13.9 acres as well as other real estate investments for gross proceeds of $260
million. The proceeds were used to fund further investment in the Company’s properties in core urban markets. The 2012
dispositions comprised 1.2 million square feet, two land parcels and other real estate assets for gross proceeds of $340
million. This capital recycling program is expected to continue into 2014 and 2015, subject to market conditions.
Increasing Efficiency and Productivity of Operations
Measures currently used to monitor the Company’s operating efficiencies are as follows:
Year ended December 31
Corporate expenses, excluding non-cash compensation
As a percent of rental revenue
As a percent of total assets
GLA (weighted average) per average full time employee
2013
2012
3.5%
0.30%
60,000
3.6%
0.29%
63,000
1,014
NOI per average full time employee - run rate (thousands of dollars)
$
1,011
$
The 2013 corporate expenses continue to remain stable relative to 2012, rental revenues and total assets.
The 2013 GLA and NOI productivity measures as compared to 2012 reflect the impact of investment in development
activities, which are not yet income-producing, including the staff involved in the management and execution of these
activities. The costs related to development activities including staff costs, are typically capitalized until such activities are
completed. These two productivity measures are expected to fluctuate based on the Company’s level of development
activity.
Capital access and cost
The Company utilized multiple sources of debt and equity capital to finance its growth and replace maturing debt
financings in the year, demonstrating its successes in ensuring access to capital to fund its growth. The pricing reduction
on the spread component was a result of a combination of market factors and internal factors, such as the continued
quality growth of the Company and higher credit ratings on the Company’s unsecured debentures.
Year ended December 31
Sources of capital
Canadian credit facility capacity – unsecured
Canadian credit facilities capacity – secured
New 10-year mortgage financings in the year
Senior unsecured debentures issued
Convertible debentures issued
Equity (1)
2013
2012
Amount
(millions of dollars)
Pricing
(weighted average)
Amount
(millions of dollars)
Pricing
(weighted average)
$
$
$
$
$
$
600
75
—
450
58
BA + 1.325% $
BA + 1.25% $
—% $
3.97% $
4.45% $
500
75
181
475
128
BA + 1.50%
BA + 1.50%
3.86%
4.31%
4.87%
30 $
16.84
$
498 $
17.59
(1) Includes issuance of common shares, payment of interest on convertible debentures, conversion of convertible debentures and exercises of options and warrants, net of
share issue costs.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
15
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
OUTLOOK AND CURRENT BUSINESS ENVIRONMENT
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 the “Forward-Looking Statement Advisory” section of this MD&A.
Since 2001, First Capital Realty has successfully grown its business across the country, focussing on key urban markets,
reducing leverage and achieving the highest credit rating on its unsecured debt for a publicly traded real estate entity in
Canada (presently held by the Company and one other public Canadian real estate entity), while dramatically enhancing
the quality of its portfolio and generating modest accretion in funds from operations. The Company will continue to grow
its business and portfolio of high quality properties in urban markets in the context of the acquisition, financing,
demographics, shopping trends and tenant dynamics in Canada, and its long-term value creation strategy. The Company
defines a quality property by its location, taking into consideration the demographics and the retail supply and demand
factors in each property trade area, and the ability to grow the property cash flow.
There are three market dynamics on which the Company is focussed over the long term in the retail and urban markets in
Canada. First, the Company is observing a surge in entry and expansion into the Canadian retail landscape from major U.S.
retailers, including Whole Foods, Target, Marshalls, Dollar Tree and others, which is serving as a catalyst for growth and
repositioning of retail tenants and space in most of the Company’s markets. This typically will result in new opportunities
for the Company, but also brings increased competition. Second, the Company is focussed on changes in consumer habits
and preferences occurring in the industry. These changes include the younger generation of consumers whose shopping
patterns are significantly influenced by wireless communications and on-line business and information; and an aging
population whose needs will increasingly focus on convenience and health-related goods and services. Another trend that
Management observes relates to lifestyles in urban markets, where consumers choose to incorporate visits to gyms,
coffee shops and local restaurants into their everyday life. There is also a shift in consumer demand driven by pockets of
ethnic consumers as a result of Canada’s immigration policies. Management observes retailers incrementally responding
to these consumer changes and works to support the retailer response through its tenant mix and box size needs. Last,
there have been two corporate transactions with four of the Company’s tenants, Loblaws and Shoppers Drug Mart (not
yet completed), as well as Sobey's and Safeway Canada (completed), which will bring further tenant consolidation into the
Canadian market. As a result, the Company is highly focussed on ensuring the competitive position of its shopping centres
in various retail trade areas. The Company will continue to closely follow all demographics and goods and services
shopping trends and retailer responses in addition to the retail competition. The leasing strategy takes these factors into
consideration in each trade area and the Company’s proactive management strategy helps ensure its properties remain
attractive to high quality tenants and their customers.
Urban municipalities where the Company operates continue to focus on increasing density within the existing boundaries
of infrastructure. This provides the Company with multiple density development and redevelopment opportunities in its
existing portfolio of urban properties, which includes an inventory of adjacent land sites and development land.
Development activities continue to provide the Company with growth within its existing portfolio of assets. These
activities also typically generate higher returns on investment over the long term and improve the quality and increase
sustainable growth of property rental income. The Company’s development activities primarily comprise redevelopments
and expansions of existing properties in established retail trade areas in urban markets. These projects typically carry risk
associated with project execution rather than market risk due to the complexity of developing properties in dense urban
markets. The Company has a long and successful track record of these development activities and will continue to
carefully manage the risks associated with such projects.
The urban property acquisition environment remains extremely competitive for assets of similar quality to those the
Company owns. The transaction activity in all classes of commercial real estate has recently moderated, though there are
many bids on quality properties, and asset valuations reflect this strong demand for well-located income-producing
assets.
16
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The Company continues to carefully scrutinize its properties to ensure that they meet the quality criteria it has adopted,
and will occasionally sell properties. This allows the Company to recycle capital back into its urban redevelopment
projects where population, rent growth and consumer trends present the best opportunities for long-term growth.
Canada’s economy is growing at a relatively modest pace and uncertainty remains in spite of signs of positive growth in
the United States. There remains a lot of uncertainty in the global economic environment. The announcements by the
United States Federal Reserve Bank related to moderating purchases of its bonds has recently impacted the long term
cost of debt. However, both the equity and long-term debt markets are accessible, though pricing has increased. In this
environment, the Company will continue to focus on maintaining access to all sources of long-term capital at the lowest
possible cost. In particular, the Company is focussed on continuing to extend the term and stagger the maturity of its
debt.
Currently, financing is readily available in Canada from both financial institutions and the capital markets, particularly for
entities with good credit, including large real estate companies. However, relative to pricing currently sought by vendors
of high quality, well-located urban properties that meet the Company’s criteria, spreads also continue to be very tight and
have tightened even further. In addition, well-located urban properties rarely trade in the market and attract significant
competition. As a result, the urban property acquisitions completed by the Company typically do not provide material
accretion to the Company’s results in the immediate term. However, the Company will continue to selectively acquire high
quality, well-located properties that add strategic value and/or operating synergies, provided that they will be accretive to
FFO over the long term, and that equity and long-term debt capital can be priced and committed to maintain conservative
leverage. The Company has been recycling its capital by selling assets in certain markets that are no longer aligned with its
core strategies and will continue to do so, subject to market conditions.
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, the Company 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.
Specifically, Management is focussed on the following six areas to achieve its objectives through 2014 and into 2015:
• development, redevelopment and repositioning activities including land use intensification;
• selective acquisitions of strategic assets and adjacent sites;
• selective dispositions of non-core assets;
• proactive portfolio management that results in higher rent growth;
• increase efficiency and productivity of operations; and
• maintain financial strength to achieve the lowest cost of 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 2013 year end press release dated February 20, 2014, as filed on SEDAR at
www.sedar.com, for a discussion of the Company’s 2014 specific guidance.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
17
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
CORPORATE RESPONSIBILITY AND SUSTAINABILITY
First Capital Realty builds value by creating and managing high-quality properties with long-term appeal in
neighbourhoods and communities that the Company believes will have a good and growing customer base well into the
future. The Company also takes a highly disciplined approach to the development and redevelopment of the Company’s
properties across Canada. In May 2006, the Company embarked on the path towards sustainability with a commitment to
develop all future properties to Leadership in Energy and Environmental Design (“LEED”) standards. In 2009, the Company
published its first Corporate Sustainability Report identifying five long-term goals. Since then, the Company has published
Corporate Responsibility and Sustainability (“CRS”) Reports for 2010, 2011 and 2012. These CSR reports comply with the
Global Reporting Initiative (“GRI”), an international non-profit organization whose mandate is to establish guidelines for
CRS reports. The Company is proud to be Canada's first publicly traded real estate company to issue a GRI-compliant and
externally assured CRS report.
On the environmental front, the Company continues to develop its properties to LEED standards. As at December 31, 2013,
44 projects at 28 properties comprising over 1.0 million square feet of GLA were certified to LEED standards. Another 75
projects at 46 properties comprising over 2.3 million square feet of GLA are under development, in the process of
construction or awaiting LEED certification.
Reducing energy and water consumption is also a key part of the sustainability strategy, and the Company continues to
implement energy and water conservation measures, such as retrofitting lighting and water fixtures to more efficient
technology. All of these initiatives enhance the properties’ environmental performance and many of them reduce
operating costs, benefiting the Company's tenants and shareholders.
The people at First Capital Realty remain the most important asset, and Management of the Company continues to build a
culture that is committed to treating people with respect and providing them with the opportunity to grow their
capabilities. This approach has been fundamental to delivering economic success to the Company's investors, tenants,
employees and the communities it serves.
Most importantly, Management strives to maintain the highest levels of integrity and ethical business practices in all that
it does. The Company’s governance structure, Code of Conduct and Ethics, and all of its employee guidelines and policies
are aimed at ensuring that all employees remain good corporate citizens focussed on building the long-term value of the
Company.
Note that the square footage listed in this MD&A as being developed to LEED certification may not match the square
footage registered for LEED certification. Furthermore, the associated tenants premises may or may not be part of a LEED
application.
For more information on the Company’s Corporate Responsibility and Sustainability, refer to the full report at
www.firstcapitalrealty.ca.
ADOPTION OF NEW ACCOUNTING STANDARDS
The consolidated financial statements for the year ended December 31, 2013 have been prepared by applying the same
accounting policies and methods of computation as compared with the most recent audited annual consolidated
financial statements, except for the adoption of IFRS 10, “Consolidated Financial Statements” (“IFRS 10”), IFRS 11, “Joint
Arrangements” (“IFRS 11”), IFRS 12, “Disclosure of Interests in Other Entities” (“IFRS 12”), and IFRS 13, “Fair Value
Measurement” (“IFRS 13”).
The Company was required to adopt each of the standards below on January 1, 2013:
(a) Consolidated financial statements and joint arrangements
IFRS 10 establishes principles for the preparation of the Company’s consolidated financial statements when it controls one
or more other entities. The standard defines the principle of control and establishes control as the basis for determining
which entities should be included in the consolidated financial statements of the Company. The standard also sets out the
18
FIRST CAPITAL REALTY ANNUAL REPORT 2013
accounting requirements for the preparation of consolidated financial statements. The standard has been applied
retrospectively to the prior periods presented.
Prior to January 1, 2013, the Company’s interests in joint arrangements for which it had joint control were accounted for
using the proportionate consolidation method. The Company combined its share of the jointly controlled entities’
individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the
Company’s consolidated financial statements.
Subsequent to January 1, 2013, IFRS requires that reporting issuers consider whether a joint arrangement is structured
through a separate vehicle, as well as the terms of the contractual arrangement and other relevant facts and
circumstances, to assess whether the venturer is entitled to only the net assets of the joint arrangement (a “joint
venture”) or to its share of the assets and liabilities of the joint arrangement (a “joint operation”). Joint ventures must be
accounted for using the equity method, whereas joint operations must be accounted for by recognizing the venturer’s
right to assets and obligations for liabilities. The standard has been applied retrospectively to the prior periods presented.
The Company has assessed the nature of its joint arrangements and determined them to be joint operations, with the
exception of a joint arrangement classified as a joint venture. In addition, certain arrangements previously considered
subsidiaries are now treated as joint operations. The Company recognizes its interest in the joint venture’s assets and
liabilities using the equity method of accounting. Under the equity method, the interest in the joint venture is carried in
the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share of its net assets, less
distributions received and less any impairment in value of individual investments. The impact of the Company’s
adoption of IFRS 10 and IFRS 11 on the consolidated balance sheet as at December 31, 2012 is a decrease in total assets
of $57.2 million, decrease in total liabilities of $42.1 million, decrease in non-controlling interest of $14.6 million and
decrease in shareholders’ equity of $0.4 million.
The impact of the Company’s adoption of IFRS 10 and IFRS 11 on the consolidated statement of income for 2012 is as
follows:
(thousands of dollars)
Increase (decrease)
Net operating income
Property rental revenue
Property operating costs
Net operating income
Change in value of investment properties, net
Share of profit from joint venture
Other items, net
Net income attributable to common shareholders
Year ended
December 31, 2012
$
$
(3,837)
(1,433)
(2,404)
(4,901)
7,287
(18)
(36)
There was no material impact on per share amounts.
The impact of the Company’s adoption of IFRS 10 and IFRS 11 on the consolidated statement of cash flows for the year
ended December 31, 2012 is as follows:
(thousands of dollars)
Cash provided by operating activities
Cash used in financing activities
Increase (decrease)
$
13,242
(20,477)
Prior period comparative information has been restated, where applicable throughout this MD&A, for the effects of the
adoption of IFRS 10 and IFRS 11 as noted above. Refer to Note 3 to the consolidated financial statements for the year
ended December 31, 2013 for further discussion.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
19
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
(b) Fair value measurement
The Company has adopted IFRS 13 prospectively from January 1, 2013. The effects of the adoption are discussed further
in the “Business and Operations Review - Valuation of Investment Properties Under IFRS” section of this MD&A.
Management has determined that no material change in the value of investment properties was required as a result of
the application of this standard.
SUMMARY CONSOLIDATED INFORMATION AND HIGHLIGHTS
As at December 31
(thousands of dollars, except other financial data)
Operations Information
Number of properties
GLA (square feet)
Occupancy – same property – stable (1)
Total portfolio occupancy
Pipeline of development and adjacent land (GLA) (2)
Average rate per occupied square foot
GLA developed and brought on line year-to-date (square feet)
Same property – stable NOI (3)
– increase over prior year
Total same property NOI (3)
– increase over prior year
Financial Information
Investment properties – shopping centres
Investment properties – development land
Total assets
Mortgages and credit facilities
Senior unsecured debentures payable
Convertible debentures payable
Shareholders’ equity
Capitalization and Leverage
Shares outstanding (in thousands)
Enterprise value (4)
Debt to total assets (4) (5)
Debt to enterprise value (4) (5)
Debt to EBITDA – based on run rate on components of EBITDA (4)
Weighted average maturity on mortgages and senior unsecured debentures
(years) (6)
2013
2012
2011 (7) (8)
164
24,462,000
175
24,969,000
169
23,227,000
97.6%
95.5%
3,181,000
17.96
518,000
2.7%
3.7%
7,126,008
166,043
7,596,255
1,366,583
1,861,953
374,012
3,319,370
208,356
7,319,000
$
$
$
$
$
$
$
$
$
42.9%
44.3%
8.03
5.3
97.6%
95.6%
3,514,000
17.51
853,000
1.4%
2.3%
6,849,078
127,405
7,261,617
1,597,234
1,469,073
318,794
3,245,168
206,546
7,301,000
$
$
$
$
$
$
$
$
$
42.1%
41.8%
7.89
5.3
97.5%
97.3%
3,092,000
16.81
514,000
2.0%
2.5%
5,765,814
98,554
6,077,401
1,568,882
1,240,594
282,328
2,511,440
178,225
6,206,000
46.6%
45.5%
8.07
4.5
$
$
$
$
$
$
$
$
$
20
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Year ended December 31
(thousands of dollars, except per share and other financial data)
Revenues, Income and Cash Flow
Revenues
Net operating income (3)
Corporate expenses, excluding non-cash compensation
As a percentage of rental revenue
As a percentage of total assets
Increase in value of investment properties, net
Net income attributable to common shareholders
Net income per share attributable to common shareholders (diluted)
Adjusted cash flow from operating activities (4)
Dividends
Regular dividends
Regular dividends per common share
Funds from Operations (“FFO”) (3)
FFO
FFO per diluted share
FFO excluding other gains (losses) and (expenses)
FFO per diluted share excluding other gains (losses) and (expenses)
Adjusted Funds from Operations (“AFFO”) (3) (9)
AFFO
AFFO per diluted share
AFFO excluding other gains (losses) and (expenses)
AFFO per diluted share excluding other gains (losses) and (expenses)
2013
2012
2011 (8)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
642,106
398,010
3.5%
0.30%
56,086
214,863
1.01
227,890
175,092
0.84
215,543
1.03
214,528
1.03
225,210
1.00
218,543
0.97
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
587,965
369,133
3.6%
0.29%
286,950
392,923
1.98
197,348
159,157
0.82
189,081
1.00
189,651
1.00
195,928
0.95
192,449
0.93
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
534,219
340,088
3.2%
0.28%
466,214
548,932
3.00
179,249
136,186
0.80
161,302
0.96
162,424
0.96
171,957
0.91
167,369
0.88
(1) Same property – stable comparative information is revised to reflect property categories consistent with current period status.
(2) Square footage does not include potential development on properties held through the Company’s Main and Main Developments subsidiary. See the “Business and
Operations Review - 2013 Investment Property Development and Redevelopment Activities” section of this MD&A.
(3) NOI, FFO and AFFO are measures of operating performance that are not defined by IFRS. See the “Results of Operations” section of this MD&A.
(4) Enterprise value, debt, EBITDA, run rate and adjusted cash flow from operating activities (adjusted for the net change in non-cash operating items and expenditures on
residential development inventory) are measures not defined by IFRS. See the “Capital Structure and Liquidity” section of this MD&A.
(5) Calculated with the joint venture and Main and Main Developments proportionately consolidated and cash balances reducing debt.
(6) Weighted average term to maturity is calculated net of cash balances as at the end of the period.
(7) 2011 balance sheet data reflects January 1, 2012 adoption of IFRS 10 and IFRS 11.
(8) 2011 income-related data has not been restated for adoption of IFRS 10 and IFRS 11.
(9) AFFO for the year ended December 31, 2012 has been restated. See “Results of Operations - Funds From Operations and Adjusted Funds From Operations” section of this
MD&A for further discussion.
BUSINESS AND OPERATIONS REVIEW
Real Estate Investments
Investment Property Categories
The Company categorizes its properties for the purposes of evaluating operating performance including same property
NOI. This enables the Company to reflect better its development, redevelopment and repositioning activities on its
properties, including land use intensification, and its completed and planned disposition activities. In addition, the
Company revises comparative information to reflect property categories consistent with current period status. The
property categories are as follows:
FIRST CAPITAL REALTY ANNUAL REPORT 2013
21
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Investment properties – shopping centres: Same property consisting of:
Same property – stable – includes stable properties where the only significant activities are leasing and ongoing
maintenance. Properties that will be undergoing a redevelopment in a future period, including adjacent parcels of
land, and those having planning activities underway are also in this category until such development activities
commence. At that time, the property will be reclassified to either same property with incremental redevelopment
and expansion activities or to major redevelopment.
Same property with incremental redevelopment and expansion – includes properties that are largely stable, including
adjacent parcels of land, but are undergoing incremental redevelopment or expansion activities (pads or building
extensions) which intensify the land use. Such redevelopment activities often include facade, parking, lighting and
building upgrades.
Major redevelopment – includes properties in planning or undergoing multi-year redevelopment projects with significant
intensification, reconfiguration and building and tenant upgrades.
Ground-up development – consists of new construction, either on a vacant land parcel typically situated in an urban area
or on an urban land site with conversion of an existing vacant building to retail use.
Acquisitions and dispositions – includes properties and properties adjacent to the Company’s existing properties included
in other categories that were acquired during the period. Dispositions include information for properties disposed of in
the period.
Investment properties classified as held for sale – represents those properties classified on the consolidated balance
sheets which meet the criteria as described in the “Business and Operations Review - Investment Properties Classified as
Held For Sale” section of this MD&A.
Investment properties – development land: comprises land sites where there are no development activities underway,
except for those in the planning stage.
The Company has applied the above property categorization to the fair value, capital expenditures, leasing and occupancy
activity on its shopping centre portfolio, and to its same property NOI analysis to further assist in understanding the
Company’s real estate activities and its operating and financial performance.
Reconciliation of Investment Properties – Shopping Centres, as presented, to the
Company’s Proportionate Interest
Proportionate interest is not an IFRS measure, but is defined by Management as the Company’s proportionate share of
revenues, expenses, assets and liabilities in all of its real estate investments. This presentation is reflected throughout this
MD&A to indicate the Company’s equity accounted joint venture and the related share of net income from its equity
accounted joint venture on a proportionately consolidated basis at the Company’s ownership percentage in the joint
venture.
The following table provides the reconciliation of the Company’s investment properties – shopping centres, as presented
in its consolidated financial statements to proportionate interest.
(millions of dollars)
Fair value of investment properties – shopping centres, as presented
Investment in joint venture: fair value of investment properties – shopping centres
Proportionate interest in fair value of investment properties – shopping centres
December 31, 2013
December 31, 2012
$
$
7,126 $
49
7,175 $
6,849
49
6,898
Portfolio Overview
As at December 31, 2013, the Company had interests in 164 income-producing properties, that were 95.5% occupied with
a total GLA of 24.5 million square feet. This compares to 175 income-producing properties which were 95.6% occupied
with a total GLA of 25.0 million square feet as at December 31, 2012. The average size of the shopping centres is
approximately 150,000 square feet, with sizes ranging from approximately 20,000 to over 575,000 square feet.
22
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The same property portfolio includes shopping centres categorized in same property - stable and same property
with incremental redevelopment and expansion. The same property portfolio is comprised of 122 properties
totalling 17.5 million square feet of GLA with a fair value of $4.9 billion. These properties represent 74% of the
Company's property count, 72% of its GLA and 67.5% of its fair value. During 2013, these properties generated
$277.9 million of NOI which is 69% of the Company's total NOI for 2013. The stability of the portfolio is reflected in
the high occupancy of 97% at December 31, 2013, up from 96.8% for the comparative period in 2012.
The Company’s proportionate interest in its shopping centre portfolio based on property categorization as at
December 31, 2013 is summarized as follows:
(millions of dollars, except other data)
Same property – stable
Same property with incremental
redevelopment and expansion
Total same property
Major redevelopment
Ground-up development
Acquisitions – 2013 (1)
Acquisitions – 2012 (1)
Investment properties classified
as held for sale
Dispositions – 2013
Total
December 31, 2013
December 31, 2012
Number
of
Properties
Gross
Leasable
Area
(000s sq.
ft.)
Fair
Value
Occupancy
%
Weighted
Average
Rate per
square
foot
Number
of
Properties
Gross
Leasable
Area
(000s sq.
ft.)
Fair
Value
Occupancy
%
Weighted
Average
Rate per
square
foot
92
30
11,935 $ 3,282
1,568
5,605
97.6% $ 17.91
17.91
95.6%
92
30
11,934 $ 3,164
1,450
5,531
97.6% $ 17.73
17.65
95.1%
122
16
4
2
13
7
—
17,540
2,988
674
287
2,161
812
4,850
994
320
186
688
137
97.0%
91.2%
98.2%
94.0%
90.9%
91.3%
17.91
18.50
22.80
27.92
16.92
11.87
—
—
—
—
164
24,462 $ 7,175
95.5% $ 17.96
122
16
4
—
16
7
10
175
17,465
2,850
508
—
2,255
810
4,614
944
250
—
709
161
96.8%
92.9%
95.8%
—
91.1%
94.5%
17.70
18.35
22.25
—
16.82
11.75
1,081
220
93.5%
15.38
24,969 $ 6,898
95.6% $ 17.51
(1) Acquisitions square footage and fair value includes 16 adjacent properties and land parcels (2012 – 28 adjacent properties and land parcels) to the Company’s existing
properties reflected in other categories in the table.
The balance of the Company’s real estate assets are comprised of shopping centres with significant value enhancement
opportunities that are in various stages of redevelopment, shopping centres and properties adjacent to existing properties
acquired in 2013 or 2012, and properties held for sale. The Company pursues selective development and redevelopment
activities including land use intensification projects, primarily on its own, but also with partners, in order to achieve a better
return on its portfolio over the long term. The redevelopment activities are focussed primarily on older, well-located
shopping 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 market risk due to the urban locations, existing tenant base and land use intensification
opportunities.
A summary of the Company’s shopping centre portfolio by property count and status of value enhancement activities
follows:
Same
property
– stable
Same property
with
incremental
Major
redevelopment
Ground-up
development
Acquisitions –
CY and PY
Held for
sale
Stabilized
At completion
Active development
In pre-development
Early planning stages
Total property count
75
—
—
—
17
92
8
7
4
3
8
30
—
7
3
6
—
16
—
2
2
—
—
4
11
—
—
—
4
15
7
—
—
—
—
7
Total
101
16
9
9
29
164
Development
land
—
—
—
—
1
1
FIRST CAPITAL REALTY ANNUAL REPORT 2013
23
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Refer to “Business and Operations Review - 2013 Investment Property Development and Redevelopment Activities”
section of this MD&A for further discussion relating to the Company’s value enhancement activities.
The Company’s shopping centre portfolio summarized by region is as follows:
As at
December 31, 2013
Number
of
Properties
Gross
Leasable
Area
(000s sq.
ft.)
Fair
Value
Percent
Occupied
Weighted
Average
Rate per
Occupied
Square
Foot
% of
Annual
Minimum
Rent
Number
of
Properties
Gross
Leasable
Area
(000s sq.
ft.)
Fair
Value
Percent
Occupied
December 31, 2012
Weighted
Average
Rate per
Occupied
Square
Foot
% of
Annual
Minimum
Rent
(millions of dollars,
except other data)
Central Region
Greater Toronto
Area
Kitchener/
Waterloo
London area
Eastern Region
Québec City
Greater Montreal
area
Ottawa/Gatineau
Other
Western Region
Calgary
Edmonton
Greater
Vancouver area
Total
45
10
7
62
5
36
13
1
55
16
11
20
6,851 $ 2,452
96.0% $ 20.58
33%
49
6,657 $ 2,319
96.4% $ 20.21
32%
1,460
410
98.3% $ 14.78
5%
803
9,114
160
3,022
93.8% $ 14.22
96.2% $ 19.08
1,004
4,841
155
1,080
93.3% $ 11.32
95.2% $ 14.84
3%
41%
3%
16%
1,929
423
96.7% $ 16.67
7%
122
7,896
22
1,680
98.2% $ 13.67
95.4% $ 14.84
2,705
2,397
2,350
947
652
874
96.9% $ 20.21
94.5% $ 18.04
92.9% $ 21.42
—%
26%
13%
9%
11%
33%
100%
10
8
67
5
37
13
5
60
18
11
19
48
1,765
407
96.7% $ 14.83
6%
1,169
9,591
157
2,883
93.1% $ 13.22
96.1% $ 18.39
946
4,821
209
976
97.0% $ 11.45
95.4% $ 14.39
4%
42%
3%
16%
1,835
394
97.2% $ 15.89
6%
350
7,952
51
1,630
87.9% $ 16.32
95.7% $ 14.46
2,768
2,429
2,229
944
638
803
97.4% $ 19.87
93.8% $ 17.74
93.1% $ 21.40
7,426
2,385
94.9% $ 19.63
1%
26%
13%
9%
10%
32%
100%
47
164
7,452
2,473
94.9% $ 19.89
24,462 $ 7,175
95.5% $ 17.96
175
24,969 $ 6,898
95.6% $ 17.51
First Capital Realty’s portfolio has 25 retail assets (at 100%) with a value greater than $85 million or size greater than
300,000 square feet. Together, these 25 assets comprise $2.9 billion or 40% of $7.2 billion in aggregate IFRS value. Sixteen
of these assets are categorized as stable or stable with incremental redevelopment and expansion, one property is a prior
year acquisition, and the balance of eight assets are in the major redevelopment or ground-up category.
At December 31, 2013 the weighted average occupancy on these stable assets is 98.2% and the weighted average run rate
yield on invested cost and fair value is 8.36% and 5.76%, respectively. Same property growth on these assets was 2.6%
and 2.5% for 2013 and 2012, respectively. At December 31, 2013, the weighted average occupancy on these stable assets
with incremental redevelopment or expansion activities is 96.3% and the weighted average run rate yield on cost and fair
value is 6.81% and 5.47%, respectively. The same property growth on these assets was 8.37% and 5.28% for 2013 and
2012, respectively. Once stabilized in terms of incremental redevelopment or expansion activities the occupancy and
yields are expected to increase.
At December 31, 2013, the remaining large assets which comprise the eight development assets and one acquisition have
a weighted average occupancy rate of 95.9% and a weighted average run rate yield on cost and fair value is 6.94% and
5.65%, respectively. These assets are expected to have improved operating metrics following completion of their various
value creation activities.
24
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The Company’s largest properties (100% owned) as at December 31, 2013 are listed below:
Property Name, City, Province
Same Property — Stable
Gross Leasable
Area
IFRS Value
(in 000s)
Invested Cost
(in 000s)
PreDev/UD (2)
Bal (in 000s)
Q4 2013
NOI Run Rate
(000s) Occupancy
Northgate Centre, Edmonton, AB
487,000 $
151,445 $
76,530 $
$
Meadowvale Town Centre, Mississauga, ON
York Mills Gardens, Toronto, ON
Royal Oak Centre, Calgary, AB
South Park Centre, Edmonton, AB
Morningside Crossing, Toronto, ON
Fairview Mall, St. Catharines, ON
Meadowlark Health and Shopping Centre,
Edmonton, AB
Brampton Corners, Brampton, ON
422,000
189,000
336,000
375,000
304,000
388,000
299,000
302,000
Same Property — with incremental redevelopment and expansion
Cedarbrae Mall, Toronto, ON
Shops at King Liberty, Toronto, ON
Westmount Shopping Centre, Edmonton, AB
Rutherford Marketplace, Vaughan, ON
McKenzie Towne Centre, Calgary, AB
Gloucester City Centre, Ottawa, ON
Carrefour St-Hubert, Longueuil, QC
Major redevelopment or ground-up development
Hazelton Lanes, Toronto, ON (1)
Victoria Park Centres, Toronto, ON
Place Viau, Montreal, QC
Mount Royal Village, Calgary, AB
Macleod Trail, Calgary, AB
Appleby Village, Burlington, ON
Semiahmoo Shopping Centre, Surrey, BC
Place Portobello, Brossard, QC
Acquisition - Prior Year
Shops at New West, New Westminster, BC
Remainder of portfolio
546,000
293,000
526,000
194,000
214,000
356,000
317,000
267,000
492,000
211,000
208,000
300,000
251,000
297,000
575,000
144,520
105,084
101,997
100,308
99,298
94,900
88,033
75,020
152,799
138,997
137,421
116,676
91,523
73,090
86,925
265,622
130,649
126,933
114,070
102,553
95,197
93,435
91,948
90,704
78,040
57,555
68,223
85,859
74,055
86,555
44,304
109,659
121,098
124,123
107,833
49,869
56,278
76,998
265,622
130,529
117,575
116,131
91,534
70,371
94,786
87,718
197
4,877
2,004
15,724
315
—
4,069
69,148
17
58,953
38,890
12,234
49
7,690
3,414
8,051
8,170
5,660
5,599
5,983
5,623
6,339
5,608
4,320
8,637
7,390
6,488
5,307
5,307
4,170
4,844
9,055
7,368
4,381
5,363
6,760
4,630
5,172
6,009
93.7%
99.4%
95.2%
98.5%
99.6%
98.1%
100.0%
99.2%
100.0%
99.2%
99.1%
88.7%
100.0%
99.4%
96.3%
97.2%
80.7%
96.4%
100.0%
85.3%
93.8%
93.8%
92.6%
97.3%
87.1%
95.9%
95.4%
95.5%
195,000
8,344,000
16,118,000
104,232
2,882,675
4,339,400
105,002
2,386,951
3,663,491
—
217,581
269,195
24,462,000 $
7,222,075 $
6,050,442 $
486,776 $
4,312
150,546
262,860
413,406
(1) Fair value includes mortgage investment of $47 million.
(2) Pre-development/underdevelopment costs are included in the IFRS Value and Invested Cost. Included in invested cost of remainder of portfolio is $166 million of
underdevelopment land.
A brief profile of each of these properties follows including the tenants, demographics, locations and potential for additional
density. Further information regarding the development activities for the major redevelopment and ground-up
development properties is in the section “2013 Investment Property Development and Redevelopment Activities”.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
25
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Northgate Centre, Edmonton, Alberta
Northgate Centre is a 487,000 square foot two-level enclosed shopping centre located at the intersection of 137th Avenue
NW and 97th Street NW. The property is situated on 28.1 acres of land and has 1,838 parking stalls at grade and on one
deck. Population within five kilometers is approximately 192,000 with an average household income of approximately
$88,000. Major tenants include Walmart, Safeway (Sobeys), Rexall, RBC Royal Bank, Liquor World, Sport Mart, McDonalds,
Alberta Health Services, Alberta Works, Spa Lady, and other restaurants, medical and personal services.
Meadowvale Town Centre Assets, Mississauga, Ontario
Meadowvale Town Centre assets comprises two separate assets, one large shopping centre and one adjacent retail
property, totalling 422,000 square feet at the intersection of Winston Churchill Blvd. and Battleford Blvd. The properties
are situated on a total of 42.2 acres of land and have a combined 2,189 at grade parking stalls. Meadowvale Town Centre
shopping centre has a bus terminal and represents a major hub for commuters in the area. Population within five
kilometres is approximately 167,000 with an average household income of approximately $111,000. Major tenants
include Metro, Canadian Tire, Shoppers Drug Mart, TD Canada Trust, CIBC, Bank of Montreal, LCBO, The Beer Store, Tim
Hortons, McDonalds, GoodLife Fitness and other restaurants, medical and personal services.
The Meadowvale Town Centre shopping centre was fully redeveloped in 2004 and has future opportunity for significant
retail and residential density.
York Mills Gardens Assets, Toronto, Ontario
York Mills Gardens is an assembly of four separate assets comprising one shopping centre, an adjacent retail property, an
additional retail and commercial office building and a food campus centre totalling 189,000 square feet located at the
intersection of Leslie Street and York Mills Road. The assets are situated on a total of 13.3 acres and collectively have a
total of 746 parking stalls at grade. Population within five kilometres is approximately 306,000 with an average household
income of approximately $118,000. Major tenants include Longo’s, Shoppers Drug Mart, TD Canada Trust, Bank of
Montreal, RBC Royal Bank, LCBO, Second Cup, Starbucks, McDonalds, Kelsey’s, Wendy’s and other restaurants, medical
and personal services.
The adjacent retail and commercial office buildings provide future residential and retail density opportunity.
Royal Oak Centre, Calgary, Alberta
Royal Oak Centre is a shopping centre totalling 336,000 square feet situated on 28.0 acres of land and has 1,512 at grade
parking stalls. The property is located at the intersection of 85th Street NW and Country Hills Blvd. NW. Population within
five kilometres is approximately 94,000 with an average household income of approximately $158,000. Major tenants
include Sobeys, Walmart, London Drugs, RBC Royal Bank, Bank of Montreal, Scotiabank, Dollarama, Second Cup and other
restaurants, medical and personal services.
South Park Centre, Edmonton, Alberta
South Park Centre is a shopping centre totalling 375,000 square feet situated on 27.7 acres of land and has 1,633 at grade
parking stalls. The property is located at the intersection of Calgary Trail NW, 39A Avenue NW and Gateway Blvd. NW.
Population within five kilometres is approximately 130,000 with an average household income of approximately
$108,000. Major tenants include Walmart, Canadian Tire, Sport Chek, JYSK, Dollar Giant, TD Canada Trust, Starbucks,
GoodLife Fitness and other restaurants, medical and personal services.
Morningside Crossing Assets, Toronto, Ontario
The Morningside Crossing assets are an assembly of six properties that now comprise four separate assets, including two
adjacent shopping centres and two additional retail properties totalling 304,000 square feet located at the intersection of
Lawrence Ave., Morningside Ave. and Kingston Rd. The Morningside Crossing assets are situated on a total of 23.2 acres
of land and collectively have 1,303 parking stalls at grade. Population within five kilometres is approximately 196,000 with
an average household income of approximately $76,000. The Morningside Crossing shopping centre asset was originally
redeveloped and opened in 2008 on three of the assembled properties. This centre also houses the Company’s property
management operations office in Toronto. The shopping centres and two additional retail properties which comprise the
remainder of the assets are expected to be redeveloped in the future, providing opportunity to improve the tenant mix
and retail shopping environment. Major tenants include Food Basics, No Frills, Shoppers Drug Mart, Pharma Plus, Bank of
26
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Montreal, CIBC, TD Canada Trust, LCBO, Dollarama, Starbucks, Tim Hortons, McDonalds, Mark’s Work Wearhouse,
GoodLife Fitness, and other restaurants, medical and personal services.
Fairview Mall Assets, St. Catharines, Ontario
The Fairview Mall assets are an assembly of five assets comprising an enclosed shopping centre and adjacent free-
standing retail buildings totalling 388,000 square feet, located in the heart of the Golden Horseshoe area, between the
Greater Toronto Area and the U.S. border, along the Queen Elizabeth Way. The properties are situated on a total of 30.2
acres of land and together have 1,880 parking stalls at grade. Population within five kilometres is approximately 114,000
with an average household income of approximately $67,000. Major tenants include Food Basics, Walmart, Scotiabank,
CIBC, Staples, LCBO, Winners, Chapters (including Starbucks), Mark’s Work Wearhouse, Sport Chek, Future Shop,
Dollarama, McDonalds, Tim Hortons and other restaurants, medical and personal services.
Meadowlark Health and Shopping Centre, Edmonton, Alberta
Meadowlark Health and Shopping Centre totals 299,000 square feet at the intersection of 156th Street and 87th Avenue.
The property has 1,230 at grade parking stalls and sits on 23.2 acres of land. Population within five kilometers is
approximately 138,000 with an average household income of approximately $113,000. Meadowlark was redeveloped in
2001 to have a shopping centre component in addition to a medical services component. Major tenants include Walmart,
Safeway (Sobeys), Shoppers Drug Mart, RBC Royal Bank, CIBC, Liquor Depot, McDonalds, Second Cup, Alberta Service
Centre and other restaurants, medical and personal services.
Brampton Corners Shopping Centre, Brampton, Ontario
Brampton Corners is a 302,000 square foot shopping centre situated on 27.8 acres of land with 1,633 parking stalls at
grade at the intersection of Main Street North and Bovaird Drive West. Population within five kilometers is approximately
269,000 with an average household income of approximately $95,000. Major tenants include Walmart, Fortino’s, HSBC,
Scotiabank, National Bank Canada, Indigo, Kelsey’s, Second Cup and other restaurants, medical and personal services.
Cedarbrae Mall Assets, Toronto, Ontario
Cedarbrae Mall assets is an assembly of three separate assets, consisting of one large enclosed shopping centre and two
adjacent properties totalling 546,000 square feet located at the intersection of Lawrence Avenue and Markham Road. The
Cedarbrae Mall assets are situated on a total of 37.9 acres of land and collectively have 2,151 parking stalls at grade and
on one deck. Population within five kilometers is approximately 265,000 with an average household income of
approximately $66,000. Major tenants include Walmart, No Frills, Canadian Tire, Staples, Shoppers Drug Mart, Scotiabank,
CIBC, RBC Royal Bank, LCBO, The Beer Store, Toys “R” Us, Dollarama, Mark's Work Wearhouse, Tim Hortons, McDonalds,
GoodLife Fitness and other restaurants, medical and personal services.
The Cedarbrae Mall Assets were redeveloped over a decade and the interior and exterior of the enclosed shopping centre
was fully renovated in 2013 to maintain a functional and pleasant shopping environment. There is future opportunity for
retail density on the site.
Shops at King Liberty Assets, Toronto, Ontario
The Shops at King Liberty assets are an assembly of eight properties at Liberty Street and Hanna Avenue, comprising
separate assets including an open-air shopping centre and adjacent retail and ancillary office space (including the
Company’s corporate offices), situated on 10.3 acres of land, as well as three at grade retail properties under
condominium towers on King Street. The Shops at King Liberty assets total 293,000 square feet and have 278 at grade and
354 underground parking spaces. Population within five kilometres is approximately 415,000 with an average household
income of approximately $83,000. Shops at King Liberty is located just west of Toronto’s downtown, in King Liberty Village,
which is a live, work, play community (one of the fastest growing in Toronto in the past five years), and is located between
two public transit routes, the TTC street cars on King Street and the Lakeshore West GO Train line.
The Company made its initial investment in Shops at King Liberty’s 72,000 square feet grocery-anchored retail shopping
centre in 2004, and has since developed or redeveloped three separate additional retail buildings totalling approximately
112,000 square feet. The Shops at King Liberty assets include two heritage buildings restored to state-of-the-art
commercial properties by the Company and further include amenities, benches, patios, public spaces and art. Major
FIRST CAPITAL REALTY ANNUAL REPORT 2013
27
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
tenants include Metro, TD Canada Trust, CIBC, RBC Royal Bank, LCBO, The Beer Store, West Elm, EQ3, Starbucks, Aroma,
GoodLife Fitness and other restaurants, medical and personal services.
As part of the Shops at King Liberty assets, the Company also owns a 50% interest in 3.32 acres of land on two
development sites on King Street, KingsClub and 1071 King Street. In late 2013, the Company received final rezoning
approval for the development of its KingsClub mixed use project, which will be developed with the Company's partner,
Urbancorp, one of the leading residential developers in the King/Queen West area of Toronto. KingsClub will comprise
almost 160,000 square feet of retail/commercial uses, 345,000 square feet of residential (for approximately 500
residential units) in three high-rise buildings above the retail, as well as a total of 775 underground parking stalls
(including 345 stalls for retail/commercial use). Construction is underway and the project is currently in the excavation
stage. The Company has the right to acquire its partner’s interest in the retail/commercial space and related parking at
completion. The 1071 King Street development site has 100,000 square feet of density entitlements.
KingsClub retail, together with the remainder of the Company’s existing Shops at King Liberty mixed use retail and
commercial assets will total approximately 450,000 square feet of retail/commercial space and 960 underground and at
grade parking stalls.
There is also substantial additional future density potential on the existing retail site.
The Company substantially completed the Fuzion condominium tower together with its partner Urbancorp, consisting of
246 residential units and 9,000 square feet of retail space late in 2013.
Refer to the “Residential Development Inventory” section of this MD&A for further discussion on the Fuzion and
KingsClub projects.
Westmount Shopping Centre Assets, Edmonton, Alberta
The Westmount Shopping Centre assets comprise one shopping centre and one small retail property totalling 526,000
square feet situated on 34.2 acres of land, with a combined total of 1,530 at grade parking stalls along Groat Road. The
estimated population within five kilometers is 152,000 with an average household income of $78,000. Major tenants
include Walmart, Safeway (Sobeys), Home Depot, Shoppers Drug Mart, Rexall, Bank of Montreal, Scotiabank, TD Canada
Trust, Liquor Depot, Dollarama, Mark's Work Wearhouse, McDonalds, Tim Hortons, Gold’s Gym and other restaurants,
medical and personal services. The Company’s development plans for the assets include a new 4,200 square foot retail
pad, a 102-unit, 12-storey residential building, as well as the demolition of certain buildings and construction of a new
51,000 square foot, five-storey building consisting of main floor retail and 52 residential units above. The Company has
obtained the development permit and has set a tentative start date in 2015. Residential development components of the
assets may be developed in the future by the Company on its own, together with a residential partner or sold as land or
air rights to a residential developer. There is substantial additional density potential on the site. In 2013, the Company
sold a land parcel totalling 1.4 acres at the back of the site that will be developed as a residential tower.
Rutherford Marketplace, Vaughan, Ontario
Rutherford Marketplace is a recently developed 194,000 square foot shopping centre located at the major intersection of
Bathurst Street and Rutherford Road. The shopping centre is situated on 12.3 acres of land and has 610 parking stalls at
grade and 445 parking stalls below grade. Population within five kilometres is approximately 183,000 with an average
household income of approximately $118,000.
Major tenants include Longo’s, Shoppers Drug Mart, RBC Royal Bank, CIBC, LCBO, Second Cup, Aroma, L.A. Fitness and
other restaurants, medical and personal services.
The Company received municipal approvals in late 2013 for the development of the third and final phase of Rutherford
Marketplace to be built on 3.8 acres of land. The development entails the construction of an additional 50,000 square feet
of retail/commercial uses, a 240,000 square foot residential condominium building and 560 underground parking stalls
(including 155 stalls for retail/commercial use) on the site. This additional density and parking together with the existing
Rutherford Marketplace shopping centre initially developed by the Company in 2009 to 2010, will comprise a total of
243,000 square feet retail/commercial space with 610 at grade and 1,000 underground retail/commercial parking stalls.
28
FIRST CAPITAL REALTY ANNUAL REPORT 2013
McKenzie Towne Centre Assets, Calgary, Alberta
The McKenzie Town Centre assets total 214,000 square feet and 838 at grade parking stalls on an aggregate of 18.1 acres
of land at the intersection of McKenzie Towne Ave. and High Street. Population within five kilometers is approximately
84,000 with an average household income of approximately $148,000. The property is next to a future LRT station parking
lot. The McKenzie Town Centre assets were acquired starting in 2003 and have been developed in phases to meet the
growing needs of the community. Major tenants include Sobeys, Rexall, TD Canada Trust, ATB Financial, Bank of Montreal,
Liquor Depot, Second Cup, GoodLife Fitness and other restaurants, medical and personal services.
Gloucester City Centre, Ottawa, Ontario
Gloucester City Centre is a 356,000 square foot shopping centre situated on 28.5 acres of land with 1,386 at grade parking
stalls located at the intersection of Ogilvie Road and Blair Road. The property is on a bus transit route and will be
connected to a new LRT station. Population within five kilometers is approximately 112,000 with an average household
income of $79,000. Major tenants include Walmart, Loblaws, Rexall, CIBC, Scotiabank, LCBO, Bulk Barn, Tim Hortons and
other restaurants, medical and personal services.
The shopping centre was acquired in 2003. In 2012, redevelopment and expansion activities commenced with a partial
demalling and relocation of certain tenants to facilitate an expanded Rexall. The redevelopment also included the
construction of a 12,000 square foot standalone pad for LCBO. The redevelopment and expansion increased the overall
shopping centre gross leaseable area by approximately 16,000 square feet.
Carrefour St-Hubert Assets, Longueil, Quebec
The Carrefour St-Hubert assets are an assembly of five properties operating as three separate shopping centre assets
totalling 317,000 square feet located on three corners at the intersection of Boulevard Cousineau and Boulevard Gaetan
Boucher. The shopping centres have a total of 1,838 parking stalls at grade and sit on 35.4 acres of land in aggregate.
Population within five kilometres is approximately 115,000 with an average household income of approximately $75,000.
Major tenants include Super C, IGA, Pharmaprix (Shoppers Drug Mart), Jean Coutu, CIBC, National Bank Canada, CIBC,
RBC Royal Bank, SAQ, Dollarama, McDonalds, Tim Hortons, Second Cup, Rotisserie St-Hubert, Energie Cardio and other
restaurants, medical and personal services.
The Carrefour St-Hubert assets have been redeveloped during the past 12 years in phases to bring tenants and buildings
up to current standards. There is additional opportunity for retail density and a land parcel for residential use which the
Company plans to sever and sell.
Yorkville Assets, Including Hazelton Lanes Shopping Centre, Toronto, Ontario
Yorkville Assets, including Hazelton Lanes Shopping Centre, is an assembly of four separate assets, including one enclosed
shopping centre on Avenue Road and three additional retail properties on Yorkville Ave., totalling 267,000 square feet,
situated on an aggregate of 4.2 acres of land with a combined 489 stalls of underground parking. In addition to the
foregoing, the Yorkville assets also include a mortgage investment in a building that comprises 77 hotel suites and related
retail space and 66 parking stalls underground, on Yorkville Ave., adjacent to Hazelton Lanes Shopping Centre. The hotel
square footage and parking is not included in the Yorkville assets total. Population within five kilometers is approximately
617,000 with an average household income of approximately $98,000. Major tenants include a Whole Foods grocery
store, Rexall, Anthropologie, Diesel, Teatro Verde, an Equinox gym and other restaurants, medical and personal services.
The upcoming redevelopment project of Hazelton Lanes Shopping Centre entails a complete renovation of the interior
mall, including the creation of some additional retail space, and an attractive new facade that will open up the shopping
centre’s street facing retailers to Avenue Road, a major arterial road in the City of Toronto, and create a new entrance
from Yorkville Ave. to the enclosed shopping centre. First Capital Realty expects to commence construction on the project
in the first half of 2014 and will maintain the shopping centre in operation throughout the renovation.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
29
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Victoria Park Centres, Toronto, Ontario
The Victoria Park Centres comprise two separate shopping centres, Parkway Mall and Victoria Terrace in Toronto, Ontario,
totaling 492,000 square feet. The shopping centres are situated on a total of 33.9 acres of land and collectively have 1,835
at grade and 155 underground parking stalls. Population within five kilometres is approximately 321,000 with an average
household income of approximately $75,000. Major tenants include Metro, No Frills, Shoppers Drug Mart, Toys “R” Us,
Staples, TD Canada Trust, CIBC, Scotiabank, LCBO, Dollarama, McDonalds, Tim Hortons, GoodLife Fitness and other
restaurants, medical and personal services. LCBO recently opened a new prototype store on a pad at the front of Parkway
Mall, which constitutes the first phase of ongoing long-term repositioning of the centres. The Company continues to
evaluate longer term redevelopment strategies for the Victoria Park Centres and to collaborate with tenants to determine
the ultimate strategy for maximizing development opportunities on the assets.
Place Viau Assets, Montreal, Quebec
The Place Viau assets are an assembly of five properties totalling 21.2 acres of land, currently comprising three assets,
including two shopping centres totalling 211,000 square feet and a ground-up shopping centre development on three of
three of the assembled properties. The largest Place Viau asset is located on the southwest corner of the busy
intersection of Highway 40 and Boulevard Viau, and along Boulevard Viau and Jean-Talon Street, in the Montreal borough
of Saint-Léonard. Population within five kilometres is approximately 536,000 with an average household income of
approximately $53,000. Major tenants include Walmart, IGA Extra, Pharmaprix (Shoppers Drug Mart), TD Canada Trust,
Bureau en Gros (Staples), SAQ, Pizza Hut, A&W, Rotisserie St-Hubert, and other restaurants, medical and personal
services.
First Capital Realty is currently completing Phase I of the ground-up development of the new Place Viau. This new multi-
level shopping centre comprises a full-scale, open-air shopping centre on top of a building that includes a 100,000 square
foot Walmart store and other retail/commercial space, all connected with convenient pedestrian and vehicular access,
vertical transportation and surface and covered parking. Place Viau Shopping Centre makes innovative use of the
surrounding topography to provide street-level entrances to all components of the shopping centre. Once complete, Place
Viau Shopping Centre’s first phase will encompass a total of 227,000 square feet of retail space, 635 underground parking
stalls and 300 at grade parking stalls. The shopping centre’s Walmart store opened on January 23, 2014 and the
remainder of the centre will open in late 2014 and early 2015.
According to the Company’s current plans, upon completion of future phases of development, Place Viau Shopping Centre
plans comprise in total approximately 360,000 square feet of retail/commercial space, 1,377 underground and surface
parking stalls and may incorporate residential density. Together with the Company’s neighbouring Place Michelet and
Place Provencher shopping centres, and assuming final completion of all phases of the Place Viau Shopping Centre
ground-up development, the Company will own a total of 467,000 square feet of retail/commercial space in the Place
Viau assets, with a total of 1,907 at grade and below grade parking stalls.
Mount Royal Village Assets, Calgary, Alberta
The Mount Royal Village assets are an assembly of four assets totalling 208,000 square feet situated on 3.5 acres of land
with 361 underground and on an interim basis, 123 at grade parking stalls, located on 17th Avenue SW, just south of
Calgary’s downtown core, and is in the heart of a densely populated, fast growing, high income neighbourhood. The
original Mount Royal shopping centre building was constructed in 1978 and contains three floors of retail space and three
floors of office space above. A connected condominium building immediately to the north was constructed in 2001 and
houses at its base commercial space owned by the Company, which includes an 18,000 square foot London Drugs as the
anchor tenant on the main floor, 4,200 square feet of second floor office space, and an underground parkade, consisting
of 215 underground parking stalls and 8 at grade parking stalls.
As part of its redevelopment of Mount Royal Village, the Company is nearing completion on the major renovation of the
136,000 square foot Mount Royal Village shopping centre mixed use retail and office complex, which includes as major
tenants London Drugs and GoodLife Fitness and is also expected to include a high-end furniture retailer and restaurants.
In addition, the Company is currently in the entitlements process for the development of an adjacent three-level, 110,000
square foot retail/commercial building, to be anchored by an Urban Fare grocery store. The Company intends to sell a
land parcel forming part of the Mount Royal Village assets to a residential developer for construction of a 250,000 square
30
FIRST CAPITAL REALTY ANNUAL REPORT 2013
foot high-rise residential condominium building. On completion of the redevelopment project, the Mount Royal Village
assets will total 336,000 square feet of retail/commercial space and 630 parking stalls.
Population within five kilometers is 183,000 with an average household income of $128,000. Major tenants currently
include London Drugs, Shoppers Drug Mart, HSBC Bank of Canada, Oasis Wellness Centre & Spa, and other restaurants,
medical and personal services.
Macleod Trail Assets, Calgary, Alberta
This is an assembly of four assets along the Macleod Trail main corridor in Calgary, consisting of 9630 Macleod Trail,
Macleod Plaza, the Travelodge Hotel and Newport Village for a total of 390,000 square feet (including a 90,000 square
foot hotel) on 24 acres contiguous along Macleod Trail. Major tenants include Rona, Bank of Montreal, Dollarama,
Starbucks and other restaurants, medical and personal services. The estimated population within five kilometers is
132,000 with an average household income of $145,000. The properties are being held and maintained in their current
state for future redevelopment. The Company’s proposed plan is a phased approach over a decade, demolishing parts of
the existing structures, and constructing a new three-storey mixed-use retail and office property, for a total estimated
600,000 square feet upon completion. In addition, there is potential for a residential component (250,000 square feet), an
office component (60,000 square feet of GLA), a 60,000 square foot hotel, and an underground parkade consisting of
2,540 parking stalls to service the Macleod Trail assets. The project is currently in the preliminary phase of planning.
Appleby Village Assets, Burlington, Ontario
The Appleby Village assets are an assembly of three separate assets consisting of one shopping centre and two retail
properties on three corners at the intersection of Appleby Line and New Street in a community that borders on Lake
Ontario. The properties are situated on a total of 20.1 acres of land and comprise a total of 251,000 square feet and 1,200
parking stalls at grade. Population within five kilometers is approximately 89,000 with an average household income of
$107,000. Appleby Village shopping centre was acquired in 2004 as an old tired mall and was redeveloped, demalled and
expanded with new retail space. Smaller retail properties on two of the three adjacent corners where acquired
subsequently and were refurbished and fully completed in 2013. Major tenants include a Fortino’s (Loblaws), Rexall, Bank
of Montreal, TD Canada Trust, LCBO, The Beer Store, Dollarama, Home Hardware, Starbucks, Women's Fitness Clubs of
Canada and other restaurants, medical and personal services.
The Appleby Village assets also have retail and residential density potential currently in the planning stage.
Semiahmoo Shopping Centre, Surrey, British Columbia
Semiahmoo Shopping Centre is a 297,000 square foot retail property situated on 19.6 acres of land with 320 deck and 921
at grade parking stalls located on the corner of 16th Avenue and 152th Street. The centre is in a neighbourhood with good
demographics that are expected to grow substantially in the coming years. The estimated population within five
kilometers is 79,000 with an average household income of $108,000. Major tenants include PriceSmart Foods
(Overwaitea), Shoppers Drug Mart, CIBC, Zellers, BC Liquor Store, Dollar Tree and other restaurants, medical and personal
services. The Company’s proposed plan is a phased redevelopment involving the northern portion of the site. Based on
preliminary plans, this is expected to entail demolishing the existing structures and creating 352,000 square feet of new
retail, 40,000 square feet of office, 675,500 square feet of residential (resulting in approximately 550 units) bringing new
retailers to the property with investment of up to an additional $85 million. The project is currently in the preliminary
phase of planning.
Place Portobello Assets, Brossard, Quebec
The Place Portobello assets comprise one shopping centre and a smaller retail property totalling 575,000 square feet
situated on 46.4 acres of land with 2,477 at grade parking stalls, in aggregate, located on Taschereau Boulevard off
Highway 10 in the South Shore area of Montreal. Population within five kilometres is approximately 172,000 with an
average household income of approximately $82,000. Major tenants include Target, Reno Deport, Maxi (Loblaws), Jean
Coutu, RBC Royal Bank, CIBC, Dollarama and other restaurants, medical and personal services. The Company’s proposed
development of the Place Portobello shopping centre may include additional retail density and reconfiguration of the site.
The Place Panama property down the street borders a bus transportation hub and is expected to also be redeveloped in
the future, where there is significant future density potential on the site.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
31
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Shops at New West, New Westminster, British Columbia
Shops at New West is a newly developed, unique shopping centre totalling 195,000 square feet on three levels on 2.5
acres that is integrated with a bus terminal and a Sky Train rapid transit station at Columbia Street and 8th Street. The
property has a large deck parking facility to accommodate shoppers. The Company has a binding agreement to acquire
the parking facility. The property is in the high growth community, adjacent to a community auditorium and other
community amenities and newly developed condominium towers, on the Fraser River, southeast of Vancouver. Population
within five kilometers is approximately 197,000 with an average household income of approximately $75,000. Major
tenants include Safeway (Sobeys), Shoppers Drug Mart, RBC Royal Bank, CIBC, Dollar Tree, Landmark Cinemas, Starbucks,
Tim Hortons, and other restaurants, medical and personal services.
Valuation of Investment Properties Under IFRS
During the year ended December 31, 2013, the weighted average stabilized capitalization rates declined from 6.00% to
5.86%, including the impact of dispositions, acquisitions, and development activities. The increase in value of investment
properties, net was $56 million from December 31, 2012 to December 31, 2013.
The Company has adopted IFRS 13 prospectively from January 1, 2013. IFRS 13 provides a single standard for fair value,
replacing the fair value concepts that were previously included in many other standards, and also clarifies various
requirements with regard to the appropriate measurement and disclosure of fair value and its underlying inputs. The
standard defines fair value, provides guidance on its determination and outlines required disclosures about fair value
measurements, but does not change the requirements about the items that should be measured and disclosed at fair
value.
Under IFRS 13, an entity’s current use of investment property is presumed to be its highest and best use unless market or
other factors suggest that a different use by market participants would maximize the value of the asset. The Company is in
the pre-development stage of certain projects where the current use of these properties may change from retail only to
mixed-use. As the Company progresses the rezoning and entitlements process and advances these development projects,
the fair value for IFRS purposes may be determined based on “highest and best use”, which differs from the properties'
current use. As at January 1, 2013, Management had determined that no material change in the value of investment
properties was required as a result of the application of this standard.
The Company has three approaches to determine the fair value of an investment property at the end of each reporting
period:
1. External appraisals – by an independent national appraisal firm, according to professional appraisal standards and IFRS.
On an annual basis, the Company has an annual minimum threshold of approximately 15% of the portfolio requiring
external appraisal.
2. Internal appraisals – by certified staff appraisers employed by the Company, according to professional appraisal
standards and IFRS.
3. Value updates – performed by certified staff appraisers and primarily consisting of reviewing the key assumptions from
previous appraisals and updating the value for changes in the property cash flow, physical condition and changes in
market conditions.
The selection of the approach for each property is made based upon the following criteria:
• Property type – this includes an evaluation of a property's complexity, stage of development, time since acquisition, and
other specific opportunities or risks associated with the property. Stable properties and recently acquired properties
will generally receive a value update, while properties under development will typically be valued using internal or
external appraisals until completion.
• Market risks – specific risks in a region or a trade area may warrant a full external or internal appraisal for certain
properties.
• Changes in overall economic conditions – significant changes in overall economic conditions may increase the number
of external or internal appraisals performed.
• Business needs – financings or acquisitions and dispositions may require an external appraisal.
32
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Shopping Centres Valuation Method
Shopping centres are appraised primarily using stabilized cash flows from existing tenants with the property in its existing
state, since purchasers typically focus on expected income. External and internal appraisals are conducted using and
placing reliance on both the direct capitalization method and the discounted cash flow method (including the estimated
proceeds from a potential future disposition). Value updates are calculated using the direct capitalization method.
Properties undergoing development, redevelopment or expansion are valued using the stabilized cash flows expected
upon completion, with a deduction for costs to complete the project; capitalization rates are adjusted to reflect lease-up
assumptions and construction risk, when appropriate. Adjacent land parcels held for future development are valued
based on comparable sales of commercial land. Fair value of properties under development includes a deduction for costs
to complete of $95.5 million.
During the year ended December 31, 2013, approximately 16% (year ended December 31, 2012 – approximately 35%) of
the total fair value of shopping centres was determined through external appraisals and approximately 10% (year ended
December 31, 2012 – approximately 4%) was determined through internal appraisals.
The values of the Company’s proportionate interest in its shopping centres and associated capitalization rates and
stabilized net operating income (“SNOI”) by region are as follows as at December 31, 2013 and December 31, 2012:
December 31, 2013
(millions of dollars,
except other data)
Central Region
Eastern Region
Western Region
December 31, 2012
(millions of dollars,
except other data)
Central Region
Eastern Region
Western Region
Capitalization Rate
Weighted Average Yield
Number
of
Properties
Weighted
Average
Median
Range
Fair Value
Revaluation
Gains
SNOI (1)
Actual NOI
to Fair Value
Yields (2)
Run Rate to
Fair Value
Yield (3)
Run rate to
Cost Yield (4)
62
55
47
164
5.75%
6.31%
5.70%
5.86%
5.96% 5.25%-8.22% $
6.25% 5.64%-9.00%
5.75% 5.00%-7.25%
3,022 $
1,680
2,473
6.00% 5.00%-9.00% $
7,175 $
32 $
9
13
54 $
167
104
143
414
5.61%
6.13%
5.36%
5.64%
5.61%
6.52%
5.62%
5.81%
6.66%
7.48%
6.94%
6.95%
Capitalization Rate
Weighted Average Yield
Number
of
Properties
Weighted
Average
Median
Range
Fair Value
Revaluation
Gains
Actual NOI to
Fair Value
Yields (2)
Run Rate to
Fair Value
Yield (3)
Run rate to
Cost Yield (4)
SNOI (1)
67
60
48
175
5.92%
6.47%
5.80%
6.00%
6.00% 5.50%-8.50% $
6.50% 5.75%-10.00%
6.00% 5.00%-6.50%
2,883 $
1,630
2,385
6.00% 5.00%-10.00% $
6,898 $
140 $
33
115
288 $
167
101
136
404
5.60%
6.16%
5.47%
5.68%
6.47%
6.62%
5.58%
6.18%
7.29%
8.01%
6.82%
7.29%
(1) SNOI is not a measure defined by IFRS. SNOI reflects long-term, stable property operations, assuming a certain level of vacancy, capital and operating expenditures
required to maintain a stable occupancy rate. The average vacancy rates used in determining SNOI for non-anchor tenants generally range from 2% to 5%.
(2) Calculated as normalized NOI divided by the fair value of investment property. Normalized NOI is calculated on the basis that all acquisitions and dispositions occurred at
the beginning of the reporting period (assuming a run rate), and does not include the ground-up development projects discussed in the “Business and Operations Review -
2013 Investment Property Development and Redevelopment Activities” section of this MD&A. Run rate is an annualized NOI for a property based upon the existing tenants
in place and current operating cost profile for the property.
(3) Calculated as run rate NOI divided by the fair value of investment property.
(4) Calculated as run rate NOI divided by cost of investment property.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
33
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The sensitivity of the fair values of shopping centres to capitalization rates as at December 31, 2013 is set out in the table
below:
Capitalization rate
(Decrease) increase
(0.75)%
(0.50)%
(0.25)%
0.25%
0.50%
0.75%
Resulting increase (decrease)
in value of shopping centres
(millions of dollars)
$
$
$
$
$
$
975
620
296
(272)
(523)
(754)
Additionally, a 1% increase or decrease in stabilized NOI would result in an increase or decrease, respectively, in fair values
of shopping centres by $71 million. A 1% increase in stabilized NOI coupled with a 0.25% decrease in capitalization rate
would result in an increase in the fair value of shopping centres of $389 million, and a 1% decrease in stabilized NOI
coupled with a 0.25% increase in capitalization rate would result in a decrease in the fair value of shopping centres of
$357 million.
Development Land Valuation Method
The primary method of appraisal for development land is the comparable sales approach, which considers recent sales
activity for similar land parcels in the same or similar markets to estimate a value on either a per acre basis or on a basis
of per square foot buildable. Such values are applied to the Company’s properties after adjusting for factors specific to the
site, including its location, zoning, servicing and configuration. During the year ended December 31, 2013, approximately
17% (year ended December 31, 2012 – approximately 17%) of the total fair value of development land was determined
through external appraisals.
Investment Properties – Shopping Centres
A continuity of the Company’s proportionate interest in investments in its shopping centre acquisitions, dispositions,
development and portfolio improvement activities is summarized below:
Year ended December 31
(millions of dollars)
Balance at beginning of year
Acquisitions
Shopping centres
Additional space adjacent to existing properties
Additional interest in existing property
Additional land parcels adjacent to existing properties
Development activities and portfolio improvements
Reclassifications from development land
Fair value increase
Dispositions
Other changes
Balance at end of year
Investment in joint venture – shopping centres
Proportionate interest end of year
Fair Value
2013
Cost
Fair Value
$
6,849 $
5,732 $
5,766 $
60
118
—
10
255
2
54
(232)
10
7,126 $
49
7,175 $
60
118
—
10
255
2
—
(214)
—
5,963 $
40
6,003 $
426
255
42
32
310
13
288
(297)
14
6,849 $
49
6,898 $
$
$
2012
Cost
4,890
426
255
42
32
310
9
—
(232)
—
5,732
40
5,772
34
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Investment Properties – Development Land
A continuity of the Company’s proportionate interest in investments in its development land acquisitions, dispositions and
development activities is summarized below:
Year ended December 31
(millions of dollars)
Balance at beginning of year
Acquisitions
Development activities
Dispositions
Reclassifications to shopping centres
Fair value increase
Other
Balance at end of year
Fair Value
127 $
36
12
(10)
(2)
2
1
166 $
$
$
2013
Cost
123 $
36
12
(9)
(2)
—
1
161 $
Fair Value
99 $
39
10
(6)
(13)
(1)
(1)
127 $
2012
Cost
89
39
10
(7)
(9)
—
1
123
2013 Acquisitions
The 2013 acquisitions are in line with the Company’s business strategy based on their locations, tenancies and
redevelopment, repositioning or expansion opportunities.
Total acquisitions of investment properties, which include shopping centres, additional space and adjacent lands and
development lands, amounted to $224.7 million, adding 0.3 million square feet of gross leasable area and 12.6 acres of
land for future development.
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 operationally, financially and qualitatively 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.
Shopping Centres
In 2013, the Company invested $60.3 million in the acquisition of one shopping centre and one medical office and retail
property, comprising 108,000 square feet. These acquisitions are in new trade areas in the Company’s target urban
markets and demonstrate the Company’s continuing focus on acquiring well-located, high quality urban retail-centered
properties. The acquisitions are summarized in the table below:
Property Name
Western Region
Victoria Professional and Medical
Dental Building
False Creek Village
Total
City
Province
Quarter
Acquired
New
Trade Area
Supermarket-
Anchored
Drugstore-
Anchored
Victoria
Vancouver
BC
BC
Q1
Q4
—
—
Gross
Leasable
Area
(square
feet)
Acquisition
Cost
(in millions)
45,000 $
63,000
108,000 $
13.9
46.4
60.3
FIRST CAPITAL REALTY ANNUAL REPORT 2013
35
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Shopping Centres – Additional Space and Adjacent Land Parcels
In 2013, the Company acquired 16 properties adjacent to existing shopping centres and one property through Main and
Main Developments adding 178,000 square feet of gross leasable area and 3.6 acres adjacent to existing properties in
established retail nodes. Total expenditures on these adjacent parcels amounted to $127.9 million. These acquisitions are
set out in the table below:
Property Name
Central Region
Leaside Village
Main and Main Developments (1)
Hazelton Lanes (Yorkville)
Meadowvale Town Centre (Aquitaine Plaza)
Leaside Village
Fairway Plaza (569 Fairway)
Hazelton Lanes (106 –108 Yorkville)
Leaside Village
Other
Eastern Region
Centre Commercial Wilderton (Atrium du Sanctuaire) Montreal
Montreal
Place Fleury (1780 Fleury – Dollarama)
Montreal
Place Fleury (Renaud-Bray)
Ottawa
Loblaws Plaza (1454 Merivale)
Montreal
Galeries Normandie (2655, rue de Salaberry)
Western Region
Tuscany Village (3959 Shelbourne Street)
Victoria
Total
City
Province
Toronto
Toronto
Toronto
Toronto
Toronto
Kitchener
Toronto
Toronto
Toronto
ON
ON
ON
ON
ON
ON
ON
ON
ON
QC
QC
QC
ON
QC
BC
Quarter
Acquired
Q1
Q1
Q2
Q2
Q2
Q3
Q4
Q4
Q1/Q2/Q4
Q1
Q2
Q3
Q4
Q4
Q3
Gross
Leasable
Area
(square feet)
Acquisition
Cost
(in millions)
Acreage
5,000
—
29,000
33,000
—
8,000
7,000
—
8,000
37,000
7,000
35,000
3,000
6,000
— $
1.3
—
—
0.4
—
1.44
0.1
—
—
—
—
—
2.7
12.3
55.0
10.8
1.1
1.7
7.3
6.7
6.5
10.2
3.2
6.3
1.1
1.3
—
0.4
1.7
178,000
3.6 $
127.9
(1) The Company consolidates the activities of Main and Main Developments in its consolidated financial statements and information presented is at 100%.
Development Lands
In 2013, the Company invested $36.5 million in the acquisition of five development land parcels, comprising nine acres for
future development of retail and mixed-use space. See the “Business and Operations Review - 2013 Investment Property
Development and Redevelopment Activities” section of this MD&A for further discussion.
Property Name
Main and Main Developments (1)
Suncor Land (Kanata Terry Fox)
Molson Site (Edmonton Brewery District)
Royal Orchard
5210 Rue Jean Talon Ouest
Percentage
Ownership
City
Province
Quarter
Acquired
Acreage
67%
50%
50%
100%
100%
Ottawa
Ottawa
Edmonton
Toronto
Montreal
ON
ON
AB
ON
QC
Q1
Q1
Q1
Q3
Q4
0.3 $
0.6
4.0
3.9
0.2
Total
(1) The Company consolidates the activities of Main and Main Developments in its consolidated financial statements and information presented is at 100%.
9.0 $
Acquisition
Cost
(in millions)
(at Company’s
interest)
2.8
0.8
8.2
23.2
1.5
36.5
36
FIRST CAPITAL REALTY ANNUAL REPORT 2013
2013 Dispositions
In 2013, the Company sold 10 shopping centres representing 1,105,000 square feet of GLA, six land parcels and an
interest in one land parcel representing 13.9 acres. Gross proceeds of these dispositions were $242.2 million.
Included in the 2013 dispositions was the sale of a portfolio of properties to Retrocom Real Estate Investment Trust
(TSX:RMM.UN) (“Retrocom”) located in Ontario, Quebec and Alberta totalling approximately 1 million square feet of GLA,
for gross proceeds of approximately $193 million, which were satisfied through the assumption by the purchaser of
approximately $40 million in mortgages payable, with the balance of the sale proceeds paid in cash. Additionally, First
Capital Realty acquired $15 million in equity instruments of the buyer.
Property Name
Central Region
City
Province
Quarter
Sold
Gross
Leasable Area
(square feet)
Gross Sales
Price
(in millions)
Acreage
54 – 70 Plains Road West
Tillsonburg Town Centre
Bowmanville Mall
Main and Main Developments
Main and Main Developments (40% interest in
one assembly)
Pergola Commons (adjacent land)
Burlington
Tillsonburg
Bowmanville
Toronto
Toronto
Guelph
Eastern Region
Cole Harbour Shopping Centre
Galeries Don Quichotte
IGA Tremblant
Carrefour du Versant (adjacent land)
Carrefour des Forges
Ropewalk Lane
Western Region
Eastview Shopping Centre
Cochrane City Centre
South Fraser Gate
Westmount Village (adjacent land)
Total
Dartmouth
L’ile-Perrot
Mont-Tremblant
Gatineau
Drummondville
St. John’s
Red Deer
Cochrane
Abbotsford
Edmonton
ON
ON
ON
ON
ON
ON
NS
QC
QC
QC
QC
NF
AB
AB
BC
AB
Q1
Q2
Q2
Q2
Q2
Q4
Q1
Q2
Q2
Q2
Q2
Q4
Q2
Q2
Q2
Q2
—
368,000
152,000
—
—
—
76,000
205,000
38,000
—
75,000
40,000
35,000
59,000
32,000
25,000
1,105,000
1.4
—
—
0.4
—
7.5
—
—
—
2.3
—
—
—
—
0.9
1.4
13.9 $
242.2
In aggregate, the gross sales price on the 2013 sales have exceeded invested cost by approximately $22.1 million. Total
mortgages assumed by purchasers aggregated $39.5 million, with a weighted average cash interest rate of 5.47%. The 2013
dispositions are in line with the Company’s ongoing strategy of increasing the portfolio’s focus on core urban markets.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
37
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Impact of Acquisitions and Dispositions on Continuing Operations
The NOI effect of properties acquired and sold, based on the run rate at the time of acquisition or sale, for the years
ended December 31, 2013 and 2012 is set out in the table below:
(thousands of dollars)
Central Region
Eastern Region
Western Region
Total
Run rate NOI of
properties acquired
Run rate NOI of properties
sold
2013
1,246 $
4,177
2,624
8,047 $
2012
13,153 $
9,897
15,006
38,056 $
2013
5,931 $
5,597
3,210
2012
9,386
1,144
7,437
14,738 $
17,967
$
$
Investment Properties Classified as Held For Sale
Investment property is classified as held for sale when it is expected that the carrying amount will be recovered principally
through sale rather than from continuing use. Investment property held for sale must be available for immediate sale in
its present condition, subject only to terms that are usual and customary for sales of such property, and its sale must be
highly probable. Upon designation as held for sale, the investment property continues to be measured at fair value and is
presented separately on the consolidated balance sheets.
Included in investment properties as at December 31, 2013 are seven shopping centres and two development land
parcels with an approximate value of $155.5 million that meet the financial reporting criteria to be classified as held for
sale. These properties are considered to be non-core assets. Disposition of these investment properties will provide the
Company with the opportunity to redeploy capital to uses more aligned with the Company’s urban focus.
In addition to the properties which meet the criteria for classification as held for sale, the Company is also targeting for an
additional 11 properties comprising 804,000 square feet of GLA and five land parcels with an aggregate fair value of
approximately $241 million to be sold in 2014 and 2015, subject to market conditions.
Acquisitions and Dispositions Subsequent to December 31, 2013
Consistent with past practices and in the normal course of business, the Company 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. First Capital Realty
expects to continue current discussions and actively pursue other acquisition, investment and disposition opportunities.
38
FIRST CAPITAL REALTY ANNUAL REPORT 2013
2012 Acquisitions
Total acquisitions of investment properties in 2012, which include shopping centres and additional space and adjacent
lands for shopping centres, as well as development land, amounted to $794 million, adding 2.4 million million square feet
of gross leasable area and 15.4 acres of development land to the portfolio.
On August 8, 2012, a court-approved plan of arrangement for Gazit America Inc. (“Gazit America”) was completed
involving First Capital Realty and Gazit-Globe Ltd. (“Gazit”). Under the plan of arrangement, First Capital Realty acquired
the shares of Gazit America’s subsidiaries, ProMed Properties (CA) Inc. and ProMed Asset Management Inc., which
together owned and managed all of the medical office and retail properties of Gazit America, and certain property related
inter-company indebtedness owing to Gazit America (hereinafter referred to as the “First Medical acquisition”).
The acquired subsidiaries include the portfolio of real estate properties, property management contracts and leasing and
management personnel and represent a business. The transaction was accounted for as a common control business
combination using the acquisition method.
The reason for First Capital Realty to complete this transaction was to acquire from Gazit America 12 medical office and
retail properties generally adjacent to existing First Capital Realty properties and a 50% interest in a thirteenth property
jointly owned with First Capital Realty. As consideration for the acquisition of these assets and liabilities, the Company
issued 5,461,786 common shares and assumed certain property-related indebtedness. The common shares issued were
valued at their quoted trading price at the time of issue.
The allocation of the purchase price to the assets acquired and liabilities assumed is as follows:
(thousands of dollars)
Investment property
Other assets
Secured mortgage debt
Other liabilities
Total share consideration paid
Assets (Liabilities)
$
225,664
3,843
(122,804)
(3,639)
$
103,064
Had the transaction occurred as at January 1, 2012, First Capital Realty’s property rental revenue and net income for the
year ended December 31, 2012 would have increased by approximately $14.5 million and $6.7 million, respectively.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
39
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Shopping Centres – Income-Producing Properties
In 2012, the Company invested $425.7 million in the acquisition of 10 shopping centres and six medical office and retail
properties, comprising 1,494,000 square feet. These acquisitions are in the Company’s target urban markets and
demonstrate the Company’s continuing focus on increasing its presence in these urban markets. The acquisitions are
summarized in the table below:
Property Name
Central Region
3080 Yonge Street
Belmont Professional Centre (1)
71 King Street West (1)
1670 Bayview Avenue (1)
Main and Main Developments (2)
Main and Main Developments (2)
895 Lawrence Avenue East
Eastern Region
Place Quatre-Bourgeois
Nepean Medical Centre (1)
Les Jardins Millen
Galeries Charlesbourg
2600 Daniel Johnson
Western Region
Shops at New West
31 Sunpark Plaza (1)
Kingway Mews (1)
West Springs Village (3)
Total
City
Province
Quarter
Acquired
New
Trade Area
Supermarket-
Anchored
Drugstore-
Anchored
Gross Leasable
Area
(square feet)
Acquisition
Cost
(in millions)
Toronto
Kitchener
Mississauga
Toronto
Toronto
Toronto
Toronto
Québec City
Ottawa
Montreal
Québec City
Laval
New
Westminster
Calgary
Edmonton
Calgary
ON
ON
ON
ON
ON
ON
ON
QC
ON
QC
QC
QC
BC
AB
AB
AB
Q2
Q3
Q3
Q3
Q3
Q3
Q4
Q2
Q3
Q3
Q4
Q4
Q2
Q3
Q3
Q4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
226,000 $
46,000
42,000
40,000
13,000
9,000
30,000
243,000
47,000
56,000
255,000
68,000
58.3
10.5
12.0
12.5
11.7
9.1
11.2
33.0
18.1
16.0
35.1
16.0
193,000
119.3
125,000
42,000
59,000
36.1
11.1
15.7
1,494,000 $
425.7
(1) Acquired in the First Medical acquisition.
(2) The Company consolidates the activities of Main and Main Developments in its consolidated financial statements and information presented is at 100%.
(3) The property was acquired on a 50% co-ownership basis. The acquisition cost represents the Company's proportionate participation in this property and the square
footage is at 100%.
In addition, as part of the First Medical acquisition, the Company acquired the remaining 50% interest in an existing
property as set out in the table below:
Property Name
City
Province
Quarter
Acquired
New Trade
Area
Supermarket-
Anchored
Drugstore-
Anchored
Meadowlark Health and
Shopping Centre
Edmonton
AB
Q3
—
Gross
Leasable Area
(square feet)
Acquisition
Cost
(in millions)
150,000 $
41.8
40
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Shopping Centres – Additional Space and Adjacent Land Parcels
In 2012, the Company acquired 28 properties adjacent to existing shopping centres adding 903,000 square feet of gross
leasable area and 7.4 acres adjacent to existing properties. Total expenditures on these additional interests amount to
$286.9 million. These acquisitions are set out in the table below:
Property Name
Central Region
Hazelton Lanes (Yorkville Avenue)
Morningside Crossing (West Hill Shopping Centre)
Delta Centre (Coronation Medical Centre) (1)
Wellington Corners (Base Line Medical Centre) (1)
Wellington Corners (Westminster Centre) (1)
216 Elgin Street (Kent Professional Building) (1)
Victoria Park Centres (Victoria Terrace)
Other
Eastern Region
Loblaws Plaza (1450 Merivale Road)
Carrefour St. David (Boston Pizza)
Place Viau
Cole Harbour Shopping Centre (Cumberland Court)
Place Fleury (10370 – 10372 Papineau)
Place Quatre-Bourgeois (Place Naviles)
Place Roland Therrien (Place Adoncour) (1)
Centre Commercial Van Horne (5700 Cote-des-Neiges) (1)
Les Jardins Millen (Jardins Millen II)
Place Fleury (10360 – 10362 Papineau)
Place Nelligan
Western Region
Mount Royal Village (The Devenish)
Langford Centre (2800 Bryn Maur Road)
Macleod Trail (9206 Macleod Trail)
Mount Royal Village (1515 – 8th Street)
Mount Royal Village (815 – 17th Avenue)
Time Marketplace (Empire Theatre, 200 West Esplanade)
Broadmoor Shopping Centre (9900 No. 3 Road)
Total
(1) Acquired in the First Medical acquisition.
City
Province
Quarter
Acquired
Gross
Leasable
Area
(square feet)
Acquisition
Cost
(in millions)
Acreage
Toronto
Toronto
Cambridge
London
London
Ottawa
Toronto
Toronto
Ottawa
Québec City
Montreal
Cole
Harbour
Montreal
Québec City
Longueuil
Montreal
Montreal
Montreal
Gatineau
Calgary
Langford
Calgary
Calgary
Calgary
Vancouver
Richmond
ON
ON
ON
ON
ON
ON
ON
ON
ON
QC
QC
NS
QC
QC
QC
QC
QC
QC
QC
AB
BC
AB
AB
AB
BC
BC
Q2
Q3
Q3
Q3
Q3
Q3
Q4
Q1/Q3/Q4
Q1
Q2
Q2
Q3
Q3
Q3
Q3
Q3
Q3
Q4
Q4
Q1
Q1
Q2
Q2
Q3
Q3
Q4
18,000
43,000
64,000
49,000
109,000
39,000
234,000
—
—
7,000
—
21,000
—
21,000
58,000
92,000
—
—
—
43,000
16,000
—
—
50,000
39,000
—
— $
—
—
—
—
—
—
—
0.6
—
1.4
—
0.1
—
—
—
0.1
0.1
0.8
—
—
2.6
1.2
—
—
0.5
15.8
7.2
8.9
7.7
14.3
11.1
61.1
5.8
2.4
1.9
1.7
3.0
0.8
4.7
15.7
25.7
0.3
0.9
0.1
22.2
3.9
11.0
6.0
39.4
12.5
2.8
903,000
7.4 $
286.9
FIRST CAPITAL REALTY ANNUAL REPORT 2013
41
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Development Lands
In 2012, the Company invested $39 million in the acquisition of 12 development land parcels, comprising 8 acres for
future development of retail and mixed-use space. These acquisitions are set out in the table below:
Property Name
Main and Main Developments (1)
5500 Dundas Street West
Edmonton Brewery District (2)
Total
City
Province
Toronto/Ottawa
Toronto
Edmonton
ON
ON
AB
Quarter
Acquired
Q1, Q2, Q3, Q4
Q1
Q3
Acquisition
Cost
(in millions)
24.8
6.2
8.0
39.0
Acreage
2.4 $
2.4
3.2
8.0 $
(1) The Company consolidates the activities of Main and Main Developments in its consolidated financial statements and information presented is at 100%.
(2) The property was acquired on a 50% co-ownership basis. The acquisition cost and acreage represents the Company’s proportionate participation in this property. The
property is adjacent to the Company’s existing Longstreet Shopping Centre.
2012 Dispositions
In 2012, the Company sold nine shopping centres and 50% interests in two shopping centres representing 1,206,000
square feet of gross leasable area and two land parcels adjacent to a shopping centre of 2.9 acres. Gross proceeds of
these dispositions were $302.8 million.
Property Name
Central Region
Orleans Gardens (1)
Brantford Commons
Chemong Park Plaza
Parkway Centre
2255 Dundas St.
Eastern Region
City
Ottawa
Brantford
Peterborough
Peterborough
Mississauga
Place des Cormiers & Place de la Colline
Carré Normandie (Galeries Normandie)
Sept-Iles & Chicoutimi
Montreal
Western Region
Woodgrove Crossing
Woolridge Building
Village Market & Sherwood Towne Square (2)
Dickson Trail
Coronation Mall
Nanaimo
Coquitlam
Sherwood Park
Airdrie
Duncan
Province
Quarter
Sold
Gross Leasable
Area
(square feet)
Acreage
Gross Sales
Price
(in millions)
ON
ON
ON
ON
ON
QC
QC
BC
BC
AB
AB
BC
Q1
Q2
Q3
Q3
Q4
Q2
Q2
Q1
Q1
Q2
Q3
Q4
55,000
315,000
75,000
264,000
—
125,000
—
59,000
37,000
173,000
52,000
51,000
—
—
—
—
2.6
—
0.3
—
—
—
—
—
Total
1,206,000
2.9 $
302.8
(1) The Company sold its 50% interest in this shopping centre.
(2) The Company has retained a 50% interest in this shopping centre and provides asset and property management services.
In aggregate, the gross sales price on the 2012 sales have exceeded invested cost by approximately $64.0 million. Total
mortgages assumed by the purchasers aggregated $37.8 million, with a weighted average cash interest rate of 6.36%. The
2012 dispositions were in line with the Company's ongoing strategy of increasing the portfolio's focus on core urban
markets.
In addition, the Company received payment of the US$36 million non-revolving unsecured term loan from Gazit America
on August 14, 2012.
42
FIRST CAPITAL REALTY ANNUAL REPORT 2013
2013 Investment Property Development and Redevelopment Activities
Development and redevelopment activities are completed selectively, based on opportunities in the Company’s
properties or in the markets where the Company operates. The Company’s development projects comprise ground-up
projects, major redevelopment and other incremental redevelopment and expansions on stable properties. All
development activities are strategically managed to reduce risk and properties are generally developed after obtaining
anchor lease commitments. A summary of the Company's development portfolio is as follows:
As at December 31, 2013
(thousands of dollars, except for other data)
Planned
Square Feet
Upon
Completion
Gross Leasable
Area
(square feet)
Square Feet
Under
Development
Total Est. Cost
incl. Land
Investment
Cost
Estimated Cost
to Complete
Same property with incremental redevelopment and expansion
Active development and at completion
In pre-development
Major redevelopment:
Active development and at completion
In pre-development
Ground-up development
Active development and at completion
In pre-development
Total
—
—
—
—
—
—
26,647
35,743
62,390 $
16,037
38,580
54,617 $
7,156
13,281
20,437 $
1,383,628
TBD
1,383,628
1,236,114
1,751,403
2,987,517
147,514
TBD
147,514
467,718
TBD
467,718
420,012
523,840
943,852
801,383
160,000
961,383
2,345,011
674,346
—
674,346
3,661,863
127,037
160,000
287,037
496,941 $
277,137
TBD
277,137
799,472 $ 1,232,695 $
263,529
4,877
268,406
8,881
25,299
34,180
47,706
TBD
47,706
13,608
TBD
13,608
95,494
Costs to complete the development, redevelopment and expansion activities underway are estimated to be
approximately $95.5 million. Costs to complete for major redevelopments and ground-up developments, respectively,
are planned at $24 million and $12 million in 2014, and $23 million and $2 million in 2015 and beyond. The cost to
complete major redevelopments and ground-up developments that are currently in the pre-development stage are
labelled “to be determined” (TBD) as they have not yet been finalized.
The properties in the development pipeline are summarized in the tables below by property category (same property with
incremental redevelopment and expansion; major redevelopments and ground-up development) and by development
status (active development, at completion, in pre-development).
FIRST CAPITAL REALTY ANNUAL REPORT 2013
43
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Same Property with Incremental Redevelopment and Expansion
Highlights of the Company’s current same property with incremental redevelopment and expansion projects are
summarized in the table below. As at December 31, 2013, the invested cost in these projects totalled $20 million, and
includes incremental investment primarily related to pads or building extensions and often include facade, parking,
lighting and building upgrades. Of the 26,647 square feet under active redevelopment, 14,280 square feet is subject to
committed leases at a weighted average rate of $23.20 per square foot. The Company is currently in various stages of
negotiations for the remaining planned space.
As at December 31, 2013
(thousands of dollars, except for other data)
No.
Property
Building to
LEED
Standards (1)
Tenants
Square Feet
Under
Development
Target
Completion
Date
Est. Cost
incl.
Land
Total
Investment
Cost
Cost to
Complete
Same property with incremental redevelopment and expansion with active development
Eagleson Place
Ottawa, ON
Daycare building
10,000
Q1, 2014 $ 4,482 $
3,706 $
776
Plaza Actuel/ Carrefour
RBC Royal Bank
7,847
Q3, 2016
3,784
1,142
2,642
4
7
St-Hubert,
Longueuil, QC
Carrefour St. David,
Beauport, QC
Red Deer Village
Red Deer, AB
Gold's Gym
3,800
Q3, 2016
2,851
559
2,292
Various tenants
5,000
Q1, 2014
2,204
1,715
489
26,647
$ 13,321 $
7,122 $
6,199
Same property with incremental redevelopment and expansion – at completion
Credit Valley Town Plaza
Mississauga, ON
Centre Commercial Cote
St-Luc, Montreal, QC
Galeries des Chesnayes,
Terrebonne, QC
Gloucester City Centre,
Ottawa, ON
Place Nelligan,
Gatineau, QC
Hunt Club Marketplace,
Ottawa, ON
Place Pointe-aux-Trembles,
Montreal, QC
TD Canada Trust
McDonalds (2)
RBC Royal Bank
Rexall, Pet Valu
Dollarama
Dollarama
Dollarama
—
—
—
—
—
—
—
Q3, 2013 $
593 $
— $
593
Q3, 2013
Q4, 2013
Q4, 2013
Q4, 2013
Q4, 2013
Q3, 2013
—
788
678
352
65
240
—
—
—
—
34
—
—
788
678
352
31
240
$ 2,716 $
34 $
2,682
Same property with incremental redevelopment and expansion – in pre-development
Place Lorraine,
Lorraine, QC
Carrefour Belvedere,
Sherbrooke, QC
Loblaws Plaza,
Ottawa, ON
13,543
Q4, 2016 $ 15,703 $
2,036 $ 13,667
14,200
Q3, 2015
14,902
8,421
6,481
8,000
Q2, 2016
7,975
2,824
5,151
3
14 Total same property with incremental redevelopment and
expansion
35,743
62,390
$ 38,580 $
13,281 $ 25,299
$ 54,617 $
20,437 $ 34,180
(1) The Company’s policy is to build to LEED standards subject to tenant acceptance and existing physical structure limitations. Refer to the “Corporate Responsibility and
Sustainability” section of this MD&A.
(2) Land lease
44
FIRST CAPITAL REALTY ANNUAL REPORT 2013
In addition to the projects listed in the table above, the same property with incremental redevelopment and expansion
projects include eight properties with projects completed in prior periods. A further eight properties have projects in the
early pre-development and advanced planning stages. These projects, together with the projects listed in the table above,
make up the 30 properties classified as same property with incremental redevelopment and expansion.
Major Redevelopment and Ground-up Development
The Company’s properties with major redevelopment or ground-up development currently in progress or at completion
are expected to yield an average going-in NOI yield of 6.5% on completion, and range from 6% to 7%. This yield is derived
from the expected run rate based on stabilized leasing and operations following completion of the development, and
includes all building cost, land cost, interest and other carrying costs as well as capitalized staff compensation and other
expenses. However, actual rates of return could differ if unforeseen events cause actual results to differ from
assumptions. The yield reflects the Company's high standards in construction, lighting, parking, access, pedestrian
amenities, accessibility as well as development to LEED standards. The quality of the Company’s construction is consistent
with the strategy of long term ownership and value creation.
Major Redevelopment
The Company classifies 16 properties totalling $1.1 billion in invested cost as properties with major redevelopment
activities. Of the 147,514 square feet under active redevelopment, 57,391 square feet is subject to committed leases,
including a supermarket tenant, at a weighted average rate of $23.32 per square foot. In addition, approximately 38,800
square feet of space is in the latter stages of lease negotiations with two national retailers. As construction on these
redevelopment projects is phased, there continues to be ongoing negotiations in various stages with certain retailers for
the remaining planned space.
Highlights of the Company’s current major redevelopment underway, including costs for completed phases, are as follows:
As at December 31, 2013
(thousands of dollars, except for other data)
No.
Property
Building to
LEED
Standards
(1)
Major Tenants
Planned
Square Feet
Upon
Completion
Completed
Square
Feet
Square Feet
Under
Development
Target
Completion
Date
Total Est.
Cost incl.
Land
Investment
Cost
Estimated
Cost to
Complete
Fair
Value
Major redevelopment – with active development
Centre D’achats
Ville Mont-Royal,
Montreal, QC
Port Place
Shopping Centre,
Nanaimo, BC
Mount Royal
Village,
Calgary, AB
Provigo,
Pharmaprix
London Drugs,
Thrifty Foods,
CIBC, TD Canada
Trust, MediArts
London Drugs,
Oasis Spa and
Wellness,
Goodlife Fitness
155,966
129,954
(2)
26,012 Q3, 2016
$ 55,871 $ 24,362 $ 31,509
153,367
149,367
4,000 Q4, 2013
58,529
56,970
1,559
232,155
114,653
117,502 Q4, 2014
57,475
45,033
12,442
3
541,488
393,974
147,514
$ 171,875 $ 126,365 $ 45,510
FIRST CAPITAL REALTY ANNUAL REPORT 2013
45
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
As at December 31, 2013
(thousands of dollars, except for other data)
No.
Property
Building to
LEED
Standards (1) Major Tenants
Planned
Square Feet
Upon
Completion
Completed
Square
Feet
Square Feet
Under
Development
Target
Completion
Date
Total Est.
Cost incl.
Land
Investment
Cost
Estimated
Cost to
Complete
Fair
Value
Major redevelopment – at completion
146 Lakeshore
Road West
Oakville, ON
5051 – 5061 Yonge
St.,Toronto, ON
Chartwell
Shopping
Centre, Toronto,
ON
Appleby Village
Burlington, ON
Carrefour
Soumande
Quebec City, QC
Broadmoor
Shopping
Centre
Richmond, BC
Deer Valley
Marketplace,
Calgary, AB
Starbucks
20,817
20,817
Michael’s,
Jack Astor’s
37,307
37,307
Bestco Food, CIBC,
150,606
150,606
Dollarama
—
—
—
2013 $ 14,661 $ 14,661 $
—
2013
26,989
26,802
2013
51,768
51,655
187
113
251,361
251,361
—
2013
70,371
70,371
—
Fortinos, Bank of
Montreal, RBC
Royal Bank,
Pharma Plus,
The Beer Store,
LCBO, Women’s
Fitness
Super C, Bouclair
118,858
118,858
47,093
47,093
(5)
—
—
2013
21,755
20,467
1,288
2013
58,204
57,743
461
216,098
216,098
—
2013
52,095
51,948
147
Shoppers Drug
Mart, RBC
Royal Bank,
Coast Capital,
68 residential
units
Co-Op, Walmart,
Shoppers Drug
Mart,
Dollarama,
CIBC, RBC Royal
Bank, Liquor
Store
7
842,140
842,140
—
$ 295,843 $ 293,647 $ 2,196
46
FIRST CAPITAL REALTY ANNUAL REPORT 2013
As at December 31, 2013
(thousands of dollars, except for other data)
No.
Property
Building to
LEED
Standards (1)
Development Status
Current
Square Feet (3)
Total Est.
Cost incl.
Land
Investment
Cost
Estimated
Cost to
Complete
Fair Value
Major redevelopment – in pre-development
Humbertown Shopping
Centre,
Toronto, ON
Hazelton Lanes,
Toronto, ON
Victoria Park Centres,
Toronto, ON
Place Portobello,
Brossard, QC
Semiahmoo Shopping
Centre,
Surrey, BC
Macleod Trail,
Calgary, AB
6
Rezoning
pending
Entitlements
pending
Planning
underway
Planning
underway
Planning
underway
Planning
underway
109,101
212,501
258,491
574,784
296,620
299,906
1,751,403
$ 55,583
140,385
69,033
84,450
94,786
79,603
$ 523,840
16 Total major redevelopment
2,987,517
Properties adjacent acquired in 2013 and 2012 included in acquisitions (4)
$ 467,718 $ 943,852 $ 47,706 $ 994,046
$ 164,254
$ 164,188
(1) The Company’s policy is to build to LEED standards subject to tenant acceptance and existing physical structure limitations. Refer to the “Corporate Responsibility and
Sustainability” section of this MD&A.
(2) Represents the square footage of the existing area that will be demolished.
(3) Includes vacant units held for redevelopment.
(4) Refer to the “Business and Operations Review - 2013 Acquisitions” and “Business and Operations Review - 2012 Acquisitions” sections of this MD&A.
(5) Excludes 68,000 square feet of residential space.
Details of certain major redevelopment properties are included in the Company’s largest properties summaries (refer to the
“Business Operations Review - Real Estate Investments” section of this MDA). Additional details of three major
redevelopment projects are included below:
Centre D’Achats Ville Mont-Royal Assets, Montreal, Quebec
The Centre D’Achats Ville Mont-Royal assets is an assembly of five separate properties comprising three assets totalling
130,000 square feet with 477 parking stalls on 8.7 acres located in the affluent borough of Centre D’Achats Ville Mont-
Royal. The population within five kilometres is approximately 415,000 with an average household income of
approximately $73,000. Major tenants include Provigo (Loblaws), Pharmaprix (Shoppers Drug Mart), Scotiabank,
Starbucks, and other restaurants and personal services.
The Company has obtained municipal approval for the redevelopment of the shopping centre asset, and commenced
construction in late 2013 on the first phase of the redevelopment comprising a multi-tenant single-level building in the
parking lot of the existing shopping centre. Completion of this first phase will permit the Company to proceed thereafter
with the remainder of the redevelopment, including demolition of the existing shopping centre and the construction of a
49,000 square foot Provigo Le Marché (Loblaws) on the second floor of a multi-tenant building.
Further phases will complete redevelopment and rebranding of this well-located shopping centre. Subject to final plans
and approvals being obtained, once completed the redeveloped shopping centre is expected to include approximately
129,000 square feet of retail/commercial space, 420 parking at grade and may incorporate residential density.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
47
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Humbertown Shopping Centre, Toronto, Ontario
Humbertown Shopping Centre, originally developed in 1958, is a 109,000 square foot grocery-anchored property located
on 9.0 acres of land on The Kingsway in one of Toronto's most affluent residential neighbourhoods. Population within five
kilometres is approximately 321,000 with an average household income of approximately $94,000. Major tenants
currently include Loblaws, Shoppers Drug Mart, RBC Royal Bank, Scotiabank, LCBO and other restaurants, medical and
personal services.
The Company’s Humbertown Shopping Centre rezoning application received City of Toronto council approval in late 2013
and received the final approval by the Ontario Municipal Board on January 23, 2014. These approvals will permit the
redevelopment of Humbertown Shopping Centre into a mixed-use property that will include 235,000 square feet of retail
and commercial uses in five buildings and 550,000 square feet of residential, which will include condominiums,
townhomes and a seniors’ residential building, with a total of 1,495 parking stalls (including 815 stalls for retail/
commercial use, substantially all of which are underground). The residential component of the property is expected to be
developed in a partnership with a leading residential developer. Once completed, the Company expects the redeveloped
Humbertown Shopping Centre to continue to be anchored by a grocery store and other daily necessity retailers and
service providers.
48
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Ground-up Development
The Company classifies four properties totalling $281 million of invested cost as ground-up development properties
underway or completed. Of the 127,037 square feet under active development, approximately 51,850 square feet of
space is in the latter stages of lease negotiations with national retailers. As construction on ground-up developments is
phased, there continues to be ongoing negotiations in various stages with certain retailers for the remaining planned
space.
Highlights of the Company’s current ground-up projects underway, including costs for completed phases, are as follows:
As at December 31, 2013
(thousands of dollars, except for other data)
No.
Property
Building to
LEED
Standards (1) Major Tenants
Planned
Square Feet
Upon
Completion
Completed
Square
Feet (2)
Square Feet
Under
Development
Target
Completion
Date
Total Est.
Cost incl.
Land
Investment
Cost
Estimated
Cost to
Complete
Fair
Value (3)
Ground-up development – with active development
Carrefour du
Plateau-des-
Grives,
Gatineau, QC
Place Viau
Montreal, QC
114,637
114,637
— Q1, 2014 $ 31,773 $
31,492 $
281
IGA, National
Bank,
Dollarama,
McDonalds
Walmart
337,840
210,803
127,037 Q2, 2014
126,532
114,504
12,028
452,477
325,440
127,037
$ 158,305 $ 145,996 $ 12,309
111,765
111,765
— Q1, 2013 $ 48,206 $
48,206 $
—
228,679
228,679
— Q4, 2013
69,152
67,853
1,299
Total ground-up development –
with active development
2
Ground-up development – at completion
Leaside Village
Toronto, ON
Clairfield
Commons
(Pergola
Commons),
Guelph, ON
Fuzion,
Toronto, ON (4)
Longo's, The Beer
Store, CIBC,
Linen Chest,
Pet Valu
Cineplex, Bank of
Montreal RBC
Royal Bank,
GoodLife
Fitness,
Dollarama,
JYSK, The Beer
Store
2 Total ground-up development – at completion
348,906
348,906
Ground-up development – in pre-development
8,462
8,462
—
—
1,474
1,474
—
$ 118,832 $ 117,533 $
1,299
KingsClub,
Toronto, ON (4)
4 Total ground – up development
Properties adjacent acquired in 2013 and
2012 included in acquisitions (5)
160,000
—
961,383
674,346
160,000
287,037
$
— $
4,877
$ 277,137 $ 268,406 $ 13,608 $ 320,123
$
13,081
$ 12,819
(1) The Company's policy is to build to LEED standards subject to tenant acceptance and existing physical structure limitations. Refer to the “Corporate Responsibility and
Sustainability” section of this MD&A.
(2) Constructed square footage for which leases have been signed is 97% for Central region and 98% for Eastern region.
(3) Fair value by region is $151 million for Central region and $169 million for Eastern region.
(4) Fuzion and KingsClub are properties adjacent to Shops at King Liberty and therefore are not included in the count.
(5) Refer to the “Business and Operations Review - 2013 Acquisitions” and “Business and Operations Review - 2012 Acquisitions” sections of this MD&A.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
49
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Investment Properties at Cost with Bifurcation of Income Producing and Development Activity Components
A summary of the Company’s proportionate interest in total investment properties at cost as at December 31, 2013, with
bifurcation of the income producing and development activity components, is as follows:
Shopping centres – income-producing only
Shopping centres with development activities (1) (3)
Same property with incremental redevelopment and expansion
Major redevelopment
Ground-up development
Adjacent land parcels (1)
Land parcels adjacent to/part of existing properties
Land parcels adjacent to/part of existing properties available for expansion
Property held for redevelopment
Other development related costs
Total shopping centres with development activities or
potential development activities
Total shopping centres
Development land (4)
Total
Number of Sites/
Properties (1)
Square Feet (2)
(in thousands)
Investment Cost
(in millions)
Fair Value
(in millions)
164
24,462 $
5,684
14
16
4
34
32
4
2
—
38
72
10
62
148
287
497
956
43
86
—
1,085
1,582
20
121
61
202
92
—
5
20
117
319
$
6,003 $
1,599
161
7,175
166
3,181 $
6,164 $
7,341
(1) Property counts of shopping centres undergoing development activities and adjacent land parcels are included in the total property count for income-producing shopping
centres of 164.
(2) Includes both municipally approved developable commercial square feet and square feet the Company expects to be approved, excluding residential density until zoning
process is complete.
(3) Includes cost for phases under development only. Aggregate cost of the Company’s investment under development is approximately $502 million, which includes shopping
centres with development activities or potential of development activities of approximately $319 million, development land of approximately $161 million and residential
development inventory of approximately $22 million (see below).
(4) Number of sites and square feet do not include properties held through Main and Main Developments. See the “Business Operations Review - 2013 Investment Property
Development and Redevelopment Activities” section of this MD&A.
The Company has currently identified 3.2 million square feet available in the portfolio for future development of retail space
as follows:
Shopping Centres with Development Activities
The Company currently has 497,000 square feet of retail space consisting of incremental redevelopment and expansion,
major redevelopment and ground-up development that is planned with some buildings under construction. Refer to the
“Business Operations and Review - 2013 Investment Property Development and Redevelopment Activities” section of this
MD&A.
Adjacent Land Parcels
The Company has 38 land parcels adjacent to existing shopping centres with future redevelopment or expansion potential
of approximately 1.1 million square feet. Certain of these adjacent land parcels are in various stages of development and in
various property categories.
Development Lands
The Company has 10 land sites of which one is in the planning stages of pre-development and two are classified as held for
sale. These properties have potential if developed, to provide a further 1.0 to 1.5 million square feet of leasable area to the
shopping centre portfolio. The Edmonton Brewery District land site is in the latter stages of pre-development with
construction to commence as early as the second quarter of 2014, as further discussed below.
50
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Development land by region is as follows:
Region
Central
Eastern
Western
Total
Number of Sites/
Properties
5
Square Feet
(in thousands)
557
2
3
10
228
814
1,599
Acreage
41 $
14
67
122 $
Fair Value
(in millions)
119
9
38
166
The development land in the above table also includes the Company’s investment in Main and Main Developments, which is
discussed below.
Details on select development land projects are discussed below:
Edmonton Brewery District, Edmonton, Alberta
Edmonton Brewery District is a 14.3 acre land site located on 104th Avenue in downtown Edmonton. The estimated
population within five kilometers is 185,000 with an average household income of $81,000.
The Company obtained rezoning approval for Edmonton Brewery District in late 2013 to allow for retail, office and high-
density residential use. The Company is presently in the process of obtaining its development permit for the project and
may start construction as early as the second quarter of 2014. This is a 50% development project with a partner, Sun Life
Financial.
Edmonton Brewery District’s unique design will incorporate certain buildings from the Molson brewery that previously
operated on the site. Upon completion of its two phases of development, the property is expected to comprise
approximately 267,000 square feet of retail and 70,000 square feet of office, with a total of 390 at grade and 590
underground parking stalls. The project enjoys strong interest and the Company is in advanced lease negotiations with
various tenants. In addition, the site includes three acres of development land that is intended in the future to be sold to
a third party residential developer for construction of approximately 430,000 square feet of residential density.
Following completion, Edmonton Brewery District is expected to be directly linked to the 120th Street Station on the West
LRT line (light rapid transit) that is planned to be built by the City of Edmonton. Edmonton Brewery District is located
diagonally across the street from the Company's existing 45,000 square foot Longstreet Shopping Centre.
Main and Main Developments
The Company is partnering with a private developer (“Main and Main Developments”) to acquire strategic assets in
underserviced transit-oriented retail nodes. A core component of Main and Main Developments' acquisition
strategy revolves around identifying and acquiring assets that have the potential to increase in value as a result of
demographic growth, income growth and new urban retail formats. Main and Main Developments will seek to
generate profits through acquisition, rezoning and redevelopment of real estate with a focus in Toronto and
Ottawa. Value creation will be accomplished through rezoning and redevelopment of the properties to their
highest and best use and/or mixed use development. The Main and Main Developments team brings a skill set and
focus to the assembly and redevelopment of sites which are much smaller than the Company’s typical properties
and are normally acquired or assembled via multiple adjacent parcel acquisitions, often from private individuals.
The Company has a 67% equity interest in Main and Main Developments and consolidates its activities in its
consolidated financial statements. During the year ended December 31, 2013, Main and Main Developments
completed acquisitions in three new assembly projects for $20.7 million. In addition, Main and Main Developments
completed the sale of a 40% interest in one assembly for $3.9 million. Since inception, Main and Main
Developments has completed acquisitions of 33 parcels making up 17 assemblies for future development projects,
which have an aggregate fair value of approximately $124 million as at December 31, 2013, which compares to
$97.8 million at December 31, 2012. As at December 31, 2013, Main and Main Developments had additional
acquisitions underway, one of which was completed during Q1 2014 for $3.5 million, adding to one assembly. Each
of the 17 assembly projects is located on a major street in Toronto or Ottawa. Two projects in Toronto and one
project in Ottawa are currently in the pre-development planning stage.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
51
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Main and Main Developments generally expects to partner with residential developers in executing value creation
opportunities on sites with residential density and intends to retain the retail component and in some cases may retain
the rental residential component upon stabilization of the asset. The Company has provided Main and Main
Developments with senior and mezzanine debt financing in connection with the acquisition and development of sites.
Residential Development Inventory
As at December 31, 2013
(thousands of dollars, except for other data)
Property
Number of
Units
Constructed
Number
of Units
Pre-Sold
% of
Units
Pre-Sold
Number of
Units
Occupied
(Interim)
Target Fully
Occupied/
Completion
Date
Total Est. Cost
incl. Land (at
50%)
Investment
Cost (at 50%)
Estimated
Costs to
Complete (at
50%)
2013 Year-To-
Date Sales
Revenue
(at 50%)
Debt Funded
by Third
Parties (at 50%)
Shops at King Liberty (Fuzion)
Shops at King Liberty (KingsClub)
246
TBD
242
184
98.4%
TBD
1071 King Street
Less: 2013 Year-To-Date Cost of Sales
(at 50%) – Fuzion
238
Q1, 2014 $
29,255 $
27,979 $
1,276 $
28,850 $
27,224
—
2017
—
—
15,976
3,498
47,453
(25,884)
—
—
—
—
28,850
(25,884)
3,573
—
As at, and for the year ended, December 31, 2013
$
21,569
$
2,966
The Company is partnering with a Toronto-based condominium developer to develop its residential density project at
Shops at King Liberty in Toronto. The Company has a 50% interest in the project and recognizes its right to the assets and
obligations for liabilities in its financial results. The project includes two phases: Fuzion and KingsClub. The Company's
residential development inventory comprises the construction and sale of residential condominium units. The Company
recognizes revenue from the sale of residential units upon substantial completion. The Company considers substantial
completion for each residential unit to be the point in which the purchaser has paid all amounts due on interim closing
and has the right to occupy the premises, has demonstrated collectability of the balance due at closing, and has received
an undertaking from the property owners to be assigned title in due course, or when title has transferred.
Fuzion consists of 246 residential units (244 sellable and two guest suites, which will be sold to the condominium
association) in a condominium tower and approximately 9,000 square feet of retail based on entitlements. The Company
has the option to acquire the retail space from the project. Interim occupancy for the Fuzion residential units commenced
during the first quarter of 2013 and registration and final closings commenced in Q1, 2014. For the year ended December
31, 2013, 240 of the 244 sellable units were sold and 238 units took possession and occupancy. Subsequent to year end,
the remaining two units were sold, as well as the two guest suites, and purchasers are expected to take possession and
occupancy prior to registration and final closing. In connection with the occupancies, the Company has recorded $25
million in loans receivable (Note 8 to the financial statements) and $5 million in escrow deposits (Note 10 to the financial
statements), which will be received at the time of registration and final closing. Additionally, the Company is indebted on
the project in the amount of $27.2 million, which will be repaid upon receipt of the loans receivable and deposits in
escrow. This indebtedness consists of a $22.0 million credit facility included in mortgages (Note 12 to the financial
statements) and $5.2 million in other third-party financing included in accounts payable and other liabilities (Note 16 to
the financial statements).
Subsequent to year end, registration and final closings occurred on 233 units. Proceeds at the Company's 50% interest of
approximately $26 million were received of which approximately $22 million was directed to repay the Company's
indebtedness on the project's credit facility.
52
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The second phase, KingsClub, is in pre-sale phase with construction underway in the excavation stage. Management
expects that there will be approximately 160,000 square feet of retail in this phase and approximately 500 residential
units for sale or rental once entitlements are completed, based on current market and site conditions. The expected
timing for occupancy is estimated to be 2016 with unit closings in 2017. The KingsClub sales centre is open at the 1071
King Street location.
The following table summarizes the Company’s residential inventory investment activity:
(millions of dollars)
Balance at beginning of year
Expenditures
Recognized as cost of sales
Balance at end of year
Year ended December 31
2013
33 $
15
(26)
22 $
2012
19
14
—
33
$
$
Capital Expenditures on Investment Properties
Capital expenditures are incurred by the Company for maintaining and/or renovating its existing shopping centres. In
addition, the Company also incurs expenditures for the purposes of expansion, redevelopment and development
activities.
Revenue sustaining capital expenditures are required for maintaining the Company’s shopping centre infrastructure and
revenues from leasing of existing space. Revenue sustaining capital expenditures are not recoverable from tenants. Typical
costs relate to ongoing investments of capital for tenant leasing costs related to new and renewal leasing, and capital to
physically maintain its shopping centres such as roof replacement programs and resurfacing of parking lots.
Revenue enhancing capital expenditures are those expenditures that increase the revenue generating ability of the
Company’s shopping centres. Revenue enhancing capital expenditures are incurred in conjunction with or in
contemplation of a development or redevelopment strategy, or related to acquisition or disposition or the same property
category. Capital expenditures incurred in development and redevelopment projects include pre-development costs,
direct construction costs, borrowing costs, and overhead including applicable salaries and other direct costs of internal
staff directly attributable to the projects under active development.
Additionally, certain tenant leases provide the ability to recover from tenants over time a portion of capital investments to
physically maintain the Company’s shopping centres as property operating costs.
Revenue sustaining capital expenditures are dependent upon many factors, including the age and location of the
Company’s shopping centres. The Company owns and actively seeks to acquire older, well-located shopping centres in
urban locations, where expenditures tend to be higher when they are subsequently repaired or conditions brought up to
the Company’s standards or redeveloped. As at December 31, 2013, the weighted average age based on year constructed
or redeveloped and square footage, for the Company's total shopping centre portfolio was as follows:
5 year or newer
6 – 10 years
11 – 15 years
16 – 20 years
Over 20 years
Total Portfolio
Central
Eastern
Western
19%
18%
18%
23%
28%
30%
36%
17%
18%
16%
12%
27%
11%
14%
8%
10%
24%
22%
26%
23%
In addition to property category, the Company also considers property age, the potential effects on occupancy and future
rents per square foot, the time leasable space has been vacant and other factors when assessing whether a capital
expenditure is revenue enhancing or sustaining.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
53
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
In the fourth quarter of 2013, the definition of revenue sustaining capital expenditures has been further refined by
property category in order to be consistent with how the Company evaluates and categorizes its business operations.
Previously, revenue sustaining capital expenditures were bifurcated in all property categories. The refinement excludes
from revenue sustaining capital expenditures, those expenditures incurred in conjunction with a ground-up development,
major redevelopment, acquisition and disposition activities which are, by their nature value enhancing activities.
Historically, the Company’s revenue sustaining expenditures on same property range from $0.81 to $0.87 per square foot
per annum, with a three-year weighted average on same property of $0.84 per square foot (three years ended
December 31, 2012 - $0.82 per square foot). Revenue sustaining expenditures on same property for the year ended
December 31, 2013 totalled $0.87 per square foot compared to $0.84 per square foot for 2012. Over the past three years,
the Company has increased its expenditures on roof and parking lot replacements in the same property category at
several of its shopping centres, which will reduce its ongoing maintenance expenditures at these centres going forward.
Revenue sustaining and enhancing capital expenditures on investment properties, which include shopping centres and
development land, are as follows:
(thousands of dollars)
Revenue sustaining – same property – stable
Revenue sustaining – same property with incremental development and expansion
Revenue sustaining – total same property
Enhancing capital expenditures:
Revenue enhancing and other
Expenditures recoverable from tenants
Development expenditures
Total
$
Year ended December 31
2012
9,809
4,321
14,130
2013
11,691 $
3,419
15,110
49,546
14,463
187,406
$
266,525 $
62,966
8,706
234,972
320,774
Capital expenditures on the shopping centre portfolio by property categorization are as follows:
Year ended December 31
(thousands of dollars)
Revenue sustaining
Revenue enhancing and other
Expenditures recoverable from
tenants
Development expenditures
Total – Same property
Major redevelopment
Ground-up development
Acquisitions – 2013
Acquisitions – 2012
Investment properties classified
as held for sale
Dispositions – current and prior
year
Development land
Total
Same Property
– Stable
Same Property with
incremental
redevelopment and
expansion
Total
Same Property
– Stable
Same Property with
incremental
redevelopment and
expansion
2013
4,321 $
23,995
2,386
49,503
80,205
$
11,691 $
15,415
3,419 $
17,343
15,110 $
32,758
9,809 $
19,103
1,062
—
28,168
3,956
38,548
63,266
4,879
—
33,791
5,018
38,548
91,434
68,803
65,272
1,822
24,384
2,894
2,345
9,571
2012
Total
14,130
43,098
7,265
49,503
113,996
67,500
94,247
8,022
13,831
13,349
1,927
7,902
$
266,525
$
320,774
54
FIRST CAPITAL REALTY ANNUAL REPORT 2013
A reconciliation of capital expenditures on investment properties to the consolidated statements of cash flows is as
follows:
(thousands of dollars)
Cash flow used in operating activities – deferred leasing costs
Cash flows used in investing activities – capital expenditures on investment property
Year ended December 31
2013
5,095 $
261,430
266,525 $
2012
5,108
315,666
320,774
$
$
2013 Leasing and Occupancy
Total portfolio occupancy as at December 31, 2013 of 95.5% compares to 95.6% as at December 31, 2012. Same property
– stable occupancy totalled 97.6% (December 31, 2012 - 97.6%) and comprises 12 million square feet (December 31, 2012
– 12 million square feet), or approximately half of the portfolio. The balance of the occupancy (by property category)
ranges from 91% to 98% and provides for potential net operating income growth as the redevelopment, development and
expansion activities are completed.
Occupancy comparing the Company's shopping centre portfolio by property categorization as at December 31 is as follows:
(square feet in thousands, except other data)
Same property – stable
Same property with incremental redevelopment
and expansion
Major redevelopment
Ground-up development
Investment properties classified as held for sale
Total portfolio before acquisitions and dispositions
Acquisitions – 2013
Acquisitions – 2012
Dispositions – 2013
Total
December 31, 2013
December 31, 2012
Total
Occupied
Square Feet
% Occupied
Weighted
Average
Rate per
Occupied
Square Foot
Total
Occupied
Square Feet
% Occupied
Weighted
Average Rate
per Occupied
Square Foot
11,652
97.6% $
17.91
11,646
97.6% $
17.73
5,358
2,725
663
741
21,139
269
1,964
—
23,372
95.6%
91.2%
98.2%
91.3%
96.0% $
94.0% $
90.9%
—
95.5% $
17.91
18.50
22.80
11.87
17.93
27.92
16.92
—
17.96
5,262
2,649
487
765
20,809
—
2,054
1,010
23,873
95.1%
92.9%
95.8%
94.5%
96.2% $
— $
91.1%
93.5%
95.6% $
17.65
18.35
22.25
11.75
17.68
—
16.82
15.38
17.51
For the year ended December 31, 2013, gross new leasing totalled 1,007,000 square feet including development and
redevelopment spaces coming on line. This gross new leasing will generate additional minimum rent of approximately
$21.4 million (excluding sold properties). The Company achieved a 10.0% increase on 1,419,000 square feet of renewal
leases over the expiring lease rates (10% excluding sold properties). Net tenant closures totalled 23,000 square feet for
the year. This is primarily due to the non-renewal of leases that expired during the year, with no immediate tenants to
backfill the space. The nominal 2013 increase in all openings versus all closures of 1.3% was impacted by shorter term
leases at lower rates to accommodate tenant repositioning or property redevelopment activities, anchor tenant openings
at market rates which are typically lower than the rate per square foot for smaller CRU spaces and lower rental rate per
square foot increases on ancillary office space leased during the year.
The average rate per occupied square foot excluding acquisitions and dispositions increased to $17.74 as at December 31,
2013 from $17.51 as at December 31, 2012. The increase is a result of the leasing and development activity in the period.
Including acquisitions and dispositions, the average rate per occupied square foot increased to $17.96.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
55
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Management believes that the weighted average rental rate per square foot for the portfolio would be in the range of
$23.00 to $25.00, if the portfolio were at market. The Company continues to seek well-located properties in urban
markets with below market rent for future value creation activities. The weighted average lease term for the portfolio is
5.9 years as at December 31, 2013, excluding options in favour of tenants, and including month-to-month and other
short-term leases with tenants in properties with pre-development activities underway. The weighted average lease term
for the Company’s top 10 tenants is 7.3 years as at December 31, 2013, excluding options in favour of tenants.
Changes in the Company’s gross leasable area and occupancy for the total portfolio are set out below:
Total
Square Feet
Occupied
Square Feet
Under Redevelopment
Square Feet
Vacant
Square Feet
Year ended December 31, 2013
(thousands)
(thousands)
%
(thousands)
%
(thousands)
%
December 31, 2012
24,969
23,873
95.6 %
172
0.7%
924
3.7%
Tenant openings
Tenant closures
Closures for redevelopment
Developments – coming on line
Redevelopments – coming on line
Demolitions
Reclassification
Total portfolio before dispositions
and acquisitions
—
—
—
415
—
(32)
(71)
543
(566)
(121)
361
103
—
(63)
25,281
24,130
95.5 %
Dispositions (at date of disposition)
Acquisitions (at date of acquisition)
December 31, 2013
(1,105)
286
24,462
Renewals
Renewals – expired
93.1 %
94.8 %
95.5 %
(1,029)
271
23,372
1,419
(1,419)
Net increase per square foot from renewals
% Increase on renewal of expiring rents
% Increase in rate per square foot – openings versus all closures
—
—
121
—
(103)
(32)
21
179
—
—
179
0.7%
0.7%
(543)
566
—
54
—
—
(29)
972
(76)
15
911
3.8%
3.7%
Weighted
Average
Rate per
Occupied
Square Foot
$ 17.51
19.77
(19.36)
(20.87)
23.61
20.56
—
—
$ 17.74
(15.47)
27.82
$ 17.96
No. of
Leases
254
(276)
(76)
61
24
—
—
(156)
113
478 $ 20.13
(478) $ (18.30)
$
1.83
10.0%
1.3%
Included in the 1,007,000 square feet of gross new leasing is 495,000 square feet related to the same property portfolio.
The gross new leasing for same property portfolio will generate additional minimum rent of approximately $10.3 million
on a same property basis. The Company achieved a 10.7% increase on 896,000 square feet of renewal leases over the
expiring lease rates for the same property portfolio. Net tenant closures for the same property portfolio totalled 10,000
square feet for the year.
On the same property basis, the average rate per occupied square foot increased to $17.91 as at December 31, 2013 from
the average rate per occupied square foot of the same property portfolio of $17.70 as at December 31, 2012.
Total development and redevelopment of 518,000 square feet was completed in the year ended December 31, 2013
compared with 853,000 square feet developed in the year ended December 31, 2012. The occupied development and
redevelopment space was leased at an average rental rate of $22.93 per square foot for the year ended December 31,
2013 compared to $23.88 per square foot during the comparative period of 2012.
56
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Development and redevelopment coming on line in 2013 included the following:
Property Name
Building to LEED
standards (1)
City
Province
Square
Feet
Major Tenants of Developed Space
Same property with incremental redevelopment and expansion
Eagleson Place
Carrefour St-David
Place Nelligan / Plaza St-René
Hunt Club Marketplace
Place Pointe-aux-Trembles
Gloucester City Centre
Centre Commercial Côte St-Luc
Credit Valley Town Plaza
Other
Major redevelopment
Port Place Shopping Centre
Deer Valley Marketplace
Mount Royal Village
Carrefour Soumande
Chartwell Shopping Centre
Victoria Park Centres
Hazelton Lanes
Other
Ground-up development
Place Viau
Carrefour du Plateau-des-Grives
Pergola Commons
Shops at King Liberty (Fuzion)
Leaside Village
Total
Total development brought on line
Total other redevelopment brought on line
Ottawa
Beauport
Gatineau
Toronto
Montreal
Ottawa
Montreal
Mississauga
Nanaimo
Calgary
Calgary
Vanier
Toronto
Toronto
Toronto
Montreal
Gatineau
Guelph
Toronto
Toronto
ON
QC
QC
ON
QC
ON
QC
ON
BC
AB
AB
QC
ON
ON
ON
QC
QC
ON
ON
ON
27,000
22,000
20,000
20,000
16,000
13,000
6,000
6,000
7,000
50,000
37,000
33,000
30,000
24,000
14,000
12,000
20,000
100,000
26,000
20,000
8,000
7,000
518,000
415,000
103,000
518,000
Goodlife Fitness, The Beer Store
Gold’s Gym
Dollarama, Pharmacie Brunet
Dollarama
Dollarama
PharmaPlus
McDonalds
TD Canada Trust
RBC Royal Bank, Dollarama
Dollarama, TimberWest
Shoppers Drug Mart, Dollarama, Pet Valu
Goodlife Fitness
Spaces with leasing underway
Tim Hortons
Dollarama, LCBO
The Toronto Clinic
Various tenants
Walmart
CIBC, Dollarama, McDonalds
The Keg Restaurant, State & Main Kitchen
& Bar
Structube
Various tenants
Leased to various tenants
(1) The Company’s policy is to build to LEED standards subject to tenant acceptance and existing physical structure limitations. Refer to the “Corporate Responsibility and
Sustainability” section of this MD&A.
Individual buildings within a development are generally constructed only after obtaining commitments on a substantial
portion of the space. Development and redevelopment coming on line include both leased and unleased space were
brought on line at completion of construction. The Company’s 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 balance of the space brought on line is expected to be leased in the next 12
months.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
57
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
2012 Leasing and Occupancy
For the year ended December 31, 2012, gross new leasing totalled 1,407,000 square feet including development and
redevelopment spaces coming on line. This gross new leasing will generate additional minimum rent of approximately
$30.2 million (excluding sold properties). The Company achieved a 10.0% increase on 1,301,000 square feet of renewal
leases over the expiring lease rates (10.0% excluding sold properties). Net tenant closures totalled 56,000 square feet for
the year.
The average rate per occupied square foot excluding acquisitions and dispositions increased to $17.40 as at December 31,
2012 from the average rate per occupied square foot of the total portfolio of $16.81 as at December 31, 2011, as a result
of the leasing and development activity in the period. Including acquisitions and dispositions, the average rate per
occupied square foot increased to $17.51.
Total portfolio occupancy as at December 31, 2012 of 95.6% compares to 96.2% at December 31, 2011.
Changes in the Company’s gross leasable area and occupancy for its shopping centre portfolio are set out below:
Total
Square Feet
Occupied
Square Feet
Under Redevelopment
Square Feet
Vacant
Square Feet
Year ended December 31, 2012
(thousands)
(thousands)
%
(thousands)
%
(thousands)
%
December 31, 2011
23,227
22,351
96.2 %
127
0.6%
749
3.2%
Tenant openings
Tenant closures
Closures for redevelopment
Developments – coming on line
Redevelopments – coming on line
Demolitions
Reclassification
Total portfolio before dispositions
and acquisitions
—
—
—
731
—
(173)
16
685
(741)
(206)
600
122
—
14
23,801
22,825
95.9 %
Dispositions (at date of disposition)
Acquisitions (at date of acquisition)
December 31, 2012
(1,087)
2,255
24,969
Renewals
Renewals – expired
97.0 %
93.2 %
95.6 %
(1,054)
2,102
23,873
1,301
(1,301)
Net increase per square foot from renewals
% Increase on renewal of expiring rents
% Increase in rate per square foot – openings versus all closures
—
—
190
—
(106)
(173)
134
172
—
—
172
(685)
741
16
131
(16)
—
(132)
0.7%
804
3.4%
(33)
153
924
3.7%
0.7%
Weighted
Average
Rate per
Occupied
Square Foot
$ 16.81
18.92
(16.04)
(14.76)
25.24
17.20
—
—
$ 17.40
(14.16)
16.94
$ 17.51
No. of
Leases
231
(243)
(47)
167
27
—
—
(191)
741
393 $ 18.65
(393) $ (16.95)
$
1.70
10.0%
18.4%
In 2012, development of 731,000 square feet was brought on line with 600,000 square feet leased at an average rate of
$25.24 per square foot.
58
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Development and redevelopment coming on line in 2012 included the following:
Property Name
Building to
LEED
Standards (1) City
Province
Square
Feet (2)
Major Tenants of Developed Space
Same property with incremental redevelopment and expansion
Brooklin Towne Centre
Cedarbrae Mall
Gloucester City Centre
Shops at King Liberty
Thickson Place
Queenston Place
Carrefour du Versant
Carrefour St-Hubert
Carrefour Charlemagne
Place Nelligan
Centre commercial Beaconsfield
Centre Kirkland
Westmount Shopping Centre
Red Deer Village
McKenzie Towne Centre
Other
Major redevelopment
Chartwell Shopping Centre
Appleby Village
5051 – 5061 Yonge Street
146 Lakeshore Road West
Deer Valley Marketplace
Port Place Shopping Centre
Carrefour Soumande
Place Pointe-aux-Trembles
Other
Whitby
Toronto
Ottawa
Toronto
Whitby
Hamilton
Gatineau
Longueuil
Charlemagne
Gatineau
Beaconsfield
Kirkland
Edmonton
Red Deer
Calgary
Toronto
Burlington
Toronto
Oakville
Calgary
Nanaimo
Québec City
Montreal
ON
ON
ON
ON
ON
ON
QC
QC
QC
QC
QC
QC
AB
AB
AB
ON
ON
ON
ON
AB
BC
QC
QC
7,000
19,000
12,000
21,000
12,000
5,000
17,000
14,000
8,000
5,000
5,000
7,000
The Beer Store
Shoppers Drug Mart, Scarborough Centre For Healthy
Communities
LCBO
RBC Royal Bank, EQ3, Pearl Vision
Starbucks, LCBO
Kelsey's
CIBC, Dollarama, Second Cup
RBC Royal Bank, Magicuts, and space with leasing
underway
Leasing underway
Sobeys
TD Canada Trust
SAQ, Second Cup
25,000
Rexall, Wind Mobile, Calwood Medical Clinic,
Medicine Shoppe Pharmacy, Woodcroft Medical
Centre
Canadian Tire
McKenzie Ortho, Servus Credit Union, various other
tenants
Bestco Food, CIBC, Dollarama, various other tenants
Harvey’s, Womens Fitness Clubs of Canada, Great
Clips, various other tenants and space with leasing
underway
Jack Astor’s Bar and Grill, Michael’s
Starbucks, Pizza Hut, Royal Cleaners, Bark n Fitz
CIBC, Deer Valley Health Foods, Medical Clinic and
space with leasing underway
Starbucks and space with leasing underway
Metro Richelieu
19,000
13,000
31,000
85,000
49,000
34,000
16,000
10,000
6,000
42,000
7,000
4,000
FIRST CAPITAL REALTY ANNUAL REPORT 2013
59
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Development and redevelopment coming on line in 2012, continued:
Building to
LEED
Standards (1)
City
Province
Toronto
Guelph
Toronto
Québec City
Gatineau
Montreal
Vancouver
Calgary
ON
ON
ON
QC
QC
QC
BC
AB
Property Name
Ground-up development
Leaside Village
Clairfield Commons (Pergola
Commons)
Rutherford Market Place
Carrefour St-David
Carrefour du Plateau-des-Grives
Acquisitions – 2012
Les Jardins Millen
Shops at New West
Acquisitions – 2011
9630 Macleod Trail
Other
Assets Held For Sale
Total
Total development brought on line
Total other redevelopment brought on line
Square
Feet (2)
104,000
Major Tenants of Developed Space
CIBC, Longo’s, Bulk Barn, Linen Chest, Pet Valu,Tim
Hortons, The Beer Store, 5 Guys Burgers, various
other tenants
113,000
BMO, Cineplex, GoodLife Fitness, Dollarama, various
other tenants
5,000
Booster Juice, My Sushi and space with leasing
underway
15,000
The Co-Operators, Optometrist and space with
leasing underway
10,000
National Bank
50,000
38,000
IGA and other leasing underway
Various tenants and space with leasing underway
13,000
Fit 4 Less
Various tenants
1,000
31,000
853,000
731,000
122,000
853,000
(1) The Company’s policy is to build to LEED standards subject to tenant acceptance and existing physical structure limitations. Refer to the “Corporate Responsibility and
Sustainability” section of this MD&A.
(2) Includes new space in development projects.
Lease Maturities
The Company’s lease maturity profile for its shopping centre portfolio as at December 31, 2013 is as follows:
Maturity Date (1)
Month-to-month tenants (2)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Thereafter
Total/Average
Number of
Stores
Occupied Square
Feet (thousands)
Percent of Total
Square Feet
214
612
629
535
578
544
264
172
200
242
168
67
105
4,330
387
2,014
2,558
2,145
2,980
2,769
1,926
947
1,281
1,610
1,635
681
2,439
23,372
1.6% $
8.2%
10.5%
8.8%
12.2%
11.3%
7.9%
3.8%
5.2%
6.6%
6.7%
2.7%
10.0%
95.5% $
Annualized
Minimum Rent at
Expiration
($ 000s)
6,513
32,887
44,966
35,727
53,541
49,880
39,145
19,545
28,113
38,688
30,618
13,691
49,201
Percent of Total
Annualized
Minimum Rent
Average Annual
Minimum Rent
per Square Foot
at Expiration
16.82
16.33
17.58
16.66
17.97
18.01
20.33
20.64
21.94
24.03
18.73
20.10
20.17
1.5% $
7.4%
10.2%
8.1%
12.1%
11.3%
8.9%
4.4%
6.4%
8.7%
6.9%
3.0%
11.1%
442,515
100.0% $
18.93
(1) Excluding any contractual renewal options in favour of the tenants.
(2) Contains tenants on over hold including renewals and extensions under negotiation, month-to-month tenants and tenants in space at properties with future redevelopment.
60
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Included in 2014 lease maturities of 2,014,000 square feet is 1,182,000 square feet related to the same property portfolio,
which represents 58.7% of the lease maturities for the total shopping centre portfolio. The expiring leases on a same
property basis generate an annual minimum rent of $22.3 million, representing 67.8% of the annual minimum rent from
the expiring leases for the total shopping centre portfolio.
The Company’s expected future income through maturity from its existing in-place leases for its shopping centre portfolio
as at December 31, 2013 includes:
(in thousands of dollars)
Revenue Recognition Period
Q1, 2014
Q2, 2014
Q3, 2014
Q4, 2014
Total
2015
2016
2017
2018
Thereafter
Total
Estimated Income
from Operating
and Tax
Recoveries (2)
Minimum
Rent (1)
$
$
101,569 $
100,730
99,164
96,666
398,129 $
349,930
316,483
277,832
233,403
930,499
54,051
53,618
52,780
51,477
211,926
186,670
168,789
148,271
124,754
498,485
$ 2,506,276 $
1,338,895
(1) Assumes non-exercise of optional periods by tenants.
(2) Income from operating cost and realty tax recoveries is estimated by applying the relative percentage to current year base rent to expected future minimum rent for each
period.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
61
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Top Forty Tenants
As at December 31, 2013, 54.4% of the Company’s annualized minimum rent came from its top 40 tenants (December 31,
2012 – 54.4%). Of those rents, 81.3% 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.
Tenant
Number
of Stores
Square Feet
(thousands)
Sobeys (1)
Shoppers Drug Mart
Loblaws
Metro
Canadian Tire
TD Canada Trust
RBC Royal Bank
CIBC
Dollarama
Rona
Goodlife Fitness
LCBO
Rexall
Staples
Bank of Montreal
London Drugs
Scotiabank
Tim Hortons
Alberta Health Services
Longo’s
Starbucks
Save-On-Foods
Jean Coutu
Subway
Hudson’s Bay Company
Toys “R” Us
1
2
3
4
5 Walmart
6
7
8
9
10
Sub-total
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28 Whole Foods Market
29 Michaels
Cara
30
SAQ
31
Best Buy
32
Target
33
34
Yum! Brands
35 McDonalds
36
37
38 Winners
The Home Depot
39
40
Pet Value
Total: Top 40 Tenants
Reitmans
The Beer Store
59
68
29
33
15
25
45
46
36
40
396
4
16
21
21
12
27
9
23
47
3
3
43
5
12
68
4
4
2
4
20
21
5
2
29
21
27
11
5
2
20
887
2,049
993
1,457
1,200
1,482
830
244
258
202
419
9,134
421
397
217
180
298
124
231
127
126
157
126
70
222
155
81
253
156
90
87
83
94
140
246
58
84
134
66
164
236
52
14,009
Percent of
Total Gross
Leasable Area
8.4%
4.1%
6.0%
4.9%
6.0%
3.4%
1.0%
1.0%
0.8%
1.7%
37.3%
1.7%
1.6%
0.9%
0.8%
1.2%
0.5%
0.9%
0.5%
0.5%
0.6%
0.5%
0.3%
0.9%
0.6%
0.3%
1.0%
0.6%
0.5%
0.4%
0.4%
0.4%
0.6%
1.0%
0.2%
0.3%
0.5%
0.3%
0.8%
1.0%
0.2%
57.3%
Percent of Total
Annualized
Minimum Rent
7.1%
6.0%
4.2%
3.5%
3.1%
2.8%
2.0%
2.0%
1.6%
1.5%
33.8%
1.3%
1.3%
1.3%
1.2%
1.0%
1.0%
1.0%
0.9%
0.8%
0.7%
0.7%
0.7%
0.6%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.4%
0.4%
0.4%
0.4%
0.2%
54.4%
DBRS Credit
Rating
S&P Credit
Rating
Moody’s
Credit Rating
BBB (low)
A (low)
BBB
BBB
AA
BBB (high)
AA
AA
AA
BBB
BBB-
BBB+
BBB
BBB
AA
BBB+
AA-
AA-
A+
Aa2
Aa1
Aa3
Aa3
BB (high)
BB+
AA (low)
AA-
Aa2
AA
AA
BBB
AAA
B
A (high)
AA (low)
A
BBB
A+
A+
AAA
A-
B+
B-
BBB-
B
BB-
A+
BB
A+
BBB
A
AA-
A+
A
Baa2
Aa3
Aa2
Aaa
Baa2
B1
B2
B3
Aa2
Baa2
A2
Baa3
A2
Aa2
A3
A2
(1) Sobeys includes space occupied by Safeway Canada, resulting from the merger of the companies.
62
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Loans, Mortgages and Other Real Estate Assets
(thousands of dollars)
December 31, 2013
December 31, 2012
Loans and mortgages receivable (a)
Available-for-sale (“AFS”) investments in equity securities
Total non-current loans, mortgages and other real estate assets
Fair value through profit or loss (“FVTPL”) investments in equity securities (b)
AFS investments in equity securities
Loans and mortgages receivable (c)
Loans receivable from sales of residential inventory (d)
Total current loans, mortgages and other real estate assets
$
$
$
$
68,150 $
3,631
71,781 $
27,764 $
455
24,457
24,773
77,449 $
20,553
—
20,553
16,989
900
28,702
—
46,591
(a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning
investment properties and bear interest at a weighted average rate as at December 31, 2013 of 6.3% per annum
(December 31, 2012 – 8.8% per annum). The loans and mortgages receivable mature between 2014 and 2025.
(b) The Company invests from time to time in publicly traded real estate and related securities. These securities are
recorded at market value. Unrealized gains and losses on FVTPL securities are recorded in other gains (losses) and
(expenses).
(c) The Company has loans and mortgages receivable secured by interests in investment properties or shares of entities
owning investment properties and bear interest at a weighted average rate of 9.5% per annum (December 31, 2012 –
10.6% per annum). The loans and mortgages receivable mature during 2014.
(d) Loans receivable from sales of residential inventory bear interest at approximately 3% per annum.
Scheduled principal receipts of loans and mortgages receivable as at December 31, 2013 are as follows:
(thousands of dollars, except other data)
2014
2015
2016
2017
2019 to 2025
Unamortized deferred financing fees, premiums and discounts, net
and interest receivable
Current
Non-current
Scheduled
Amortization
Payments on
Maturity
$
$
41 $
43
—
—
—
84 $
24,182 $
7,730
8,195
3,522
47,857
91,486
$
$
$
Weighted
Average Interest
Rate
9.53%
10.35%
7.96%
5.29%
5.46%
7.17%
6.33%
9.54%
7.17%
Total
24,223
7,773
8,195
3,522
47,857
91,570
1,037
92,607
24,457
68,150
92,607
FIRST CAPITAL REALTY ANNUAL REPORT 2013
63
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
RESULTS OF OPERATIONS
Net Income
(thousands of dollars, except share and per share amounts)
Net income attributable to common shareholders
Net income per share attributable to common shareholders (diluted)
Weighted average number of common shares – diluted (in thousands)
Year ended December 31
2013
2012
214,863 $
392,923
1.01 $
1.98
229,948
206,573
$
$
Net income attributable to common shareholders for the year ended December 31, 2013 was $214.9 million or $1.01 per
share (diluted) compared to $392.9 million or $1.98 per share (diluted) for the year ended December 31, 2012.
For the year ended December 31, 2013, the decrease in net income as compared to prior year is primarily due to a
$230.9 million difference in fair value gain on investment properties and the related reduction in deferred income
taxes, offset by an increase in NOI resulting from net acquisitions, development and redevelopment projects coming
on line and same property NOI growth. On a per share basis, the decrease is also partially due to the increase in the
weighted average number of common shares outstanding resulting from various equity financing activities and
growth of the Company.
Reconciliation of Consolidated Statements of Income, as presented, to the Company’s Proportionate Interest
The following table provides the reconciliation of the Company’s consolidated statements of income, as presented in the
consolidated financial statements, to proportionate interest.
(thousands of dollars)
Net operating income
Property rental revenue
Property operating costs
Other income and expenses
Interest and other income
Interest expense
Corporate expenses
Abandoned transaction costs
Amortization expense
Share of profit from joint venture
Other gains (losses) and (expenses)
Increase in value of investment properties,
net
Income before income taxes
Deferred income taxes
Net income
2013
Year ended December 31
2012
Consolidated
Statements of
Income (Equity
method)
Adjustment for
equity method to
proportionate
interest
Proportionate
interest
Consolidated
Statements of
Income
(Equity method)
Adjustment for
equity method to
proportionate
interest
Proportionate
interest
$
631,605 $
233,595
398,010
4,324 $
1,384
2,940
635,929 $
234,979
400,950
579,259 $
210,126
369,133
4,148 $
1,434
2,714
583,407
211,560
371,847
10,501
(164,909)
(25,211)
(2,231)
(3,873)
2,334
(4,280)
—
(537)
—
—
—
(2,334)
—
10,501
(165,446)
(25,211)
(2,231)
(3,873)
—
(4,280)
56,086
(69)
56,017
(131,583)
(2,940)
(134,523)
266,427
51,418
—
—
266,427
51,418
8,706
(160,916)
(23,417)
(2,095)
(4,102)
7,287
(6,080)
286,950
106,333
475,466
82,158
58
(559)
—
—
—
(7,287)
—
5,074
(2,714)
—
—
8,764
(161,475)
(23,417)
(2,095)
(4,102)
—
(6,080)
292,024
103,619
475,466
82,158
$
215,009 $
— $
215,009 $
393,308 $
— $
393,308
64
FIRST CAPITAL REALTY ANNUAL REPORT 2013
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 IFRS disclosure. These measures are the primary
methods used in analyzing real estate organizations in Canada. FFO and AFFO are not measures defined by IFRS and, as
such, neither of them has a standard definition. 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: (i) do not represent cash flow from operating activities as defined by
IFRS, (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 IFRS net income for the purpose of evaluating operating
performance.
Funds from Operations
First Capital Realty calculates FFO in accordance with the recommendations of the Real Property Association of Canada
(“REALpac”), as issued in a White Paper on FFO for IFRS. It includes certain additional adjustments to FFO under IFRS from
the previous definition of FFO under GAAP. The use of FFO has been included for the purpose of improving the
understanding of the operating results of the Company.
FFO is considered a meaningful additional financial measure of operating performance, as it excludes fair value gains and
losses on investment properties. FFO also adjusts for certain items included in IFRS net income that may not be the most
appropriate determinants of the long-term operating performance of the Company including certain cash and non-cash
gains and losses, as well as adjustments to non-controlling interest to reflect FFO attributable to the Company, and
provides a perspective on the financial performance that is not immediately apparent from net income determined in
accordance with IFRS. The weighted average number of diluted shares outstanding for FFO is calculated assuming
conversion of only those convertible debentures outstanding that would have a dilutive effect upon conversion, at the
holders' contractual conversion price.
FFO increased to $215.5 million or $1.03 per share (diluted) from $189.1 million or $1.00 per share (diluted) in the prior
year. The increase in FFO is primarily due to the increase in NOI resulting from net acquisitions, development and
redevelopment projects coming on line, same property NOI growth and increased interest and other income from other
real estate investments. The effects of the increase in NOI and interest and other income were partially offset by increases
in interest expense and corporate expenses. On a per share basis, the increases in FFO were offset by an increase in the
weighted average number of common shares outstanding resulting from various equity financing activities.
The Company’s net income with proportionate interest is reconciled to funds from operations below:
(thousands of dollars)
Net income for the year
Add (deduct):
Increase in value of investment properties, net
Investment properties – selling costs
Change in fair value of interest rate hedges (1)
Transaction costs
Deferred income taxes
Non-controlling interest
FFO
Year ended December 31
2013
2012
$
215,009 $
393,308
(56,017)
5,295
—
—
51,418
(162)
(292,024)
4,084
(1,469)
2,895
82,158
129
$
215,543 $
189,081
(1) The gains (losses) on hedges represents the change in fair value for those derivatives to which the Company does not apply hedge accounting.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
65
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The components of FFO with proportionate interest are as follows:
Year ended December 31
(thousands of dollars, except share and per share amounts and percentages)
% increase
2013
Net operating income
Interest expense
Corporate expenses
Abandoned transaction costs
Amortization expense (corporate assets and credit facility costs)
Interest and other income
Non-controlling interest
FFO excluding other gains (losses) and (expenses)
Other gains (losses) and (expenses) (1)
FFO
FFO per diluted share
FFO per diluted share excluding other gains (losses) and (expenses)
$
400,950 $
(165,446)
(25,211)
(2,231)
(3,873)
10,501
(162)
214,528
1,015
13.1%
2012
(Restated)
371,847
(161,475)
(23,417)
(2,095)
(4,102)
8,764
129
189,651
(570)
14.0% $
215,543 $
189,081
3.0% $
3.0% $
1.03 $
1.03 $
1.00
1.00
Weighted average number of common shares – diluted – FFO (in thousands)
10.0%
208,877
189,876
(1) Refer to the “Results of Operations - Other Gains (Losses) and (Expenses)” section in the following pages for details.
Adjusted Funds from Operations
AFFO is calculated by adjusting FFO for non-cash and other items including interest payable in shares, straight-line rent
adjustments, non-cash compensation expense, same property revenue sustaining capital expenditures and leasing costs
for maintaining shopping centre infrastructures, certain other gains or losses, and adjustments to non-controlling interest
to reflect AFFO attributable to the Company. Residential inventory pre-sale costs are recognized in AFFO when the
Company recognizes revenue from the sale of residential units. The weighted average number of diluted shares
outstanding for AFFO is adjusted to assume conversion of the outstanding convertible debentures, calculated using the
holders' contractual conversion price.
AFFO was $225.2 million or $1.00 per share (diluted) for the year ended December 31, 2013 compared to $195.9 million
or $0.95 per share as restated (diluted) in the prior year. AFFO included $6.7 million of other net gains primarily arising
from the net gain on sale of residential inventory and the gain on settlement of litigation, compared to $3.5 million of
other net gains in the prior year.
66
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Year ended December 31
(thousands of dollars, except share and per share amounts and percentages)
% increase
2013
FFO
Add (deduct):
Interest expense payable in shares
Rental revenue recorded on a straight-line basis
Non-cash compensation expense
Same property revenue sustaining capital expenditures and leasing costs (1)
Change in cumulative unrealized losses (gains) on marketable securities
Loss on settlement of debt and purchase of convertible debentures
Hedge accounting (gains) losses
Pre-selling costs of residential inventory units
Costs not capitalized during development period (2)
Other adjustments
AFFO
Add/deduct: Other (gains) losses and expenses (3)
AFFO excluding other (gains) losses and expenses
AFFO per diluted share
AFFO per diluted share excluding other (gains) losses and expenses
Weighted average number of common shares – diluted – AFFO (in thousands)
$
215,543 $
23,292
(10,452)
2,999
(14,090)
1,988
4,092
(301)
(127)
2,549
(283)
225,210
(6,667)
218,543 $
1.00 $
0.97 $
224,767
14.9%
13.6% $
5.3% $
4.3% $
8.8%
2012
(Restated)
189,081
22,795
(13,117)
2,897
(14,130)
(2,677)
6,549
10
187
4,759
(426)
195,928
(3,479)
192,449
0.95
0.93
206,573
(1) Estimated at $0.84 per square foot per annum (2012 – $0.82) on average gross leasable area of stable properties (based on an estimated three-year weighted average).
(2) The Company has added back costs not capitalized during the development period for accounting purposes that, in Management’s view forms part of the cost of its
development projects.
(3) Refer to the “Results of Operations - Other Gains (Losses) and (Expenses)" section in the following pages for details.
In the fourth quarter of 2013, the definition of revenue sustaining capital expenditure has been further refined by
property category in order to be consistent with how the Company evaluates its business operations. Previously, revenue
sustaining capital expenditures were deducted from AFFO in all properties regardless of property category. The
refinement excludes from the calculation of AFFO, capital expenditures incurred in conjunction with a ground-up
development, major redevelopment, acquisition and disposition activities which are, by their nature, value enhancing
activities. Refer to “Business and Operations Review - Capital Expenditures on Investment Properties” section of this
MD&A for further discussion.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
67
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The impact of this change to AFFO and revenue sustaining capital expenditures for the year ended December 31, 2013
and December 31, 2012 are as follows:
(thousands of dollars, except share and per share
amounts)
Current Basis
AFFO, excluding revenue sustaining capital
expenditures, as stated
Revenue sustaining capital expenditures, restated
AFFO, restated
Weighted average number of common shares -
diluted – AFFO (in thousands)
AFFO per diluted share, restated
Previous Basis
AFFO, excluding revenue sustaining capital
expenditures, as stated
Revenue sustaining capital expenditures, as stated
AFFO, as stated
Weighted average number of common shares -
diluted – AFFO (in thousands)
AFFO per diluted share, as stated
Difference in AFFO per diluted share
(thousands of dollars, except share and per share
amounts)
Current Basis
AFFO, excluding revenue sustaining capital
expenditures, as stated
Revenue sustaining capital expenditures, restated
AFFO, restated
Weighted average number of common shares -
diluted – AFFO (in thousands)
AFFO per diluted share, restated
Previous Basis
AFFO, excluding revenue sustaining capital
expenditures, as stated
Revenue sustaining capital expenditures, as stated
AFFO, as stated
Weighted average number of common shares -
diluted – AFFO (in thousands)
AFFO per diluted share, as stated
Difference in AFFO per diluted share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Three months ended
Year ended
March 31
June 30
September 30
December 31
December 31
2013
2013
2013
2013
2013
57,775 $
(3,523)
54,252 $
61,221 $
(3,522)
57,699 $
59,591 $
(3,522)
56,069 $
60,713 $
(3,523)
57,190 $
223,686
225,785
225,539
226,183
0.24 $
0.26 $
0.25 $
0.25 $
239,300
(14,090)
225,210
224,767
1.00
57,775 $
(4,875)
52,900 $
61,221 $
(4,793)
56,428 $
59,591 $
(4,723)
54,868 $
60,713 $
(5,240)
55,473 $
239,300
(19,631)
219,669
223,686
225,785
225,539
226,183
224,767
0.24 $
— $
0.25 $
0.01 $
0.24 $
0.01 $
0.25 $
— $
0.98
0.02
Three months ended
Year ended
March 31
June 30
September 30
December 31
December 31
2012
2012
2012
2012
2012
48,458 $
(3,533)
44,925 $
52,201 $
(3,532)
48,669 $
53,492 $
(3,532)
49,960 $
55,907 $
(3,533)
52,374 $
196,763
200,311
208,131
222,632
0.23 $
0.24 $
0.24 $
0.24 $
210,058
(14,130)
195,928
206,573
0.95
48,458 $
(4,119)
44,339 $
52,201 $
(4,171)
48,030 $
53,492 $
(4,322)
49,170 $
55,907 $
(5,028)
50,879 $
210,058
(17,640)
192,418
196,763
200,311
208,131
222,632
206,573
0.22 $
0.01 $
0.24 $
— $
0.24 $
— $
0.23 $
0.01 $
0.93
0.02
68
FIRST CAPITAL REALTY ANNUAL REPORT 2013
A reconciliation of cash provided by operating activities (an IFRS measure) to AFFO is presented below:
(thousands of dollars)
Cash provided by operating activities
Share of profit of joint venture
Distribution from joint venture
Realized gains on sale of marketable securities
Deferred leasing costs
Net change in non-cash operating items
Expenditures on residential development inventory
Amortization expense
Transaction costs
Non-cash interest expense and change in accrued interest
Settlement of restricted share units
Convertible debenture interest paid in common shares
Convertible debenture interest payable in common shares
Costs not capitalized during development period
Pre-selling costs of residential inventory
Gain on sale of residential inventory
Same property revenue sustaining capital expenditures and leasing costs
Non-controlling interest
Other adjustments
$
Year ended December 31
2013
2012
(Restated)
212,619 $
2,435
(2,062)
2,564
5,095
287
14,984
(3,873)
—
(3,852)
1,879
(19,054)
23,292
2,549
(127)
2,966
(14,090)
(162)
(240)
193,006
2,263
(2,259)
3,538
5,108
(10,009)
14,351
(4,102)
2,895
(4,161)
2,396
(20,533)
22,795
4,759
187
—
(14,130)
129
(305)
AFFO
$
225,210 $
195,928
Net Operating Income (“NOI”)
NOI is defined as property rental revenue less property operating costs. In Management’s opinion, NOI is common and
useful in analyzing the operating performance of the Company’s shopping centre portfolio, and it is a primary method for
analyzing real estate in Canada. NOI is not a measure defined by IFRS 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 IFRS.
NOI increased to approximately $401.0 million for the year ended December 31, 2013 from $371.8 million for the
comparative period of the prior year.
On a comparative period basis, the shopping centre portfolio size decreased by 0.5 million square feet due to net property
sales, and overall occupancy decreased by a 0.1%. The decrease in occupancy primarily arises as a result of the Company's
development and redevelopment initiatives, as well as the effects of sales of properties with higher occupancies. On a
same property – stable basis, occupancy remained unchanged at 97.6% as at December 31, 2013 and December 31, 2012.
Even with the decrease in the portfolio size and occupancy, the increase in NOI resulted from growth in base rent and
recoveries from tenants due to increases in rental rates from step-ups and lease renewals, as well as acquisitions and
developments coming on line, where average rental rates and recovery terms were higher than the rental rates and
recovery terms of disposed properties and closures of spaces for redevelopment.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
69
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The Company’s proportionate interest in net operating income for the shopping centre portfolio is presented below:
(thousands of dollars, except other data)
Property rental revenue
Base rent (1)
Operating cost recoveries
Realty tax recoveries
Straight-line rent
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
Recoverable realty tax expenses
Prior year operating cost and tax expense adjustments
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.
$
$
Year ended December 31
2013
2012
$
394,069
94,015
115,800
10,452
924
3,533
1,464
15,672
635,929
109,358
126,541
(819)
(101)
234,979
400,950
$
63.0%
86.0%
91.5%
364,188
81,712
105,173
13,117
1,617
2,823
(94)
14,871
583,407
95,871
115,399
(185)
475
211,560
371,847
63.7%
85.2%
91.1%
The change in the shopping centre portfolio NOI margin is primarily driven by occupancy, operating costs and tax recovery
margins and base rent growth. The overall shopping centre portfolio NOI margin has decreased year over year due to
development and redevelopment activities, where margins will vary depending on the stage of activity, and due to
acquisitions, where margins are impacted by the condition of acquired properties. Same property – stable NOI margin
remains unchanged from the prior year at 65.8%. The stable and ground-up development properties typically have the
highest NOI margins.
The operating cost recovery margin for same property – stable has increased to 92.0% for the year ended December 31,
2013 (December 31, 2012 – 91.4%) primarily due to fewer vacant units throughout the year. Property tax recovery margin
has decreased marginally to 94.6% (December 31, 2012 – 94.7%) also due to increases in property tax assessments. The
improvement in the overall shopping centre portfolio operating cost and tax recovery margins resulted primarily from the
completion and lease up of several development and redevelopment projects.
70
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The following table summarizes the Company's NOI margin, operating cost and tax recoveries margin, and occupancy by
property category:
Same property – stable
Same property with incremental redevelopment
and expansion
Total same property
Major redevelopment
Ground-up development
Acquisitions – 2013 and 2012
Investment properties classified as held for sale
Dispositions and other
NOI Margin
Operating Cost and Tax
Recoveries Margin
% Occupied
Year ended December 31
Year ended December 31
As at December 31
2013
65.8%
62.1%
64.6%
57.9%
66.7%
57.9%
62.8%
64.5%
63.0%
2012
65.8%
62.9%
64.9%
59.1%
69.0%
57.9%
59.8%
63.3%
63.7%
2013
93.5%
90.8%
92.6%
78.7%
94.6%
83.3%
85.9%
75.9%
88.9%
2012
93.2%
89.0%
91.8%
80.7%
91.5%
78.3%
82.1%
78.8%
88.5%
2013
97.6%
95.6%
97.0%
91.2%
98.2%
91.2%
91.3%
—
95.5%
2012
97.6%
95.1%
96.8%
92.9%
95.8%
91.1%
94.5%
93.5%
95.6%
Same property – stable NOI increased by 2.7% for the year ended December 31, 2013 compared to the prior year,
primarily attributed to increases in rental rates due to step-ups, lease renewals, and tenant openings with higher rental
rates than the rental rates on tenant closures, while maintaining an occupancy rate of 97.6%. Additionally operating cost
and realty tax recoveries margin on a combined basis for same property – stable, increased from 93.2% to 93.5%, and
certain bad debts were recovered which further contributed to the growth. Offsetting these increases were lower lease
termination fees year over year.
The following table summarizes the Company's proportionate interest in NOI by property categorization:
Year ended December 31
(thousands of dollars, except for percentages)
% increase
2013
Same property – stable NOI
Same property with incremental redevelopment and expansion NOI
Total same property
2.7% $
3.7%
Major redevelopment
Ground-up development
Acquisitions – 2013
Acquisitions – 2012
Investment properties classified as held for sale
Dispositions – 2013
Dispositions – 2012
Rental revenue recognized on a straight-line basis
Development land
NOI
194,895 $
82,956
277,851
46,059
10,320
3,999
36,528
8,242
6,458
—
10,452
1,041
2012
189,702
78,176
267,878
43,525
6,001
—
14,025
6,546
13,204
7,206
13,117
345
$
400,950 $
371,847
For the year ended December 31, 2013, each region experienced growth in base rent and recoveries from tenants
resulting from an increase in rental rates due to step-ups and lease renewals, in addition to net acquisitions and
developments coming on line, with average rental rates and recovery terms in excess of the rental rates and recovery
terms of disposed properties and closures of spaces for redevelopment.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
71
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The shopping centre portfolio NOI by segment at the Company’s proportionate interest is as follows:
Year ended December 31, 2013
(thousands of dollars)
Property rental revenue
Property operating costs
Net operating income
Year ended December 31, 2012
(thousands of dollars)
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
272,781 $
164,922 $
198,125 $
635,828 $
101 $
104,094
66,734
65,954
236,782
(1,803)
Total
635,929
234,979
168,687 $
98,188 $
132,171 $
399,046 $
1,904 $
400,950
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
247,720 $
150,004 $
185,319 $
583,043 $
364 $
93,923
59,037
60,273
213,233
(1,673)
Total
583,407
211,560
153,797 $
90,967 $
125,046 $
369,810 $
2,037 $
371,847
(1) Other items are principally operating costs and adjustments that are not attributable to a region.
Interest and Other Income
The Company's interest and other income is as follows:
(thousands of dollars)
Interest, dividend and distribution income from marketable securities and cash investments
Interest income from mortgages and loans receivable
Fees and other income
Interest income from non-revolving term loan receivable from Gazit America Inc.
Year ended December 31
2013
3,695 $
5,911
895
—
10,501 $
$
$
2012
2,714
3,898
244
1,908
8,764
The increase in interest and other income is consistent with an increase in mortgages and loans receivable and
marketable securities.
Fee income includes approximately $0.3 million of fees received in connection with the second quarter Retrocom
disposition transaction (as discussed in the “Business and Operations Review - 2013 Dispositions” section of this MD&A),
management fees earned from partners and other items.
72
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Interest Expense
The Company’s proportionate interest in interest expense is as follows:
(thousands of dollars)
Mortgages and credit facilities
Senior unsecured debentures
Convertible debentures (cashless)
Coupon interest (payable in shares)
Accretion of discounts on bifurcation for accounting purposes
Amortization of deferred issue costs
Interest capitalized to investment properties and residential inventory under development
Year ended December 31
$
2013
75,769 $
88,913
19,721
1,517
2,054
23,292
(22,528)
2012
87,222
75,401
19,450
1,496
1,849
22,795
(23,943)
Total interest expense
$
165,446
$ 161,475
Mortgage and credit facilities interest expense has decreased due to net repayments of mortgages in the year and to the
decrease in the weighted average borrowing rate from 5.31% per annum as at December 31, 2012 to 5.21% per annum as
at December 31, 2013.
The increase in interest expense for the senior unsecured debentures is primarily due to the issuances of $475 million
principal amount of senior unsecured debentures with a weighted average coupon rate of 4.31% (weighted average
effective rate of 4.44%) in 2012 and the issuances of $450 million principal amount senior unsecured debentures with a
weighted average coupon rate of 3.97% (weighted average effective rate of 4.12%) during 2013, partially offset by the
repayment of $243 million of principal amount with a weighted average coupon rate of 5.24% (weighted average effective
rate of 5.42%) during the year ended December 31, 2012, and repayment of $54 million principal amount with a weighted
average coupon rate of 5.36% (weighted average effective rate 5.52%) during the year ended December 31, 2013, as
described in the “Capital Structure and Liquidity” section of this MD&A.
The increase in convertible debentures interest expense is a result of net issuances in 2012 of $123 million and 2013
of $55 million, partially offset by the decrease in the weighted average effective interest rate from 6.53% per annum
as at December 31, 2012 to 6.35% per annum as at December 31, 2013 and repurchases in the NCIB of $3.0 million
and $3.2 million in 2012 and 2013, respectively (See the “Capital Structure and Liquidity” section of this MD&A).
During the year ended December 31, 2013, certain development and redevelopment projects were completed
resulting in lower capitalized interest. As development and redevelopment projects are completed, they no longer
qualify for interest capitalization. Although the Company has a number of projects in the pre-development stage,
during which capitalization comprise primarily corporate expenses and other soft costs associated with planning
activities, the aggregate invested cost of properties in the active development or redevelopment stage which is
subject to interest capitalization has decreased. As a result, the Company capitalized less interest relative to the
aggregate invested cost of properties in ongoing development and redevelopment projects.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
73
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Corporate Expenses
(thousands of dollars, except for percentages)
Salaries, wages and benefits
Non-cash compensation
Other corporate costs
Amounts capitalized to investment properties under development, residential inventory and deferred
leasing costs
Corporate expenses, excluding non-cash compensation
As a percentage of rental revenue
As a percentage of total assets
$
Year ended December 31
$
2013
23,389
2,802
10,487
36,678
2012
22,901
2,897
9,298
35,096
(11,467)
(11,679)
$
25,211
$
23,417
3.5%
0.30%
3.6%
0.29%
The overall level of net corporate expenses has increased by 7.7% for the year ended December 31, 2013, as compared to
the prior year. The increase is primarily as a result of increases in the number of team members and costs related to other
corporate initiatives during the year, including an enhanced health and safety program, training and compensation
programs and ongoing investments in processes and systems.
Non-cash compensation is recognized over the respective vesting periods for options, restricted share units and deferred
share units. These items are considered part of the total compensation for directors, senior management, other team
members and periodically to select service providers to the Company.
The Company manages all of its acquisitions, development and redevelopment and leasing activities internally. Certain
internal costs directly related to development and initial leasing of the properties, including salaries and related costs, are
capitalized in accordance with IFRS to development projects and residential inventory, as incurred. Certain costs
associated with the Company’s internal leasing staff are capitalized to investment properties. During each of the years
ended December 31, 2013 and 2012, respectively, approximately 33.8% and 36.3% of compensation-related and other
corporate expenses were capitalized to real estate investments for properties undergoing development or redevelopment
and leasing costs (including leasing for development projects). Amounts capitalized are based on specific leasing activities
and development and pre-development projects underway. During the current year, certain development and
redevelopment projects were completed resulting in lower capitalized corporate expenses. However, the Company has a
number of projects in the pre-development stage for which corporate expenses are being capitalized. The timing of
current year completion of development and redevelopment projects and the Company’s current level of pre-
development activity is commensurate with the decrease in the level of corporate expenses capitalized compared to the
prior year.
74
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Other Gains (Losses) and (Expenses)
(thousands of dollars)
Realized gains on sale of marketable securities
Change in cumulative unrealized (losses) gains on
marketable securities classified as FVTPL
Losses on settlement of debt
Unrealized gains (losses) on hedges
Gain on settlement of litigation
Gain (loss) on foreign currency exchange
Transaction costs
Pre-selling costs of residential inventory
Net gain on sale of residential inventory
Investment properties – selling costs
Included in
Consolidated
Statements of
Income
2,564 $
$
(1,988)
(4,092)
301
1,376
43
—
(155)
2,966
(5,295)
Included in
FFO
Included in
AFFO
2013
Year ended December 31
2012
Included in
Consolidated
Statements of
Income
3,538 $
2,564 $
Included in
FFO
Included in
AFFO
3,538 $
3,538
—
—
—
1,376
43
—
(282)
2,966
—
2,677
(6,549)
1,459
—
(59)
(2,895)
(167)
—
(4,084)
2,677
(6,549)
(10)
—
(59)
—
(167)
—
—
—
—
—
—
(59)
—
—
—
—
2,564 $
(1,988)
(4,092)
301
1,376
43
—
(155)
2,966
—
$
(4,280) $
1,015 $
6,667 $
(6,080) $
(570) $
3,479
For the year ended December 31, 2013, the losses on settlement of debt primarily relate to the $1.4 million loss in
connection with the redemption of the $53.9 million principal amount outstanding of the Company’s 5.36% Series E
senior unsecured debentures (see the “Capital Structure and Liquidity” section of this MD&A), as well as pre-payment
penalties related to the early repayment of $173 million of mortgages.
The gains on hedges represent the change in fair value for those derivatives to which the Company does not apply hedge
accounting, as well as the ineffectiveness of those hedges to which the Company applies hedge accounting.
The gain on settlement of litigation during 2013 results from the resolution of property-related claims.
For the year ended December 31, 2013, the net gain on sale of residential inventory relates to the residential units for
which the owners have taken possession and occupancy at the Company’s Fuzion condominium project (as discussed in
the “Business and Operations Review - Residential Development Inventory” section of this MD&A).
Investment properties - selling costs were incurred on dispositions of properties.
For the year ended December 31, 2012, transaction costs represent those incurred in connection with the First Medical
acquisition (see the “Related Party Transactions” section of this MD&A for further discussion).
Income Taxes
(thousands of dollars)
Deferred income taxes
Year ended December 31
2013
2012
$
51,418 $
82,158
Deferred income taxes decreased compared to the prior year primarily due to the difference in the fair value gain on
investment properties and the change in the income tax rate by the Province of Ontario on its general corporate tax rates
in 2012, which was partially offset by an increase in the income tax rate by the Province of British Columbia in 2013.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
75
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
CAPITAL STRUCTURE AND LIQUIDITY
Capital Employed
The ratios below include measures not specifically defined in IFRS. They are calculations required pursuant to debt
covenants and for this reason are meaningful measures.
(thousands of dollars, except for other data)
December 31, 2013
December 31, 2012
Enterprise value
Common shares outstanding (in thousands)
Common share purchase warrants (in thousands)
Mortgages and credit facilities (principal amount)
Mortgage on equity accounted joint venture (principal amount at the Company's interest)
Senior unsecured debentures (principal amount)
Convertible debentures (principal amount)
Equity capitalization
$
208,356
—
1,350,307
10,859
1,875,000
392,917
$
206,546
5,625
1,582,968
11,280
1,478,943
338,592
Common shares (based on closing per share price of $17.71; December 31, 2012 – $18.82)
(and common share purchase warrants as at December 31, 2012 – $0.35)
Total enterprise value (total capital employed)
Debt to total assets (1)
Debt to total assets (at invested cost) (1)
Debt to total assets (based on unsecured debt covenants) (2)
Debt to enterprise value (1)
Weighted average interest rate on fixed rate debt and senior unsecured debentures
Debt/EBITDA
Debt/EBITDA – on run rate on components of EBITDA
Weighted average maturity on mortgages, other secured debt and senior unsecured
debentures (years) (3)
Unencumbered aggregate assets to unsecured debt
Total, based on IFRS value (4)
Based on unsecured debt covenants (5)
EBITDA interest coverage
EBITDA interest coverage excluding capitalized interest on development
3,689,981
$
7,319,064
$
3,889,163
7,300,946
42.9%
50.5%
44.6%
44.3%
5.09%
8.32
8.03
5.3
2.29
2.15
2.34
2.71
42.1%
49.4%
45.3%
41.8%
5.28%
8.58
7.89
5.3
2.28
2.09
2.19
2.59
(1) Calculated with the joint venture and Main and Main Developments proportionately consolidated and cash balances reducing debt.
(2) Includes investment properties at IFRS value, calculated using the average capitalization rate over the last 10 fiscal quarters.
(3) Weighted average term to maturity is calculated net of cash balances as at the end of the period.
(4) Includes all unencumbered assets at IFRS values.
(5) Includes unencumbered assets as defined by debt covenants, with shopping centres valued under IFRS using the average capitalization rate over the last 10 fiscal quarters.
76
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Measures used in these ratios are defined below:
• Debt consists of principal amounts outstanding on credit facilities and mortgages, and the par value of senior unsecured
debentures. Convertible debentures are excluded as it is the Company’s intention to continue to satisfy its obligations of
principal and interest payments in respect of all of its outstanding convertible debentures by the issuance of common
shares;
• Secured indebtedness includes mortgages and credit facilities which are collateralized against investment property;
• Enterprise value consists of the market value of the Company’s common shares and common share purchase warrants,
the par value of senior unsecured debentures and convertible debentures, and principal amounts outstanding on
mortgages and credit facilities;
• EBITDA, as defined in the Company's credit facility agreements and indenture governing the senior unsecured
debentures, is calculated as net income, adding back income tax expense, interest expense and amortization and
excluding the increase or decrease in the value of investment properties, other gains (losses) and (expenses) and other
non-cash items;
• Unencumbered assets include the value of assets that have not been pledged as security under any credit agreement or
mortgage, excluding investment properties under development and deferred tax assets. The unencumbered asset value
ratio is calculated as unencumbered assets divided by the principal amount of the unsecured debt, which consists of
the senior unsecured debentures;
• Run rate is an annualized NOI for a property based upon the existing tenants in place and current operating cost profile
for the property.
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 the combination of debt, convertible debentures and
equity in First Capital Realty’s capital structure provides stability and reduces risk, while generating an acceptable return
on investment, taking into account the long-term business strategy of the Company.
The Company continues to make substantial progress in reducing the cost of debt and extending and staggering debt
maturities. Improvements have been made in key debt metrics over the past several years including weighted average
interest rate, weighted average remaining term, and interest coverage ratios.
Since January 1, 2012, the Company has issued $925 million of unsecured debt for terms from 8.4 years to 10.7 years
using certain proceeds to repay early over $440 million in debt and over $360 million in debt upon maturity resulting in an
extension of the term to maturity for all term debt from 4.5 years at January 1, 2012 to 5.3 years at December 31, 2013. In
addition, the Company increased its equity capital by approximately $529 million since the beginning of 2012.
These financings, along with planned and completed financings subsequent to December 31, 2013, and availability on
existing credit facilities, address substantially all of the remaining contractual 2014 debt maturities and contractually
committed costs to complete current development projects.
The Company also uses convertible debentures as a part of its overall capital structure. Consistent with First Capital
Realty’s practice, it is the Company’s current intention to continue to satisfy its obligations of principal and interest
payments in respect of all of its outstanding convertible debentures through the issuance of common shares. Since
issuance, the Company has made all principal and interest payments on its convertible debentures using common shares.
The Company intends to maintain financial strength to achieve the lowest cost of debt and equity capital over the long
term. When 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 market opportunities.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
77
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Credit Ratings
On November 14, 2012, DBRS upgraded the ratings of the Company’s senior unsecured debentures (from BBB with a
positive trend) to BBB (high) and changed the trend to stable, from positive. The rating upgrade acknowledges First
Capital Realty’s progress in terms of enhancing the quality, size and market position of its portfolio of supermarket and
drugstore anchored shopping centres in high barrier-to-entry major urban markets across Canada. In addition, according
to DBRS at the time, the Company meaningfully reduced the proportion of debt in its capital structure and improved key
credit metrics to levels that are more in line with the BBB (high) rating category. According to DBRS, a credit rating in the
BBB category is generally an indication of adequate credit quality and an acceptable capacity for the payment of financial
obligations. DBRS indicates that BBB (high) rated obligations may be vulnerable to future events. A rating trend, expressed
as positive, stable or negative, provides guidance in respect of DBRS’ opinion regarding the outlook for the rating in
question.
On November 20, 2012, Moody’s upgraded the senior unsecured debenture rating of First Capital Realty to Baa2 (from
Baa3) and revised the rating outlook to stable, from positive. According to Moody’s, the upgrade reflects, at the time, the
Company's steady growth in its shopping centre franchise throughout Canada's major markets, while improving its
financial profile with key metrics, such as secured debt, unencumbered assets and fixed charge coverage moving solidly
into the mid-Baa range. As defined by Moody’s, a credit rating of Baa2 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 provided by Moody’s, expressed as positive, stable, negative or developing, is an opinion regarding the outlook
for the rating in question over the medium term.
Consolidated Debt and Principal Amortization Maturity Profile
(thousands of dollars, except for other data)
Outstanding cheques
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024 – 2025
Mortgages and
Other Secured Debt
Senior Unsecured
Debentures
$
5,000 $
— $
251,661
242,117
178,435
103,423
139,531
120,268
57,530
83,055
170,862
1,214
2,211
1,355,307
100,000
125,000
—
250,000
150,000
150,000
175,000
175,000
450,000
300,000
—
1,875,000
Total
5,000
351,661
367,117
178,435
353,423
289,531
270,268
232,530
258,055
620,862
301,214
2,211
3,230,307
Add (deduct): unamortized deferred financing costs
and premium and discounts, net
11,276
(13,047)
(1,771)
$
1,366,583 $
1,861,953 $
3,228,536
% Due
—
10.90%
11.38%
5.53%
10.96%
8.98%
8.38%
7.21%
8.00%
19.25%
9.34%
0.07%
100%
—%
100%
78
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Mortgages and Credit Facilities
The changes in the book value of the Company’s mortgages and credit facilities during the year ended December 31,
2013, which excludes the $11.0 million mortgage on the equity accounted joint venture, are set out below:
(thousands of dollars, except for percentages)
Balance, December 31, 2012
Additional borrowings
Assumed mortgages on acquisition of investment properties
Secured financing and loans on residential development inventory
Repayments
Scheduled amortization
Assumed mortgages on sale of investment properties
Amortization and expensing of issue costs and net premium
Balance, December 31, 2013
Mortgages
and Other
Secured Debt
Weighted
Average
Interest Rate
Outstanding
cheques
Secured
Credit
Facilities
Total
$ 1,597,234
47,655
9,957
7,131
(218,997)
(38,903)
(39,503)
(2,991)
$ 1,361,583
5.31% $
3.67%
5.17%
5.47%
5.47%
— $
5,000
—
—
—
—
—
—
—
— $ 1,597,234
52,655
—
9,957
7,131
(218,997)
(38,903)
(39,503)
(2,991)
—
—
—
5.21% $
5,000 $
— $ 1,366,583
As at December 31, 2013, 97% (December 31, 2012 – 98%) of the outstanding mortgage and property-specific debt
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 10 years, and incremental contractual rent steps
during the term of the lease. The average remaining term of mortgages outstanding has decreased from 4.5 years as at
December 31, 2012 on $1.6 billion of mortgages to 4.0 years as at December 31, 2013 on $1.4 billion of mortgages after
reflecting the application of cash balances, borrowing activity, assumptions and repayments during the year.
During the year ended December 31, 2013, the Company prepaid or repaid at maturity $219.0 million amount of
mortgage financing with a weighted average interest rate of 5.47% per annum. In addition, during the year ended
December 31, 2013, $39.5 million of mortgage financing was assumed by purchasers on sale of investment properties
with a weighted average interest rate of 5.47% per annum.
Mortgages and Other Secured Debt Maturity and Lender Type Profile
(thousands of dollars, except for percentages)
Outstanding cheques
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024 – 2025
Scheduled
Amortization
$
— $
Payments on
Maturity
5,000 $
36,059
29,007
23,403
20,522
16,485
13,554
11,672
9,658
3,801
1,214
2,211
215,602
213,110
155,032
82,901
123,046
106,714
45,858
73,397
167,061
—
—
Total
5,000
251,661
242,117
178,435
103,423
139,531
120,268
57,530
83,055
170,862
1,214
2,211
Total
$
167,586 $ 1,187,721 $ 1,355,307
Breakdown of Mortgage Maturities
by Type of Lender
Weighted
Average
Interest Rate
Percent with
Banks
Percent with
Conduits
—%
5.81%
4.98%
5.07%
5.17%
5.53%
6.36%
5.20%
5.05%
3.99%
—%
6.20%
5.21%
—%
17.60%
7.78%
33.02%
6.46%
4.00%
32.98%
8.21%
70.22%
31.39%
—%
—%
21.53%
—%
39.69%
32.85%
5.26%
39.50%
0.36%
0.43%
0.95%
0.69%
7.84%
—%
—%
18.16%
Percent with
Insurance Co’s
and
Pension Funds
—%
42.71%
59.37%
61.72%
54.04%
95.64%
66.59%
90.84%
29.09%
60.77%
100.00%
100.00%
60.32%
FIRST CAPITAL REALTY ANNUAL REPORT 2013
79
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The Company’s strategy is to manage its long-term debt by staggering maturity dates in order to mitigate risk associated
with short-term volatility in the debt markets. As at December 31, 2013, the Company had mortgages maturing in 2014 of
$215.6 million at an average interest rate of 5.81% per annum and $36.1 million of scheduled amortization of principal
balances in 2014. Subsequent to December 31, 2013, the Company paid mortgages totalling $43.0 million, and expects to
pay an additional $8.0 million upon maturity in the first quarter of 2014. The Company’s liquidity position as at
December 31, 2013 in excess of $630 million also provides the Company with significant flexibility in addressing these
2014 maturities. Coupon interest rates range from 2.00% to 7.67% on mortgage debt. Mortgage debt by region is $575
million for Central region, $239 million for Eastern region and $536 million for Western region.
Credit Facilities
The Company has the flexibility under its credit facilities to draw funds based on bank prime rates, Canadian bankers’
acceptances (“BA”), LIBOR-based advances or U.S. prime for U.S. dollar-denominated borrowings or Euro dollars. The BAs
currently provide the Company with the lowest cost means of borrowing under these credit facilities. The credit facilities
provide liquidity primarily for financing acquisitions, development and redevelopment activities and for general corporate
purposes.
On July 26, 2013, the Company completed an increase and extension of its senior unsecured revolving credit facility
with a syndicate of nine banks, extending the maturity to June 30, 2016 and increasing the availability from $500
million to $600 million. The facility pricing was also reduced from BA +1.50% to BA + 1.325% or Prime rate +
0.325%.
On November 21, 2013, the Company reduced pricing on its $75 million secured credit facility from BA + 1.50% or Prime
Rate + 0.50% to BA + 1.25% or Prime Rate + 0.25%.
The following table summarizes the details of the Company’s lines of credit as at December 31, 2013:
(thousands of dollars, except other data)
Borrowing
Capacity
Amounts
Drawn
Outstanding
Letters of
Credit
Available to
be Drawn
Interest
Rates
Maturity
Date
Secured by development properties
$
75,000 $
— $
(23) $
74,977
Unsecured
600,000
—
(43,410)
556,590
BA + 1.25% or
Prime + 0.25%
C$ at BA + 1.325% or
Prime + 0.325% or
US$ at LIBOR
+ 1.325%
December 31, 2014
June 30, 2016
Total secured and unsecured facilities
$ 675,000 $
— $ (43,433) $ 631,567
80
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Senior Unsecured Debentures
(thousands of dollars, except for percentages)
Interest Rate
Principal Outstanding
Maturity Date
Interest Payment Dates
Series
Date of Issue
Coupon
Effective
Remaining Term
to Maturity (yrs)
December 31, 2013
December 31, 2012
January 31, 2014
July 31, January 31
October 30, 2014
April 30, October 30
June 1, 2015
June 1, December 1
January 31, 2017
July 31, January 31
November 30, 2017 May 30, November 30
November 30, 2017 May 30, November 30
November 30, 2017 May 30, November 30
August 30, 2018
February 28, August 30
November 30, 2018 May 31, November 30
November 30, 2018 May 31, November 30
January 30, July 30
E
F
G
H
I
I
I
J
K
K
L
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
January 21, 2011
July 30, 2019
April 30, 2020
April 30, 2020
April 30, October 30
M March 30, 2011
April 30, October 30
M June 13, 2011
March 1, 2021
March 1, September 1
January 31, 2022
January 31, July 31
January 31, 2022
January 31, July 31
January 31, 2022
January 31, July 31
December 5, 2022
June 5, December 5
December 5, 2022
June 5, December 5
N
O
O
O
P
P
April 4, 2012
June 1, 2012
July 17, 2012
August 29, 2013
December 5, 2012
January 14, 2013
October 30, 2023
April 30, October 30
Q March 26, 2013
October 30, 2023
April 30, October 30
Q May 15, 2013
5.36%
5.32%
5.95%
5.85%
5.70%
5.70%
5.70%
5.25%
4.95%
4.95%
5.48%
5.60%
5.60%
4.50%
4.43%
4.43%
4.43%
3.95%
3.95%
3.90%
3.90%
4.86%
5.52%
5.47%
6.13%
5.99%
5.85%
5.82%
5.70%
5.66%
5.30%
5.04%
5.61%
5.73%
5.39%
4.63%
4.56%
4.42%
4.83%
4.16%
4.20%
4.06%
3.90%
5.00%
—
0.8
1.4
3.1
3.9
3.9
3.9
4.7
4.9
4.9
5.6
6.3
6.3
7.2
8.1
8.1
8.1
8.9
8.9
9.8
9.8
6.3
$
— $
100,000
125,000
125,000
50,000
25,000
50,000
50,000
50,000
50,000
150,000
110,000
65,000
175,000
100,000
50,000
50,000
150,000
100,000
125,000
175,000
53,943
100,000
125,000
125,000
50,000
25,000
50,000
50,000
50,000
50,000
150,000
110,000
65,000
175,000
100,000
50,000
—
150,000
—
—
—
$
1,875,000 $
1,478,943
On January 14, 2013, the Company completed the issuance of an additional $100 million principal amount of senior
unsecured debentures, Series P, due December 5, 2022. These debentures bear interest at a coupon rate of 3.95% per
annum, payable semi-annually commencing June 5, 2013.
On March 26, 2013, the Company completed the issuance of $125 million principal amount of senior unsecured
debentures, Series Q, due October 30, 2023. These debentures bear interest at a coupon rate of 3.90% per annum,
payable semi-annually commencing October 30, 2013.
On May 15, 2013, the Company completed the issuance of $175 million principal amount of senior unsecured
debentures, Series Q, due October 30, 2023. These debentures bear interest at a coupon rate of 3.90% per annum,
payable semi-annually commencing October 30, 2013.
On June 7, 2013, the Company redeemed the remaining $53.9 million principal amount outstanding of its 5.36%
Series E senior unsecured debentures. The debentures were redeemed at a price of $1,025.87 for each $1,000
principal amounts of debentures outstanding. In addition, accrued and unpaid interest was paid on the debentures
up to but excluding the redemption date. In connection with the redemption, total cash of $56.3 million was paid to
the holders, which consisted of $53.9 million of principal, $1.4 million in premium and $1.0 million in accrued but
unpaid interest.
On August 29, 2013, the Company completed the issuance of $50 million principal amount of senior unsecured
debentures, Series O, due January 31, 2022. These debentures bear interest at a coupon rate of 4.43% per annum,
payable semi-annually commencing January 31, 2014.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
81
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
On January 20, 2014, the Company completed the issuance of $150 million principal amount of senior unsecured
debentures, Series R, due August 30, 2024. These debentures bear interest at a coupon rate of 4.79% per annum
payable semi-annually commencing August 30, 2014. On February 18, 2014, the Company completed the issuance of an
additional $75 million principal amount of the senior unsecured debentures, which was a re-opening of this series of
debentures with effective rate of 4.54% per annum.
Convertible Debentures
(thousands of dollars, except for percentages)
As at December 31, 2013
Interest Rate
Principal at
Coupon
Effective
Date of Issue
Maturity Date
Interest Payment Dates
Issue Date
Principal
Liability
Equity
5.70%
6.88%
December 30, 2009
June 30, 2017
5.40%
6.90%
April 28, 2011
January 31, 2019
5.25%
6.07%
August 9, 2011
January 31, 2019
5.25%
6.66%
December 15, 2011 March 31, 2018
4.95%
6.51%
February 16, 2012 March 31, 2017
4.75%
6.19%
May 22, 2012
July 31, 2019
4.45%
5.34%
February 19, 2013
February 28, 2020
5.08%
6.35%
March 31
September 30
March 31
September 30
March 31
September 30
March 31
September 30
March 31
September 30
March 31
September 30
March 31
September 30
$
50,000 $
42,917 $
41,362 $
984
57,500
57,500
53,844
2,192
57,500
57,500
55,477
390
50,000
50,000
47,427
1,155
75,000
75,000
71,620
1,495
52,500
52,500
49,277
1,439
57,500
57,500
55,005
403
$ 392,917 $ 374,012 $
8,058
(i) Principal and Interest
The Company uses convertible debentures as a part of its overall capital structure. Consistent with First Capital Realty’s
practice, it is the Company’s current intention to continue to satisfy its obligations of principal and interest payments in
respect of all of its outstanding convertible debentures by the issuance of common shares. Since issuance, the Company
has made all principal and interest payments on its convertible debentures using common shares.
During the year ended December 31, 2013, 1.1 million common shares (year ended December 31, 2012 – 1.1 million
common shares) were issued totalling $19.1 million (year ended December 31, 2012 – $20.5 million) to pay interest
to holders of convertible debentures.
(ii) Issuance of Convertible Debentures
On February 19, 2013, the Company completed the issuance of $57.5 million aggregate principal amount of convertible
unsecured subordinated debentures due February 28, 2020. The debentures bear interest at a rate of 4.45% per
annum, payable semi-annually on March 31 and September 30 (commencing September 30, 2013), and are convertible
at the option of the holder into common shares of the Company at a conversion price of $26.75 per common share until
February 28, 2018 and thereafter at a conversion price of $27.75 per common share until maturity.
(iii) Principal Redemptions
For the year ended December 31, 2013, the Company did not issue any common shares in connection with debentures
redeemed or converted, as there were no redemptions or conversions.
(iv) Normal Course Issuer Bid
On August 23, 2013, the Company renewed its normal course issuer bid (“NCIB”) for all of its then outstanding series of
convertible unsecured subordinated debentures. The NCIB will expire on August 26, 2014 or such earlier date as First
Capital Realty completes its purchases pursuant to the NCIB. All purchases made under the NCIB are at market prices
prevailing at the time of purchase determined by or on behalf of First Capital Realty.
82
FIRST CAPITAL REALTY ANNUAL REPORT 2013
For the years ended December 31, 2013 and 2012, principal amounts and amounts paid for the purchases are
represented in the table below:
(thousands of dollars)
Total
2013
Year ended December 31
2012
Principal Amount
Purchased
Amount Paid
Principal Amount
Purchased
Amount Paid
$
3,175 $
3,426 $
3,035 $
3,315
Shareholders’ Equity
Shareholders’ equity amounted to $3.3 billion as at December 31, 2013, as compared to $3.2 billion as at
December 31, 2012.
As at December 31, 2013, the Company had 208.4 million (December 31, 2012 – 206.5 million) issued and
outstanding common shares with a stated capital of $2.5 billion (December 31, 2012 – $2.4 billion). During the year
ended December 31, 2013, a total of 1.8 million common shares were issued for proceeds of $29.2 million as follows:
1.1 million shares for interest payments on convertible debentures, 0.6 million shares from the exercise of common
share options and 0.1 million shares from the settlement of restricted share units.
On August 2, 2013, 5.6 million warrants, which were exercisable at $19.75, expired without exercise. The Company
reclassified the remaining warrant balance from contributed surplus and other equity items to share capital.
As at February 20, 2014, there were 208.4 million common shares outstanding.
Share Purchase Options
As at December 31, 2013, the Company had outstanding 6.0 million share purchase options, with an average exercise
price of $16.37. The options are exercisable by the holder at any time after vesting up to 10 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. The options granted permit the holder to acquire shares at an exercise price approximately
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 to
align the interests of the holder with the long-term interests of the Company and its shareholders.
If all options outstanding as at December 31, 2013 were exercised, 6.0 million shares would be issued and the Company
would receive proceeds of approximately $97.7 million.
Liquidity
(thousands of dollars)
Revolving credit facilities approved
Cash and cash equivalents, net of cash collateralized letters of credit
Unencumbered assets
Total, based on IFRS value (1)
Based on debt covenants (2)
December 31, 2013 December 31, 2012
$
675,000 $
4,975
575,000
30,996
4,291,638
4,038,235
3,377,586
3,088,967
(1) Includes all unencumbered assets at IFRS values.
(2) Includes unencumbered assets as defined by debt covenants, with shopping centres valued under IFRS at the average capitalization rate over the last 10 fiscal quarters.
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 35% to 50% of enterprise
value based on current market conditions. This target was lowered in 2012 to reflect the Company’s ongoing
commitment to achieving a lower cost of capital. As at December 31, 2013, this debt ratio was 44.3% based on the
Company’s calculation. Maturing debt is generally repaid from proceeds from refinancing such debt.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
83
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Cash and cash equivalents were $5.0 million as at December 31, 2013 (December 31, 2012 – $64.0 million). As at
December 31, 2013, the Company had secured and unsecured credit facilities totalling $675.0 million of which
$631.6 million is available to be drawn. During the year, the Company expanded its unsecured credit facilities from
$500 million to $600 million providing additional liquidity. The Company also had unencumbered assets with a fair
value of approximately $4.3 billion. During the year ended December 31, 2013, the Company issued $57.5 million
of convertible debentures and issued net $396.1 million of senior unsecured debentures. This increased liquidity
was partially used to prepay or repay $219.0 million of mortgage debt. As a result, the Company also held average
cash balances of approximately $109.6 million during the year. 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 has historically used secured mortgages, term loans and revolving credit facilities, senior unsecured
debentures, convertible debentures and equity issues to finance its growth. The actual level and type of future
borrowings will be determined based on prevailing interest rates, various costs of debt and equity capital, capital market
conditions and Management’s general view of the required leverage in the business.
Cash Flows
(thousands of dollars)
Cash flow from operating activities before net change in non-cash operating items and expenditures
on residential development inventory
Net change in non-cash operating items
Expenditures on residential development inventory
Cash provided by operating activities
Cash provided by financing activities
Cash used in investing activities
Net (decrease) increase in cash and cash equivalents
Year ended December 31
2013
2012
$
227,890 $
197,348
(287)
(14,984)
212,619
72,072
10,009
(14,351)
193,006
309,932
(343,731)
(440,763)
$
(59,040) $
62,175
Operating Activities
Cash provided by operating activities increased due to cash flow generated from growth in net operating income from the
Company’s shopping centre portfolio and from the timing of receipts and payments on working capital and other non-
cash items.
Financing Activities
Financing activities are lower as a result of net mortgage payable repayments as compared to the prior year, offset by
higher net debenture issuance. These activities are more fully described in the “Capital Structure and Liquidity” section of
this MD&A.
Investing Activities
The decrease in cash used in investing activities results from decreased investment property acquisition activity and
decreased capital expenditure on the portfolio in 2013, offset by the additional investments in loans, mortgages and other
real estate assets in 2013 as compared to the prior year activity, as well as a decrease in net proceeds from property
dispositions. Details of the Company’s investments in acquisitions and developments are provided under the “Business
and Operations Review” section of this MD&A.
84
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Contractual Obligations
(thousands of dollars)
Mortgages and other secured debt
Scheduled amortization
Payments on maturity
Total mortgage obligations
Mortgage on equity accounted joint venture
Senior unsecured debentures
Loans and mortgage payable (1)
Interest obligations (2)
Land leases (expiring between 2023 and 2061)
Contractual committed costs to complete current
development projects
Other committed costs
Total contractual obligations (3)
Payments Due by Period
2014
2015 to 2016
2017 to 2018
Thereafter
Total
$
36,059 $
52,410 $
37,007 $
42,110 $
215,602
251,661
434
100,000
25,251
157,387
979
19,533
16,082
368,142
420,552
10,425
125,000
—
250,350
1,964
3,865
—
205,947
242,954
—
400,000
—
194,904
1,986
—
—
393,030
435,140
—
1,250,000
—
214,163
18,602
—
—
167,586
1,182,721
1,350,307
10,859
1,875,000
25,251
816,804
23,531
23,398
16,082
$
571,327 $
812,156 $
839,844 $ 1,917,905 $ 4,141,232
(1) Loans and mortgage payable include a $8.8 million loan relating to residential development inventory and a $17.4 million third party loan which is secured by $17.4 million
in Government of Canada bonds.
(2) Interest obligations include expected interest payments on mortgages, other secured debt and credit facilities as at December 31, 2013 (assuming balances remain
outstanding through to maturity) and senior unsecured debentures, as well as standby credit facility fees.
(3) Consistent with existing practice, it is the Company’s current intention to continue to satisfy its obligations of principal and interest payments in respect of all of its
outstanding convertible debentures by the issuance of common shares, and as such have been excluded from this table.
In addition, the Company has $43.4 million of outstanding letters of credit that have been issued by financial institutions
primarily to support certain of the Company’s obligations related to its development projects.
The Company’s estimated cost to complete properties currently under development is $95.5 million, of which
$23.4 million is contractually committed. The balance of the costs to complete will only be committed once leases
are signed and/or 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
in the normal course as the work is completed.
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 the 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 $60.0 million (December 31, 2012 – $59.4
million) to various lenders in connection with certain obligations, including loans advanced to its partners secured by the
partners’ interest in the entity and underlying assets.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
85
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
DIVIDENDS
The Company has paid regular quarterly dividends to common shareholders since it commenced operations as a public
company in 1994. Dividends on the common shares, if any, that are declared are at the discretion of the Board of
Directors and are set from time to time after taking into consideration the Company’s capital requirements, its alternative
sources of capital and common industry cash distribution practices.
Regular dividends paid per common share
Payout ratio calculated as a percentage of:
Funds from operations
Adjusted funds from operations
$
Year ended December 31
2013
0.84
$
81.1%
83.8%
2012
0.82
82.1%
86.5%
Quarterly Dividend
The Company announced that it will pay a first quarter dividend of $0.21 per common share on April 10, 2014 to
shareholders of record on March 27, 2014.
SUMMARY OF FINANCIAL RESULTS OF LONG-TERM DEBT GUARANTORS
The Company's senior unsecured debentures are guaranteed by the wholly owned subsidiaries of First Capital Realty,
other than nominee subsidiaries and inactive subsidiaries. All such current and future wholly owned subsidiaries will
provide a guarantee of the debentures. In the case of default by First Capital Realty, the indenture trustee will, subject to
the indenture, be entitled to seek redress from such wholly owned subsidiaries for the guaranteed obligations in the same
manner and upon the same terms that it may seek to enforce the obligations of First Capital Realty. These guarantees are
intended to eliminate structural subordination, which arises as a consequence of a significant portion of First Capital
Realty’s assets being held in various subsidiaries.
The following tables set forth selected consolidating summary information for the Company for the periods identified
below presented separately for (i) First Capital Realty (denoted as FCR); (ii) guarantor subsidiaries; (iii) non-guarantor
subsidiaries; (iv) consolidating adjustments; and (v) the total consolidated amounts.
(millions of dollars)
Statement of Income Data:
Property rental revenue
$
NOI
Net income attributable
to common
shareholders
FCR (1)
2013
252 $
156
215
Guarantors (2)
Non-Guarantors (3)
Consolidation Adjustments (4)
Total Consolidated
Year ended December 31
2013
2013
2013
405 $
240
218
5 $
4
3
(30) $
(2)
(221)
2013
632
398
215
(millions of dollars)
FCR (1)
Guarantors (2)
Non-Guarantors (3)
Consolidation Adjustments (4)
Total Consolidated
Balance Sheet Data (at period end):
December 31, 2013
Current assets
$
212 $
129 $
3 $
Non-current assets
Current liabilities
Non-current liabilities
6,621
544
2,966
4,324
110
635
176
17
122
(4) $
(3,865)
(56)
(65)
340
7,256
615
3,658
86
FIRST CAPITAL REALTY ANNUAL REPORT 2013
(millions of dollars)
Statement of Income Data:
Property rental revenue
$
NOI
Net income attributable to
common shareholders
(millions of dollars)
Balance Sheet Data (at period end):
FCR (1)
Guarantors (2)
Non-Guarantors (3)
Consolidation Adjustments (4)
Total Consolidated
Year ended December 31
2011 (5)
2012
Year ended December 31
2011 (5)
2012
Year ended December 31
2011 (5)
2012
Year ended December 31
2011 (5)
2012
Year ended December 31
2011 (5)
2012
198 $
126
167 $
106
407 $
244
384 $
235
393
549
355
443
1 $
1
9
— $
—
(27) $
(2)
(29) $
(4)
579 $
369
4
(364)
(447)
393
522
337
549
FCR (1)
Guarantors (2)
Non-Guarantors (3)
Consolidation Adjustments (4)
Total Consolidated
As at December 31
2011 (5)
2012
As at December 31
2011 (5)
2012
As at December 31
2011 (5)
2012
As at December 31
2011 (5)
2012
As at December 31
2011 (5)
2012
Current assets
Non-current assets
Current liabilities
Non-current liabilities
$
397 $
126 $
93 $
86 $
5 $
4 $
(12) $
5 $
483 $
5,766
403
2,511
4,987
448
2,152
4,610
54
967
3,973
164
857
135
9
84
26
5
17
(3,732)
13
(28)
(3,130)
(109)
30
6,779
479
3,534
221
5,856
508
3,056
(1) This column accounts for investments in all subsidiaries of FCR under the equity method.
(2) This column accounts for investments in subsidiaries of the Company other than the guarantors under the equity method.
(3) This column accounts for investments in all subsidiaries of the Company other than guarantors on a combined basis.
(4) This column includes the necessary amounts to eliminate the inter-company balances between FCR, the guarantors, and other subsidiaries to arrive at the information for the
Company on a consolidated basis.
(5) 2011 amounts have not been restated for adoption of IFRS 10 and IFRS 11.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
87
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
RELATED PARTY TRANSACTIONS
(a) Major Shareholder
Gazit is the principal shareholder of the Company. Norstar Holdings Inc. is the ultimate controlling party. As of
December 31, 2013, Alony-Hetz Properties and Investments Ltd. (‘‘Alony-Hetz’’) also beneficially owns 8.5%
(December 31, 2012 – 10.3%) of the common shares of the Company. Alony-Hetz and Gazit have entered into a
shareholders’ agreement pursuant to which, among other terms, (i) Gazit has agreed to vote its common shares of the
Company in favour of the election of up to two representatives of Alony-Hetz to the Board of Directors of the Company,
and (ii) Alony-Hetz has agreed to vote its common shares of the Company in favour of the election of the nominees of
Gazit as the remaining directors of the Company.
Corporate and other amounts receivable include amounts due from Gazit. Gazit reimburses the Company for certain
accounting and administrative services provided to it by the Company. In 2012, Gazit was also a tenant at a property
owned by the Company. In addition, the Company held a non-revolving unsecured term loan receivable from a subsidiary
of Gazit, in the amount of US$36 million on which the Company earned interest until it was repaid on August 14, 2012.
Such amounts consist of the following:
(thousands of dollars)
Reimbursements for professional services
Interest payments
Year ended December 31
2013
720
$
— $
2012
766
1,903
$
As at December 31, 2013, amounts due from Gazit were $0.2 million (December 31, 2012 – $0.4 million).
On August 8, 2012, a court-approved plan of arrangement for Gazit America Inc. was completed involving First Capital
Realty and Gazit. Under the plan of arrangement, First Capital Realty acquired the shares of Gazit America’s operating
subsidiaries which together owned and managed all of the medical office and retail properties of Gazit America, and had
held certain property-related inter-company indebtedness owing to Gazit America. The reason for First Capital Realty to
complete the transaction was to acquire from Gazit America 12 medical office and retail properties generally adjacent to
existing First Capital Realty properties and a 50% interest in a thirteenth property jointly owned with First Capital Realty.
Refer to the “Business and Operations Review - 2012 Acquisitions” section of this MD&A for further discussion.
(b) Subsidiaries of the Company
The consolidated financial statements include the financial statements of First Capital Realty and First Capital Holdings
Trust. First Capital Holdings Trust is the only significant subsidiary of First Capital Realty and is wholly owned by the
Company.
88
FIRST CAPITAL REALTY ANNUAL REPORT 2013
QUARTERLY FINANCIAL INFORMATION
(thousands of dollars, except per share and
other data, and thousands of shares)
Property rental revenue
Property operating costs
Net operating income
Increase in value of investment
properties, net
Net income attributable to common
shareholders
Net income per share attributable to
common shareholders:
Basic
Diluted
Weighted average number of diluted
common shares outstanding – EPS
FFO
FFO per diluted share
Cash provided by operating activities
Weighted average number of diluted
common shares outstanding – FFO
AFFO (2)
AFFO per diluted share (2)
Weighted average number of diluted
shares outstanding – AFFO
2013
2012(1)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$
161,094
$
154,804
$
157,910
$
157,797
$
155,021
$
146,130
$
139,907
$
138,201
58,588
102,506
56,436
98,368
58,518
99,392
60,053
97,744
58,908
96,113
50,794
95,336
49,255
90,652
51,170
87,031
1,178
—
40,745
14,162
32,813
73,608
106,069
74,460
47,901
41,078
73,163
52,720
69,890
101,873
122,228
98,933
0.23
0.23
0.20
0.20
0.35
0.34
0.25
0.25
0.34
0.33
0.54
0.51
0.68
0.63
0.55
0.52
228,908
208,819
225,785
211,581
222,633
208,131
200,311
196,763
$
55,816
$
53,537
$
53,308
$
52,882
$
49,099
$
47,660
$
48,100
$
44,222
0.27
84,536
0.26
49,832
0.26
36,283
0.25
36,938
0.24
66,012
0.25
42,712
0.26
34,968
0.25
44,663
209,486
208,819
209,010
208,207
207,930
189,028
181,906
180,456
$
57,190
$
56,069
$
57,699
$
54,252
$
52,374
$
49,960
$
48,669
$
44,925
0.25
0.25
0.26
0.24
0.24
0.24
0.24
0.23
226,183
225,539
225,785
223,686
222,632
208,131
200,311
196,763
Regular dividend
$
0.21
$
0.21
$
0.21
$
0.21
$
0.21
$
0.21
$
0.20
$
0.20
Fair value of investment properties –
shopping centres
Weighted average capitalization rate of
shopping centres
7,126,008
6,996,401
6,920,530
6,940,557
6,849,078
6,588,478
6,187,432
5,871,610
5.86%
5.89%
5.89%
5.98%
6.00%
6.11%
6.14%
6.25%
Total assets
$
7,596,255
$ 7,580,839
$ 7,531,620
$ 7,518,732
$ 7,261,617
$ 7,156,689
$ 6,593,723
$ 6,228,171
Total mortgages and credit facilities
1,366,583
1,371,047
1,387,240
1,547,530
1,597,234
1,626,621
1,513,488
1,555,414
Shareholders’ equity
Other data
Number of properties
Gross leasable area
(in thousands)
Occupancy %
3,319,370
3,313,802
3,304,866
3,267,033
3,245,168
3,214,577
2,698,777
2,608,131
164
164
164
172
175
172
165
166
24,462
24,313
24,123
25,029
24,969
24,152
23,471
23,095
95.5%
95.0%
95.2%
95.1%
95.6%
95.6%
95.7%
95.9%
(1) 2012 amounts have been restated, where applicable, for the effects of the adoption of IFRS 10 and IFRS 11.
(2) AFFO for the year and quarters ended December 31, 2012 and quarters 1 to 3 in 2013 have been restated. See the “Results of Operations - Funds From Operations and
Adjusted Funds From Operations” section of this MD&A for further discussion.
Refer to the applicable MD&A and the Quarterly Financial Statements for discussion and analysis relating to the first three
quarters of 2013 and 2012.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
89
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
FOURTH QUARTER 2013 OPERATIONS AND RESULTS
Investment Property Development and Redevelopment Activities
During the fourth quarter of 2013, the Company invested $46.4 million in the acquisition of one income-producing
property totalling 63,000 square feet. The Company also invested $17.0 million in the acquisition of five additional spaces
and adjacent land parcels totalling 16,000 square feet and 1.4 acres. Further, the Company invested $1.5 million in the
acquisition of one development land assembly, comprising 0.2 acres of commercial land for future development.
For the three months ended December 31, 2013, the increase in value of investment properties, net was $1.2 million
resulting from the decrease in the weighted average stabilized capitalization rate from 5.89% to 5.86% during the
quarter, offset by certain fourth quarter 2013 capital expenditures.
In addition to acquisitions of income-producing properties and development lands, the Company invested $75.9 million
during the fourth quarter in its active development projects as well as in certain improvements to existing properties.
The Company also sold one shopping centre comprising 40,000 square feet of gross leasable area and one 7.5 acre land
parcel.
Capital Expenditures on Investment Properties
Revenue sustaining and enhancing expenditures on investment properties which includes shopping centres and
development land are as follows:
(thousands of dollars)
Revenue sustaining – same property - stable
Revenue sustaining – same property with incremental development and expansion
Revenue sustaining – total same property
Enhancing capital expenditures:
Revenue enhancing and other
Expenditures recoverable from tenants
Development expenditures
Total
Capital expenditures on the shopping centre portfolio by property categorization are as follows:
(thousands of dollars)
Same property – stable
Same property with incremental redevelopment and expansion
Major redevelopment
Ground-up development
Acquisitions – 2013
Acquisitions – 2012
Investment properties classified as held for sale
Development land
Total
90
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Three months ended December 31
$
2013
3,744 $
1,296
5,040
13,006
8,784
49,031
$
75,861 $
2012
3,850
2,209
6,059
24,106
5,147
63,704
99,016
Three months ended December 31
2013
4,372 $
$
13,884
24,675
15,348
944
13,323
—
3,315
$
75,861 $
2012
9,058
30,492
26,288
16,704
5,428
4,482
5,711
853
99,016
Leasing and Occupancy
In the fourth quarter of 2013, gross new leasing totalled 348,000 square feet including development and redevelopment
space coming on line. This gross new leasing will generate additional annual minimum rent of approximately $6.8 million.
The Company achieved a 10.2% increase on 768,000 square feet of renewal leases over the expiry rates.
With the impact of leasing during the three months ended December 31, 2013 on the existing portfolio and development
space, new acquisitions and increases from contractual rent steps, the average rate per occupied square foot increased to
$17.96 as at December 31, 2013. This compares to an average rate of $17.83 as at September 30, 2013 and $17.51 at
December 31, 2012.
Closures for redevelopment totalled 14,000 square feet in the three months ended December 31, 2013, providing
potential for future income growth through leasing and redevelopment activities.
Changes in the Company’s gross leasable area and occupancy for its shopping centre portfolio in the fourth quarter of 2013
are set out below:
Total
Square Feet
Occupied
Square Feet
Under Redevelopment
Square Feet
Vacant
Square Feet
Three months ended December 31, 2013
(thousands)
(thousands)
%
(thousands)
%
(thousands)
%
Weighted
Average
Rate per
Occupied
Square
Foot
No. of
Leases
September 30, 2013
24,314
23,097
95.0 %
192
0.8%
1,025
4.2%
$ 17.83
Tenant openings
Tenant closures
Closures for redevelopment
Developments – coming on line
Redevelopments – coming on line
Reclassification
Total portfolio before dispositions
and acquisitions
—
—
—
138
—
(29)
196
(107)
(14)
118
34
(3)
24,423
23,321
Dispositions (at date of disposition)
Acquisitions (at date of acquisition)
December 31, 2013
Renewals
Renewals – expired
Net increase per square foot from renewals
(40)
79
24,462
% Increase on renewal of expiring rents
(21)
72
23,372
768
(768)
95.5 %
52.5 %
91.1 %
95.5 %
—
—
14
—
(34)
7
179
—
—
179
0.7%
0.7%
(196)
107
—
20
—
(33)
923
(19)
7
911
103
(68)
(15)
19
4
—
18.90
(20.51)
(22.13)
20.50
19.83
—
3.8%
$ 17.92
3.7%
(18)
20
18.64
30.19
$ 17.96
229 $ 19.37
(229) $ (17.58)
1.79
$
10.2%
Development of 138,000 square feet was brought on line in the fourth quarter of 2013, with 118,000 square feet leased
at an average rate of $20.50 per square foot. The Company also reopened 34,000 square feet of redeveloped space at an
average rate of $19.83 per square foot.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
91
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Development and redevelopment of 172,000 square feet was completed in the fourth quarter of 2013 compared with
232,000 square feet developed in the fourth quarter of 2012. 152,000 square feet of this newly developed space was
occupied at an average rental rate of $20.35 per square foot when transferred to income-producing shopping centres.
Development and redevelopment coming on line during the fourth quarter of 2013 included the following:
Property Name
Building to LEED
Standards (1)
City
Province
Square
Feet
Major Tenants of Developed Space
Same property with incremental redevelopment and expansion
Carrefour St-David
Hunt Club Marketplace
Gloucester City Centre
Place Nelligan/Plaza St-Rene
Place Pointe-aux-Trembles
Other
Major redevelopment
Port Place Shopping Centre
Mount Royal Village
Other
Ground-up development
Shops at King Liberty
Carrefour du Plateau-des-Grives
Total
Total development brought on line
Total other redevelopment brought
on line
Beauport
Toronto
Ottawa
Gatineau
Montreal
Nanaimo
Calgary
Toronto
Gatineau
QC
ON
ON
QC
QC
BC
AB
ON
QC
Gold’s Gym
Dollarama
RBC Royal Bank, PharmaPlus
Dollarama
Dollarama
RBC Royal Bank, Dollarama
Dollarama, TimberWest
GoodLife Fitness
Various tenants
Various tenants
McDonalds
23,000
14,000
13,000
11,000
10,000
7,000
46,000
33,000
1,000
8,000
6,000
172,000
138,000
34,000
Leased to various tenants
172,000
(1) The Company’s policy is to build to LEED standards subject to tenant acceptance and existing physical structure limitations. Refer to the “Corporate Responsibility and
Sustainability” section of this MD&A.
92
FIRST CAPITAL REALTY ANNUAL REPORT 2013
In the fourth quarter of 2012, gross new leasing totalled 375,000 square feet including development and redevelopment
space coming on line compared to 291,000 square feet in the fourth quarter of 2011. This gross new leasing generated
additional annual minimum rent of approximately $7.8 million. Renewal leasing totalled 355,000 square feet with a 10.6%
increase over expiring lease rates.
Changes in the Company's gross leasable area and occupancy for the shopping centre portfolio in the fourth quarter of 2012
are set out below:
Total
Square Feet
Occupied
Square Feet
Under Redevelopment
Square Feet
Vacant
Square Feet
Three months ended December 31, 2012
(thousands)
(thousands)
%
(thousands)
%
(thousands)
%
Weighted
Average
Rate per
Occupied
Square
Foot
No. of
Leases
September 30, 2012
24,152
23,086
95.6 %
175
0.7%
891
3.7%
$ 17.42
Tenant openings
Tenant closures
Closures for redevelopment
Developments – coming on line
Redevelopments – coming on line
Demolitions
Reclassification
Total portfolio before dispositions
and acquisitions
—
—
—
199
—
(2)
23
202
(145)
(37)
140
33
—
9
24,372
23,288
Dispositions (at date of disposition)
Acquisitions (at date of acquisition)
December 31, 2012
Renewals
Renewals – expired
Net increase per square foot from renewals
(49)
646
24,969
% Increase on renewal of expiring rents
(42)
627
23,873
355
(355)
95.6 %
85.7 %
97.1 %
95.6 %
—
—
37
—
(33)
(2)
(5)
172
—
—
172
0.7%
0.7%
(202)
145
—
59
—
—
19
912
(7)
19
924
74
(56)
(6)
45
4
—
—
21.28
(18.12)
(13.50)
21.02
16.36
—
—
3.7%
$ 17.60
3.7%
(6)
147
(23.08)
14.57
$ 17.51
89 $ 18.27
(89) $ (16.52)
1.75
$
10.6%
FIRST CAPITAL REALTY ANNUAL REPORT 2013
93
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Net Income
Reconciliation of Consolidated Statements of Income, as presented, to the Company’s Proportionate Interest
Net income attributable to common shareholders for the three months ended December 31, 2013 was $47.9 million
or $0.23 per share (diluted) compared to $69.9 million or $0.33 per share (diluted) for the three months ended
December 31, 2012. The decrease in net income as compared to the same prior year period is primarily due to the
$31.6 million difference in fair value gain of investment properties and the related reduction in deferred income
taxes, offset by the increase in NOI resulting from net acquisitions, development and redevelopment projects coming
on line and same property NOI growth. On a per share basis, the decrease is also partially due to the increase in the
weighted average number of common shares outstanding resulting from various financing activities and growth of
the Company.
The following table provides the reconciliation of the Company's consolidated statements of income, as presented in the
consolidated financial statements, to proportionate interest.
(thousands of dollars)
Net operating income
Property rental revenue
Property operating costs
Net operating income
2013
Three months ended December 31
2012
Consolidated
Statements of
Income (Equity
method)
Adjustment for
equity method
to proportionate
interest
Proportionate
interest
Consolidated
Statements of
Income (Equity
method)
Adjustment for
equity method
to proportionate
interest
Proportionate
interest
$
161,094 $
58,588
102,506
1,116 $
352
764
162,210 $
58,940
103,270
155,021 $
58,908
96,113
1,050 $
365
685
156,071
59,273
96,798
Other income and expenses
Interest and other income
Interest expense
Corporate expenses
Abandoned transaction costs
Amortization expense
Share of profit from joint venture
Other gains (losses) and (expenses)
Increase in value of investment properties, net
Income before income taxes
Deferred income taxes
Net income
Net income attributable to:
Common shareholders
Non-controlling interest
Net income per share attributable to common
shareholders:
Basic
Diluted
Weighted average number of common shares
– diluted (in thousands)
2,766
(40,940)
(7,198)
(950)
(1,008)
611
(423)
1,178
(45,964)
56,542
8,506
—
(132)
—
—
—
(611)
—
(21)
(764)
—
—
2,766
(41,072)
(7,198)
(950)
(1,008)
—
(423)
1,157
(46,728)
56,542
8,506
1,968
(39,805)
(6,036)
(981)
(1,194)
573
(1,972)
32,813
(14,634)
81,479
11,324
48,036 $
— $
48,036 $
70,155 $
47,901
135
48,036 $
— $
—
— $
47,901 $
135
69,890 $
265
48,036 $
70,155 $
0.23
0.23
228,908
$
$
0.34
0.33
222,632
$
$
$
$
$
17
(138)
—
—
—
(573)
—
9
(685)
—
—
— $
— $
—
— $
1,985
(39,943)
(6,036)
(981)
(1,194)
—
(1,972)
32,822
(15,319)
81,479
11,324
70,155
69,890
265
70,155
94
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Funds from Operations
FFO was $55.8 million or $0.27 per share (diluted) compared to $49.1 million or $0.24 per share (diluted) in the same
prior year period. The increase in FFO is primarily due to the increase in NOI resulting from net acquisitions, development
and redevelopment projects coming on line, same property NOI growth and increased interest and other income from
other real estate investments. The effects of the increase in NOI and interest and other income were partially offset by
increases in interest expense and corporate expenses. On a per share basis, the increases in FFO were offset by an
increase in the weighted average number of common shares outstanding resulting from various equity financing
activities.
The Company’s net income with proportionate interest is reconciled to funds from operations below:
(thousands of dollars)
Net income for the period
Add (deduct):
Increase in value of investment properties, net
Investment properties – selling costs
Transaction costs
Deferred income taxes
Non-controlling interest
FFO
The components of FFO with proportionate interest are as follows:
Three months ended December 31
2013
$
48,036 $
(1,157)
573
—
8,506
(142)
$
55,816 $
2012
70,155
(32,822)
257
56
11,324
129
49,099
Three months ended December 31
(thousands of dollars, except share and per share amounts and percentages)
% increase
2013
Net operating income
Interest expense
Corporate expenses
Abandoned transaction costs
Amortization expense (corporate assets and credit facility costs)
Interest and other income
Non-controlling interest
FFO excluding other gains (losses) and (expenses)
Other gains (losses) and (expenses) (1)
FFO
FFO per diluted share
FFO per diluted share excluding other gains (losses) and (expenses)
Weighted average number of common shares – diluted – FFO (in thousands)
$
103,270 $
(41,072)
(7,198)
(950)
(1,008)
2,766
(142)
55,666
150
9.7%
2012
96,798
(39,943)
(6,036)
(981)
(1,194)
1,985
129
50,758
(1,659)
13.7% $
55,816 $
49,099
12.5% $
12.5% $
0.27 $
0.27 $
0.24
0.24
0.7%
209,486
207,930
(1) Refer to the “Fourth Quarter 2013 Operations and Results - Other Gains (Losses) and (Expenses)” section in the following pages for details.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
95
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Adjusted Funds from Operations
In the fourth quarter of 2013, the definition of revenue sustaining capital expenditure has been further refined by
property category in order to be consistent with how the Company evaluates and categorizes its business operations.
Previously, revenue sustaining capital expenditures were deducted from AFFO in all properties regardless of property
category. This resulted in restatement of AFFO for the year ended December 31, 2012 and the first three quarters of 2013
to reflect this change. Refer to the “Results of Operations - Fund from Operations and Adjusted Funds from Operations”
section of this MD&A for further details.
AFFO for the three months ended December 31, 2013 totalled $57.2 million or $0.25 per share (diluted) compared to
$52.4 million or $0.24 per share (diluted) in the same prior year period. AFFO included $0.1 million of other net gains in
the quarter compared to $1.5 million of other net gains for the same prior year period.
(thousands of dollars, except share and per share amounts and percentages)
% increase
2013
2012
Three months ended December 31
FFO
Add (deduct):
Interest expense payable in shares
Rental revenue recorded on a straight-line basis
Non-cash compensation expense
Same property Revenue sustaining capital expenditures and leasing costs (1)
Change in cumulative unrealized losses (gains) on marketable securities
Loss on settlement of debt and purchase of convertible debentures
Hedge accounting gains
Pre-selling costs of residential inventory units
Costs not capitalized during development period (2)
Other adjustments
AFFO
Add/deduct: Other (gains) losses and expenses (3)
AFFO excluding other (gains) losses and expenses
AFFO per diluted share
AFFO per diluted share excluding other (gains) losses and expenses
Weighted average number of common shares – diluted – AFFO (in thousands)
(Restated)
49,099
55,816 $
$
5,982
(2,637)
737
(3,523)
(149)
29
(11)
61
947
(62)
5,240
(2,956)
708
(3,533)
(1,082)
4,123
23
101
886
(235)
9.2%
57,190
52,374
(80)
(1,505)
12.3% $
57,110 $
50,869
4.2% $
8.7% $
0.25 $
0.25 $
0.24
0.23
1.6%
226,183
222,632
(1) Estimated at $0.84 per square foot per annum (2012 – $0.82) on average gross leasable area of stable properties (based on an estimated three-year weighted average).
(2) The Company has added back costs not capitalized during the development period for accounting purposes that, in Management’s view forms part of the cost of its
development projects.
(3) Refer to the “Fourth Quarter 2013 Operations and Results - Other Gains (Losses) and (Expenses)” section in the following pages for details.
96
FIRST CAPITAL REALTY ANNUAL REPORT 2013
A reconciliation of cash provided by operating activities (an IFRS measure) to AFFO is presented below:
(thousands of dollars)
Cash provided by operating activities
Share of profit of joint venture
Distribution from joint venture
Realized gains on sale of marketable securities
Deferred leasing costs
Net change in non-cash operating items
Expenditures on residential development inventory
Amortization expense
Transaction costs
Non-cash interest expense and change in accrued interest
Settlement of restricted share units
Convertible debenture interest payable in common shares
Costs not capitalized during development period
Pre-selling costs of residential inventory
Same property revenue sustaining capital expenditures and leasing costs
Non-controlling interest
Other adjustments
$
Three months ended December 31
2013
2012
84,536 $
625
(530)
80
1,117
(37,184)
3,599
(1,008)
—
818
1,879
5,982
947
61
(3,523)
(142)
(67)
(Restated)
66,012
566
(449)
1,502
1,676
(19,540)
3,096
(1,194)
56
(4,339)
2,396
5,240
886
101
(3,533)
129
(231)
AFFO
$
57,190 $
52,374
FIRST CAPITAL REALTY ANNUAL REPORT 2013
97
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Net Operating Income
Net operating income for the three months ended December 31, 2013 increased to $103.3 million from $96.8 million for
the comparative period of the prior year.
On a comparative period basis, the shopping centre portfolio size decreased by 0.5 million square feet during 2013 due to
net property sales, and overall occupancy decreased by a 0.1% during 2013. The decrease in occupancy primarily arises as
a result of the Company's development and redevelopment initiatives, as well as the effects of sales of properties with
higher occupancies. On a same property – stable basis, occupancy remained unchanged at 97.6% as at December 31,
2013 and December 31, 2012. Even with the decrease in the portfolio size and occupancy, the increase in NOI results from
growth in base rent and recoveries from tenants due to increases in rental rates from step-ups and lease renewals, as well
as acquisitions and developments coming on line, where average rental rates and recovery terms were higher than the
rental rates and recovery terms of disposed properties and closures of spaces for redevelopment.
The three month operating cost recovery margin for same property – stable has increased to 91.6% (December 31, 2012 –
90.8%) primarily due to fewer vacant units throughout the year, and property tax recovery margin has increased to 94.1%
(December 31, 2012 – 93.2%) with the decrease in vacant units during the year, offset by an increase in property tax
assessments. The improvement in the overall portfolio operating cost recovery margin resulted primarily from the
completion and lease up of several development and redevelopment projects.
(thousands of dollars, except other data)
Property rental revenue
Base rent (1)
Operating cost recoveries
Realty tax recoveries
Straight-line rent
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
Recoverable realty tax expenses
Prior year operating cost and tax expense adjustments
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.
Three months ended December 31
2013
2012
$
$
$
98,782
24,705
28,882
2,637
273
1,696
1,071
4,164
162,210
28,720
31,263
(45)
(998)
58,940
103,270
$
63.7%
86.0%
92.4%
96,054
23,848
26,653
2,956
102
1,446
20
4,992
156,071
28,430
29,866
(140)
1,117
59,273
96,798
62.0%
83.9%
89.2%
Same property – stable NOI increased by 4.2% in the fourth quarter of 2013, compared to the same prior year period,
primarily attributed to an increase in occupancy rate to 97.6% from 97.3% as at September 30, 2013. Improved operating
cost and realty tax recoveries margins and certain bad debts were recovered, which further contributed to the growth.
Offsetting these increases were lower lease termination fees period over period.
98
FIRST CAPITAL REALTY ANNUAL REPORT 2013
(thousands of dollars, except for percentages)
% increase
2013
Same property – stable NOI
Same property with incremental redevelopment and expansion NOI
Total same property
4.2% $
4.2%
Major redevelopment
Ground-up development
Acquisitions – 2013
Acquisitions – 2012
Investment properties classified as held for sale
Dispositions – 2013
Dispositions – 2012
Rental revenue recognized on a straight-line basis
Development land
NOI
Three months ended December 31
49,815 $
20,522
70,337
12,644
2,702
1,754
9,827
2,148
497
—
2,637
724
2012
47,808
19,673
67,481
11,251
2,039
—
7,435
1,929
3,494
315
2,956
(102)
$ 103,270 $
96,798
For the three months ended December 31, 2013, each region experienced growth in base rent and recoveries from
tenants as a result of increases in rental rates due to step-ups and lease renewals, in addition to net acquisitions and
developments coming on line, with average rental rates and recovery terms in excess of the rental rates and recovery
terms of disposed properties and closures of spaces for redevelopment.
The shopping centre portfolio NOI by segment at the Company's proportionate interest is as follows:
Three months ended December 31, 2013
(thousands of dollars)
Property rental revenue
Property operating costs
Net operating income
Three months ended December 31, 2012
(thousands of dollars)
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
Total
70,704 $
42,412 $
49,086 $
162,202 $
8 $
162,210
26,540
17,084
15,913
59,537
(597)
58,940
44,164 $
25,328 $
33,173 $
102,665 $
605 $
103,270
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
Total
65,813 $
40,288 $
49,499 $
155,600 $
471 $
156,071
25,812
16,219
17,123
59,154
40,001 $
24,069 $
32,376 $
96,446 $
119
352 $
59,273
96,798
FIRST CAPITAL REALTY ANNUAL REPORT 2013
99
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Interest and Other Income
(thousands of dollars)
Interest, dividend and distribution income from marketable securities and cash investments
Interest income from mortgages and loans receivable
Fees and other income
Three months ended December 31
2013
1,037 $
1,729
—
2,766 $
2012
843
1,129
13
1,985
$
$
The increase in interest and other income reflects an increase in mortgages and loans receivable and marketable
securities activities.
Interest Expense
(thousands of dollars)
Mortgages and credit facilities
Senior unsecured debentures
Convertible debentures (cashless)
Coupon interest (payable in shares)
Accretion of discounts on bifurcation for accounting purposes
Amortization of deferred issue costs
Three months ended December 31
$
2013
17,490 $
23,431
5,040
393
549
5,982
2012
21,851
19,037
4,437
359
444
5,240
Interest capitalized to investment properties and residential inventory under development
(5,831)
(6,185)
Total interest expense
$
41,072
$
39,943
Mortgage and credit facilities interest expense has decreased due to net repayments of mortgages during the year and to
a decrease in the weighted average borrowing rate from 5.31% per annum as at December 31, 2012 to 5.21% per annum
as at December 31, 2013.
The increase in interest expense for the senior unsecured debentures is primarily due to the issuance of $450 million
principal amount of senior unsecured debentures during 2013, offset by the repayment of $54 million principal amount
during the year ended December 31, 2013, as described in the “Capital Structure and Liquidity - Senior Unsecured
Debentures” section of this MD&A. The increase was partially offset by the decrease in the weighted average effective
interest rate on senior unsecured debentures from 5.29% per annum as at December 31, 2012 to 5.00% per annum as at
December 31, 2013.
The increase in convertible debentures interest expense is a result of net issuances in the year, partially offset by the
decrease in the weighted average coupon interest rate from 6.53% per annum as at December 31, 2012 to 6.35% per
annum as at December 31, 2013 and repurchases in the NCIB of $3.0 million and $3.2 million in 2012 and 2013,
respectively (see the “Capital Structure and Liquidity - Convertible Debentures” section of this MD&A).
During the current year, certain development and redevelopment projects were completed resulting in lower capitalized
interest. As development and redevelopment projects are completed, they no longer qualify for interest capitalization.
Although the Company has a number of projects in the pre-development stage, during which capitalization is composed
primarily of corporate expenses and other soft costs associated with planning activities, the aggregate invested cost of
properties in the active development or redevelopment stage and subject to interest capitalization has decreased. As a
result, the Company capitalized less interest relative to the aggregate invested cost of properties in ongoing development
and redevelopment projects.
100
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Corporate Expenses
(thousands of dollars, except for percentages)
Salaries, wages and benefits
Non-cash compensation
Other corporate costs
Amounts capitalized to investment properties under development and redevelopment, residential
inventory and deferred leasing costs
Corporate expenses, excluding non-cash compensation
As a percentage of rental revenue
As a percentage of total assets
Three months ended December 31
$
$
2013
6,893
695
2,605
10,193
(2,995)
$
7,198
$
4.0%
0.34%
2012
6,071
708
2,959
9,738
(3,702)
6,036
3.5%
0.30%
The overall level of corporate expenses has increased by 19.3% for the three months ended December 31, 2013, as
compared to the same prior year period, primarily as a result of increased incentive compensation coupled with a
decrease in capitalized corporate expenses.
Non-cash compensation is recognized over the respective vesting periods for options, restricted share units and deferred
share units. These items are considered part of the total compensation for directors, senior management, other team
members and periodically to select service providers to the Company.
The Company manages all of its acquisitions, development and redevelopment and leasing activities internally. Certain
internal costs directly related to development and initial leasing of the properties, including salaries and related costs, are
capitalized in accordance with IFRS to development projects and residential inventory, as incurred. Certain costs
associated with the Company’s internal leasing staff are capitalized to investment properties. During each of the fourth
quarters of 2013 and 2012 respectively, approximately 31.5% and 41.0% of compensation-related and other corporate
expenses were capitalized to real estate investments for properties undergoing development or redevelopment and
leasing costs (including leasing for development projects and residential inventory). Amounts capitalized are based on
specific leasing activities and development projects underway. During the current year, certain development and
redevelopment projects were completed resulting in lower capitalized corporate expenses. However, the Company has a
number of projects in the pre-development stage for which corporate expenses are being capitalized. The timing of
current year completion of development and redevelopment projects and the Company's current level of pre-
development activity is commensurate with the decrease in the level of corporate expenses capitalized compared to the
comparative period.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
101
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Other Gains (Losses) and (Expenses)
Three months ended December 31
2013
2012
(thousands of dollars)
Included in
Consolidated
Statements of
Income
Included in
FFO
Included in
AFFO
Realized gains on sale of marketable securities
$
80 $
80 $
80 $
Included in
Consolidated
Statements of
Income
1,502 $
Included in
FFO
Included in
AFFO
1,502 $
1,502
Change in cumulative unrealized (losses) gains on
marketable securities classified as FVTPL
Losses on settlement of debt
Unrealized gains (losses) on hedges
Gain on foreign currency exchange
Transaction costs
Pre-selling costs of residential inventory
Investment properties – selling costs
149
(29)
11
—
—
(61)
(573)
149
(29)
11
—
—
(61)
—
—
—
—
—
—
—
—
1,082
(4,123)
(23)
3
(56)
(100)
(257)
1,082
(4,123)
(23)
3
—
(100)
—
—
—
—
3
—
—
—
$
(423) $
150 $
80 $
(1,972) $
(1,659) $
1,505
The loss on settlement of debt in the three months ended December 31, 2012 primarily relates to the $2.0 million
loss in connection with the redemption of the $44.1 million principal amount outstanding of the 5.36% Series E
senior unsecured debentures, which represents the difference between the carrying value and the consideration
paid. The remaining $2.1 million relates to penalties on the prepayment on mortgages.
The gains and losses on hedges represent the change in fair value for those derivatives to which the Company does not
apply hedge accounting, as well as the ineffectiveness of those hedges to which the Company applies hedge accounting.
Investment properties – selling costs were incurred on dispositions of properties.
Income Taxes
(thousands of dollars)
Deferred income taxes
Three months ended December 31
2013
2012
$
8,506 $
11,324
Deferred tax expense decreased compared to the same prior year period primarily due to the decrease in the fair value
adjustment of investment properties as compared to the prior year period.
Mortgages and Credit Facilities
In the three months ended December 31, 2013, the Company topped-up $46.6 million of mortgage financings with terms
less than five years relating to three properties with a weighted average interest rate of 3.69%.
In the three months ended December 31, 2013, the Company repaid $46.3 million amount of mortgage financing relating
to four properties with a weighted average interest rate of 6.48%.
102
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Cash Flows
(thousands of dollars)
Adjusted cash flow from operating activities
Net change in non-cash operating items
Expenditures on residential development inventory
Cash provided by operating activities
Cash used in financing activities
Cash used in investing activities
Net decrease in cash and cash equivalents
Three months ended December 31
2013
50,951 $
$
37,184
(3,599)
84,536
(52,930)
(104,678)
$
(73,072) $
2012
49,568
19,540
(3,096)
66,012
(18,709)
(174,701)
(127,398)
Operating Activities
Cash provided by operating activities increased primarily from cash flow generated by growth in net operating income
from the Company’s shopping centre portfolio, the timing of receipts and payments on working capital items, offset by
increased expenditures on residential development inventory.
Financing Activities
The increase in cash used in financing activities is the result of lower volume of debt and equity issuances in 2013
compared to 2012, offset by higher repayments of debt in 2012 than in 2013. These activities are more fully described in
the “Capital Structure and Liquidity” section of this MD&A.
Investing Activities
The decrease in cash used in investing activities results from decreased investment property acquisition activity and
decreased capital expenditure on the portfolio during the fourth quarter of 2013, offset by the additional investments in
loans and mortgages receivable and a decrease in net proceeds from property dispositions during the fourth quarter of
2013 compared to 2012. Details of the Company’s investments in acquisitions and developments are provided under the
“Business and Operations Review” section of this MD&A.
SUMMARY OF SIGNIFICANT ACCOUNTING ESTIMATES AND POLICIES
Summary of Critical Accounting Estimates
First Capital Realty’s significant accounting policies are described in Note 2 to the consolidated financial statements for
the year ended December 31, 2013. Management believes that the policies that are most subject to estimation and
Management’s judgment 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
103
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
As a result, the Company’s determination of fair value could vary under differing circumstances and result in different
calculations. The most significant areas that are affected by fair value estimates in the Company’s financial statements
are:
• estimates of fair values of investment properties;
• valuation of financial instruments both for disclosure and measurement purposes; and
• valuation of stock options using the Black-Scholes model.
The method of determination of the fair value of investment properties is discussed in detail elsewhere in this MD&A
under “Valuation of Investment Properties under IFRS”.
Fair Value of Financial Instruments
The Company is required to determine the fair value of its loans, mortgages and credit facilities payable, senior unsecured
and convertible debentures payable, loans and mortgages receivable, marketable securities and derivatives. The fair
values of the convertible debentures and marketable securities are based on quoted market prices. The fair values of the
other financial instruments are calculated using internally developed models as follows:
• Mortgages and credit facilities payable are calculated based on current market rates plus risk-adjusted spread on
discounted cash flows.
• Senior unsecured debentures are based on closing bid risk-adjusted spreads and current underlying Government of
Canada bond yields on discounted cash flows, also incorporating interest rate quotations provided by financial
institutions
• Derivative instruments are determined using present value forward pricing and swap calculations at interest rates that
reflect current market conditions.
• Loans and mortgages receivable are calculated based on current market rates plus borrower level risk-adjusted spreads
on discounted cash flows, adjusted for allowances for non-payment and collateral related risk.
Estimates of risk-adjusted credit spreads applicable to a specific financial instrument and its underlying collateral could
vary and result in a different disclosed fair value.
A 1% increase or decrease in the interest rate used to determine the fair value of the mortgages payable would change
the fair value of the mortgages payable by $43 million and $45 million, respectively. Similarly, a 1% increase or decrease
in the interest rate used to determine the fair value of the senior unsecured debentures would change the fair value by
$97 million and $104 million, respectively, and for the derivative instruments would change the fair value by $11 million
and $12 million, respectively. For loans and mortgages receivable, a 1% increase or decrease in the interest rate used to
determine the fair value would result in a change of $4 million and $4 million, respectively.
Financial instruments
The critical judgments inherent in the application of the policies with respect to financial instruments include applying the
criteria to designate financial instruments as FVTPL, which are acquired principally for the purpose of selling in the short-
term.
Hedge accounting
Where the Company undertakes to apply cash flow hedge accounting, it must determine whether such hedges are
expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout the financial reporting periods for which they were
designated.
Income Taxes
The Company exercises judgment in estimating deferred tax assets and liabilities. Income tax laws may be 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 deferred taxes.
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For the determination of deferred tax assets and liabilities where investment property is measured using the fair value
model, the presumption is that the carrying amount of an investment property is recovered through sale, as opposed to
presuming that the economic benefits of the investment property will be substantially consumed through use over time.
Key management personnel
Judgement has been made in identifying the key management personnel for purposes of compensation disclosure. The
Company considers those with the authority and responsibility for planning, directing and controlling the activities of the
Company to be the Board of Directors and certain members of senior management.
FUTURE ACCOUNTING POLICY CHANGES
Refer to Note 4 to the consolidated financial statements for the year ended December 31, 2013 for details on future
accounting policy changes.
Financial instruments
IFRS 9, “Financial Instruments” (“IFRS 9”), will replace IAS 39, “Financial Instruments: Recognition and
Measurement” (“IAS 39”). This standard addresses the classification and measurement of all financial assets and
financial liabilities within the scope of the current IAS 39. Included in IFRS 9 are the requirements to measure debt-
based financial assets at either amortized cost or fair value through profit or loss (“FVTPL”) and to measure equity-
based financial assets as either held-for-trading (“HFT”) or as fair value through other comprehensive income
(“FVTOCI”). No amounts are reclassified out of other comprehensive income if the FVTOCI option is elected.
Additionally, embedded derivatives in financial assets would no longer be bifurcated and accounted for separately
under IFRS 9.
A new general hedge accounting standard, part of IFRS 9 (2013), was issued in November 2013 making early
adoption available for IFRS 9. The new standard does not change the types of hedging relationships or the
requirement to measure and recognize ineffectiveness fundamentally; however, more hedging strategies that are
used for risk management will qualify for hedge accounting.
IFRS 9 has been deferred and will be effective no earlier than annual periods beginning on or after January 1, 2017,
with no new required adoption date known. However, the Company is in the process of assessing the impact of
IFRS 9 on its consolidated financial statements.
Levies
IFRIC Interpretation 21, “Levies” (“IFRIC 21”) clarifies that an entity recognizes a liability for a levy when the activity
that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a
minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified
minimum threshold is reached. The IFRIC does not apply to accounting for income taxes or fines and penalties.
IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. The Company is in the process of
assessing the impact of the adoption of this interpretation on its consolidated financial statements.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
CONTROLS AND PROCEDURES
As at December 31, 2013, the Chief Executive Officer and the Chief Financial Officer of the Company, with the assistance
of other staff and Management of the Company to the extent deemed necessary, have designed First Capital Realty's
disclosure controls and procedures to provide reasonable assurance that information required to be disclosed in the
various reports filed or submitted by the Company under securities legislation is recorded, processed, summarized and
reported accurately and have designed 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 IFRS. In the design of its internal controls over financial reporting, First Capital Realty used the 1992
framework published by the Committee of Sponsoring Organizations of the Treadway Commission (the “1992 COSO
Framework”).
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 and its internal controls
over financial reporting (each as defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and
Interim Filings) as at December 31, 2013, and have concluded that such disclosure controls and procedures and internal
controls over financial reporting were operating effectively.
The Company did not make any changes in its internal controls over financial reporting during the quarter ended
December 31, 2013 that have had, or are reasonably likely to have, a material effect on the Company's internal controls
over financial reporting. On an ongoing basis, the Company will continue to analyze its controls and procedures for
potential areas of improvement.
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 the necessary steps to minimize the consequences thereof.
RISKS AND UNCERTAINTIES
First Capital Realty, as an owner of income-producing properties and development properties, is exposed to numerous
business risks in the normal course of its business that can impact both short- and long-term performance. It is the
responsibility of Management, under the supervision of the Board of Directors, to identify and, to the extent possible,
mitigate or minimize the impact of all such business risks. The major categories of risk the Company encounters in
conducting its business and some of the actions it takes to mitigate these risks are outlined below. The Company’s most
current Annual Information Form from time to time provides a more detailed discussion of these and other risks and can
be found on SEDAR at www.sedar.com and the Company’s website at www.firstcapitalrealty.ca.
Economic Conditions and Ownership of Real Estate
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. Moreover, within
each of these provinces, the Company’s portfolio is concentrated predominantly in selected urban markets. As a result,
economic and real estate conditions in these regions will significantly affect the Company’s revenues and the value of its
properties.
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FIRST CAPITAL REALTY ANNUAL REPORT 2013
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 position 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 position 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.
Real property investments are relatively illiquid and generally cannot be sold quickly. This illiquidity will likely limit the
ability of the Company to vary its portfolio promptly in response to changed economic or investment conditions. The
Company’s inability to respond quickly to changes in the performance of its investments could adversely affect its ability
to meet its obligations, its financial position and its results of operations.
Lease Renewals and Rental Increases
Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced. Expiries of
certain leases will occur in both the short and long term, including expiry of leases of certain significant tenants, and
although certain lease renewals and/or rental increases are expected to occur in the future, there can be no assurance
that such renewals or rental increases will in fact occur. The failure to achieve renewals and/or rental increases may have
an adverse effect on the financial position and results of operations of the Company. In addition, the terms of any
subsequent lease may be less favourable to the Company than the existing lease.
Financing, Interest Rates, Repayment of Indebtedness and Access to Capital
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.
Interest rates have a significant effect on the profitability of commercial properties as interest represents a significant
cost in the ownership of real property where debt financing is used as a source of capital. The Company has a total of
$0.8 billion principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior
unsecured debentures and convertible debentures maturing between December 31, 2013 and December 31, 2015 at
a weighted average coupon interest rate of 5.52%. 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 annual interest cost would respectively
increase or decrease by $7.8 million. In addition, at December 31, 2013, the Company had $29.8 million principal
amount of debt (or 2% of the Company’s aggregate mortgage debt as of such date) at floating interest rates.
The Company seeks to reduce its interest rate risk by staggering the maturities of long-term debt and limiting the use of
floating rate debt so as to minimize exposure to interest rate fluctuations. Moreover, from time to time, the Company may
FIRST CAPITAL REALTY ANNUAL REPORT 2013
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
enter into interest rate swap transactions to modify the interest rate profile of its current or future variable rate debts
without an exchange of the underlying principal amount.
Changes to Credit Ratings
Any credit rating that is assigned to the senior unsecured debentures may not remain in effect for any given period of
time or may be lowered, withdrawn or revised by one or more of the rating agencies if, in their judgment, circumstances
so warrant. Any lowering, withdrawal or revision of a credit rating may have an adverse effect on the market price of the
senior unsecured debentures, may affect a debenture holder’s ability to sell its senior unsecured debentures and may
affect the Company’s access to financial markets and its cost of borrowing.
Acquisition, Expansion, Development, Redevelopment and Strategic Dispositions
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.
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.
Increased competition in the real estate market leads 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.
The Company’s acquisition and investment strategy and market selection process may not ultimately be successful and
may not provide positive returns on investment. The acquisition of properties or portfolios of properties entails risks that
include the following, any of which could adversely affect the Company’s financial position and results of operations and
its ability to meet its obligations: (i) the Company may not be able to identify suitable properties to acquire or may be
unable to complete the acquisition of the properties identified; (ii) the Company may not be able to successfully integrate
any acquisitions into its existing operations; (iii) properties acquired may fail to achieve the occupancy or rental rates
projected at the time of the acquisition decision, which may result in the properties’ failure to achieve the returns
projected; (iv) the Company’s pre-acquisition evaluation of the physical condition of each new investment may not detect
certain defects or identify necessary repairs, which could significantly increase the Company’s total acquisition costs; and
(v) the Company’s investigation of a property or building prior to acquisition, and any representations it may receive from
the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the
property or increase its acquisition cost.
Further, the Company’s development and redevelopment 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; (iv) the
inability to achieve projected rental rates or anticipated pace of lease-ups; and (v) increase in interest rates during the life
of the development or redevelopment.
The Company’s redevelopment and 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. Residential
property development and redevelopment is a relatively new line of business for the Company. As a result, development
risks associated with such projects may be greater due to the Company’s more limited experience in this area.
Where the Company’s development commitments relate to properties intended for sale, such as the residential portion of
certain projects, the Company is also subject to the risk that purchasers of such properties may become unable or
unwilling to meet their obligations to the Company or that the Company may not be able to close the sale of a significant
number of units in a development project on economically favourable terms.
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The Company undertakes strategic property dispositions from time to time in order to recycle its capital and maintain an
optimal portfolio composition. The Company may be subject to unexpected costs or liabilities related to such dispositions,
which could adversely affect the Company's financial position and results of operations and its ability to meet its
obligations.
Competition
The real estate business is competitive. Numerous other developers, managers and owners of retail properties compete
with the Company in seeking tenants. Some of the properties located in the same markets as the Company’s properties
may be newer, better located and/or have stronger anchor tenants than the Company’s properties. The existence of
developers, managers and owners in such markets and competition for the Company’s tenants could adversely affect the
Company’s ability to lease space in its properties in such markets and on the rents charged or concessions granted. In
addition, the internet and other technologies are expected to play a more significant role in consumer preferences and
shopping patterns in the future, which may present a competitive risk to the Company that is not easily assessed at this
time. Any of the aforementioned factors could have an adverse effect on the Company’s financial position and results of
operations.
Residential Development Sales and Leasing
First Capital Realty is and expects to be increasingly involved in the development of mixed-use properties that include
residential condominiums and rental apartments. These developments are often carried out with an experienced
residential developer as the Company's partner. Purchaser demand for residential condominiums is cyclical and is
significantly affected by changes in general and local economic and industry conditions, such as employment levels,
availability of financing for home buyers, interest rates, consumer confidence, levels of new and existing homes for sale,
demographic trends and housing demand. As a residential landlord in its properties that include rental apartments, First
Capital Realty is subject to the risks inherent in the multi-unit residential rental property industry. In addition to the risks
highlighted above, these include exposure to private individual tenants (as opposed to commercial tenants in the
Company's retail properties), fluctuations in occupancy levels, the inability to achieve economic rents (including
anticipated increases in rent), controlling bad debt exposure, rent control regulations, increases in operating costs
including the costs of utilities (residential leases are often “gross” leases under which the landlord is not able to pass on
costs to its residents), the imposition of increased taxes or new taxes and capital investment requirements.
Financial Covenants
First Capital Realty’s revolving credit facilities and its outstanding senior unsecured debentures contain customary
covenants and conditions, including, among others, compliance with various financial ratios and restrictions upon the
incurrence of additional indebtedness and liens on the Company’s properties. Furthermore, the terms of some of this
indebtedness may adversely affect the Company’s ability to consummate transactions that result in a change of control.
The existing mortgages also contain customary negative covenants such as those that limit the Company’s ability, without
the prior consent of the lender, to further mortgage the applicable property. If the Company were to breach covenants in
these debt agreements, the lender could declare a default and require the Company to repay the debt immediately. If the
Company fails to make such repayment in a timely manner, the lender may be entitled to take possession of any property
securing the loan. If the lenders declared a default under the Company’s revolving credit facilities, all amounts
outstanding thereunder would become due and payable and the Company’s ability to borrow in future periods could be
restricted. In addition, any such default or indebtedness in excess of an agreed amount, unless waived, would constitute a
default under First Capital Realty’s revolving credit facilities and senior unsecured debentures, giving rise to the
acceleration of such indebtedness.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Environmental Matters
The Company maintains comprehensive environmental insurance and conducts environmental due diligence upon the
acquisition of new properties. There is, however, a risk that the value of any given property in the Company’s portfolio could
be adversely affected as a result of unforeseen or uninsured environmental matters or changes in governmental regulations.
Under various federal, provincial and local laws, the Company, as an owner, and potentially as a person in control of or
managing real property, could potentially be liable for costs of investigation, remediation and monitoring of certain
contaminants, hazardous or toxic substances present at or released from its properties or disposed of at other locations,
whether the Company knows of, or is responsible for, the environmental contamination and whether the contamination
occurred before or after the Company acquired the property. The costs of investigation, removal or remediation of
hazardous or toxic substances are not estimable, may be substantial and could adversely affect the Company’s results of
operations or financial position. The presence of contamination or the failure to remediate such substances, if any, may
adversely affect the Company’s ability to sell such real estate or to borrow using such real estate as collateral and could
potentially also result in claims, including proceedings by government regulators or third party lawsuits. Environmental
legislation can change rapidly and the Company may become subject to more stringent environmental laws in the future,
and compliance with more stringent environmental laws, or increased enforcement of the same, could have a material
adverse effect on its business, financial position or results of operations.
Partnerships
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, “partnerships”). 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 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 partners to obtain such resolution.
Significant Shareholders
As of December 31, 2013, Chaim Katzman, the Chairman of the Board of Directors of First Capital Realty, and several of
the Company's shareholders affiliated with Mr. Katzman (the “Gazit Group”), including Gazit-Globe and related entities,
beneficially owned approximately 45.3% of the outstanding Common Shares. Gazit-Globe is a public company listed on
the Toronto Stock Exchange, on the New York Stock Exchange and on the Tel-Aviv Stock Exchange. Additional information
concerning Gazit-Globe is available in its public disclosure. Dori J. Segal, the Vice-Chairman, President and Chief Executive
Officer of First Capital Realty, is also the Executive Vice Chairman of Gazit-Globe. Mr. Segal and his spouse directly and
indirectly, own shares of the holding company (Norstar Holdings Inc., a corporation listed on the Tel-Aviv Stock Exchange)
which controls Gazit-Globe and they have entered into a shareholders' agreement with Mr. Katzman under which they
have agreed, among other things, to vote for certain nominees to, and to constitute, the board of this holding company in
an agreed manner, and to certain participation rights in the event that either Mr. Katzman or Mr. Segal and his spouse
wish to sell any of their shares of this holding company. In addition, Mr. Katzman has been given voting control over some
shares held by Mr. Segal's spouse in another entity which itself owns shares of the holding company under the terms of a
power of attorney. Mr. Segal directly owns 720,000 common shares of Gazit-Globe, representing approximately 0.4% of
the outstanding common shares of Gazit-Globe.
In addition, as of December 31, 2013, Alony-Hetz beneficially owned approximately 8.5% of the Common Shares. Alony-
Hetz and Gazit-Globe have entered into a shareholders' agreement pursuant to which, among other terms, (i) Gazit-Globe
has agreed to vote its common shares of the Company in favour of the election of up to two representatives of Alony-Hetz
to the Board of Directors of the Company and (ii) Alony-Hetz has agreed to vote its common shares of the Company in
favour of the election of the nominees of Gazit-Globe as the remaining directors of the Company.
The market price of the Common Shares could decline materially if the Company's significant shareholders sell some or all
of their Common Shares or are perceived by the market as intending to sell such Common Shares. In addition, so long as
the Gazit Group maintains a controlling interest in the Company, it will generally be able to approve any matter submitted
to a vote of shareholders of the Company which requires the approval of a simple majority of shareholders voting at the
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FIRST CAPITAL REALTY ANNUAL REPORT 2013
meeting, including, among other things, the election of the Board. The Gazit Group will also be able to exercise a
controlling influence in the event of a take-over bid for First Capital Realty. This level of ownership may discourage third
parties from seeking to acquire control of the Company, which in turn may adversely affect the market price of the
Common Shares.
Moreover, members of the Gazit Group have pledged a substantial portion of their common shares to secure revolving
credit facilities made available to them by commercial banks (the “Gazit Group Credit Facilities”). Based on information
from the Gazit Group, First Capital Realty believes that currently approximately 78.6% of the common shares reported as
beneficially owned by the Gazit Group (representing approximately 35.6% of the outstanding common shares of First
Capital Realty) are pledged to secure the Gazit Group Credit Facilities. While First Capital Realty has not been provided
with a copy of the Gazit Group Credit Facilities or the related pledge agreements, it has been advised by the Gazit Group
that if one of the Gazit Group members defaults on any of their obligations under the Gazit Group Credit Facilities or the
related pledge agreements, the related lenders may have certain rights over the pledged Common Shares, including
without limitation, the right to sell the pledged Common Shares in one or more public or private sales. Any such event
could cause the Company's Common Share price (and the price of other securities convertible into Common Shares,
including the Convertible Debentures) to decline materially. Many of the occurrences that could result in a default under
the Gazit Group Credit Facilities and, among other things, foreclosure of the pledged Common Shares are out of First
Capital Realty's control and are unrelated to its operations.
In addition, because a significant number of Common Shares are pledged to secure the Gazit Group Credit Facilities, the
occurrence of an event of default could result in a sale of such pledged Common Shares that would trigger an effective
change of control of First Capital Realty, even when such a change may not be in the best interests of the shareholders of
the Company or may have a material adverse effect on the Company.
The foregoing information has been provided by the Gazit Group and has not been independently verified. There can be
no assurances that such information is complete, and as such there may be additional relevant information not included
in the foregoing.
Investments Subject to Credit and Market Risk
The Company occasionally extends credit to third parties in connection with partnerships, the sale of assets or other
transactions. First Capital Realty also invests in marketable and other equity securities. The Company is exposed to risk in
the event that the values of its loans and/or its investments decrease due to the overall market conditions, business
failure, and/or other nonperformance by the counterparties or investees.
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111
Management’s Responsibility
The Company’s consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) are the
responsibility of Management and have been prepared in accordance with International Financial Reporting Standards
(“IFRS”).
The preparation of consolidated financial statements and the MD&A necessarily involves the use of estimates based on
Management’s judgment, particularly when transactions affecting the current accounting period cannot be finalized with
certainty until future periods. 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 February 20, 2014.
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.
The Board of Directors is responsible for ensuring that Management fulfills its responsibilities, including the preparation
and presentation of the consolidated financial statements and all the information in the MD&A and the maintenance of
financial and operating systems, through its Audit Committee, that is comprised of independent directors who are not
involved in the day-to-day operations of the Company. Each quarter the Audit Committee meets with Management and,
as necessary, with the independent auditors, Ernst & Young LLP, to satisfy itself that Management’s responsibilities are
properly discharged and to review and report to the Board of Directors on the consolidated financial statements.
In accordance with generally accepted auditing standards, the independent auditors conduct an examination each year in
order to express a professional opinion on the consolidated financial statements.
Dori J. Segal
President and Chief Executive Officer
Toronto, Ontario
February 20, 2014
Karen H. Weaver, CPA, ICD.D
Executive Vice President and Chief Financial Officer
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FIRST CAPITAL REALTY ANNUAL REPORT 2013
Independent Auditors’ 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, 2013 and 2012, and the consolidated statements of income, comprehensive
income, changes in 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 International Financial Reporting Standards, 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.
Auditors’ 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 audits 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 auditors' judgment, 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 auditors consider 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, 2013 and 2012, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Other matter
The consolidated balance sheet as at January 1, 2012 (prior to adjustments described in Note 3 to the consolidated financial
statements) was audited by another auditor who expressed an unmodified opinion on those financial statements on March 8,
2012.
As part of our audits of the consolidated financial statements of First Capital Realty Inc. for the year ended December 31, 2013,
we also audited the adjustments described in Note 3 that were applied to restate the consolidated balance sheet as at January
1, 2012. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit,
review or apply any procedures to the consolidated balance sheet as at January 1, 2012 other than with respect to the
adjustments described in Note 3 and, accordingly, we do not express an opinion or any other form of assurance on the
consolidated balance sheet as at January 1, 2012.
Toronto, Ontario
February 20, 2014
FIRST CAPITAL REALTY ANNUAL REPORT 2013
113
Independent Auditors’ Report
To the Shareholders of First Capital Realty Inc.
We have audited the accompanying consolidated financial statement of First Capital Realty Inc., which comprise the
consolidated balance sheet as at January 1, 2012, before the effects of the adjustments to retrospectively apply the
changes in accounting discussed in Note 3 to the consolidated financial statements (the consolidated balance sheet
before the effects of the adjustments discussed in Note 3 to the consolidated financial statements is not presented
herein), and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statement
Management is responsible for the preparation and fair presentation of the consolidated financial statement in
accordance with International Financial Reporting Standards, and for such internal control as Management determines is
necessary to enable the preparation of a consolidated financial statement that is free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the consolidated financial statement based on our audit. We conducted our
audit 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 statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statement, 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 statement 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 statement.
We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, such consolidated financial statement, before the effects of the adjustments to retrospectively apply the
changes in accounting discussed in Note 3 to the consolidated financial statements, presents fairly, in all material
respects, the financial position of First Capital Realty Inc. as at January 1, 2012 in accordance with International Financial
Reporting Standards.
Other Matter
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the changes in
accounting discussed in Note 3 to the consolidated financial statements and, accordingly, we do not express an opinion or
any other form of assurance about whether such retrospective adjustments are appropriate and have been properly
applied. Those retrospective adjustments were audited by another auditor.
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
Toronto, Ontario
March 8, 2012
114
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Consolidated Balance Sheets
(thousands of Canadian dollars)
ASSETS
Non-Current Assets
Real Estate Investments
Investment properties – shopping centres
Investment properties – development land
Investment in joint venture
Loans, mortgages and other real estate assets
Total real estate investments
Other non-current assets
Total non-current assets
Current Assets
Cash and cash equivalents
Loans, mortgages and other real estate assets
Residential development inventory
Amounts receivable
Other assets
Investment properties classified as held for sale
Total current assets
Total assets
LIABILITIES
Non-Current Liabilities
Mortgages and credit facilities
Senior unsecured debentures
Convertible debentures
Other liabilities
Deferred tax liabilities
Total non-current liabilities
Current Liabilities
Current portion of mortgages and credit facilities
Current portion of senior unsecured debentures
Current portion of convertible debentures
Accounts payable and other liabilities
Mortgages on investment properties classified as held for sale
Total current liabilities
Total liabilities
EQUITY
Shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and 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
Notes
December 31
2013
December 31
2012
January 1
2012
(Restated – Note 3)
(Restated – Note 3)
5
5
6
7
10
30(d)
8
9
10
5(d)
12
13
14
15
23
12
13
16
5(d), 12
17
27
$ 6,989,055 $ 6,567,741 $ 5,669,140
98,554
32,920
47,267
5,847,881
8,330
5,856,211
147,497
38,166
71,781
7,246,499
9,521
7,256,020
125,276
37,893
20,553
6,751,463
27,088
6,778,551
4,975
77,449
21,569
27,044
53,699
184,736
155,499
340,235
1,840
43,271
18,941
14,293
46,171
124,516
96,674
221,190
$ 7,596,255 $ 7,261,617 $ 6,077,401
64,015
46,591
33,292
22,566
33,136
199,600
283,466
483,066
$ 1,089,969 $ 1,327,980 $ 1,362,073
1,140,594
263,500
11,629
278,170
3,055,966
1,762,026
374,012
21,476
410,278
3,657,761
1,469,073
318,794
60,681
357,169
3,533,697
254,367
99,927
—
238,945
593,239
22,247
615,486
4,273,247
227,671
—
—
210,112
437,783
41,583
479,366
4,013,063
184,542
100,000
18,828
182,742
486,112
22,267
508,379
3,564,345
3,319,370
3,638
3,323,008
2,511,440
1,616
2,513,056
$ 7,596,255 $ 7,261,617 $ 6,077,401
3,245,168
3,386
3,248,554
FIRST CAPITAL REALTY ANNUAL REPORT 2013
115
Consolidated Statements of Income
(thousands of Canadian dollars, except per share amounts)
Notes
2013
2012
Year ended December 31
Property rental revenue
Property operating costs
Net operating income
Other income and expenses
Interest and other income
Interest expense
Corporate expenses
Abandoned transaction costs
Amortization expense
Share of profit from joint venture
Other gains (losses) and (expenses)
Increase in value of investment properties, net
Income before income taxes
Deferred income taxes
Net income
Net income attributable to:
Common shareholders
Non-controlling interest
Net income per share attributable to common shareholders:
Basic
Diluted
See accompanying notes to the consolidated financial statements.
(Restated – Note 3)
$
631,605 $
233,595
398,010
579,259
210,126
369,133
10,501
(164,909)
(25,211)
(2,231)
(3,873)
2,334
(4,280)
56,086
(131,583)
266,427
51,418
215,009 $
8,706
(160,916)
(23,417)
(2,095)
(4,102)
7,287
(6,080)
286,950
106,333
475,466
82,158
393,308
214,863 $
146
215,009 $
392,923
385
393,308
1.03 $
1.01 $
2.08
1.98
$
$
$
$
$
18
19
20
21
6
22
5
23
27
24
24
116
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Consolidated Statements of Comprehensive Income
(thousands of Canadian dollars)
Net income
Other comprehensive income (loss)
Items that may be reclassified subsequently to net income
Unrealized losses on available-for-sale marketable securities
Reclassification of net losses (gains) on available-for-sale marketable securities to net
income
Unrealized gains (losses) on cash flow hedges
Reclassification of net losses on cash flow hedges to net income
Deferred tax expense (recovery)
Other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to:
Common shareholders
Non-controlling interest
See accompanying notes to the consolidated financial statements.
Year ended December 31
Notes
2013
2012
(Restated – Note 3)
$
215,009 $
393,308
23
29
(254)
58
4,392
949
5,145
1,372
3,773
(557)
(384)
(1,890)
330
(2,501)
(607)
(1,894)
$
$
$
218,782 $
391,414
218,636 $
391,029
146
385
218,782 $
391,414
FIRST CAPITAL REALTY ANNUAL REPORT 2013
117
Consolidated Statements of Changes in Equity
(thousands of Canadian dollars)
December 31, 2012
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
(Note 29(b))
(Note 17(a))
(Note 17(b))
As reported
$ 778,540 $
(4,180) $2,426,836 $
44,416 $3,245,612 $
17,992 $3,263,604
Impact of adoption of IFRS 10 and IFRS 11
(Note 3)
(444)
—
—
—
(444)
(14,606)
(15,050)
Balance, at January 1, 2013, as restated
778,096
(4,180) 2,426,836
44,416
3,245,168
3,386
3,248,554
Changes during the year:
Net income
Issuance of common shares and warrants, net of
issue costs
Dividends
Convertible debentures, net
Options, deferred share units and
restricted share units, net
Expiry of warrants
Other comprehensive income
Contributions from non-controlling interest
214,863
—
(175,092)
—
—
—
—
—
—
—
—
—
—
—
3,773
—
—
1,247
—
19,054
8,496
1,677
—
—
—
—
214,863
146
215,009
1,247
—
1,247
— (175,092)
— (175,092)
233
19,287
10,124
—
3,773
1,628
(1,677)
—
—
—
—
—
—
19,287
10,124
—
3,773
106
—
106
December 31, 2013
$ 817,867 $
(407) $2,457,310 $
44,600 $3,319,370 $
3,638 $3,323,008
See accompanying notes to the consolidated financial statements.
118
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Consolidated Statements of Changes in Equity
(thousands of Canadian dollars)
December 31, 2011
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
(Note 29(b))
(Note 17(a))
(Note 17(b))
As reported
$ 544,738 $
(2,286) $1,928,583 $
40,813 $2,511,848 $
10,475 $2,522,323
Impact of adoption of IFRS 10 and IFRS 11
(Note 3)
(408)
—
—
—
(408)
(8,859)
(9,267)
Balance, at January 1, 2012 as restated
544,330
(2,286) 1,928,583
40,813
2,511,440
1,616
2,513,056
Changes during the year:
Net income
Issuance of common shares and warrants, net of
issue costs
Dividends
Convertible debenture, net
Options, deferred share units and
restricted share units, net
Other comprehensive loss
Contributions from non-controlling interest
392,923
—
(159,157)
—
—
—
—
—
—
—
—
—
—
—
392,923
385
393,308
382,803
1,677
384,480
—
384,480
—
— (159,157)
— (159,157)
104,890
(67)
104,823
10,560
1,993
(1,894)
—
—
—
—
—
12,553
(1,894)
—
1,385
—
—
—
104,823
12,553
(1,894)
1,385
December 31, 2012
$ 778,096 $
(4,180) $2,426,836 $
44,416 $3,245,168 $
3,386 $3,248,554
See accompanying notes to the consolidated financial statements.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
119
Consolidated Statements of Cash Flows
(thousands of Canadian dollars)
CASH FLOWS PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income
Adjustments for:
Increase in value of investment properties, net
Interest expense
Capitalized interest
Cash interest paid
Amortization expense
Share of profit of joint venture
Items not affecting cash and other items
Deferred leasing costs
Distribution from joint venture
Net change in non-cash operating items
Expenditures on residential development inventory
Cash provided by operating activities
FINANCING ACTIVITIES
Mortgage financings and credit facilities
Borrowings, net of financing costs
Mortgage financings and loans on residential development inventory
Principal installment payments
Repayments
Issuance of senior unsecured debentures, net of issue costs
Repayment of senior unsecured debentures
Issuance of convertible debentures, net of issue costs
Purchase of convertible debentures
Issuance of common shares and warrants, net of issue costs
Payment of dividends
Net contributions from non-controlling interest
Cash provided by financing activities
INVESTING ACTIVITIES
Acquisition of shopping centres
Acquisition of development land
Net proceeds from property dispositions
Capital expenditures on investment properties
Changes in investing-related prepaid expenses and other liabilities
Changes in loans, mortgages and other real estate assets
Cash used in investing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
See accompanying notes to the consolidated financial statements.
120
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Year ended December 31
Notes
2013
2012
(Restated – Note 3)
$
215,009 $
393,308
5
20
20
20
6
30(a)
30(b)
13
13
14
14(b)
5
5
5(d)
30(c)
(56,086)
164,909
22,528
(164,532)
3,873
(2,334)
47,556
(5,095)
2,062
(287)
(14,984)
212,619
45,804
7,689
(38,904)
(220,722)
445,765
(55,350)
55,497
(3,430)
9,743
(174,126)
106
72,072
(177,539)
(36,441)
191,274
(261,430)
(9,407)
(50,188)
(343,731)
(59,040)
64,015
(286,950)
160,916
23,943
(160,167)
4,103
(7,287)
72,331
(5,108)
2,259
10,009
(14,351)
193,006
249,378
14,776
(39,776)
(395,473)
470,813
(247,282)
122,883
(3,315)
287,402
(150,859)
1,385
309,932
(387,364)
(37,647)
258,284
(315,666)
10,488
31,142
(440,763)
62,175
1,840
30(d)
$
4,975 $
64,015
Notes to the Consolidated Financial Statements
1. DESCRIPTION OF THE COMPANY
First Capital Realty Inc. (the “Company”) is a corporation existing under the laws of Ontario and engages in the business of
acquiring, developing, redeveloping, owning and managing well-located, high quality urban retail-centered properties.
The Company is listed on the Toronto Stock Exchange (“TSX”) under the symbol “FCR”, and its head office is located at 85
Hanna Avenue, Suite 400, Toronto, Ontario, M6K 3S3.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board.
(b) Basis of presentation
The consolidated financial statements are prepared on a going concern basis and have been presented in Canadian dollars
rounded to the nearest thousand, unless otherwise indicated. The accounting policies set out below have been applied
consistently in all material respects. Changes in standards effective for the current year are described in Note 3 - “Change
in Accounting Policies” and for future accounting periods are described in Note 4, “Future Accounting Policy Changes”.
The consolidated financial statements provide comparative information in respect of the previous period. In addition, the
Company presents an additional balance sheet at the beginning of the comparative period when it changes an accounting
policy retrospectively in its financial statements; however, the Company is not required to provide all of the related note
disclosures required by other IFRSs associated with such balance sheet. An additional consolidated balance sheet as at
January 1, 2012 is presented in these consolidated financial statements due to retrospective application of certain
accounting policies (Note 3).
Comparative information in the financial statements includes reclassification of certain balances to provide consistency
with current period classification. The current period classification more appropriately reflects the Company's core
operations and is not material to the financial statements as a whole.
Additionally, management, in measuring the Company's performance or making operating decisions, distinguishes its
operations on a geographical basis. The Company operates in Canada and has three operating segments: Eastern which
includes operations primarily in Quebec and Ottawa; Central which includes the Company’s Ontario operations excluding
Ottawa; and Western which includes operations in Alberta and British Columbia. Operating segments are reported in a
manner consistent with internal reporting provided to the chief operating decision maker, who is the President and Chief
Executive Officer. On July 1, 2013, the Company completed a management realignment of its Ottawa properties from the
Central region to the Eastern region that resulted in a change to these segments. Prior periods have been restated to
reflect this change. This change in segment reporting did not have an impact on the Company's consolidated results for
any periods.
(c) Basis of consolidation
The consolidated financial statements include the financial statements of the Company as well as the entities that are
controlled by the Company (subsidiaries). The Company controls an entity when the Company is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over
the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are
deconsolidated from the date that control ceases. Inter-company transactions, balances and other transactions between
consolidated entities are eliminated.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(d) Business combinations
At the time of acquisition of property, the Company considers whether the acquisition represents the acquisition of a
business. The Company accounts for an acquisition as a business combination where an integrated set of activities is
acquired in addition to the property. More specifically, consideration is made of the extent to which significant processes
are acquired. The Company's policy is to use the acquisition method for common control business combinations for
accounting purposes.
The cost of a business combination is measured as the aggregate of the consideration transferred at acquisition date fair
value. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at fair value at the acquisition date. The Company recognizes any contingent consideration to be
transferred by the Company at their acquisition date fair value. Goodwill is initially measured at cost, being the excess of
the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed. Acquisition-related
costs are expensed in the period incurred.
When the acquisition of property does not represent a business, it is accounted for as an acquisition of a group of assets
and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair
values, and no goodwill is recognized. Acquisition-related costs are capitalized to investment property at the time the
acquisition is completed.
(e) Investments in joint arrangements
The Company accounts for its investment in a joint venture using the equity method and accounts for investments in joint
operations by recognizing the Company’s direct rights to assets, obligations for liabilities, revenues and expenses. Under
the equity method, the interest in the joint venture is carried in the balance sheet at cost plus post-acquisition changes in
the Company’s share of its net assets, less distributions received and less any impairment in the value of individual
investments. The Company's income statement reflects the share of the joint venture’s results after tax. Refer to Note 3,
“Change in Accounting Policies” for further discussion.
(f) Investment properties
Investment properties consist of shopping centres and development land that are held to earn rental income or for capital
appreciation, or both. Investment properties also include properties that are being constructed or developed for future
use, as well as ground leases to which the Company is the lessee. The Company classifies its investment properties on its
consolidated balance sheets as follows:
(i) Shopping centres
Shopping centres include the Company's shopping centre portfolio, properties currently under development or
redevelopment, and any adjacent land parcels available for expansion but not currently under development.
(ii) Development land
Development land includes land parcels which are not part of one of the Company’s existing shopping centres and which
are at various stages of development planning, primarily for future retail occupancy.
(iii) Investment Properties Classified as Held for Sale
Investment property is classified as assets held for sale when it is expected that the carrying amount will be recovered
principally through sale rather than from continuing use. For this to be the case, the property must be available for
immediate sale in its present condition, subject only to terms that are usual and customary for sales of such property, and
its sale must be highly probable, generally within one year. Upon designation as held for sale, the investment property
continues to be measured at fair value and is presented separately on the consolidated balance sheets.
122
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Valuation method
Investment properties are recorded at fair value, which reflects current market conditions, at each balance sheet date.
Gains and losses from changes in fair values are recorded in net income in the period in which they arise.
The determination of fair values requires management to make estimates and assumptions that affect the values
presented, such that actual values in sales transactions may differ from those presented.
The Company has three approaches to determine the fair value of an investment property at the end of each reporting
period:
1. External appraisals – by an independent national appraisal firm, according to professional appraisal standards and IFRS.
On an annual basis, the Company has an annual minimum threshold of approximately 15% of the portfolio requiring
external appraisal.
2. Internal appraisals – by certified staff appraisers employed by the Company, according to professional appraisal
standards and IFRS.
3. Value updates – performed by certified staff appraisers and primarily consisting of reviewing the key assumptions from
previous appraisals and updating the value for changes in the property cash flow, physical condition and changes in
market conditions.
The selection of the approach for each property is made based upon the following criteria:
• Property type – this includes an evaluation of a property's complexity, stage of development, time since acquisition, and
other specific opportunities or risks associated with the property. Stable properties and recently acquired properties
will generally receive a value update, while properties under development will typically be valued using internal or
external appraisals until completion.
• Market risks – specific risks in a region or a trade area may warrant a full internal or external appraisal for certain
properties.
• Changes in overall economic conditions – significant changes in overall economic conditions may increase the number
of external or internal appraisals performed.
• Business needs – financings or acquisitions and dispositions may require an external appraisal.
The Company makes no adjustments for portfolio premiums and discounts, nor for any value attributable to the
Company's management platform, as required by IFRS.
Shopping centres are appraised primarily based on stabilized cash flows from existing tenants with the property in its
existing state, since purchasers typically focus on expected income. External and internal appraisals conduct and place
reliance on both the direct capitalization method and the discounted cash flow method (including the estimated proceeds
from a potential future disposition). Value updates use the direct capitalization method.
Properties undergoing development, redevelopment or expansion are valued using the stabilized cash flows expected
upon completion, with a deduction for costs to complete the project; capitalization rates are adjusted to reflect lease-up
assumptions and construction risk, when appropriate. Adjacent land parcels held for future development are valued
based on comparable sales of commercial land.
The primary method of appraisal for development land is the comparable sales approach, which considers recent sales
activity for similar land parcels in the same or similar markets to estimate a value on either a per acre basis or on a basis of
per square foot buildable. Such values are applied to the Company’s properties after adjusting for factors specific to the site,
including its location, zoning, servicing and configuration.
The cost of development properties includes direct development costs, including internal development and initial leasing
costs, realty taxes and borrowing costs attributable to the development. Borrowing costs associated with expenditures on
properties under development or redevelopment are capitalized. Borrowing costs are also capitalized on land or
properties acquired specifically for development or redevelopment when activities necessary to prepare the asset for
development or redevelopment are in progress. The amount of borrowing costs capitalized is determined first by
reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of
borrowings to eligible expenditures after adjusting for borrowings associated with other specific developments. Where
borrowings are associated with specific developments, the amount capitalized is the gross cost incurred on those
borrowings, less any interest income earned on funds not yet employed in construction funding.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Capitalization of borrowing costs and all other costs commences when the activities necessary to prepare an asset for
development or redevelopment begin, and continue until the date that construction is complete and all necessary
occupancy and related permits have been received, whether or not the space is leased. If the Company is required as a
condition of a lease to construct tenant improvements that enhance the value of the property, then capitalization of costs
continues until such improvements are completed. Capitalization ceases if there are prolonged periods when
development activity is interrupted.
Initial direct leasing costs, including applicable internal leasing costs incurred by the Company in negotiating and
arranging tenant leases, are added to the cost of investment properties.
(g) Residential development inventory
Residential development inventory which is developed for sale is recorded at the lower of cost and estimated net
realizable value. Residential development inventory is reviewed for impairment at each reporting date. An impairment
loss is recognized in net income when the carrying value of the property exceeds its net realizable value. Net realizable
value is based on projections of future cash flows which take into account the development plans for each project and
management’s best estimate of the most probable set of anticipated economic conditions.
The cost of residential development inventory includes borrowing costs directly attributable to projects under active
development. The amount of borrowing costs capitalized is determined first by reference to borrowings specific to the
project, where relevant, and otherwise by applying a weighted average capitalization rate for the Company’s other
borrowings to eligible expenditures. Borrowing costs are not capitalized on residential developments inventory where no
development activity is taking place. Residential development inventory is presented separately on the consolidated
balance sheets as current assets. They are classified as current because the Company intends to sell them in the normal
operating cycle.
(h) Taxation
Current income tax assets and liabilities are measured at the amount expected to be received from or paid to tax
authorities based on the tax rates and laws enacted or substantively enacted at the consolidated balance sheet dates.
Deferred tax liabilities are measured by applying the appropriate tax rate to temporary differences between the carrying
amounts of assets and liabilities, and their respective tax basis. The appropriate tax rate is determined by reference to the
rates that are expected to apply to the year and the jurisdiction in which the assets are expected to be realized or the
liabilities settled.
Deferred tax assets are recorded for all deductible temporary differences, carry forward of unused tax credits and unused
tax losses, to the extent that it is probable that deductions, tax credits and tax losses can be utilized. For the
determination of deferred tax assets and liabilities where investment property is measured using the fair value model, the
presumption is that the carrying amount of an investment property is recovered through sale, as opposed to presuming
that the economic benefits of the investment property will be substantially consumed through use over time.
Current and deferred income taxes relating to items recognized in equity are charged directly to equity.
(i) Provisions
A provision is a liability of uncertain timing or amount. The Company records provisions, including asset retirement
obligations, when it has a present legal or constructive obligation as a result of past events, it is probable that an outflow
of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not
recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be
required to settle the obligation using a discount rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. Provisions are remeasured at each consolidated balance sheet date using the
current discount rate. The increase in the provision due to passage of time is recognized as interest expense.
124
FIRST CAPITAL REALTY ANNUAL REPORT 2013
(j) Share-based payments
Equity-settled share-based compensation, including stock options, restricted share units and deferred share units, is
measured at the fair value of the grants on the grant date. The fair value of options is estimated using an accepted option
pricing model, as appropriate to the instrument. The cost of equity-settled share-based compensation is recognized on a
proportionate basis consistent with the vesting features of each grant.
(k) Revenue recognition
(i) Investment properties
The Company has not transferred substantially all of the risks and benefits of ownership of its investment properties and,
therefore, accounts for leases with its tenants as operating leases.
Revenue recognition under a lease commences when the tenant has a right to use the leased asset, which is typically
when the space is turned over to the tenant to begin fixturing. Where the Company is required to make additions to the
property in the form of tenant improvements that enhance the value of the property, revenue recognition begins upon
substantial completion of those improvements.
The total amount of contractual rent to be received from operating leases is recognized on a straight-line basis over the term
of the lease, including any fixturing period. A receivable, which is included in the carrying amount of an investment property,
is recorded for the difference between the straight-line rental revenue recorded and the contractual amount received.
Rental revenue also includes percentage participating rents based on tenant sales, and recoveries of operating expenses
and property taxes. Percentage participating rents are recognized when the sales thresholds set out in the leases have
been met. Operating expense recoveries are recognized in the period that recoverable costs are chargeable to tenants.
(ii) Residential development inventory
The Company's residential development inventory comprises the construction and sale of residential condominium units.
The Company recognizes revenue from the sale of residential units upon substantial completion. The Company considers
substantial completion for each residential unit to be the point in which the purchaser has paid all amounts due on
interim closing, has the right to occupy the premises, has demonstrated collectability of the balance due at closing, and
has received an undertaking from the Company to be assigned title in due course, or when title has transferred.
(l) Financial instruments and derivatives
All financial instruments are required to be measured at fair value on initial recognition. Measurement in subsequent
periods depends on whether the financial instrument has been classified as fair value through profit or loss (“FVTPL”),
available-for-sale (“AFS”), held-to-maturity, loans and receivables or other liabilities.
Derivative instruments are recorded in the consolidated balance sheets at fair value, including those derivatives that are
embedded in financial or non-financial contracts and which are not closely related to the host contract.
The Company enters into forward contracts and interest rate swaps to hedge its risks associated with interest rates.
Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Hedge
accounting is discontinued prospectively when the hedging relationship is terminated, when the instrument no longer
qualifies as a hedge, or when the hedged item is sold or terminated. In cash flow hedging relationships, the portion of the
change in the fair value of the hedging derivative that is considered to be effective is recognized in Other comprehensive
income (“OCI”) while the portion considered to be ineffective is recognized in net income. Unrealized hedging gains and
losses in accumulated other comprehensive income (“AOCI”) are reclassified to net income in the periods when the
hedged item affects net income. Gains and losses on derivatives are immediately reclassified to net income when the
hedged item is sold or terminated or when it is determined that a hedged forecasted transaction is no longer probable.
Changes in the fair value of derivative instruments, including embedded derivatives, that are not designated as hedges for
accounting purposes, are recognized in other gains (losses) and (expenses).
FIRST CAPITAL REALTY ANNUAL REPORT 2013
125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The following summarizes the Company’s classification and measurement of financial assets and liabilities:
Financial assets
Marketable securities designated as AFS
Derivative assets
Loans and mortgages receivable
Marketable securities designated as FVTPL
Amounts receivable
Loans receivable from sales of residential inventory
Cash and cash equivalents
Restricted cash
Financial liabilities
Mortgages payable
Amounts outstanding under credit facilities
Senior unsecured debentures
Convertible debentures
Accounts payable and other liabilities
Derivative liabilities
Classification
Measurement
AFS
FVTPL
Loans and receivables
FVTPL
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Other liabilities
Other liabilities
Other liabilities
Other liabilities
Other liabilities
FVTPL
Fair value
Fair value
Amortized cost
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
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 consolidated balance sheets 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 investments in equity securities 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 derivative assets and liabilities
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).
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level
input that is significant to the fair value measurement as a whole) at the end of each reporting period.
(m) Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments with original maturities of three months or less.
126
FIRST CAPITAL REALTY ANNUAL REPORT 2013
(n) Critical judgments in applying accounting policies
The following are the critical judgments that have been made in applying the Company’s accounting policies and that
have the most significant effect on the amounts in the consolidated financial statements:
(i) Investment properties
In applying the Company’s policy with respect to investment properties, judgment is applied in determining whether
certain costs are additions to the carrying amount of the property and, for properties under development, identifying the
point at which capitalization of borrowing and other costs ceases. Judgment is also applied in determining the extent and
frequency of external and internal appraisals in order to estimate fair values.
(ii) Financial instruments
The critical judgments inherent in the application of the policies with respect to financial instruments include applying the
criteria to designate financial instruments as FVTPL, which are acquired principally for the purpose of selling in the short-
term.
(iii) Hedge accounting
Where the Company undertakes to apply cash flow hedge accounting, it must determine whether such hedges are
expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout the financial reporting periods for which they were
designated.
(iv) Income taxes
The Company exercises judgment in estimating deferred tax assets and liabilities. Income tax laws may be 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 deferred taxes.
(v) Key management personnel
Judgment has been made in identifying the key management personnel for purposes of compensation disclosure. The
Company considers those with the authority and responsibility for planning, directing and controlling the activities of the
Company to be the Board of Directors and certain members of senior management.
(o) Critical accounting estimates and assumptions
The Company makes estimates and assumptions that affect the carrying amounts of assets and liabilities, disclosure of
contingent assets and liabilities and the reported amount of earnings for the reporting periods. Actual results could differ
from those estimates. The estimates and assumptions that the Company considers critical include those underlying the
valuation of investment properties, as set out above, which describes the process by which investment properties are
valued, and the determination of which properties are externally and internally appraised and how often.
Additional critical accounting estimates and assumptions include those used for determining the values of financial
instruments for disclosure purposes (Note 26), estimating deferred taxes, allocation of convertible debentures liability and
equity components, assessing the allowance for doubtful accounts on trade receivables, and estimating the fair value of
share-based compensation (Note 17).
FIRST CAPITAL REALTY ANNUAL REPORT 2013
127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
3. CHANGE IN ACCOUNTING POLICIES
The Company has adopted each of the standards below on January 1, 2013:
(a) Consolidated financial statements and joint arrangements
IFRS 10 establishes principles for the preparation of the Company’s consolidated financial statements when it controls one
or more other entities. The standard defines the principle of control and establishes control as the basis for determining
which entities should be included in the consolidated financial statements of the Company. Control exists when an entity
is exposed, or has rights, to variable returns from its investment in another entity, and has the power to make relevant
decisions regarding the operating, financing and investing activities of the other entity to affect those returns. The
standard also sets out the accounting requirements for the preparation of consolidated financial statements. The standard
has been applied retrospectively to the prior periods presented.
IFRS 11 replaced IAS 31, “Interests in Joint Ventures” (“IAS 31”). IFRS 11 requires that reporting issuers consider whether a
joint arrangement is structured through a separate vehicle, as well as the terms of the contractual arrangement and other
relevant facts and circumstances, to assess whether the venture is entitled to only the net assets of the joint arrangement
(a “joint venture”) or to its share of the assets and liabilities of the joint arrangement (a “joint operation”). Joint ventures
must be accounted for using the equity method, whereas joint operations must be accounted for by recognizing the
venturer's right to assets and obligations for liabilities (i.e., similar to proportionate consolidation). The standard has been
applied retrospectively to the prior periods presented.
IFRS 12 applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated
structured entity. The standard requires the Company to disclose information that enables users of financial statements to
evaluate: (1) the nature of, and risks associated with, the Company's interests in other entities; and (2) the effects of those
interests on the Company's financial position, financial performance and cash flows.
Prior to January 1, 2013, the Company’s interests in joint arrangements for which it had joint control were accounted for
using the proportionate consolidation method. The Company combined its share of the jointly controlled entities'
individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the
Company’s consolidated financial statements.
The Company has assessed the nature of its joint arrangements and determined them to be joint operations, with the
exception of a joint arrangement classified as a joint venture. In addition, certain arrangements previously considered
subsidiaries are now treated as joint operations. The Company recognizes its interest in the joint venture’s assets and
liabilities using the equity method of accounting. Under the equity method, the interest in the joint venture is carried in
the consolidated balance sheets at cost plus post-acquisition changes in the Company’s share of its net assets, less
distributions received and less any impairment in value of individual investments.
128
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The impact of the Company's adoption of IFRS 10 and IFRS 11 on the consolidated balance sheets as at January 1, 2012
and December 31, 2012 is as follows:
(thousands of Canadian dollars)
Increase (decrease)
ASSETS
Non-Current Assets
Investment properties – shopping centres
Investment properties – development land
Investment in joint venture
Other non-current assets
Total non-current assets
Current Assets
Cash and cash equivalents
Residential development inventory
Other current assets
Total current assets
Total assets
LIABILITIES
Non-Current Liabilities
Mortgages and credit facilities
Other non-current liabilities
Total non-current liabilities
Current Liabilities
Current portion of mortgages and credit facilities
Accounts payable and other liabilities
Total current liabilities
Total liabilities
Non-controlling interest
Shareholders’ equity
Total liabilities and equity
December 31, 2012
January 1, 2012
$
$
$
(54,262) $
(8,061)
37,893
6,079
(18,351)
(6,140)
(32,599)
(85)
(38,824)
(57,175) $
(10,827) $
(1,582)
(12,409)
(15,279)
(14,437)
(29,716)
(42,125)
(14,606)
(444)
$
(57,175) $
(45,474)
(2,291)
32,920
845
(14,000)
(1,235)
(18,225)
(282)
(19,742)
(33,742)
(14,890)
(455)
(15,345)
(396)
(8,734)
(9,130)
(24,475)
(8,859)
(408)
(33,742)
The impact of the Company's adoption of IFRS 10 and IFRS 11 on the audited consolidated statements of income for the
year ended December 31, 2012 is as follows:
(thousands of Canadian dollars)
Net operating income
Property rental revenue
Property operating costs
Net operating income
Change in value of investment properties, net
Share of profit from joint venture
Other items, net
Net income attributable to common shareholders
There is no material impact on per share amounts.
Increase (decrease)
(3,837)
(1,433)
(2,404)
(4,901)
7,287
(18)
(36)
$
$
FIRST CAPITAL REALTY ANNUAL REPORT 2013
129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The impact of the Company’s adoption of IFRS 10 and IFRS 11 on the consolidated statement of cash flows for the year
ended December 31, 2012 is as follows:
(thousands of Canadian dollars)
Cash provided by operating activities
Cash used in financing activities
$
Increase (decrease)
13,242
(20,477)
(b) Fair value measurement
The Company has adopted IFRS 13 prospectively from January 1, 2013. IFRS 13 provides a single standard for fair value,
replacing the fair value concepts that were previously included in many other standards, and also clarifies various
requirements with regard to the appropriate measurement and disclosure of fair value and its underlying inputs. The
standard defines fair value, provides guidance on its determination and outlines required disclosures about fair value
measurements, but does not change the requirements about the items that should be measured and disclosed at fair
value.
Investment properties
Investment properties consist of shopping centres and development land that are held to earn rental income or for capital
appreciation, or both. Investment properties also include properties that are being constructed or developed for future
use, as well as ground leases to which the Company is the lessee. The Company classifies its investment properties on its
consolidated balance sheets as follows:
(i) Shopping centres
Shopping centres include the Company's shopping centre portfolio, properties currently under development or
redevelopment, and any adjacent land parcels available for expansion but not currently under development.
(ii) Development land
Development land includes land parcels which are not part of one of the Company’s existing shopping centres and which
are at various stages of development planning, primarily for future retail occupancy.
Investment properties are recorded at fair value, which reflects current market conditions, at each balance sheet date.
Gains and losses from changes in fair values are recorded in net income in the period in which they arise.
The significant considerations under IFRS 13, which the Company has made with regard to how investment property is
measured and the requirement for additional disclosures are as follows:
a)
IFRS 13 defines the fair value of an asset as an “exit price”, specifically “the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. The
underlying concept of “exit price” of an investment property is similar to the “exchange value” fair value definition
previously used under IAS 40, “Investment Property” (“IAS 40”).
b) For non-financial assets, including investment properties, IFRS 13 refers to the “highest and best use”, which is the use
to be assumed by market participants that maximizes the value of an asset. Management has determined that no
material change in the value of investment properties is required as a result of the application of this standard.
c) The fair value measurement assumes that the hypothetical sale of the asset, or “exit transaction”, takes place in the
“principal market” with the greatest volume and highest level of activity for the asset or liability. Alternatively, in the
absence of such a principal market, the transaction should take place in the “most advantageous market”. Management
has determined that no material change in the value of investment properties is required as a result of the application
of this standard.
d) The fair value hierarchy under IFRS 13 differs from that under IAS 40. IAS 40 defined a fair value hierarchy based on
valuation techniques. In IFRS 13, fair value measurements are instead categorized into a three-level hierarchy based on
the type of inputs utilized in determining fair value using valuation techniques.
130
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The Company’s investment property is measured using Level 3 inputs, as not all significant inputs are 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 investment property, and are developed based on the
best information available in the circumstances (which includes the reporting entity's own data).
e) Additionally, disclosure requirements have been significantly expanded to provide users of financial statements with
detailed quantitative and qualitative information about assumptions made and processes used when measuring the fair
value (Note 5).
The application of IFRS 13 has not materially impacted the fair value measurements of the Company’s investment
properties.
Shopping centres valuation
Shopping centres are appraised primarily based on stabilized cash flows from existing tenants with the property in its
existing state, since purchasers typically focus on expected income. External and internal appraisals conduct and place
reliance on both the direct capitalization method and the discounted cash flow method (including the estimated proceeds
from a potential future disposition). Value updates use the direct capitalization method.
Properties undergoing development, redevelopment or expansion are valued using the stabilized cash flows expected
upon completion, with a deduction for costs to complete the project; capitalization rates are adjusted to reflect lease-up
assumptions and construction risk, when appropriate. Adjacent land parcels held for future development are valued
based on comparable sales of commercial land.
During the year ended December 31, 2013, approximately 16% (year ended December 31, 2012 – approximately 35%) of
the total fair value of shopping centres was determined through external appraisals. The percentage determined through
external appraisal is calculated based on the fair value of the shopping centres in the period the appraisal was performed.
Development land valuation
The primary method of appraisal for development land is the comparable sales approach, which considers recent sales
activity for similar land parcels in the same or similar markets to estimate a value on either a per acre basis or on a basis
of per square foot buildable. Such values are applied to the Company's properties after adjusting for factors specific to the
site, including its location, zoning, servicing and configuration.
During the year ended December 31, 2013, approximately 17% (year ended December 31, 2012 – approximately 17%) of
the total fair value of development land was determined through external appraisals. The percentage appraised is
calculated based on the fair value of development land in the period the appraisal was performed.
(c) Amendments to IAS 1
The Company has adopted the amendments to IAS 1, “Presentation of Financial Statements”, which introduces the
grouping of items presented in OCI. Items that will be reclassified to profit or loss at a future point in time are presented
separately from items that will not be reclassified to profit or loss. The amendments affect the presentation of the
statement of OCI only and has no impact on the Company's financial position or performance.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
4. FUTURE ACCOUNTING POLICY CHANGES
Financial instruments
IFRS 9, “Financial Instruments” (“IFRS 9”), will replace IAS 39, “Financial Instruments: Recognition and
Measurement” (“IAS 39”). This standard addresses the classification and measurement of all financial assets and
financial liabilities within the scope of the current IAS 39. Included in IFRS 9 are the requirements to measure debt-
based financial assets at either amortized cost or fair value through profit or loss (“FVTPL”) and to measure equity-
based financial assets as either held-for-trading (“HFT”) or as fair value through other comprehensive income
(“FVTOCI”). No amounts are reclassified out of OCI if the FVTOCI option is elected. Additionally, embedded
derivatives in financial assets would no longer be bifurcated and accounted for separately under IFRS 9.
A new general hedge accounting standard, part of IFRS 9 (2013), was issued in November 2013. The new standard
does not change the types of hedging relationships (i.e., cash flow or fair value hedges) or the requirement to
measure and recognize ineffectiveness fundamentally; however, more hedging strategies that are used for risk
management will qualify for hedge accounting.
IFRS 9 has been deferred and will be effective no earlier than annual periods beginning on or after January 1, 2017,
with no new required adoption date known. Earlier adoption is permitted. The Company is in the process of
assessing the impact of IFRS 9 on its consolidated financial statements.
Levies
IFRIC Interpretation 21, “Levies”) (“IFRIC 21”) clarifies that an entity recognizes a liability for a levy when the
activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon
reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the
specified minimum threshold is reached. The IFRIC does not apply to accounting for income taxes or fines and
penalties. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014. The Company is in the
process of assessing the impact of the adoption of this interpretation on its consolidated financial statements.
132
FIRST CAPITAL REALTY ANNUAL REPORT 2013
5. INVESTMENT PROPERTIES
(a) Activity
(thousands of Canadian dollars)
Central
Eastern
Western
Total
December 31, 2013
Shopping
Centres
Development
Land
Balance at beginning of year
$
2,975,141 $
1,588,179 $
2,413,163 $
6,976,483 $
6,849,078 $
127,405
Acquisitions
Capital expenditures
Initial direct leasing costs
Dispositions
Reclassifications between shopping
centres and development land
Increase in value of investment
properties, net
Straight-line rent and other changes
130,481
87,439
1,957
24,090
106,043
1,081
70,094
67,948
2,057
224,665
261,430
5,095
188,224
249,708
5,095
(93,231)
(92,401)
(56,559)
(242,191)
(232,486)
36,441
11,722
—
(9,705)
—
35,287
4,230
—
8,992
3,178
—
—
1,528
(1,528)
11,807
3,075
56,086
10,483
54,378
10,483
Balance at end of year
$
3,141,304 $
1,639,162 $
2,511,585 $
7,292,051 $
7,126,008 $
Investment properties – non-current
Investment properties – classified as held for sale
Total
$
$
6,989,055 $
136,953
7,126,008 $
166,043
1,708
—
166,043
147,497
18,546
(thousands of Canadian dollars)
Central
Eastern
Western
Total
December 31, 2012
Shopping
Centres
Development
Land
(Restated - Note 3)
(Restated - Note 3)
Balance at beginning of year
Acquisitions
Capital expenditures
Initial direct leasing costs
Dispositions
Reclassifications between shopping
centres and development land
Increase in value of investment
properties, net
Straight-line rent and other changes
$
2,550,603 $
289,659
154,372
2,434
(168,605)
1,293,308 $
176,108
97,576
1,282
(16,979)
2,020,471 $
328,048
63,718
1,392
(117,184)
5,864,382 $
793,815
315,666
5,108
(302,768)
5,765,828 $
754,869
305,288
5,108
(297,018)
98,554
38,946
10,378
—
(5,750)
—
—
—
—
13,433
(13,433)
140,033
6,645
33,226
3,658
113,691
3,027
286,950
13,330
288,240
13,330
Balance at end of year
$
2,975,141 $
1,588,179 $
2,413,163 $
6,976,483 $
6,849,078 $
Investment properties – non-current
Investment properties – classified as held for sale
Total
$
$
6,567,741 $
281,337
6,849,078 $
127,405
(1,290)
—
127,405
125,276
2,129
Investment properties with a fair value of $3.0 billion (December 31, 2012 – $3.7 billion) are pledged as security for
mortgages and credit facilities.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(b) Investment property valuation
Capitalization rates and stabilized net operating income (“SNOI”), by region, for investment properties – shopping centres
are set out in the table below:
December 31, 2013
December 31, 2012
Shopping Centres
Central Region
Eastern Region
Western Region
Fair Value (1)
(C$ Millions)
SNOI (2)
Weighted Average
Capitalization Rate
(C$ millions)
Fair Value (1)
(C$ Millions)
SNOI (2)
Weighted Average
Capitalization Rate
(C$ millions)
$
$
3,021.9 $
1,630.7
2,473.4
7,126.0 $
167.0
104.0
143.0
414.0
(Restated - Notes 2 & 3)
(Restated – Note 2)
5.75% $
6.31%
5.70%
5.86% $
2,882.8 $
1,581.6
2,384.7
6,849.1 $
167.0
101.0
136.0
404.0
5.92%
6.47%
5.80%
6.00%
(1)
Fair value of properties under development includes a deduction for costs to complete of $95.5 million as at December 31, 2013 (December 31, 2012 – $148.7 million).
(2)
SNOI is not a measure defined by IFRS. SNOI reflects long-term, stable property operations, assuming a certain level of vacancy, capital and operating expenditures required to
maintain a stable occupancy rate. The average vacancy rates used in determining SNOI for non-anchor tenants generally range from 2% to 5%.
The sensitivity of the fair values of shopping centres to capitalization rates as at December 31, 2013 is set out in the table
below:
Capitalization rate
(Decrease) increase
(0.75)%
(0.50)%
(0.25)%
0.25%
0.50%
0.75%
Resulting increase (decrease)
in value of shopping centres
($ millions)
975
620
296
(272)
(523)
(754)
$
$
$
$
$
$
Additionally, a 1% increase or decease in SNOI would result in an increase or decrease, respectively, in fair values of
shopping centres by $71 million. A 1% increase in stabilized net operating income coupled with a 0.25% decrease in
capitalization rate would result in an increase in fair values of shopping centres of $389 million, and a 1% decrease in
stabilized net operating income coupled with a 0.25% increase in capitalization rate would result in a decrease in fair values
of shopping centres of $357 million.
134
FIRST CAPITAL REALTY ANNUAL REPORT 2013
(c) Investment properties – Acquisitions
During the years ended December 31, 2013 and 2012, the Company acquired shopping centres and development lands
for rental income and future development and redevelopment opportunities as follows:
Year ended December 31
(thousands of Canadian dollars)
Total purchase price, including acquisition costs
Share consideration issued for First Medical
Deferred purchase price and ground lease liabilities
Mortgage assumptions and vendor take-back mortgages on
acquisitions
Difference between principal amount and fair value of assumed
mortgage financing
Total cash paid
Note
32
2013
2012
Shopping
Centres
Development
Land
Shopping
Centres
Development
Land
$
188,224 $
—
—
(9,957)
(728)
(Restated – Note 3)
36,441 $
—
—
754,869 $
(102,860)
(21,953)
38,946
—
—
—
—
(229,189)
(1,299)
(13,503)
—
$
177,539 $
36,441 $
387,364 $
37,647
On August 8, 2012, a court-approved plan of arrangement for Gazit America Inc. (“Gazit America”) was completed
involving the Company and Gazit-Globe Ltd. (“Gazit”). Under the plan of arrangement, the Company acquired the shares
of Gazit America’s subsidiaries, ProMed Properties (CA) Inc. and ProMed Asset Management Inc., which together owned
and managed all of the medical office and retail properties of Gazit America, and certain property-related inter-company
indebtedness owing to Gazit America (hereinafter referred to as the “First Medical acquisition”).
On and before completion of the transaction, Gazit controlled both the Company and Gazit America. The acquired
subsidiaries include the portfolio of real estate properties, property management contracts and leasing and management
personnel, and represent a business. The transaction was accounted for as a common control business combination using
the acquisition method. The reason for the Company to complete the transaction was to acquire from Gazit America 12
medical office and retail properties generally adjacent to existing First Capital Realty properties and a 50% interest in a
thirteenth property jointly owned with First Capital Realty.
The acquisition was conducted on an arm’s-length basis at fair value and was determined to have substance due to the
involvement of significant non-controlling interests in both the Company and Gazit America, and the process was
conducted through independent Board committees and the use of independent business and property valuations and
external appraisers. As a result, the assets and liabilities acquired by the Company were measured at their fair value on
the closing date of the transaction. As consideration for the acquisition of these assets and assumption of these liabilities,
the Company issued 5,461,786 common shares and assumed certain property-related indebtedness. The common shares
issued were valued at their quoted trading price at the time of issue. Transaction costs related to the acquisition of
approximately $2.8 million were expensed as incurred (Note 22) and costs related to the issuance of common shares of
the Company reduced the value of share capital recorded.
The allocation of the purchase price to the assets acquired and liabilities assumed is as follows:
(thousands of Canadian dollars)
Investment property
Other assets
Secured mortgage debt
Other liabilities
Total share consideration paid
Assets (Liabilities)
225,664
3,843
(122,804)
(3,639)
103,064
$
$
Had the transaction occurred as at January 1, 2012, the Company's property rental revenue and net income for the
year ended December 31, 2012 would have increased by approximately $14.5 million and $6.7 million, respectively.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(d) Investment properties classified as held for sale
The Company has certain investment properties that are classified as held for sale. These properties are considered to be
non-core assets and are as follows:
(thousands of Canadian dollars, except other data)
Aggregate fair value
Mortgages secured by investment properties classified as held for sale
Weighted average cash interest rate of mortgages secured by investment properties
December 31, 2013 December 31, 2012
$
$
155,499
22,247
$
$
4.03%
283,466
41,583
5.55%
For the years ended December 31, 2013 and 2012, the Company sold shopping centres and development land as follows:
Year ended December 31
(thousands of Canadian dollars)
Total sales price (1)
Mortgages assumed and vendor take-back mortgages on sale
Property selling costs
Total cash proceeds
2013
2012
Shopping
Centres and
Development Land
Shopping
Centres and
Development Land
(Restated – Note 3)
$
$
242,191 $
(45,788)
(5,129)
191,274 $
302,768
(40,524)
(3,960)
258,284
(1) Total sales price by region is: Central $93 million (2012 – $170 million); Eastern $93 million (2012 – $15 million); and Western $56 million (2012 –
$118 million).
(e) Reconciliation of investment properties to total assets
Shopping centres and development land by region are as set out in the tables below:
As at December 31, 2013
(thousands of Canadian dollars)
Total shopping centres and development land (1)
A reconciliation of shopping centres and development land to
total assets is as follows:
Cash and cash equivalents
Loans, mortgages and other real estate assets
Other assets
Amounts receivable
Investment in joint venture
Residential development inventory
Total assets
Central
Region
Eastern
Region
Western
Region
Total
$ 3,141,304
$ 1,639,162
$ 2,511,585
$ 7,292,051
4,975
149,230
63,220
27,044
38,166
21,569
$
7,596,255
136
FIRST CAPITAL REALTY ANNUAL REPORT 2013
As at December 31, 2012
(thousands of Canadian dollars) (Restated – Notes 2 and 3)
Total shopping centres and development land (1)
A reconciliation of shopping centres and development land to
total assets is as follows:
Cash and cash equivalents
Loans, mortgages and other real estate assets
Other assets
Amounts receivable
Investment in joint venture
Residential development inventory
Total assets
(1) Includes investment properties classified as held for sale.
Central
Region
Eastern
Region
Western
Region
Total
$ 2,975,140
$ 1,588,179
$ 2,413,164
$ 6,976,483
64,015
67,144
60,224
22,566
37,893
33,292
$ 7,261,617
6. INVESTMENT IN JOINT VENTURE
The Company has a 50% joint venture interest in a shopping centre located in Ottawa, Ontario which it accounts for using
the equity method. Summarized below is the financial information for the joint venture.
(thousands of Canadian dollars)
Non-current assets
Cash and cash equivalents
Other current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Proportion of the Company’s interest at 50%
(thousands of Canadian dollars)
Revenue
Expenses
Increase (decrease) in value of investment properties, net
Net income
Proportion of the Company’s interest at 50%
Year ended December 31
2013
98,100 $
2,612
300
101,012
21,678
3,002
24,680
76,332
38,166
$
$
2012
98,100
538
311
98,949
22,490
674
23,164
75,785
37,893
Year ended December 31
2013
8,649 $
3,843
(138)
4,668 $
2,334 $
2012
8,392
3,966
10,149
14,575
7,287
$
$
$
$
$
$
The Company has received distributions of $2.1 million and $2.3 million from the joint venture in 2013 and 2012,
respectively, and made contributions of nil to the joint venture in 2013 and 2012.
The joint venture has no contingent liabilities or material capital commitments as at December 31, 2013 and December 31,
2012. The joint venture is restricted from distributing its profits until it obtains the consent of the two venture partners.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
7. LOANS, MORTGAGES AND OTHER REAL ESTATE ASSETS (NON-CURRENT)
(thousands of Canadian dollars)
Loans and mortgages receivable (a)
AFS investments in equity securities
December 31, 2013 December 31, 2012
(Restated – Note 3)
$
$
68,150 $
3,631
71,781 $
20,553
—
20,553
(a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning
investment properties and bear interest at a weighted average coupon and effective interest rate at December 31,
2013 of 6.3% per annum (December 31, 2012 – 8.8% per annum). The loans and mortgages receivable mature
between 2015 and 2025.
Scheduled principal receipts of current and non-current loans and mortgages receivable as at December 31, 2013 are as
follows:
(thousands of Canadian dollars, except other data)
2014
2015
2016
2017
2019 to 2025
Unamortized deferred financing fees, premiums and discounts, net
and interest receivable
Current (Note 8)
Non-current
Scheduled
Amortization
Payments on
Maturity
$
$
41 $
43
—
—
—
84 $
24,182 $
7,730
8,195
3,522
47,857
91,486 $
$
$
$
Weighted
Average Interest
Rate
9.53%
10.35%
7.96%
5.29%
5.46%
7.17%
6.33%
9.54%
7.17%
Total
24,223
7,773
8,195
3,522
47,857
91,570
1,037
92,607
24,457
68,150
92,607
138
FIRST CAPITAL REALTY ANNUAL REPORT 2013
8. LOANS, MORTGAGES AND OTHER REAL ESTATE ASSETS (CURRENT)
(thousands of Canadian dollars)
FVTPL investments in equity securities (a)
AFS investments in equity securities
Loans and mortgages receivable (b)
Loans receivable from sales of residential inventory (c)
December 31, 2013 December 31, 2012
(Restated – Note 3)
$
$
27,764 $
455
24,457
24,773
77,449 $
16,989
900
28,702
—
46,591
(a) The Company invests from time to time in publicly traded real estate and related securities. These securities are
recorded at market value. Unrealized gains and losses on FVTPL securities are recorded in other gains (losses) and
(expenses).
(b) The Company has loans and mortgages receivable secured by interests in investment properties (or shares of entities
owning investment properties) and bear interest at a weighted average coupon and effective interest rate of 9.5% per
annum (December 31, 2012 – 10.6% per annum). The loans and mortgages receivable mature during 2014. Refer to
Note 7(a).
(c) Loans receivable from sales of residential inventory bear interest at approximately 3% per annum.
9. AMOUNTS RECEIVABLE
(thousands of Canadian dollars)
Trade receivables (net of allowances for doubtful accounts of $2.8 million
(December 31, 2012 – $3.2 million))
Construction and development related chargebacks and receivables
Corporate and other amounts receivable (a)
December 31, 2013 December 31, 2012
(Restated – Note 3)
$
$
17,161 $
348
9,535
27,044 $
12,761
1,072
8,733
22,566
(a) Includes $8.4 million (December 31, 2012 – $7.9 million) of estimated insurance and indemnity proceeds
receivable relating to environmental remediation (Note 15(a)).
The Company determines its allowance for doubtful accounts on a tenant-by-tenant basis considering lease terms,
industry conditions, and the status of the tenant’s account, among other factors.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
10. OTHER ASSETS
(thousands of Canadian dollars)
Non-current
Fixtures, equipment and computer hardware and software
(net of accumulated amortization of $12.5 million
(December 31, 2012 – $9.3 million))
Deferred financing costs on credit facilities
(net of accumulated amortization of $2.4 million
(December 31, 2012 – $1.8 million))
Held to maturity investment in bond (a)
Current
Deposits and costs on investment properties under option
Prepaid expenses
Other deposits
Restricted cash
Derivatives at fair value
Residential inventory deposits
Held to maturity investment in bond (a)
Note
December 31, 2013 December 31, 2012
(Restated – Note 3)
$
$
$
$
16 (b)
16 (a)
16(d)
8,070 $
7,302
1,451
—
9,521 $
8,095 $
6,648
2,826
10,366
3,148
5,189
17,427
53,699 $
956
18,830
27,088
5,776
5,763
3,666
17,931
—
—
—
33,136
(a) In connection with the acquisition of a property, the Company assumed a third-party loan that had previously been
defeased. The defeasance collateral is a bond issued by an agency of the Canadian federal government with an effective
interest rate of 1.25% per annum (contractual rate of 5.96% per annum) and matures in November 2014 (Note 16(d)).
11. CAPITAL MANAGEMENT
The Company manages its capital, taking into account the long-term business objectives of the Company, to provide
stability and reduce risk while generating an acceptable return on investment over the long term to shareholders. The
Company’s capital structure currently includes common shares, senior unsecured debentures, 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 and debt principal repayments. 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.
140
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The components of the Company’s capital are set out in the table below:
(millions of Canadian dollars, except per share amounts)
Liabilities (principal amounts outstanding)
Mortgages and credit facilities
Mortgage on equity accounted joint venture (at the Company’s interest)
Senior unsecured debentures
Convertible debentures
Equity Capitalization
Common shares based on closing per share price of $17.71; December 31, 2012 – $18.82
(common share purchase warrants as at December 31, 2012 – $0.35)
December 31, 2013 December 31, 2012
(Restated – Note 3)
$
$
1,350 $
11
1,875
393
3,690
7,319 $
1,583
11
1,479
339
3,889
7,301
The Company monitors a number of financial ratios in conjunction with its credit agreements and financial planning.
These ratios are set out in the table below:
Debt to enterprise value, cash balances, net
Debt to total assets (investment properties at cost)
Joint venture proportionately consolidated
Joint venture proportionately consolidated, cash balances, net
Debt to total assets (investment properties at IFRS value)
Joint venture proportionately consolidated
Joint venture proportionately consolidated, cash balances, net
Joint venture proportionately consolidated, using ten quarter average
capitalization rate
Unencumbered aggregate assets to unsecured debt (investment properties
at IFRS value)
Joint venture proportionately consolidated
Joint venture proportionately consolidated, using ten quarter average
capitalization rate (1)
Unencumbered aggregate assets to unsecured debt (investment properties at
cost)
Joint venture proportionately consolidated
Measure/
covenant
N/A
<65%
<65%
>1.30
>1.30
Shareholders’ equity, using four quarter average (billions of Canadian dollars) (1)
Secured indebtedness to total assets (investment properties at fair value) (1)
>$1.4 billion
$
<40%
December 31, 2013 December 31, 2012
(Restated – Note 3)
44.3%
50.5%
50.5%
43.0%
42.9%
44.6%
2.29
2.15
1.90
3.3
18.2%
$
41.8%
49.9%
49.4%
42.6%
42.1%
45.3%
2.28
2.09
1.92
2.9
22.2%
Year ended
Debt/EBITDA
Interest coverage (EBITDA to interest expense)
Joint venture proportionately consolidated (1)
Fixed charges coverage (consolidated EBITDA to debt service)
Joint venture proportionately consolidated (1)
Measure/
covenant
>1.65
>1.5
December 31, 2013 December 31, 2012
8.32
2.34
1.89
8.58
2.19
1.76
(1) Calculations required under the Company's credit facility agreements or indenture governing the senior unsecured debentures.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The above ratios include measures not specifically defined in IFRS. They are calculations required pursuant to debt
covenants and for this reason are meaningful measures. Measures used in these ratios are defined below:
Debt consists of principal amounts outstanding on credit facilities and mortgages and the par value of senior unsecured
debentures. Convertible debentures are excluded as it is the Company’s intention to continue to satisfy its obligations
of principal and interest payments in respect of all of its outstanding convertible debentures by the issuance of common
shares.
Secured indebtedness includes mortgages which are collateralized against investment property.
Enterprise value consists of the market value of the Company’s common shares and common share purchase
warrants, the par value of senior unsecured debentures and convertible debentures, and principal amounts
outstanding on mortgages, loans and credit facilities.
EBITDA, as defined in the Company’s credit facility agreements and indenture governing the senior unsecured
debentures, is calculated as net income, adding back income tax expense, interest expense and amortization and
excluding the increase or decrease in the value of investment properties, other gains (losses) and (expenses) and
other non-cash items.
Fixed charges include regular principal and interest payments and capitalized interest in the calculation of interest
expense and does not include non-cash interest on convertible debentures.
Unencumbered assets include the value of assets that have not been pledged as security under any credit agreement
or mortgage, excluding investment properties under development and deferred tax assets. The unencumbered asset
value ratio is calculated as unencumbered assets divided by the principal amount of the unsecured debt, which
consists of the senior unsecured debentures.
The Company’s strategy involves maintaining its moderate leverage and continuing to improve the interest coverage and
fixed charges coverage ratios to allow continued access to capital at the lowest possible cost. The Company’s senior
unsecured debentures are currently rated BBB (high) with a stable trend by Dominion Bond Rating Service Ltd. and Baa2
with a stable outlook by Moody’s Investors Service.
The Company’s long-term financial objectives have remained substantially unchanged during the past eight years. Since
becoming an investment grade rated company in May 2005, the Company has financed its growth through common
shares, warrants and convertible debentures (cashless) for the equity component and through senior unsecured
debentures, mortgages and credit facilities for the debt component.
The Company’s long-term financing strategy is based on maintaining flexibility in accessing various forms of debt and
equity capital by maintaining a pool of unencumbered assets and investment grade credit ratings from 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.
142
FIRST CAPITAL REALTY ANNUAL REPORT 2013
12. MORTGAGES AND CREDIT FACILITIES
(thousands of Canadian dollars)
Fixed rate mortgages
Floating rate mortgages and secured credit facilities
Bank indebtedness
Current
Mortgages on investment properties classified as held for sale
Non-current
December 31, 2013
December 31, 2012
(Restated - Note 3)
$
$
$
$
1,331,833 $
29,750
5,000
1,366,583 $
254,367 $
22,247
1,089,969
1,366,583 $
1,575,656
21,578
—
1,597,234
227,671
41,583
1,327,980
1,597,234
Mortgages and the secured credit facilities are secured by investment properties. Of the fair value of investment
properties of $7.3 billion as at December 31, 2013 (December 31, 2012 – $7.0 billion), approximately $3.0 billion
(December 31, 2012 – $3.7 billion) has been pledged as security under the mortgages and the secured credit
facilities.
(i) Mortgages
Mortgages bear coupon interest at a weighted average interest rate of 5.21% per annum as at December 31, 2013
(December 31, 2012 – 5.31% per annum) and mature in the years ranging from 2014 to 2025. The weighted average
effective interest rate on all fixed rate mortgage financing as at December 31, 2013 is 4.90% per annum (December 31,
2012 – 4.98% per annum).
(ii) Credit facilities
On July 26, 2013, the Company completed an increase and extension of its senior unsecured revolving credit facility,
extending the maturity to June 30, 2016 and increasing the availability from $500 million to $600 million. The facility
pricing was also reduced from BA + 1.50% or Prime Rate + 0.50% to BA + 1.325% or Prime Rate + 0.325%.
On November 21, 2013, the Company reduced pricing on its $75 million secured credit facility from BA + 1.50% or Prime
Rate + 0.50% to BA + 1.25% or Prime Rate + 0.25%.
The following table summarizes the details of the Company’s lines of credit as at December 31, 2013:
(thousands of Canadian dollars,
except other data)
Borrowing
Capacity
Amounts
Drawn
Outstanding Letters
of Credit
Available to
be Drawn
Interest Rates
Maturity Date
Secured by development
$
75,000 $
— $
(23) $
74,977
properties
Unsecured
600,000
—
(43,410)
556,590
BA + 1.25% or
Prime + 0.25%
C$ at BA + 1.325% or
Prime + 0.325% or
US$ at LIBOR
+ 1.325%
December 31, 2014
June 30, 2016
Total secured and
unsecured facilities
$
675,000 $
— $
(43,433) $
631,567
FIRST CAPITAL REALTY ANNUAL REPORT 2013
143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Principal repayments of mortgages and credit facilities outstanding as at December 31, 2013 are as follows:
(thousands of Canadian dollars, except other data)
Outstanding cheques
2014
2015
2016
2017
2018
2019 to 2025
Unamortized deferred financing costs, premiums and discounts, net
Scheduled
Amortization
Payments on
Maturity
$
— $
5,000 $
36,059
29,007
23,403
20,522
16,485
42,110
167,586 $
215,602
213,110
155,032
82,901
123,046
393,030
1,187,721 $
$
$
Total
5,000
251,661
242,117
178,435
103,423
139,531
435,140
1,355,307
11,276
1,366,583
Coupon
Weighted
Average Interest
Rate
—
5.81%
4.98%
5.07%
5.17%
5.53%
4.97%
5.21%
As at December 31, 2013, the Company had mortgages maturing of $215.6 million at an average interest rate of 5.81% per
annum and $36.1 million of scheduled amortization of principal balances in 2014. Subsequent to December 31, 2013, the
Company paid mortgages totalling $43.0 million, and expects to pay an additional $8.0 million upon maturity in the first
quarter of 2014.
144
FIRST CAPITAL REALTY ANNUAL REPORT 2013
13. SENIOR UNSECURED DEBENTURES
(thousands of Canadian dollars, except other data)
December 31, 2013 December 31, 2012
Maturity Date
Series Date of Issue
Coupon
Effective
Interest Rate
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
July 30, 2019
April 30, 2020
April 30, 2020
March 1, 2021
January 31, 2022
January 31, 2022
January 31, 2022
December 5, 2022
December 5, 2022
E
F
G
H
I
I
I
J
K
K
L
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
January 21, 2011
M March 30, 2011
M June 13, 2011
N
O
O
O
P
P
April 4, 2012
June 1, 2012
July 17, 2012
August 29, 2013
December 5, 2012
January 14, 2013
October 30, 2023
Q March 26, 2013
October 30, 2023
Q May 15, 2013
Current
Non-current
5.36%
5.32%
5.95%
5.85%
5.70%
5.70%
5.70%
5.25%
4.95%
4.95%
5.48%
5.60%
5.60%
4.50%
4.43%
4.43%
4.43%
3.95%
3.95%
3.90%
3.90%
4.86%
5.52%
5.47%
6.13%
5.99%
5.85%
5.82%
5.70%
5.66%
5.30%
5.04%
5.61%
5.73%
5.39%
4.63%
4.56%
4.42%
4.83%
4.16%
4.20%
4.06%
3.90%
5.00%
Principal
Outstanding
$
— $
Liability
— $
100,000
125,000
125,000
50,000
25,000
50,000
50,000
50,000
50,000
150,000
110,000
65,000
175,000
100,000
50,000
50,000
150,000
100,000
125,000
175,000
99,927
124,699
124,501
49,740
24,898
49,993
49,328
49,254
49,802
149,083
109,255
65,727
173,675
99,165
50,037
48,664
147,708
98,133
123,374
174,990
Liability
53,893
99,809
124,502
124,358
49,683
24,874
49,992
49,167
49,123
49,768
148,946
109,160
65,821
173,522
99,082
49,948
—
147,425
—
—
—
$
1,875,000 $
1,861,953 $
1,469,073
$
$
99,927 $
1,762,026
1,861,953 $
—
1,469,073
1,469,073
Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity.
On June 7, 2013, the Company redeemed the remaining $53.9 million principal amount outstanding of its 5.36%
Series E senior unsecured debentures. The debentures were redeemed at a price of $1,025.87 for each $1,000
principal amount of debentures outstanding. In addition, accrued and unpaid interest was paid on the debentures up
to but excluding the redemption date. In connection with the redemption, total cash of $56.3 million was paid to the
holders, which consisted of $53.9 million of principal, $1.4 million in premium (Note 22) and $1.0 million in accrued
but unpaid interest.
On January 20, 2014, the Company completed the issuance of $150 million principal amount of senior unsecured
debentures, Series R, due August 30, 2024. These debentures bear interest at a coupon rate of 4.79% per annum
payable semi-annually commencing August 30, 2014. On February 18, 2014, the Company completed the issuance of an
additional $75 million principal amount of the senior unsecured debentures, which was a re-opening of this series of
debentures with effective rate of 4.54% per annum.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
14. CONVERTIBLE DEBENTURES
(thousands of Canadian dollars, except other data)
December 31, 2013
December 31, 2012
Date of Issue
Maturity Date
Coupon
Effective
Principal
Liability
Equity
Principal
Liability
Interest Rate
December 30, 2009 June 30, 2017
April 28, 2011
January 31, 2019
August 9, 2011
January 31, 2019
December 15, 2011 March 31, 2018
February 16, 2012 March 31, 2017
May 22, 2012
July 31, 2019
February 19, 2013
February 28, 2020
5.70%
5.40%
5.25%
5.25%
4.95%
4.75%
4.45%
5.08%
6.88%
6.90%
6.07%
6.66%
6.51%
6.19%
5.34%
$
42,917 $
41,362 $
984 $
46,092 $
44,012 $
57,500
57,500
50,000
75,000
52,500
57,500
53,844
55,477
47,427
71,620
49,277
55,005
2,192
390
1,155
1,495
1,439
403
57,500
57,500
50,000
75,000
52,500
—
53,262
55,146
46,918
70,712
48,744
—
Equity
1,031
2,192
390
1,155
1,495
1,439
—
6.35%
$
392,917 $
374,012 $
8,058 $
338,592 $
318,794 $
7,702
(a) Principal and Interest
The Company has the option of repaying the convertible debentures on maturity through the issuance of common shares
at 97% of the 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 manner. In addition, the
Company has the option of repaying the convertible debentures prior to the maturity date under certain circumstances,
either in cash or in common shares. Consistent with existing practice, it is the Company’s current intention to continue to
satisfy its obligations of principal and interest payments in respect of all of its outstanding convertible debentures by the
issuance of common shares. Since issuance, the Company has made all principal and interest payments on its convertible
debentures using common shares.
During the year ended December 31, 2013, 1.1 million common shares (year ended December 31, 2012 – 1.1 million
common shares) were issued for $19.1 million (year ended December 31, 2012 – $20.5 million) to pay interest to holders
of the convertible debentures. Each series of the Company’s convertible unsecured subordinated debentures bears
interest payable semi-annually and is convertible at the option of the holders in the conversion periods into common
shares of the Company at the conversion prices indicated below.
Maturity
Date
Coupon
Rate
TSX
Holder Option to
Convert at the
Conversion Price
Company Option to Redeem at
Principal Amount (conditional (1))
Company Option to Redeem
at Principal Amount (2)
Conversion Price
June 30, 2017
January 31, 2019
January 31, 2019
March 31, 2018
March 31, 2017
July 31, 2019
February 28, 2020
5.70%
5.40%
5.25%
5.25%
4.95%
4.75%
4.45%
FCR.DB.D
2009-2016
Jun 30, 2013 - Jun 29, 2015
Jun 30, 2015 - Jun 30, 2017
FCR.DB.E
FCR.DB.F
2011-2019
Jan 31, 2015 - Jan 30, 2017
Jan 31, 2017 - Jan 31, 2019
2011-2019
Jan 31, 2015 - Jan 30, 2017
Jan 31, 2017 - Jan 31, 2019
FCR.DB.G
2011-2018
Mar 31, 2015 - Mar 30, 2016
Mar 31, 2016 - Mar 30, 2018
FCR.DB.H
2012-2017
Mar 31, 2015 - Mar 30, 2016
Mar 31, 2016 - Mar 31, 2017
FCR.DB.I
FCR.DB.J
2012-2019
Jul 31, 2015 - Jul 30, 2017
Jul 31, 2017 - Jul 31, 2019
2013-2020
Feb 28, 2016 - Feb 27, 2018
Feb 28, 2018 - Feb 28, 2020
$
$
$
$
18.75
22.62
23.77
23.25
$
23.75
$26.75 - $27.75
(3)
$26.75 - $27.75 (4)
(1) Period of time during which the Company may redeem the debentures at their principal amount plus accrued and unpaid interest, provided that the volume weighted
average trading price for the 20 consecutive trading days ending five days prior to the notice of redemption is not less than 125% of the Conversion Price, by giving
between 30 and 60 days' written notice.
(2) Period of time during which the Company may redeem the debentures at their principal amount plus accrued and unpaid interest by giving between 30 and 60 days'
written notice.
(3) These debentures are convertible at the option of the holder into common shares of the Company at a conversion price of $26.75 per common share until July 31, 2017
and $27.75 per common share thereafter.
(4) These debentures are convertible at the option of the holder into common shares of the Company at a conversion price of $26.75 per common share until February
28, 2018 and $27.75 per common share thereafter.
146
FIRST CAPITAL REALTY ANNUAL REPORT 2013
(b) Normal course issuer bid
On August 23, 2013, the Company renewed its normal course issuer bid (“NCIB”) for all of its then outstanding series of
convertible unsecured subordinated debentures. The NCIB will expire on August 26, 2014 or such earlier date as the
Company completes its purchases pursuant to the NCIB. All purchases made under the NCIB are at market prices
prevailing at the time of purchase determined by or on behalf of the Company.
For the years ended December 31, 2013 and 2012, principal amounts of convertible debentures purchased and amounts
paid for the purchases are represented in the table below:
(thousands of Canadian dollars)
Year ended December 31, 2013
Year ended December 31, 2012
Principal Amount
Purchased
Amount Paid
$
3,175 $
3,426
Principal Amount
Purchased
3,035
$
Amount Paid
$
3,315
Total
15. OTHER LIABILITIES
(thousands of Canadian dollars)
Asset retirement obligations (a)
Ground leases payable
Loan payable
Deferred purchase price of investment property – shopping centre
Notes
December 31, 2013 December 31, 2012
(Restated – Note 3)
$
$
16(d)
16(e)
11,168 $
10,308
—
—
21,476 $
10,714
11,111
18,830
20,026
60,681
(a) The Company has obligations for environmental remediation at certain sites within its portfolio. The amounts
recorded as liabilities include those amounts recoverable or reimbursable from other parties (Note 9(a)).
16. ACCOUNTS PAYABLE AND OTHER LIABILITIES
(thousands of Canadian dollars)
Note
December 31, 2013 December 31, 2012
Trade payables and accruals
Construction and development payables
Dividends payable
Interest payable
Tenant deposits
Derivatives at fair value (a)
Short positions in marketable securities (b)
Mortgage payable (c)
Loan payable (d)
Deferred purchase price of investment property – shopping centre (e)
$
10 (a)
46,618 $
41,260
43,755
32,021
18,779
936
8,089
8,800
17,427
21,260
(Restated – Note 3)
46,374
44,378
43,375
30,246
18,523
2,311
16,663
8,242
—
—
$
238,945 $
210,112
(a) The Company enters into forward contracts and interest rate swaps as part of its strategy for managing certain
interest rate risks. For those contracts to which the Company has applied hedge accounting, the Company has
recorded the changes in fair value for the effective portion of the derivative in OCI (loss) from the date of designation.
For those interest rate swaps to which the Company does not apply hedge accounting, the change in fair value is
recognized in other gains (losses) and (expenses) (Note 22).
FIRST CAPITAL REALTY ANNUAL REPORT 2013
147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The following are the fair values of the Company's asset (liability) hedging instruments:
(thousands of Canadian dollars)
Bond forward contracts
Interest rate swaps
Interest rate swaps
Designated as
Hedging
Instrument
Yes
Yes
No
Maturity
Note
December 31, 2013 December 31, 2012
January 2014
March 2022 through
October 2022
May 2018
10
10
$
$
321 $
2,827
(936)
2,212 $
—
(975)
(1,336)
(2,311)
Subsequent to December 31, 2013, the Company settled certain of its derivative instruments including forward
contracts and interest rate swaps and paid $1.9 million in connection with the settlement.
(b) The Company invests from time to time in long and short positions in publicly traded real estate and related
securities, which are recorded at market value (Note 8). As at December 31, 2013, a restricted cash balance of
$10.4 million (Note 10) was maintained on account with the Company’s security broker as collateral for the
Company’s investment in short positions.
(c) The mortgage payable relating to residential development inventory bears interest at an effective rate of 1% per
annum. Subsequent to year end, the mortgage was repaid in full.
(d) In connection with the acquisition of a property, the Company assumed a third-party loan that had previously been
defeased. The defeasance collateral is a bond issued by an agency of the Canadian federal government. The
effective interest rate of the loan is 1.25% per annum (contractual rate of 5.96% per annum) and matures in
November 2014 (Note 10(a)).
(e) The deferred purchase price is expected to be settled in May 2014. The effective interest rate is 6.20% per annum.
17. SHAREHOLDERS’ EQUITY
(a) Share capital
The authorized share capital of the Company consists of 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 income of the Company and the net assets of the Company upon dissolution. Dividends are payable on the common
shares as and when declared by the Board of Directors.
The following table sets forth the particulars of the issued and outstanding common shares of the Company:
(thousands of Canadian dollars and thousands of common
shares)
Issued and outstanding at beginning of year
Payment of interest on convertible debentures
Redemption and conversion of convertible debentures
Exercise of options
Issuance of common shares and warrants
Expiry of warrants
Share issue costs and other, net of tax effect
Note
14
Year ended December 31, 2013
Year ended December 31, 2012
Number of
Common Shares
Stated Capital
Number of
Common Shares
Stated Capital
206,546 $
1,102
—
600
108
—
—
2,426,836
19,054
—
8,496
1,623
1,677
(376)
178,225 $
1,148
5,786
797
20,590
—
—
1,928,583
20,533
84,357
10,560
389,789
—
(6,986)
Issued and outstanding at end of year
208,356 $
2,457,310
206,546 $
2,426,836
148
FIRST CAPITAL REALTY ANNUAL REPORT 2013
On August 2, 2013, 5.6 million warrants, which were exercisable at $19.75, expired without exercise. The Company
reclassified the remaining warrant balance from contributed surplus and other equity items to share capital.
(b) Contributed surplus and other equity items
Contributed surplus and other equity items comprise the following:
(thousands of Canadian dollars)
December 31, 2013
December 31, 2012
Contributed
Surplus
Convertible
Debentures
Equity
Component
(Note 14)
Options
Restricted
and
Deferred
Share
Units
Warrants
Total
Contributed
Surplus
Options
Restricted
and
Deferred
Share
Units
Convertible
Debentures
Equity
Component
(Note 14)
Warrants
Total
Balance at beginning of year
$ 19,401 $
7,702 $ 15,636 $
1,677 $ 44,416 $ 19,494
$ 7,676
$ 13,643
$
— $ 40,813
Issuance of warrants
Issuance of convertible debentures
Conversion of convertible
debentures to common shares
Purchase of convertible debentures
Options vested
Exercise of options
Deferred share units vested
Restricted share units vested
Exercise of restricted share units
Expiry of warrants
—
—
—
(123)
—
—
—
—
—
—
—
403
—
(47)
—
—
—
—
—
—
—
—
—
—
1,171
(223)
870
1,668
(1,858)
—
—
—
—
—
—
—
—
—
—
403
—
(170)
1,171
(223)
870
1,668
(1,858)
—
(1,677)
(1,677)
—
—
—
(93)
—
—
—
—
—
—
—
2,857
(2,808)
(23)
—
—
—
—
—
—
—
—
—
—
1,130
(399)
991
1,621
(1,350)
—
1,677
—
—
—
—
—
—
—
—
—
1,677
2,857
(2,808)
(116)
1,130
(399)
991
1,621
(1,350)
—
Balance at end of year
$ 19,278 $
8,058 $ 17,264 $
— $ 44,600 $ 19,401 $
7,702 $ 15,636 $
1,677 $ 44,416
(c) Stock options
As of December 31, 2013, the Company is authorized to grant up to 15.2 million (December 31, 2012 – 15.2
million) common share options to the employees, officers and directors of the Company. As of December 31, 2013,
3.8 million (December 31, 2012 – 4.8 million) common share options are available to be granted. Options granted
by the Company generally expire 10 years from the date of grant and vest over five years. The outstanding options
as at December 31, 2013 have exercise prices ranging from $9.81 – $18.97 (December 31, 2012 – $9.78 – $17.90)
and comprise the following:
(In Canadian dollars, except other data)
December 31, 2013
December 31, 2012
Outstanding Options
Vested Options
Outstanding Options
Vested Options
Number of
Common
Shares
Issuable
(in thousands)
Weighted
Average
Exercise
Price per
Common
Share
Weighted
Average
Remaining
Life
(years)
Number of
Common Shares
Issuable
(in thousands)
Weighted
Average
Exercise
Price per
Common
Share
Number of
Common
Shares
Issuable
(in thousands)
130 $
9.85
1,162 $ 13.76
2,849 $ 16.38
1,827 $ 18.48
5,968 $ 16.37
4.7
4.8
4.1
8.1
5.5
130 $ 9.85
1,162 $ 13.76
2,352 $ 16.51
299 $ 18.17
3,943 $ 15.61
226 $
1,513 $
3,050 $
887 $
5,676 $
Weighted
Average
Exercise
Price per
Common
Share
10.06
13.75
16.36
17.90
15.65
Weighted
Average
Remaining
Life
(years)
Number of
Common
Shares
Issuable
(in thousands)
Weighted
Average
Exercise
Price per
Common
Share
4.4
5.5
5.0
8.6
5.7
226 $ 10.06
1,243 $ 13.71
2,272 $ 16.55
—
— $
3,741 $ 15.22
Exercise Price
Range
$ 9.78 – $10.81
$13.00 – $14.26
$15.47 – $17.41
$17.90 - $18.97
$ 9.78 – $18.97
FIRST CAPITAL REALTY ANNUAL REPORT 2013
149
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
During the year ended December 31, 2013, $1.0 million (year ended December 31, 2012 – $1.1 million) was recorded as
an expense related to stock options.
(In Canadian dollars, except other data)
Year ended December 31, 2013
Year ended December 31, 2012
Outstanding at beginning of year
Granted (a)
Exercised (b)
Forfeited
Expired
Outstanding at end of year
Number of
Common Shares
Issuable
(in thousands)
Weighted Average
Exercise Price
Number of
Common Shares
Issuable
(in thousands)
Weighted Average
Exercise Price
5,676 $
1,036 $
(600) $
(118) $
(26) $
5,968 $
15.65
18.97
13.80
17.67
17.02
16.37
5,592 $
957 $
(797) $
(76) $
— $
5,676 $
14.89
17.88
12.88
16.47
—
15.65
(a) The fair value associated with the options issued was calculated using the Black-Scholes model for option valuation
based on the following assumptions:
Share options granted (thousands)
Term to expiry
Exercise price (range)
Weighted average volatility rate
Weighted average expected option life
Weighted average dividend yield
Weighted average risk free interest rate
Fair value (thousands)
Year ended December 31
2013
1,036
10 years
18.97
15.0%
6 years
4.32%
1.39%
1,233
$
2012
957
10 years
$17.41-$17.90
17.5%
6 years
4.46%
1.78%
1,449
$
$
(b) The weighted average market share price at which options were exercised for the year ended December 31, 2013 was
$19.05 (year ended December 31, 2012 – $18.25).
(d) 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, (i) in the case of a Deferred Share Unit (“DSU”), upon
redemption by the holder after the date that the holder ceases to be a director of the Company and any of its subsidiaries
(the “Retirement Date”) but no later than December 15 of the first calendar year commencing after the Retirement Date,
and (ii) in the case of a Restricted Share Unit (“RSU”) on December 15 of the third calendar year following the year in
respect of which the RSU is granted. Holders of RSUs and DSUs receive dividends in the form of additional units when the
Company declares dividends on its common shares.
150
FIRST CAPITAL REALTY ANNUAL REPORT 2013
(in thousands)
Outstanding at beginning of year
Granted (a)
Dividends declared
Exercised
Forfeited
Outstanding at end of year
Share units available to be granted based on the current reserve
Year ended December 31, 2013
Year ended December 31, 2012
Deferred
Share Units
Restricted
Share Units
Deferred
Share Units
Restricted
Share Units
345
31
17
—
—
393
187
302
117
18
(121)
(30)
286
435
291
40
14
—
—
345
235
368
45
17
(128)
—
302
676
Expense recorded for the year (thousands of Canadian dollars)
$
795 $
1,382 $
935 $
1,309
(a) The fair value of the DSUs granted during the year ended December 31, 2013 was $0.6 million (year ended
December 31, 2012 – $0.7 million), measured based on the Company’s prevailing share price on the date of
grant. The fair value of the RSUs granted during the year ended December 31, 2013 was $2.2 million (year ended
December 31, 2012 – $0.8 million), measured based on the Company’s share price on the date of grant.
18. NET OPERATING INCOME
Net operating income is as follows:
Year ended December 31, 2013
(thousands of Canadian dollars)
Property rental revenue
Property operating costs
Net operating income
Year ended December 31, 2012
(thousands of Canadian dollars)
(Restated – Notes 2 and 3)
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
272,781 $
160,598 $
198,125 $
631,504 $
101 $
104,094
65,350
65,954
235,398
(1,803)
Total
631,605
233,595
168,687 $
95,248 $
132,171 $
396,106 $
1,904 $
398,010
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
Total
247,720 $
145,856 $
185,319 $
578,895 $
364 $
93,923
57,603
60,273
211,799
(1,673)
579,259
210,126
153,797 $
88,253 $
125,046 $
367,096 $
2,037 $
369,133
(1) Other items are principally operating costs and other adjustments that are not attributable to a region.
Property operating costs includes $20.5 million (December 31, 2012 - $18.7 million) related to salaries, wages and benefits.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
19. INTEREST AND OTHER INCOME
(thousands of Canadian dollars)
Year ended December 31
Notes
2013
2012
(Restated – Note 3)
Interest, dividend and distribution income from marketable securities and cash
investments
Interest income from mortgages and loans receivable
Fees and other income
Interest income from non-revolving term loan receivable from Gazit America Inc.
8
7,8
20. INTEREST EXPENSE
(thousands of Canadian dollars)
Note
Mortgages and credit facilities
Senior unsecured debentures
Convertible debentures
Coupon interest
Accretion of discounts
Amortization of deferred issue costs
Total interest expense
Interest capitalized to investment properties and residential development inventory
Interest expense
Convertible debenture interest paid in common shares
Change in accrued interest
Effective interest rate in excess of coupon rate on senior unsecured and convertible
debentures
Effective interest in excess of coupon interest on assumed mortgages
Other non-cash interest expense
Interest capitalized to investment properties and residential development inventory
14
$
$
$
$
3,695 $
5,911
895
—
10,501 $
2,656
3,898
244
1,908
8,706
Year ended December 31
2012
2013
(Restated – Note 3)
75,232 $
88,913
86,663
75,401
19,721
1,517
2,054
23,292
187,437
(22,528)
164,909 $
(19,054)
(1,775)
(1,471)
4,699
(5,304)
22,528
19,450
1,496
1,849
22,795
184,859
(23,943)
160,916
(20,533)
(2,128)
(1,339)
4,418
(5,110)
23,943
Cash interest paid
$
164,532 $
160,167
152
FIRST CAPITAL REALTY ANNUAL REPORT 2013
21. CORPORATE EXPENSES
(thousands of dollars, except for percentages)
Salaries, wages and benefits
Non-cash compensation
Other corporate costs
Amounts capitalized to investment properties under development, residential inventory and deferred
leasing costs
$
Year ended December 31
2013
23,389 $
2,802
10,487
36,678
2012
22,901
2,897
9,298
35,096
(11,467)
$
25,211 $
(11,679)
23,417
22. OTHER GAINS (LOSSES) AND (EXPENSES)
(thousands of Canadian dollars)
Realized gains on sale of marketable securities
Change in cumulative unrealized gains (losses) on marketable securities classified as
FVTPL
Losses on settlement of debt
Unrealized gains on hedges
Gain on settlement of litigation
Investment properties – selling costs
Net gain on sale of residential inventory (a)
Pre-selling costs of residential inventory
Gain (loss) on foreign currency exchange
Transaction costs
Year ended December 31
Notes
2013
2012
(Restated – Note 3)
$
2,564 $
3,538
16(a)
(1,988)
(4,092)
301
1,376
(5,295)
2,966
(155)
43
—
$
(4,280) $
2,677
(6,549)
1,459
—
(4,084)
—
(167)
(59)
(2,895)
(6,080)
(a) The components of the Company's net gain on sale of residential inventory are as follows:
(thousands of Canadian dollars)
Sales
Cost of sales
Total
Year ended December 31
2013
2012
$
$
28,850 $
(25,884)
2,966 $
—
—
—
FIRST CAPITAL REALTY ANNUAL REPORT 2013
153
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
23. INCOME TAXES
The sources of deferred tax balances and movements are as follows:
(thousands of Canadian dollars)
December 31, 2012
Net income
Recognized in OCI
Equity and other December 31, 2013
Deferred taxes related to non-capital
losses and capital losses
Deferred tax liabilities related to difference
in tax and book basis primarily related
to real estate, net
Net deferred taxes
$
$
(12,763) $
247 $
— $
(656) $
(13,172)
369,932
51,171
357,169 $
51,418 $
1,372
1,372 $
975
319 $
423,450
410,278
As at December 31, 2013, the Company had approximately $50.1 million of non-capital losses which expire between 2014
and 2033.
(thousands of Canadian dollars)
(Restated – note 3)
Deferred taxes related to non-capital losses
and capital losses
Deferred tax liabilities related to difference
in tax and book basis primarily related to
real estate, net
Net deferred taxes
December 31, 2011
Net income
Recognized in OCI
Equity December 31, 2012
$
$
(35,195) $
26,811 $
— $
(4,379) $
(12,763)
313,601
55,347
278,406 $
82,158 $
(607)
(607) $
1,591
(2,788) $
369,932
357,169
AS at December 31, 2012, the Company had approximately $35.0 million of non-capital losses which expire between 2016
and 2032.
The major components of income tax expense include the following:
(thousands of Canadian dollars)
Deferred income taxes
Year ended December 31
2013
2012
$
51,418 $
82,158
The following reconciles the Company’s statutory tax rate to its effective tax rate for the years ended December 31, 2013
and 2012:
(thousands of Canadian dollars)
Income tax expense at the Canadian federal and provincial income tax rate of 26.26% (2012 - 26.22%)
Increase (decrease) in income taxes due to:
Non-taxable portion of capital gains and other
Non-deductible interest
Changes in timing of reversals
Other
Year ended December 31
2013
2012
$
69,965 $
124,667
(19,443)
398
630
(132)
$
51,418 $
(52,331)
392
9,169
261
82,158
The Canadian federal and provincial income tax rate increased during 2013 primarily due to the change in the income tax
rate by the Province of British Columbia.
154
FIRST CAPITAL REALTY ANNUAL REPORT 2013
24. PER SHARE CALCULATIONS
The following table sets forth the computation of per share amounts:
(thousands of Canadian dollars, except other data)
Numerator
Net income attributable to common shareholders
Adjustment for dilutive effect of convertible debentures, net of tax
Numerator for diluted per share amounts
Denominator (in thousands)
Weighted average number of shares outstanding for basic per share amounts
Options
Convertible debentures
Denominator for diluted per share amounts
Basic net income per share attributable to common shareholders
Diluted net income per share attributable to common shareholders
Year ended December 31
2013
2012
(Restated – Note 3)
$
$
$
$
214,863 $
17,321
232,184 $
208,227
650
21,071
229,948
1.03 $
1.01 $
392,923
16,992
409,915
189,012
864
16,697
206,573
2.08
1.98
The following securities were not included in the diluted net income per share calculation as the effect would have been
anti-dilutive:
Year ended December 31
Number of Shares if Exercised
(in Canadian dollars, number of options in thousands)
Exercise Price
2013
Exercise Price Range
Common share options
Common share options
$
$
17.90
18.97
833
994
$17.41 -$17.90
2012
907
Regular dividends paid per common share were $0.84 and $0.82 for the years ended December 31, 2013 and 2012,
respectively.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
155
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
25. RISK MANAGEMENT
In the normal course of its business, the Company is exposed to a number of risks that can affect its operating
performance. Certain of 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 or highly probable future debt
issuances without an exchange of the underlying principal amount. The fair value of the Company’s derivative assets and
liabilities (Note 16(a)) and other contracts as at December 31, 2013 is a net asset of $2.2 million due to changes in interest
rates since the inception of the contracts. A 100 basis point increase in the yield curve for these contracts would increase
the Company’s net asset and equity by $11.4 million and increase net income by $0.4 million, with the remainder
recognized in other comprehensive income. A 100 basis point decrease in the yield curve for these contracts would
decrease the Company’s net asset and equity by $12.4 million and decrease net income by $0.4 million and the remainder
in other comprehensive income.
Interest represents a significant cost in financing the ownership of real property. The Company has a total of $0.8 billion
principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured
debentures and convertible debentures maturing between January 1, 2014 and December 31, 2016 at a weighted
average coupon interest rate of 5.52%. 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 annual interest cost would respectively increase or
decrease by $7.8 million.
The Company’s loans and mortgages receivable (current and non-current) earn interest at fixed rates. If the loans were
refinanced at 100 basis points higher or lower than the existing rate, the Company’s annual interest income, and,
accordingly, equity would respectively increase or decrease by approximately $0.9 million.
(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. Currently, no one tenant represents more than 7.1% 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 fulfill all of its existing commitments and leases up to the expiry date.
The Company’s leases typically have lease terms between 5 and 20 years and may include clauses to enable periodic
upward revision of the rental rates, and lease contract extension at the option of the lessee.
Future minimum rentals receivable under non-cancellable operating leases as at December 31 are as follows:
(thousands of Canadian dollars)
Within 1 year
After 1 year, but not more than 5 years
More than 5 years
156
FIRST CAPITAL REALTY ANNUAL REPORT 2013
2013
398,129
1,177,648
930,499
2,506,276
$
$
(c) 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 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 Canadian dollars)
Mortgages
Scheduled amortization
Payments on maturity
Total mortgage obligations
Mortgage on equity accounted joint venture
Senior unsecured debentures
Loans and mortgage payable (1)
Interest obligations (2)
Land leases (expiring between 2023 and 2061)
Contractual committed costs to complete current
development projects
Other committed costs
Total contractual obligations (3)
Payments Due by Period
2014
2015 to 2016
2017 to 2018
Thereafter
Total
$
36,059 $
52,410 $
37,007 $
42,110 $
215,602
251,661
434
100,000
25,251
157,387
979
19,533
16,082
368,142
420,552
10,425
125,000
—
250,350
1,964
3,865
—
205,947
242,954
—
400,000
—
194,904
1,986
—
—
393,030
435,140
—
1,250,000
—
214,163
18,602
—
—
$
571,327 $
812,156 $
839,844 $
1,917,905 $
167,586
1,182,721
1,350,307
10,859
1,875,000
25,251
816,804
23,531
23,398
16,082
4,141,232
(1) Loans and mortgage payable include a $8.8 million loan relating to residential development inventory (Note 16) and a $17.4 million third party loan which is secured by
$17.4 million in Government of Canada bonds (Note 16).
(2) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2013 (assuming balances remain outstanding through to
maturity), and senior unsecured debentures, as well as standby credit facility fees.
(3) Consistent with existing practice, it is the Company’s current intention to continue to satisfy its obligations of principal and interest payments in respect of all of its
outstanding convertible debentures by the issuance of common shares, and as such have been excluded from this table.
The Company’s total estimated costs to complete development projects currently under construction are $95.5 million
with $23.4 million contractually committed at December 31, 2013.
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, 2013,
there was nil (December 31, 2012 – nil) of cash advances drawn against the Company’s revolving credit facilities.
In addition, at December 31, 2013, the Company has $43.4 million (December 31, 2012 – $10.6 million, net of cash
collateralization) of outstanding letters of credit that have been issued by financial institutions primarily to support certain
of the Company’s above contractual obligations.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
157
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
26. FINANCIAL ASSETS AND LIABILITIES
Fair Value
A comparison of the carrying amounts and fair values, by class, of the Company’s financial instruments, other than those
whose carrying amounts approximate their fair values, is as follows:
(in Canadian dollars)
Financial Assets
FVTPL investments in equity securities
AFS investments in equity securities (Current and Non-Current)
Loans and mortgages receivable (Current and Non-Current)
Derivatives at fair value
Financial Liabilities
Mortgages and credit facilities
Senior unsecured debentures
Convertible debentures
Derivatives at fair value
Short positions in marketable securities
Notes
Carrying Amount
Fair Value
2013
2012
2013
2012
8
7,8
7,8
10
12
13
14
16
16
$
27,764 $
4,086
91,570
3,148
16,989 $
900
48,852
—
27,764 $
4,086
91,570
3,148
16,989
900
48,852
—
$ 1,366,583 $ 1,597,234 $ 1,384,810 $ 1,683,464
1,598,392
347,725
2,311
1,861,953
374,012
936
1,915,997
390,093
936
1,469,073
318,794
2,311
8,089
16,663
8,089
16,663
The fair values of the Company’s cash and cash equivalents, amounts receivable, deposits, loans receivable from sales of
residential inventory, restricted cash and accounts payable and other liabilities approximate their carrying values as at
December 31, 2013 and December 31, 2012 due to their short term nature.
The fair values of the Company's held to maturity investment in bond (Note 10(a)) and defeased loan payable (Note 16(d))
approximate their carrying values as at December 31, 2013 and December 31, 2012 due to their short-term maturity date.
These items were recorded at fair value at the time of acquisition of the related property in 2012, and the implicit risk-
adjusted interest rates used to determine fair value at that time are not significantly different as at December 31, 2013 and
December 31, 2012.
The fair value of the Company's mortgage payable (Note 16(c)) approximates its carrying value due to its short-term
maturity date and the variable rate of interest associated with the mortgage, for which the Company's credit spread is
not significantly different as at December 31, 2013 and December 31, 2012.
The fair values of the Company’s investments in FVTPL and AFS equity instruments as well as the short positions in
marketable securities, are based on quoted market prices. The Company has an investment in a fund classified as Level 3
AFS equity instrument, for which the fair value is based on the fair value of the properties held in the fund.
The fair value of the Company’s loans and mortgages receivable, classified as Level 3, are calculated based on current
market rates plus borrower level risk-adjusted spreads on discounted cash flows, adjusted for allowances for non-
payment and collateral related risk. At December 31, 2013, the risk-adjusted interest rates ranged from 4.25% to 11.00%
(December 31, 2012 – 4.25% to 11.00%).
The fair value of the Company’s mortgages and credit facilities payable are calculated based on current market rates plus
risk-adjusted spreads on discounted cash flows. As at December 31, 2013, these rates ranged from 2.63% to 4.39%
(December 31, 2012 – 1.85% to 3.72%).
The fair value of the senior unsecured debentures are based on closing bid risk-adjusted spreads and current underlying
Government of Canada bond yields on discounted cash flows. For the purpose of this calculation, the Company uses,
among others, interest rate quotations provided by financial institutions. As at December 31, 2013, these rates ranged
from 1.73% to 4.85% (December 31, 2012 – 2.01% to 4.04%).
The fair values of the convertible debentures are based on the TSX closing bid prices.
158
FIRST CAPITAL REALTY ANNUAL REPORT 2013
The fair value of derivative instruments are determined using present value forward pricing and swap calculations at
interest rates that reflect current market conditions. The models also take into consideration the credit quality of
counterparties, interest rate curves and forward rate curves. At December 31, 2013, the interest rates ranged from 2.77%
to 4.50% (December 31, 2012 – 1.84% to 3.83%).
The fair value hierarchy of financial instruments measured at fair value on the consolidated balance sheets is as
follows:
December 31, 2013
December 31, 2012
(thousands of Canadian dollars)
Notes
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Financial Assets
FVTPL investments in equity securities (a)
AFS investments in equity securities
Derivatives at fair value (assets)
Financial Liabilities
Derivatives at fair value (liabilities)
Short positions in marketable securities
8
7,8
10
16
16
$
27,764 $
4,082
—
— $
—
3,148
— $
4
—
16,989 $
900
—
— $
—
—
—
8,089
936
—
—
—
—
16,663
2,311
—
—
—
—
—
—
The fair value hierarchy of financial instruments that are not measured at fair value on the consolidated balance
sheets, but whose fair values are disclosed above are as follows:
(thousands of Canadian dollars)
Notes
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
December 31, 2013
December 31, 2012
Financial Assets
Loans and mortgages receivable (Current
and Non-Current)
Financial Liabilities
Mortgages and credit facilities
Senior unsecured debentures
Convertible debentures
7,8
$
— $
— $
91,570 $
— $
— $
48,852
12
13
14
— 1,384,810
— 1,915,997
390,093
—
—
—
—
— 1,683,464
— 1,598,392
347,725
—
—
—
—
FIRST CAPITAL REALTY ANNUAL REPORT 2013
159
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
27. SUBSIDIARY WITH NON-CONTROLLING INTEREST
The Company contractually controls Main and Main Developments LP, a subsidiary in which it owns 67%, until such time
that all loans and mortgages receivable from the subsidiary have been paid in full. In the event that the loans and
mortgages receivable are paid in full, all decisions regarding the relevant activities of the subsidiary will require
unanimous consent. The Company has provided the subsidiary with senior and mezzanine debt financing in connection
with the acquisition and development of sites. The decision to repay the loans is made by the Management Committee
of the subsidiary, which is controlled by the Company.
Non-controlling interest in the equity and the results of this subsidiary, before any inter-company eliminations, are as
follows:
December 31, 2013
December 31, 2012
$
$
$
$
$
$
$
$
$
134,614 $
779
135,393 $
80,031
43,419
123,450
11,943 $
3,638 $
95,023
1,260
96,283
67,761
17,363
85,124
11,159
3,386
Year ended December 31
2013
5,719 $
5,229
(49)
441 $
146 $
2012
1,296
1,254
1,139
1,181
385
Year ended December 31
2013
152 $
38,106
(38,365)
(107) $
2012
113
53,334
(54,323)
(876)
(thousands of Canadian dollars)
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Non-controlling interests
(thousands of Canadian dollars)
Revenue
Expenses
Increase (decrease) in value of investment properties, net
Net income
Non-controlling interests
(thousands of dollars)
Cash provided by operating activities
Cash provided by financing activities
Cash used in investing activities
Net decrease in cash and cash equivalents
160
FIRST CAPITAL REALTY ANNUAL REPORT 2013
28. CO-OWNERSHIP INTERESTS
The Company is a co-owner in several properties, as listed below, that are subject to joint control and represents joint
operations under IFRS 11. The Company recognizes its share of the direct rights to the assets and obligations for the
liabilities of these co-ownerships in the consolidated financial statements.
Property
Les Galeries de Lanaudiere
West Oaks Mall
Bow Valley Crossing (land)
Mclaughlin Corners
Midland (land)
Meadowbrook Centre (II)
Fuzion and KingsClub
Hunt Club Marketplace
Kanata Terry Fox (land)
Sherwood Towne Square
West Springs Village
Edmonton Brewery District
Location
Montreal, QC
Abbotsford, BC
Calgary, AB
Brampton, ON
Midland, ON
Edmonton, AB
Toronto, ON
Ottawa, ON
Ottawa, ON
Sherwood Park, AB
Edmonton, AB
Edmonton, AB
Ownership Interests
December 31, 2013
50%
50%
75%
50%
50%
50%
50%
33%
50%
50%
50%
50%
December 31, 2012
50%
50%
75%
50%
50%
50%
50%
33%
50%
50%
50%
50%
Summarized below is the financial information for the co-ownerships as a total at the Company's interest.
(thousands of Canadian dollars)
December 31, 2013
December 31, 2012
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
(thousands of Canadian dollars)
Revenue
Expenses
Increase in value of investment properties, net
Net income
$
$
$
$
$
$
$
220,491 $
4,670
225,161 $
150,084 $
4,738
154,822 $
70,339 $
205,072
3,763
208,835
143,315
4,459
147,774
61,061
Year ended December 31
2013
16,244 $
6,890
1,065
10,419 $
2012
13,377
5,741
3,224
10,860
FIRST CAPITAL REALTY ANNUAL REPORT 2013
161
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
29. SUPPLEMENTAL OTHER COMPREHENSIVE INCOME (LOSS) INFORMATION
(a) Tax effects relating to each component of other comprehensive income (loss)
54
531
(85)
607 $
(330)
(1,359)
245
(1,894)
2012
Year ended December 31
(thousands of Canadian dollars)
Unrealized losses on available-for-
sale marketable securities
Reclassification of losses (gains) on
available-for-sale marketable
securities to net income
Unrealized gains on cash flow hedges
Reclassification of net gain on cash
flow hedges to net income
Before-Tax
Amount
Tax Recovery
(Expense)
2013
Net of Tax
Amount
Before-Tax
Amount
Tax Recovery
(Expense)
2012
Net of Tax
Amount
$
(254) $
68 $
(186) $
(557) $
107 $
(450)
58
4,392
949
(15)
(1,172)
(253)
43
3,220
696
(384)
(1,890)
330
Other comprehensive income (loss)
$
5,145 $
(1,372) $
3,773 $
(2,501) $
(b) Accumulated other comprehensive (loss) income
Year ended December 31
2013
(thousands of Canadian dollars)
Change in cumulative unrealized
gains on available-for-sale
marketable securities
Unrealized losses on cash flow
hedges
Accumulated other comprehensive
(loss) income
$
$
Opening
Balance
January 1
Net Change
During
the Year
Closing
Balance
December 31
Opening
Balance
January 1
Net Change
During
the Year
Closing
Balance
December 31
19 $
(143) $
(124) $
799 $
(780) $
19
(4,199)
3,916
(283)
(3,085)
(1,114)
(4,199)
(4,180) $
3,773 $
(407) $
(2,286) $
(1,894) $
(4,180)
162
FIRST CAPITAL REALTY ANNUAL REPORT 2013
30. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Items not affecting cash and other items
(thousands of Canadian dollars)
Year ended December 31
Notes
2013
2012
(Restated – Note 3)
Rental revenue recognized on a straight-line basis
Investment properties selling costs
Realized gains on sale of marketable securities
Change in cumulative unrealized (gains) losses on marketable securities classified as FVTPL
Losses on settlement of debt
Gain on sale of residential inventory
Non-cash compensation expense
Cash settlement of restricted share units
Loss (gain) on foreign currency exchange
Deferred income taxes
Unrealized gains on hedges
22
22
22
22
22
22
23
22
(b) Net change in non-cash operating items
The net change in non-cash operating assets and liabilities consists of the following:
(thousands of Canadian 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 Canadian dollars)
(Increase) decrease in loans and mortgages receivable, net
Investment in marketable securities, net
Proceeds from disposition of marketable securities
$
$
$
$
$
$
(10,483) $
5,295
(2,564)
1,988
4,092
(2,966)
2,999
(1,879)
(43)
51,418
(301)
47,556 $
(13,346)
4,084
(3,538)
(2,677)
6,549
—
2,897
(2,396)
59
82,158
(1,459)
72,331
Year ended December 31
2013
2012
(Restated – Note 3)
(3,383) $
(1,070)
2,822
1,824
(480)
(5,832)
1,939
9,881
5,512
(1,491)
(287) $
10,009
Year ended December 31
2013
2012
(Restated – Note 3)
(38,506) $
(43,051)
31,369
(50,188) $
17,607
(169,373)
182,908
31,142
FIRST CAPITAL REALTY ANNUAL REPORT 2013
163
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(d) Cash and cash equivalents
(thousands of Canadian dollars)
Cash
Term deposits
December 31, 2013 December 31, 2012
$
$
(Restated – Note 3)
4,679 $
296
4,975 $
52,415
11,600
64,015
31. 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 $60.0 million (December 31, 2012 –
$59.4 million) to various lenders in connection with certain obligations, including loans advanced to its joint
arrangement partners secured by the partners’ interest in the joint arrangements and underlying assets (Note
28).
(c) The Company is contingently liable by way of letters of credit in the amount of $43.4 million
(December 31, 2012 – $10.6 million net of cash collateralization), issued by financial institutions on the
Company's behalf in the ordinary course of business.
(d) The Company has obligations as lessee under long-term finance leases for land. Annual commitments under
these ground leases are approximately $1.0 million (December 31, 2012 – $1.1 million) with a total obligation of
$23.5 million (December 31, 2012 – $26.2 million).
(e) In two of the Company’s shopping centres, the grocery store anchor tenant has a right to purchase its premises on
terms that are potentially favourable to each such tenant.
(f) As of December 31, 2013, the Company had outstanding commitments to purchase four properties for an aggregate
amount of $16.1 million, subject to customary closing conditions.
(g) The Company has a call option, which expires October 2022, to purchase an adjacent property. At the same time,
there is a put option on the property by the owner that is exercisable between October 2015 and October 2022.
32. RELATED PARTY TRANSACTIONS
(a) Major Shareholder
Gazit is the principal shareholder of the Company. Norstar Holdings Inc. is the ultimate controlling party. As of
December 31, 2013, Alony-Hetz Properties and Investments Ltd. (‘‘Alony-Hetz’’) also beneficially owns 8.5%
(December 31, 2012 – 10.3%) of the common shares of the Company. Alony-Hetz and Gazit have entered into a
shareholders’ agreement pursuant to which, among other terms, (i) Gazit has agreed to vote its common shares of the
Company in favour of the election of up to two representatives of Alony-Hetz to the Board of Directors of the Company,
and (ii) Alony-Hetz has agreed to vote its common shares of the Company in favour of the election of the nominees of
Gazit as the remaining directors of the Company.
Corporate and other amounts receivable include amounts due from Gazit. Gazit reimburses the Company for certain
accounting and administrative services provided to it by the Company. In 2012, Gazit was also a tenant at a property
owned by the Company. In addition, the Company held a non-revolving unsecured term loan receivable from a subsidiary
of Gazit, in the amount of US$36 million on which the Company earned interest until it was repaid on August 14, 2012.
164
FIRST CAPITAL REALTY ANNUAL REPORT 2013
Such amounts consist of the following:
(thousands of Canadian dollars)
Reimbursements for professional services
Interest payments
Year ended December 31
2013
720
$
— $
2012
766
1,903
$
$
As at December 31, 2013, amounts due from Gazit were $0.2 million (December 31, 2012 – $0.4 million).
On August 8, 2012, a court-approved plan of arrangement for Gazit America was completed involving the Company and
Gazit. Under the plan of arrangement, the Company acquired the shares of Gazit America’s operating subsidiaries which
together owned and managed all of the medical office and retail properties of Gazit America, and had held certain
property-related inter-company indebtedness owing to Gazit America. The reason for the Company to complete the
transaction was to acquire from Gazit America 12 medical office and retail properties generally adjacent to existing
Company's properties and a 50% interest in a thirteenth property jointly owned with the Company. Refer to Note 5 of
these consolidated financial statements for further discussion.
(b) Subsidiaries of the Company
The consolidated financial statements include the financial statements of First Capital Realty and First Capital Holdings
Trust. First Capital Holdings Trust is the only significant subsidiary of First Capital Realty and is wholly owned by the
Company.
(c) Compensation of Key Management Personnel
Aggregate compensation for directors and the Chief Executive and Chief Financial Officers included in corporate expense is
as follows:
(thousands of Canadian dollars)
Salaries and short-term employee benefits
Share-based compensation (non-cash compensation expense)
33. SUBSEQUENT EVENTS
Year ended December 31
2013
2,567 $
1,871
4,438 $
2012
3,251
1,938
5,189
$
$
Dividend
The Company announced that it will pay a first quarter dividend of $0.21 per common share on April 10, 2014 to
shareholders of record on March 27, 2014.
34. APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements were approved by the Board of Directors and authorized for issue on
February 20, 2014.
FIRST CAPITAL REALTY ANNUAL REPORT 2013
165