MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
Table of Contents
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Introduction
Forward-Looking Statement Advisory
Business Overview and Strategy
Outlook and Current Business Environment
Guidance
Corporate Responsibility and Sustainability
Adoption of New Accounting Standards
Summary Consolidated Information and Highlights
Business and Operations Review
Real Estate Investments
Valuation of Investment Properties Under IFRS
Investment Properties — Shopping Centres
Investment Properties — Development Land
2014 Acquisitions
2014 Dispositions
Impact of Acquisitions and Dispositions on
Continuing Operations
Investment Properties Classified as Held For Sale
Acquisitions and Dispositions Subsequent
to December 31, 2014
2013 Acquisitions
2013 Dispositions
2014 Investment Property Development and
Redevelopment Activities
Investment Properties at Cost with Bifurcation of
Income-Producing and Development
Activity Components
Main and Main Developments
Residential Development Inventory
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90
Funds from Operations and Adjusted Funds
from Operations
Net Operating Income
Interest and Other Income
Interest Expense
Corporate Expenses
Other Gains (Losses) and (Expenses)
Income Taxes
Capital Structure and Liquidity
Capital Employed
Credit Ratings
Consolidated Debt and Principal Amortization
Maturity Profile
Mortgages and Credit Facilities
Senior Unsecured Debentures
Convertible Debentures
Shareholders’ Equity
Liquidity
Cash Flows
Contractual Obligations
Contingencies
Dividends
Quarterly Dividend
Summary of Financial Results of Long-term Debt
Guarantors
Related Party Transactions
Subsequent Events
Quarterly Financial Information
Fourth Quarter 2014 Operations and Results
Capital Expenditures on Investment Properties
102
Summary of Significant Accounting Estimates and
Leasing and Occupancy
Lease Maturity Profile
Top Forty Tenants
Loans, Mortgages and Other Real Estate Assets
Results of Operations
Net Income
Reconciliation of Consolidated Statements of
Income, as presented, to the Company’s
Proportionate Interest
Policies
103
104
104
Future Accounting Policy Changes
Controls and Procedures
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 of First Capital
Realty Inc. (“First Capital Realty” or the “Company”) is intended to provide readers with an assessment of performance
and summarize the financial position and results of operations for the years ended December 31, 2014 and 2013. It
should be read in conjunction with the Company’s audited annual consolidated financial statements for the years ended
December 31, 2014 and 2013. 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 thousands of Canadian dollars, unless otherwise noted. Historical results and percentage relationships
contained in the Company’s unaudited interim and audited 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 11, 2015.
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 a 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; geographic and tenant concentration; residential
development, sales and leasing; compliance with financial covenants; changes in governmental regulation; environmental
FIRST CAPITAL REALTY ANNUAL REPORT 2014
11
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
liability and compliance costs; unexpected costs or liabilities related to dispositions; challenges associated with the
integration of acquisitions into the Company; 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; 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 11, 2015 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, 2014, the Company owned interests
in 158 properties, totalling approximately 24.3 million square feet of gross leasable area (“GLA”).
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 and flexibility to achieve the lowest cost of capital long-term.
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 essential products and
services, including supermarkets, drugstores,
banks, liquor stores, national discount retailers,
restaurants, fitness, medical, childcare facilities
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.
The Company continues to observe several demographic trends that may affect demand for retail goods and services,
including a younger generation of consumers whose shopping patterns are influenced by wireless communications and
online 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. In
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FIRST CAPITAL REALTY ANNUAL REPORT 2014
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.
As at December 31, 2014, the tenant store count and percent of annual minimum rents by tenant type at the
Company's 158 properties are as follows:
FIRST CAPITAL REALTY ANNUAL REPORT 2014
13
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 owns and 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, 2014, the Company's property
portfolio demographics (in a five kilometre radius) by
market size, based on annual minimum rents, are as
follows:
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.
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FIRST CAPITAL REALTY ANNUAL REPORT 2014
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
invested cost) 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.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 and flexibility in order 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 structure composition of senior unsecured debt, mortgage
debt, convertible debentures and equity 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.
DBRS Limited (“DBRS”) has rated the Company’s senior unsecured debentures as BBB (high), and Moody's has rated these
debentures as 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
Company’s cost of capital.
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
FFO and AFFO per diluted share for the years ended December 31, 2014 and 2013 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)
AFFO per diluted share excluding other gains (losses) and (expenses)
2014
0.98
1.04
1.01
1.00
$
$
$
$
2013
1.03
1.03
1.00
0.97
$
$
$
$
(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.
The Company achieved growth in FFO and AFFO excluding other gains (losses) and (expenses) while continuing disciplined
execution of its strategy, including:
• development and redevelopment activities 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 have
tended to increase interest costs compared to secured and short-term financing; and
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FIRST CAPITAL REALTY ANNUAL REPORT 2014
• 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.
While FFO and AFFO on a per diluted share basis have historically improved year over year for the Company, FFO for the
year ended December 31, 2014 decreased compared to the prior year primarily due to higher other losses and expenses
associated with executive transition expense.
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
Net debt to total assets (1)
Net debt to total assets (based on unsecured debt covenants) (1)
Net debt to enterprise value (1)
Net debt to EBITDA (1)
Net debt to EBITDA – based on run rate on components of EBITDA (1)
2014
42.2%
43.0%
42.9%
8.2
8.2
2013
42.9%
44.6%
44.3%
8.2
8.2
(1) Net debt, EBITDA, enterprise value and run rate are not defined by IFRS. For more information, refer to the “Capital Structure and Liquidity – Capital Employed” section of
this MD&A.
The Company’s activities in 2014 and 2013 demonstrate the continued execution of its long-term strategy, as 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 2014 and 2013
totalled $262 million and $282 million, respectively. In addition, the Company currently has a number of projects in
various stages of development including 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 projects in the pre-development/entitlements stage with municipalities as well as a
residential density project underway. The residential density project is ancillary to the Company’s retail projects and is
likely to be completed with a partner.
The Company completed and brought on line gross leasable area of 289,000 square feet and 518,000 square feet during
2014 and 2013, respectively. As at December 31, 2014, 1,177,000 square feet were under development.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
17
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Selective Acquisitions
In 2014, the Company invested $226.9 million in acquisitions compared to $224.7 million in 2013. A number of these
acquisitions contributed to the Company increasing its footprint in its existing retail nodes, through the acquisition of
twenty 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
Development lands
Number of parcels
Acres
2014
227
$
2013
225
$
2
255
20
214
3.5
2
0.4
2
108
17
178
3.6
5
9.0
Dispositions
During 2014, the Company recycled capital through the disposition of ten properties comprising 538,000 square feet and
five adjacent parcels totalling 48.1 acres as well as other real estate investments for gross proceeds of $245.7 million. The
proceeds were used to fund further investment in the Company’s properties in core urban markets. The 2013 dispositions
included ten shopping centres comprising 1.1 million square feet, and six adjacent land parcels totalling 13.9 acres and
other real estate investments for gross proceeds of $260.0 million. This capital recycling is expected to continue into 2015
and 2016, 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 and incremental leasing costs
As a percentage of rental revenue
As a percentage of total assets
GLA (weighted average) per average full-time employee
NOI per average full-time employee - run rate (thousands of dollars)
2014
2013
3.5%
0.3%
3.5%
0.3%
59,000
60,000
$
990
$
1,011
Corporate expenses measured as a percentage of rental revenue and total assets remained stable relative to the prior
year.
The GLA and NOI productivity measures include 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. 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 growth and replace maturing debt during the
year, demonstrating continued success in accessing capital to fund growth. Over the past several years, the Company has
benefited from pricing reductions on the spread component of its debts as 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.
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FIRST CAPITAL REALTY ANNUAL REPORT 2014
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)
Subsequent to December 31, 2014:
Senior unsecured debenture issued
Equity
Amount
(millions of
dollars)
600
75
—
450
58
2013
Pricing
(weighted
average coupon)
BA + 1.325%
BA + 1.25%
—%
3.97%
4.45%
30
$
16.84
$
$
$
$
$
$
Amount
(millions of
dollars)
800
75
80
510
—
143
90
87
$
$
$
$
$
$
$
$
2014
Pricing
(weighted
average coupon)
BA + 1.20%
BA + 1.125%
3.97%
4.60%
—
$
$
17.87
4.32%
19.80
(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.
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,
dramatically enhancing the quality of its portfolio and generating modest accretion in funds from operations, while
successfully 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). The Company
expects to continue to grow its business and portfolio of high quality properties in urban markets in the context of the
acquisition, development, financing, demographic and shopping trends and evolving tenant dynamics in Canada, and in
line with its long-term value creation strategy. The Company defines a high quality property primarily by its location,
taking into consideration the local demographics and the retail supply and demand factors in each property trade area,
and the ability to grow the property cash flow.
There are two primary market dynamics on which the Company is focussed over the long term in the retail and urban
markets in Canada.
First, the Company is focussed on understanding changes in consumer habits and preferences occurring in the retail
industry. These changes include an increasing reliance by consumers on online information to inform their purchasing
decisions and an increasing desire to purchase products online, as well as an aging population which is increasingly
focussed on convenience and health-related goods and services.
There is also a shift in consumer demand driven by pockets of ethnic consumers as a result of Canada’s immigration
policies. Another trend that Management observes is a desire for consumers to live in urban markets and to connect with
others through daily trips to the gym, coffee shops and/or restaurants. Management is proactively responding to these
consumer changes through its tenant mix, box size and shopping centre location and design.
Second, the Company observed over the past several years, a surge in entry and expansion into the Canadian marketplace
by major U.S. retailers including Whole Foods Market, Marshalls, Dollar Tree, and others. A number of Canadian retailers
responded to this entry by expanding their own offerings, locations, marketing activities, and/or by reducing pricing.
Additionally, there were two major corporate transactions involving four of the Company's tenants: the purchase of
Shoppers Drug Mart by Loblaws and the purchase of Safeway by Sobeys. Although this repositioning resulted in new
opportunities for the Company, it also resulted in an increasingly competitive retail landscape in Canada. Over the past
several months, a number of retailers have announced store closures and/or bankruptcies, Target being the largest.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
19
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Although the Company’s exposure to these retailers is limited, these store closures will, in the short term, result in
increased availability of retail space across Canada.
As a result of these ongoing changes, the Company remains highly focussed on ensuring the competitive position of its
shopping centres in all of its various retail trade areas. Management will continue to closely follow demographic and
goods and services shopping trends and retailer responses, in addition to retail competition. The Company’s leasing
strategy takes these factors into consideration in each trade area and its proactive management strategy helps to ensure
the Company’s 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 as projects are located in well-established urban communities
with existing demand for goods and services. 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
typically multiple bids on good quality properties, and asset valuations reflect this strong demand for well-located
income-producing assets.
The Company continues to carefully scrutinize its properties to ensure that they meet the quality criteria it has adopted,
and will occasionally dispose of non-core properties. This allows the Company to recycle capital 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, however, uncertainty has increased as a result of strong
downward pressure on oil prices, the declining value of the Canadian dollar and high average household debt levels. The
U.S. continues to show positive signs of accelerating growth but other global economic markets remain uncertain. Long-
term bond yields declined in 2014 while market volatility has increased. Although the equity and long-term debt markets
remain accessible, pricing can vary based on the current market outlook for growth and interest rates. 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 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 tight. 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
20
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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 2015 and into 2016:
• 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 and flexibility to achieve the lowest cost of capital long-term.
Overall, Management is confident that the quality of the Company’s Consolidated Balance Sheet and the defensive nature
of its assets and operations will continue to serve it well in the current environment.
Guidance
A comparison of the Company’s 2014 financial results to previously issued 2014 guidance was as follows.
• FFO before other gains (losses) and (expenses) for the year ended December 31, 2014 was $1.04 per share (diluted), in
line with the guidance of between $1.04 and $1.05 per share (diluted).
• FFO including other gains (losses) and (expenses) for the year ended December 31, 2014 was $0.98 per share (diluted)
compared to guidance of between $1.03 and $1.04 per share (diluted). The difference of $0.05 per share (diluted) was
primarily due to other losses and expenses which the Company does not forecast; including executive transition expense
($5.8 million or $0.03 per share impact) and losses on prepayment of debt ($2.4 million or $0.01 per share impact)
primarily arising on the redemption of the Series G unsecured debentures.
• AFFO before other gains (losses) and (expenses) for the year ended December 31, 2014 was $1.00 per share (diluted), in
line with guidance of between $0.99 and $1.00 per share (diluted).
• AFFO for the year ended December 31, 2014 was $1.01 per share (diluted) slightly ahead of guidance of between $0.99
and $1.00 per share (diluted). The increase of $0.01 per share (diluted) relates to a smaller deduction for revenue
sustaining capital expenditures and higher gains on marketable securities than forecast.
As a result of the CEO transition (Mr. Paul will be appointed President and Chief Executive Officer of the Company on
February 16, 2015), the Company has not issued guidance with its 2014 year end results. The decision to issue the 2014
year end results without guidance for 2015 was made given the timing of the CEO transition.
For further information on Management’s outlook and view on the business environment please refer to the “Outlook and
Current Business Environment” section of the MD&A.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
21
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Corporate Responsibility and Sustainability
The Company 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 build all
new developments to Leadership in Energy and Environmental Design (“LEED”) standards subject to tenant acceptance. In
2009, the Company published its first Corporate Sustainability Report identifying five long-term goals. Since 2011, the
Company has published annual Corporate Responsibility and Sustainability (“CRS”) Reports. These CRS 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 have issued a
GRI-compliant and externally assured CRS report.
In April 2014, the Company was ranked sixth in Corporate Knights Inaugural Future 40 Responsible Corporate Leaders in
Canada. This ranking evaluated more than 200 companies with revenues of less than $2.0 billion dollars for their
sustainability and disclosure practices. The Company was the highest ranked real estate company in this list. In June 2014,
the Company responded to the 2014 Carbon Disclosure Project Information Request, disclosing information on the
Company’s greenhouse gas emissions, energy use, and risks and opportunities from climate change.
On the environmental front, the Company continues to develop its properties to LEED standards subject to tenant
acceptance. As at December 31, 2014, 69 projects at 39 properties comprising over 1.5 million square feet of GLA were
certified to LEED standards. Another 62 projects at 42 properties comprising over 2.4 million square feet of GLA are under
development, in the process of construction or awaiting LEED certification.
In 2011, the Company began the process of seeking Building Owners and Managers Association (“BOMA”) Building
Environmental Standards (“BESt”) certification for existing properties. BOMA BESt is the largest environmental assessment
and certification program for existing buildings in Canada. As at December 31, 2014, 84 properties comprising 7.9 million
square feet of the Company’s total GLA were certified to BOMA BESt.
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.
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.
For more information on the Company’s Corporate Responsibility and Sustainability practices, refer to the latest CRS
report on the Company's website at www.firstcapitalrealty.ca.
22
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Adoption of New Accounting Standards
The Company's significant accounting policies are described in Note 2 to the annual audited consolidated financial
statements. The Company adopted each of the items below on January 1, 2014:
(a) Levies
IFRS Interpretations Committee (“IFRIC”) 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. It also clarifies that a levy liability
is accrued ratably only if the activity that triggers payment occurs over a period of time, in accordance with the relevant
legislation. The interpretation applies to realty taxes and has been applied retrospectively. 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 interpretation does not apply to accounting for income taxes or fines and
penalties.
The primary consideration for the Company, in the adoption of IFRIC 21, relates to the timing of recognizing a liability to
pay realty taxes. The adoption of IFRIC 21 did not result in a material impact to the consolidated financial statements, as
the relevant municipal legislation governing realty taxes indicates that recognition progressively through the year is
appropriate, which is consistent with the Company’s historic accounting.
(b) Internal Leasing Costs
In March 2014, the IFRIC issued an agenda decision related to the meaning of “incremental costs” in the context of initial
direct leasing costs in IAS 17, “Leases” (“IAS 17”). The IFRIC determined that internal fixed costs, such as the salary costs
of permanent staff involved in negotiating and arranging new leases, do not qualify as incremental costs within the
context of IAS 17 and, therefore, should not be capitalized as initial direct leasing costs.
Prior to January 1, 2014, the Company’s accounting policy was to capitalize internal leasing costs of the Company to
investment properties, which was then adjusted to fair value through net income. Adoption of this agenda decision
resulted in an increase in corporate expenses and an increase in fair value gains (or decrease in fair value losses) on
investment properties in the Consolidated Statements of Income, with no change in net income. There is no material
impact on the consolidated balance sheet or the consolidated statements of cash flows.
The impact of the Company’s adoption of the agenda decision on the consolidated statements of income for the year
ended December 31, 2013 is as follows:
Year ended December 31
(thousands of dollars)
Increase in value of investment properties, net
Increase in corporate expenses
Net income impact
$
2013
4,747
4,747
—
FIRST CAPITAL REALTY ANNUAL REPORT 2014
23
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
SUMMARY CONSOLIDATED INFORMATION AND HIGHLIGHTS
As at December 31
(thousands of dollars, except other data)
Operations Information
Number of properties
GLA (square feet)
Occupancy – same property – stable (1)
Total portfolio occupancy
Development pipeline and adjacent land (GLA) (2)
Average rate per occupied square foot
GLA developed and brought on line (square feet)
Same property – stable NOI – increase over prior year (3) (4)
Total same property NOI – increase over prior year (3) (4)
Financial Information
Investment properties – shopping centres (5)
Investment properties – development land (5)
Total assets
Mortgages and credit facilities (5)
Senior unsecured debentures payable
Convertible debentures payable
Shareholders’ equity
Capitalization and Leverage
2014
2013
2012
158
24,331,000
164
24,462,000
175
24,969,000
97.2%
96.0%
96.7%
95.5%
96.4%
95.6%
$
2,421,000
18.42
289,000
$
3,181,000
17.96
518,000
$
3,514,000
17.51
853,000
2.8%
3.2%
2.7%
3.7%
1.4%
2.3%
$ 7,474,329
$
35,462
$ 7,908,184
$ 1,173,410
$ 2,149,174
$
373,277
$ 3,470,271
$ 7,126,008
$
166,043
$ 7,596,255
$ 1,366,583
$ 1,861,953
$
374,012
$ 3,319,370
$ 6,849,078
$
127,405
$ 7,261,617
$ 1,597,234
$ 1,469,073
$
318,794
$ 3,245,168
Shares outstanding (in thousands)
Enterprise value (6)
Net debt to total assets (6) (7) (8)
Net debt to enterprise value (6) (7) (8)
Net debt to EBITDA – based on run rate on components of EBITDA (5) (6) (7) (8)
Weighted average maturity on mortgages and senior unsecured debentures (years)(8)
216,374
$ 7,762,000
208,356
$ 7,319,000
206,546
$ 7,301,000
42.2%
42.9%
8.2
5.9
42.9%
44.3%
8.2
5.3
42.1%
41.8%
7.9
5.3
24
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Year ended December 31
(thousands of dollars, except per share and other data)
Revenues, Income and Cash Flows
Revenues (9)
Net operating income (3) (9)
Corporate expenses, excluding non-cash compensation and incremental leasing costs
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)
Cash provided by operating activities
Adjusted cash flow from operating activities (6)
Dividends
Regular dividends
Regular dividends per common share
Weighted average number of common shares – diluted (in thousands)
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)
AFFO
AFFO per diluted share
AFFO excluding other gains (losses) and (expenses)
AFFO per diluted share excluding other gains (losses) and (expenses)
2014
2013
2012
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
661,438
406,909
3.5%
0.3%
42,078
196,748
0.92
269,092
233,524
181,317
0.85
230,533
208,977
0.98
220,299
1.04
229,770
1.01
228,617
1.00
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
642,106
398,010
$
$
587,965
369,133
3.5%
0.3%
3.6%
0.3%
60,833
214,863
1.01
212,967
228,238
175,092
0.84
229,948
215,543
1.03
214,528
1.03
225,210
1.00
218,543
0.97
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
286,950
392,923
1.98
193,006
197,348
159,157
0.82
206,573
189,081
1.00
189,651
1.00
195,928
0.95
192,449
0.93
(1) Same property – stable comparative information has been 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 joint venture. See the “Business and
Operations Review – 2014 Investment Property Development and Redevelopment Activities – Main and Main Developments” 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) Calculated based on the year-to-date net operating income (“NOI”).
(5) Includes properties classified as held for sale.
(6) Enterprise value, debt, net debt, EBITDA, run rate and adjusted cash flow from operating activities (adjusted for the net change in non-cash operating items, receipt of
proceeds from sales of residential inventory and expenditures on residential development inventory) are measures not defined by IFRS. See the “Capital Structure and
Liquidity” section of this MD&A.
(7) Calculated with joint ventures proportionately consolidated.
(8) Weighted average term to maturity is calculated net of cash balances as at the end of the period.
(9) Calculated excluding the Company’s proportionate share of its joint ventures.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
25
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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:
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 sheet
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 as well as 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 Consolidated Condensed Balance Sheet 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 ventures and the related share of revenues, expenses, assets and
liabilities on a proportionately consolidated basis at the Company’s ownership interest in the joint ventures.
26
FIRST CAPITAL REALTY ANNUAL REPORT 2014
The following table provides a condensed reconciliation of the Company’s consolidated balance sheet, as presented in its
audited annual consolidated financial statements to proportionate interest.
As at
December 31, 2014 December 31, 2013
(thousands of dollars)
ASSETS
Investment properties – shopping centres
Investment properties – development land
Investment in joint ventures
Investment properties classified as held for sale
Other
Total assets
LIABILITIES
Mortgages payable and credit facilities
Other
Total liabilities
EQUITY
Shareholders' equity
Non-controlling interest
Total equity
Total liabilities and equity
Consolidated
Balance Sheet
(Equity
Method)
Adjustments
for Equity
Method to
Proportionate
Interest (1)
Proportionate
Interest
Proportionate
Interest
$
$
$
$
$
$
$
7,287,650
17,008
138,578
205,133
259,815
7,908,184
1,173,410
3,236,933
4,410,343
3,470,271
27,570
3,497,841
7,908,184
$
$
$
$
$
$
$
77,095
36,768
(138,578)
—
7,963
(16,752)
10,413
405
10,818
—
(27,570)
(27,570)
(16,752)
$
$
$
$
$
$
$
7,364,745
53,776
—
205,133
267,778
7,891,432
1,183,823
3,237,338
4,421,161
3,470,271
—
3,470,271
7,891,432
$
$
$
$
$
$
$
7,038,104
147,497
—
155,499
267,493
7,608,593
1,100,808
3,184,776
4,285,584
3,319,371
3,638
3,323,009
7,608,593
(1) Effective September 25, 2014, Main and Main Developments LP (“Main and Main Developments”), a subsidiary controlled by the Company, sold all of its real estate assets
to a newly-created joint venture between the Company, Main and Main Developments, and an institutional investor, in exchange for cash consideration and an equity
interest in the joint venture. The Company's direct and indirect investment in the new joint venture is accounted for using the equity method. Refer to the “2014
Investment Property Development and Redevelopment Activities – Main and Main Developments” section of this MD&A for additional information.
Portfolio Overview
As at December 31, 2014, the Company had interests in 158 investment properties – shopping centres, that were 96.0%
occupied with a total GLA of 24.3 million square feet. This compares to 164 investment properties – shopping centres
which were 95.5% occupied with a total GLA of 24.5 million square feet as at December 31, 2013. The average size of the
shopping centres is approximately 154,000 square feet, with sizes ranging from approximately 11,000 to over 575,000
square feet.
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 127 properties totalling
18.8 million square feet of GLA with a fair value of $5.4 billion. These properties represent 80.4% of the Company's
property count, 77.2% of its GLA and 72.0% of its fair value. During the year ended December 31, 2014, these properties
generated $308.4 million of NOI which is 75.1% of the Company's total NOI. The stability of the portfolio is reflected in its
high occupancy of 96.9% as at December 31, 2014, slightly higher than 96.5% as at December 31, 2013.
The balance of the Company’s real estate assets consist 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 2014 or 2013, 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
27
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The Company’s proportionate interest in its shopping centre portfolio based on property categorization is summarized as
follows:
As at
December 31, 2014
December 31, 2013
Number
of
Properties
GLA
(000s sq.
ft.)
Fair
Value Occupancy
Weighted
Average
Rate per
Square
Foot
Number
of
Properties
GLA
(000s sq.
ft.)
Fair
Value Occupancy
Weighted
Average
Rate per
Square
Foot
(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 – 2014 (1)
Acquisitions – 2013 (1)
Investment properties
classified as held for sale
Dispositions – 2014
102
25
14,197 $ 4,265
1,168
4,594
97.2% $ 18.68
16.85
96.1%
18,791
2,855
876
464
329
1,016
5,433
1,095
409
204
223
187
96.9%
91.9%
94.2%
91.9%
94.2%
94.9%
18.24
18.68
21.25
26.31
26.94
12.55
127
13
5
2
3
8
—
102
27
129
13
4
—
2
8
14,293 $ 4,147
1,127
4,564
96.7% $ 18.35
16.56
96.1%
18,857
3,089
674
—
287
1,067
5,274
1,004
319
—
227
201
96.5%
91.1%
98.2%
—%
94.0%
89.5%
17.92
17.89
22.80
—
27.92
12.57
—
—
—%
—
8
488
150
95.5%
18.30
Total
158
24,331 $ 7,551
96.0% $ 18.42
164
24,462 $ 7,175
95.5% $ 17.96
(1) Acquisitions square footage and fair value includes 20 adjacent properties and land parcels (2013 – 16 adjacent properties and land parcels) to the Company’s existing
properties reflected in other categories in the table.
A summary of the Company’s shopping centre portfolio by property count and status of value enhancement activities as
at December 31, 2014 and 2013 (as previously reported) is as follows:
As at December 31, 2014
Same
property
– stable
Same
property with
incremental
expansion
Major
redevelopment
Ground-up
development
Acquisitions –
2014 and
2013
Held for
sale
Stabilized
At completion
Active development
In pre-development
Early planning stages
Total property count
As at December 31, 2013
82
—
—
—
20
102
92
8
5
5
3
4
25
30
—
4
3
6
—
13
16
—
2
3
—
—
5
4
5
—
—
—
—
5
15
8
—
—
—
—
8
7
Development
land
—
—
—
—
—
—
1
Total
103
11
11
9
24
158
164
Refer to the “Business and Operations Review – 2014 Investment Property Development and Redevelopment Activities”
section of this MD&A for further discussion relating to the Company’s value enhancement activities.
28
FIRST CAPITAL REALTY ANNUAL REPORT 2014
The Company’s shopping centre portfolio summarized by region is as follows:
As at
December 31, 2014
December 31, 2013
Number
of
Properties
GLA
(000s sq.
ft.)
Fair
Value Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
% of
Annual
Minimum
Rent
Number
of
Properties
GLA
(000s sq.
ft.)
Fair
Value Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
% of
Annual
Minimum
Rent
8
7
44
6,637 $ 2,674
96.6% $ 21.23
32%
1,604
382
99.0%
15.11
6%
691
166
59
8,932
3,222
98.0%
97.1%
15.40
19.66
5
35
1,009
5,019
168
1,173
96.1%
93.6%
11.20
15.02
3%
41%
3%
17%
45
10
7
62
5
36
6,565 $ 2,452
96.0% $ 20.58
32%
1,746
410
98.1% 14.78
6%
803
160
93.8% 14.22
9,114
3,022
96.2% 19.08
1,004
4,841
155
1,080
93.3% 11.32
95.2% 14.84
3%
41%
3%
16%
11
1,964
427
97.1%
16.61
7%
13
1,929
423
96.7% 16.67
7%
1
52
16
12
19
121
23
8,113
1,791
2,698
2,396
2,192
984
684
870
98.2%
94.8%
98.4%
95.0%
93.8%
13.90
14.91
21.62
18.38
22.22
—%
27%
13%
9%
10%
1
55
16
11
20
122
22
98.2% 13.67
7,896
1,680
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%
(millions of dollars,
except other data)
Central Region
Greater Toronto
area
Kitchener /
Waterloo
London area
Eastern Region
Quebec City
Greater Montreal
area
Ottawa /
Gatineau
Other
Western Region
Calgary
Edmonton
Greater
Vancouver
area
Total
158 24,331 $ 7,551
96.0% $ 18.42
100%
164 24,462 $ 7,175
95.5% $ 17.96
100%
47
7,286
2,538
95.9%
20.74
32%
47
7,452
2,473
94.9% 19.89
33%
Among the Company's real estate investment portfolio are twenty-nine retail assets each with a value greater than $85
million or size greater than 300,000 square feet. Together, these twenty-nine retail assets comprise $3.5 billion (2013 -
$2.9 billion) or 47% (2013 - 40%) of the Company’s aggregate $7.6 billion IFRS value. The year over year increase in these
assets, as a percentage of the Company's aggregate IFRS value, reflects the Company's focus on strategic assets in its
target urban markets.
Twenty-one of these assets are categorized as same property – stable or same property with incremental redevelopment
and expansion and the balance of eight assets are in the major redevelopment or ground-up development category. As at
December 31, 2014, the weighted average occupancy on these stable assets is 97.4% and the weighted average run rate
yield on invested cost and fair value is 7.41% and 5.41%, respectively. Same property NOI growth on these stable assets
was 3.5% and 1.6% for the years ended December 31, 2014 and 2013, respectively. As at December 31, 2014, the
weighted average occupancy on same property with incremental redevelopment or expansion activities is 94.7% and the
weighted average run rate yield on cost and fair value is 6.48% and 5.26%, respectively. The same property NOI growth on
these assets was 4.6% and 7.3% for the years ended December 31, 2014 and 2013, respectively. Once stabilized in terms
of incremental redevelopment or expansion activities, the occupancy and yields are expected to increase.
As at December 31, 2014, the remaining large assets, which comprise the eight development assets, have a weighted
average occupancy rate of 92.7% and a weighted average run rate yield on cost and fair value of 5.16% and 5.07%,
respectively. These assets are expected to have improved operating metrics following completion of their various value
creation activities.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
29
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The Company’s largest properties as at December 31, 2014 are listed below:
Property Name, City, Province
GLA (sq. ft.)
IFRS Value
(000s)
Invested Cost
(000s)
PreDev/UD (1)
Bal (000s)
NOI Run Rate
(000s)
Occupancy
Same property — stable
Shops at King Liberty Assets, Toronto, ON (2)
Cedarbrae Mall Assets, Toronto, ON
Northgate Centre, Edmonton, AB
Meadowvale Town Centre Assets,
Mississauga, ON
Shops at New West, New Westminster, BC
Rutherford Marketplace, Vaughan, ON
York Mills Gardens Assets, Toronto, ON
Royal Oak Centre, Calgary, AB
South Park Centre, Edmonton, AB
Morningside Crossing Assets, Toronto, ON
Appleby Village Assets, Burlington, ON
Fairview Mall Assets, St. Catharines, ON
Meadowlark Health and Shopping Centre,
Edmonton, AB
Richmond Square Assets, Calgary, AB
Brampton Corners Shopping Centre,
Brampton, ON
295,000
547,000
488,000
422,000
202,000
194,000
190,000
336,000
375,000
304,000
254,000
388,000
299,000
233,000
302,000
Same property with incremental redevelopment and expansion (3)
South Oakville Properties, Oakville, ON (2)
344,000
Westmount Shopping Centre Assets,
Edmonton, AB
Lanaudiere Assets, Montreal, QC
McKenzie Towne Centre Assets, Calgary, AB
Carrefour St-Hubert Assets, Longueuil, QC
Gloucester City Centre, Ottawa, ON
Total same property
Major redevelopment or ground-up development
Yorkville Village Assets, Toronto, ON (4)
Place Viau Assets, Montreal, QC
Victoria Park Centres, Toronto, ON
Mount Royal Village Assets, Calgary, AB
Macleod Trail Assets, Calgary, AB
Semiahmoo Shopping Centre, Surrey, BC
Place Portobello Assets, Brossard, QC
Leaside Village Assets, Toronto, ON
509,000
522,000
214,000
322,000
362,000
218,000
327,000
485,000
193,000
300,000
230,000
575,000
117,000
Total major redevelopment and ground-up development
Remainder of portfolio
Total Portfolio
9,547,000
14,784,000
$
2,426,111
$ 1,841,627
$
68,966
$
126,476
1,109,131
3,535,242
4,063,185
1,092,818
2,934,445
3,451,717
202,870
271,836
210,479
45,916
172,392
243,692
24,331,000
$
7,598,427
$ 6,386,162
$
482,315
$
416,084
(1) Pre-development/development costs are included in the IFRS Value and Invested Cost.
(2) The Company has a 50% interest in one of the assets in this property assembly.
(3) See the “Business and Operations Review – 2014 Investment Property Development and Redevelopment Activities” section of this MD&A for further analysis of
development activity for some of these properties.
(4) IFRS value and invested cost includes mortgage investment of $47 million.
30
FIRST CAPITAL REALTY ANNUAL REPORT 2014
100.0%
98.7%
93.6%
97.6%
90.6%
100.0%
95.8%
98.8%
100.0%
96.1%
94.5%
98.7%
100.0%
92.7%
100.0%
96.8%
88.2%
98.1%
100.0%
93.2%
95.0%
96.5%
94.5%
87.2%
95.5%
99.0%
97.7%
93.0%
86.6%
100.0%
92.7%
95.5%
96.3%
96.0%
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 “Business and Operations Review – 2014 Investment Property Development and
Redevelopment Activities” section of this MD&A.
Shops at King Liberty Assets, Toronto, Ontario
The Shops at King Liberty Assets are an assembly of thirteen properties at Liberty Street and Hanna Avenue, 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), located between two public transit routes, the TTC street cars on King Street and the
Lakeshore West GO Train line. The assets include an open-air shopping centre and adjacent retail and ancillary office
space (including the Company’s corporate offices), situated on 13.7 acres of land, as well as three at grade retail
properties under condominium towers on King Street totalling 295,000 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.
The Company made its initial investment in 2004, and has since developed or redeveloped additional retail buildings that
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 tenants include Metro, TD Canada Trust, CIBC, RBC Royal Bank,
LCBO, The Beer Store, West Elm, EQ3, Starbucks, Aroma Espresso Bar, 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 3.3 acres of land on two
development sites on King Street, King High Line and 1071 King Street. In late 2013, the Company received final rezoning
approval for the development of its King High Line 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. King High Line will
comprise almost 160,000 square feet of retail/commercial uses, 345,000 square feet of residential space (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
below grade forming stage. The timing for occupancy is estimated to be mid-2017. 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.
There is also substantial additional future density potential on the existing retail site.
The Company 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.
Cedarbrae Mall Assets, Toronto, Ontario
Cedarbrae Mall Assets is an assembly of three separate assets, comprising one large enclosed shopping centre and two
adjacent properties totalling 547,000 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 kilometres is approximately 265,000 with an average household income of
approximately $67,000. Major tenants include Walmart, No Frills (Loblaws), Canadian Tire, Staples, Shoppers Drug Mart
(Loblaws), Scotiabank, CIBC, RBC Royal Bank, LCBO, The Beer Store, Toys “R” Us, Dollarama, Mark's Work Wearhouse, Tim
Hortons, McDonald's, 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
31
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Northgate Centre, Edmonton, Alberta
Northgate Centre is a 488,000 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 kilometres 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,
McDonald's, 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 (Loblaws), TD Canada Trust, CIBC, BMO, LCBO, The Beer Store, Tim
Hortons, McDonald's, 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.
Shops at New West, New Westminster, British Columbia
Shops at New West is a newly developed, unique shopping centre totalling 202,000 square feet on three levels on
2.7 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 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 kilometres is
approximately 197,000 with an average household income of approximately $75,000. Major tenants include
Safeway (Sobeys), Shoppers Drug Mart (Loblaws), RBC Royal Bank, CIBC, Dollar Tree, Landmark Cinemas, Starbucks,
Tim Hortons, Dynamic Health and Fitness and other restaurants, medical and personal services.
Rutherford Marketplace, Vaughan, Ontario
Rutherford Marketplace is a shopping centre totaling 194,000 square feet situated on 16.1 acres with 529 at grade and
445 underground parking stalls. The property is located at the intersection of Bathurst and Rutherford which is in a high
growth community, close to a large community centre and a private school. 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 (Loblaws), LA Fitness, LCBO, CIBC, RBC, Childventures day care, Aroma Espresso Bar, Second Cup and
other restaurants, medical and personal services. Plans for the last phase are being finalized to add 35,000 square feet of
retail uses and 190,000 square feet of residential. Management expects to start construction in the summer of 2015 with
an estimated completion in mid-late 2017.
York Mills Gardens Assets, Toronto, Ontario
York Mills Gardens Assets 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 190,000 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 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 (Loblaws), TD Canada
Trust, BMO, RBC Royal Bank, LCBO, Second Cup, Starbucks, McDonald's, 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.
32
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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, BMO, 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 1,341 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, SportChek, JYSK, Dollar Tree, 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 Avenue, Morningside Avenue and Kingston Road. 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. One of the two shopping centres and two additional retail
properties which comprise the remainder of the assets are expected to be renovated and repositioned in the future,
providing opportunity to improve the tenant mix and retail shopping environment. Major tenants include Food Basics, No
Frills, Shoppers Drug Mart (Loblaws), Pharma Plus, BMO, CIBC, TD Canada Trust, LCBO, Dollarama, Starbucks, Tim Hortons,
McDonald's, Mark’s Work Wearhouse, GoodLife Fitness, and other restaurants, medical and personal services.
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 Lake Ontario.
The properties are situated on a total of 20.1 acres of land and comprise a total of 254,000 square feet and 1,200 parking
stalls at grade. Population within five kilometres 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 were acquired subsequently and
were refurbished and fully completed in 2013. Major tenants include a Fortino’s (Loblaws), Rexall, BMO, 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 entitlement stage.
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,
SportChek, Future Shop, Dollarama, McDonald's, Tim Hortons, and other restaurants, medical and personal services.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
33
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 kilometres 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 (Loblaws), RBC Royal Bank, CIBC, Liquor Depot, McDonald's, Second Cup, Alberta
Service Centre and other restaurants, medical and personal services.
Richmond Square Assets, Calgary, Alberta
Richmond Square Assets comprises of Richmond Square, a 102,000 square foot plaza, Glenbrook Plaza, an adjacent two-
storey, 55,000 square foot medical office building, and London Plaza West, a 76,000 square foot plaza, totalling 233,000
square feet, which are situated on a total of 21 acres of land with 848 parking stalls at grade. Population within five
kilometres is approximately 134,000 with an average household income of approximately $159,000. Major tenants
include London Drugs, GoodLife Fitness, Home Outfitters, BMO, Boston Pizza, Good Earth Coffeehouse, and other
restaurants, medical and personal services.
Brampton Corners Shopping Centre, Brampton, Ontario
Brampton Corners Shopping Centre 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 kilometres
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.
South Oakville Properties, Oakville, Ontario
The South Oakville Properties comprise of three separate assets, Olde Oakville Marketplace, The Shops of Oakville South
and Maple Grove Village. The properties are situated on a total of 32.5 acres of land and comprise a total of 344,000
square feet and 1,607 parking stalls at grade. Population within five kilometres is approximately 98,000 with an average
household income of $136,000. The Shops of Oakville South represents the most recent acquisition which was bought on
a 50% basis with the centre’s anchor grocery tenant, Longo’s, as the 50% partner. The Company owns the other two assets
on a 100% basis. The Company is the development and property manager of The Shops of Oakville South, which has a
development potential of an additional 7,000 square feet of retail uses. Major tenants include a Whole Foods Market,
Longo’s, Sobeys, Shoppers Drug Mart (Loblaws), LCBO, RBC Royal Bank, HSBC, CIBC, BMO, Harper’s Landing restaurant,
Kids & Co Daycare, Rexall, Tim Horton’s, and other restaurants and personal services.
Westmount Shopping Centre Assets, Edmonton, Alberta
The Westmount Shopping Centre Assets comprise one shopping centre and one small retail property totalling 509,000
square feet situated on 34.2 acres of land along Groat Road, with a combined total of 1,530 at grade parking stalls along
Groat Road. Population within five kilometres is 152,000 with an average household income of $78,000. Major tenants
include Walmart, Safeway (Sobeys), Home Depot, Shoppers Drug Mart (Loblaws), Rexall, BMO, Scotiabank, TD Canada
Trust, Liquor Depot, Dollarama, Mark's Work Wearhouse, McDonald's, 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 and the sale of a newly rezoned high-rise parcel in the NW corner of the shopping centre. 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 is expected to be developed as a residential
tower.
Lanaudiere Assets, Montreal, Quebec
The Lanaudiere Assets consists of three separate shopping centres totalling 522,000 square feet, situated on 28.7 acres of
land and featuring an aggregate of 2,582 parking stalls at grade. The properties are located on Emile Despins Street and
on Montée des Pionniers Boulevard, all in close proximity to major Highways 40 and 640. Population within a five
kilometre radius is approximately 48,000 with an average household income of approximately $80,000. Major tenants
34
FIRST CAPITAL REALTY ANNUAL REPORT 2014
include Rona, Metro, Sports Rousseau, SAQ, Uniprix, Sears, Future Shop, Bureau en Gros (Staples) and Winners, as well as
several major fashion retailers, banks and personal services.
The property located on Emile Despins Street has future development potential that could add more than 16,000 square
feet of retail space to the existing shopping centre.
McKenzie Towne Centre Assets, Calgary, Alberta
The McKenzie Towne 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 Avenue and High Street. Population within five kilometres 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 Towne 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, BMO, Liquor
Depot, Second Cup, GoodLife Fitness, and other restaurants, medical and personal services.
Carrefour St-Hubert Assets, Longueuil, Quebec
The Carrefour St-Hubert Assets are an assembly of five properties operating as three separate shopping centre assets
totalling 322,000 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 (Loblaws), Jean Coutu, CIBC, National Bank Canada, RBC Royal Bank, TD
Canada Trust, SAQ, Dollarama, McDonald's, 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.
Gloucester City Centre, Ottawa, Ontario
Gloucester City Centre is a 362,000 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 kilometres 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.
Yorkville Village Assets, including Hazelton Lanes Shopping Centre, Toronto, Ontario
The Yorkville Village Assets, including Yorkville Village (formerly known as 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 Avenue, that will total 285,000 square feet of GLA on completion, situated on an aggregate of 4.5
acres of land with a combined 515 stalls of underground parking. In addition to the foregoing, the Yorkville Assets also
include a mortgage investment in 77 hotel suites and related retail space and 66 underground parking stalls on Yorkville
Avenue, adjacent to Yorkville Village. The hotel square footage and parking is not included in the Yorkville Village Assets
total. Population within five kilometres is approximately 617,000 with an average household income of approximately
$98,000. Major tenants include Whole Foods Market, Rexall, Anthropologie, Diesel, Teatro Verde, Equinox gym, and other
restaurants, medical and personal services.
The current transformation of Yorkville Village entails a complete renovation of the interior mall, including the creation of
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 Avenue to the
enclosed shopping centre. The Company commenced construction on the project in the first quarter of 2014 and will
maintain the shopping centre in operation throughout the renovation.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
35
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Place Viau Assets, Montreal, Quebec
The Place Viau Assets are an assembly of three properties totalling 21.2 acres of land, currently comprising three assets,
including two shopping centres totalling 327,000 square feet and a ground-up shopping centre development on Place
Viau itself. 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 (Loblaws), TD Canada Trust, Bureau en Gros (Staples), SAQ, Pizza Hut,
A&W, Rotisserie St-Hubert, and other restaurants, medical and personal services.
The Company completed 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 222,000 square feet of retail space, 635 underground parking stalls
and 300 at grade parking stalls. The shopping centre’s Walmart store opened in January 2014. Marshalls and Michaels
opened respectively in September and October 2014. The remainder of the centre will open in 2015 with a new Gym and
a new Dollarama coming soon.
According to the Company’s current plans, upon completion of future phases of development, Place Viau Shopping Centre
plans comprise in total approximately 351,000 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 462,000 square feet of retail/commercial space in these Place
Viau Assets, with a total of 1,907 at grade and below grade parking stalls.
Victoria Park Centres, Toronto, Ontario
The Victoria Park Centres comprise two separate shopping centres, Parkway Mall and Victoria Terrace in Toronto, Ontario,
totaling 485,000 square feet. The shopping centres are situated on a total of 33.9 acres of land and collectively have 2,000
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 (Loblaws), Shoppers Drug Mart
(Loblaws), Toys “R” Us, Staples, TD Canada Trust, CIBC, Scotiabank, LCBO, Dollarama, McDonald's, 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 and customer traffic on these
assets.
Mount Royal Village Assets, Calgary, Alberta
The Mount Royal Village Assets are an assembly of four assets totalling 193,000 square feet situated on 3.6 acres of land
with 369 underground 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
and 4,200 square feet of second floor office space.
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 a 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 foot high-
rise residential condominium building. On completion of the redevelopment project, the Mount Royal Village Assets are
36
FIRST CAPITAL REALTY ANNUAL REPORT 2014
expected to total 336,000 square feet of retail/commercial space and 639 parking stalls. Population within five kilometres
is 183,000 with an average household income of $128,000.
Macleod Trail Assets, Calgary, Alberta
This is an assembly of four assets along the Macleod Trail main corridor in Calgary, a total of 390,000 square feet
(including a 90,000 square foot hotel) on 23.8 acres contiguous along Macleod Trail. Major tenants include Rona, BMO,
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, residential and office
property. The project is currently in the preliminary phase of planning.
Semiahmoo Shopping Centre, Surrey, British Columbia
Semiahmoo Shopping Centre is a 230,000 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
kilometres is 79,000 with an average household income of $108,000. Major tenants include Save On Foods (Overwaitea),
Shoppers Drug Mart (Loblaws), CIBC, BC Liquor Store, Dollarama, 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. Preliminary
plans entail demolishing most of the existing structures and creating approximately 165,000 square feet of new retail and
approximately 950,000 square feet of residential. The new development is expected to attract new tenants to the
property. 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 Reno Depot (Rona), Maxi (Loblaws), Target,
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 smaller Place Panama retail 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.
Leaside Village, Toronto, Ontario
Leaside Village is a shopping centre totaling 117,000 square feet situated on 11.3 acres with 467 at grade parking stalls.
The property is located at the intersection of Laird Drive and Esandar Drive, a few blocks south of Eglinton Avenue in the
community of Leaside. Population within five kilometres is approximately 441,000 with an average household income of
approximately $124,000. Major tenants include Longo’s, Linen Chest, The Beer Store, CIBC, Bulk Barn, Against the Grain
Restaurant, Local Public Eatery, Tim Horton’s, Aroma Espresso Bar, and other restaurants, offices and personal services.
Valuation of Investment Properties Under IFRS
During the year ended December 31, 2014, the weighted average stabilized capitalization rate of the Company’s
investment property portfolio decreased from 5.86% at December 31, 2013 to 5.79%, including the impact of dispositions,
acquisitions, and development activities. The Company’s proportionate interest in the net increase in value of investment
properties was $46.7 million from December 31, 2013 to December 31, 2014. The Company experienced a 7 basis point
decrease in the weighted average stabilized capitalization rate and higher stabilized net operating income (“SNOI”), with
the capitalization rate compression occurring in the Eastern and Central regions. The overall portfolio positive impact of
the capitalization rate compression was partially offset by a valuation loss on a development property in the Company’s
Eastern region, Place Viau. The loss arose largely due to higher than expected development costs primarily caused by
integrating an additional access ramp near the end of construction, which delayed the timing of lease up, and the
Company achieved lower lease rates than expected. Place Viau is a multi-phase prototype development in a high density
urban area of Montreal that includes underground parking and rooftop retail and parking.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
37
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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, in accordance with professional appraisal standards
and IFRS. On an annual basis, the Company has an annual minimum threshold of approximately 25% (as measured by
fair value) of the portfolio requiring external appraisal.
2. Internal appraisals – by staff appraisers employed by the Company, in accordance with professional appraisal standards
and IFRS.
3. Value updates – primarily consisting of management's review of 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.
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 $308.9 million.
During the year ended December 31, 2014, approximately 27% of the total fair value of shopping centres was determined
through external appraisals (year ended December 31, 2013 – approximately 16%) and nil was determined through
internal appraisals (year ended December 31, 2013 – approximately 10%).
The values of the Company’s proportionate interest in its shopping centres and associated capitalization rates by region
are as follows as at December 31, 2014 and 2013:
As at December 31, 2014
Capitalization Rate
Weighted Average Yield
(millions of dollars,
except other data)
Central Region
Eastern Region
Western Region
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)
59
52
47
158
5.63%
6.18%
5.74%
5.79%
5.75% 4.75%-8.22% $
6.00% 5.00%-7.50%
5.75% 5.00%-7.00%
3,222 $
1,791
2,538
6.00% 4.75%-8.22% $
7,551 $
66 $
(27)
8
47 $
177
104
143
424
5.39%
6.22%
5.43%
5.59%
5.45%
6.29%
5.57%
5.68%
6.57%
7.14%
6.87%
6.81%
38
FIRST CAPITAL REALTY ANNUAL REPORT 2014
As at December 31, 2013
Capitalization Rate
Weighted Average Yield
(millions of dollars,
except other data)
Central Region
Eastern Region
Western Region
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)
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%
(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 -
2014 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.
The sensitivity of the fair values of shopping centres to capitalization rates as at December 31, 2014 is set out in the table
below:
As at December 31, 2014
(Decrease) Increase in capitalization rate
(0.75)%
(0.50)%
(0.25)%
0.25%
0.50%
0.75%
(millions of dollars)
Resulting increase (decrease) in
value of shopping centres
$
$
$
$
$
$
1,023
650
310
(285)
(547)
(789)
Additionally, a 1% increase or decrease in SNOI would result in an increase or decrease, respectively, in the fair value of
shopping centres of $69 million. A 1% increase in SNOI coupled with a 0.25% decrease in capitalization rate would result
in an increase in the fair value of shopping centres of $382 million, and a 1% decrease in SNOI coupled with a 0.25%
increase in capitalization rate would result in a decrease in the fair value of shopping centres of $351 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, 2014, nil (year ended
December 31, 2013 – approximately 17%) of the total fair value of development land was determined through external
appraisals.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
39
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 land parcels adjacent to existing properties
Development activities and portfolio improvements
Reclassifications from development land
Reclassification from residential development inventory
Fair value increase
Dispositions
Reclassification to equity accounted joint ventures (1)
Other changes
Balance at end of year
Investment in joint ventures – shopping centres
Proportionate interest end of year
Fair Value
$
7,126
$
79
91
38
246
41
25
47
(184)
(34)
(1)
7,474
77
7,551
$
$
$
$
2014
Cost
5,963
79
91
38
246
42
25
—
(174)
(33)
(1)
6,276
63
6,339
Fair Value
$
6,849
$
60
118
10
250
2
—
59
(232)
10
7,126
49
7,175
$
$
$
$
2013
Cost
5,732
60
118
10
250
2
—
—
(214)
5
5,963
40
6,003
(1) Refer to the “2014 Investment Property Development and Redevelopment Activities – Main and Main Developments” section of this MD&A.
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
Reclassification to investment property – shopping centres
Fair value increase (decrease)
Dispositions
Reclassification to equity accounted joint ventures (1)
Other
Balance at end of year
Investment in joint ventures – development land
Proportionate interest end of year
Fair Value
166
19
7
(41)
(5)
(62)
(49)
1
36
37
73
$
$
$
$
$
$
2014
Cost
161
19
7
(42)
—
(58)
(49)
—
38
37
75
Fair Value
127
36
12
(2)
2
(10)
—
1
166
—
166
$
$
$
$
$
$
2013
Cost
123
36
12
(2)
—
(9)
—
1
161
—
161
(1) Refer to the “2014 Investment Property Development and Redevelopment Activities – Main and Main Developments” section of this MD&A.
40
FIRST CAPITAL REALTY ANNUAL REPORT 2014
2014 Acquisitions
Total acquisitions of investment properties, which include shopping centres, additional space and adjacent land parcels
and development land, amounted to $226.9 million, adding 0.5 million square feet of gross leasable area and 3.9 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
During the year ended December 31, 2014, the Company invested $78.8 million in the acquisition of two properties,
comprising 255,000 square feet. Two of the acquisitions were in a new trade area 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
Eastern Region
City
Province
Quarter
Acquired
New
Trade Area
Supermarket-
Anchored
Drugstore-
Anchored
GLA
(square
feet)
Acquisition
Cost
(in millions)
Griffintown – 100 Peel
Montreal
QC
Western Region
Seton Gateway
Total
Calgary
AB
(1) The acquisition cost is at the Company’s 50% ownership interest.
Q3
Q1
—
—
127,000
$
42.2
128,000
255,000
$
(1)
36.6
78.8
FIRST CAPITAL REALTY ANNUAL REPORT 2014
41
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Shopping Centres – Additional Space and Adjacent Land Parcels
During the year ended December 31, 2014, the Company acquired 20 properties adjacent to existing shopping centres
adding 214,100 square feet of gross leasable area and 3.5 acres of land adjacent to existing properties in established retail
nodes. Total expenditures on these adjacent parcels amounted to $129.1 million. These acquisitions are set out in the
table below:
Property Name
Central Region
City
Province
Shops at King Liberty Assets (adjacent property)
Leaside Village Assets (25 Industrial Road)
Yorkville Village Assets (adjacent properties)
Shops at King Liberty Assets
(150 East Liberty Street)
South Oakville Properties (Shops of Oakville South)
Shops at King Liberty Assets (128 Atlantic Avenue)
3080 Yonge Street (adjacent land)
Toronto
Toronto
Toronto
Toronto
Toronto
Toronto
Toronto
Eastern Region
Centre Commerciale Beaconsfield
(Plaza Baie d’Urfe, 90 Morgan St.)
Place Quatre Bourgeois (Tim Horton's)
Lanaudiere Assets
Western Region
Baie d’Urfe
Quebec City
Montreal
Broadmoor Shopping Centre (8031 Williams Road)
Richmond
Old Strathcona (10416 – 80 Avenue)
Kingsway Mews (adjacent land)
Langley Mall (Douglas Crescent)
Shops at New West (801 Columbia Street)
Mount Royal Village (940 17th Avenue SW)
The Brewery District (land parcel)
Total
Edmonton
Edmonton
Langley
New
Westminster
Calgary
Edmonton
ON
ON
ON
ON
ON
ON
ON
QC
QC
QC
BC
AB
AB
BC
BC
AB
AB
Quarter
Acquired
Q1
Q2
Q1-Q4
Q3
Q3
Q4
Q4
Q1
Q4
Q4
Q1
Q1
Q1
Q2
Q3
Q4
Q4
GLA
(square
feet)
—
—
28,200
1,000
99,000
1,000
—
60,600
3,200
(1)
—
—
14,000
—
—
—
7,100
—
Acquisition
Cost
(in
millions)
Acreage
(1)
— $
1.3
0.1
—
(2)
1.4
2.9
32.8
1.4
27.1
1.4
2.6
9.4
3.2
32.6
1.8
3.0
0.5
0.8
2.2
4.6
1.4 (2)
—
—
—
—
—
0.3
—
0.3
0.5
0.2
—
0.8
214,100
3.5 $
129.1
(1) The Company previously owned 50% interest in the property, and the Company acquired the remaining 50% interest in 2014. The square footage acquired was previously
included in the Company’s total gross leasable area.
(2) The acquisition cost is at the Company’s 50% ownership interest.
42
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Development Lands
During the year ended December 31, 2014, the Company invested $19.0 million in the acquisition of two development
land parcels, comprising 0.4 acres for future development of retail and mixed-use space. Refer to the “2014 Investment
Property Development and Redevelopment Activities – Main and Main Developments” sections of this MD&A for further
discussion.
Property Name
Main and Main Developments (1)
Main and Main Developments (1)
Total
City
Toronto
Toronto
Province
Quarter
Acquired
Acreage
Acquisition
Cost
(in millions)
ON
ON
Q1
Q2
0.2
0.2
0.4
$
$
3.6
15.4
19.0
(1) Refer to the “2014 Investment Property Development and Redevelopment Activities – Main and Main Developments” section of this MD&A for additional information.
2014 Dispositions
During the year ended December 31, 2014, the Company sold 10 properties representing 538,000 square feet of GLA and
five land parcels representing 48.1 acres. Gross proceeds of these dispositions were $245.7 million.
Property Name
Village des Valeurs
Kingsway Mews (land portion)
Longwood Station
Creditview & Mayfield
Burnhamthorpe & Trafalgar
The Brewery District (land parcel) (1)
800 King Street (2)
Belmont Professional Centre
Coronation Medical Centre
Main and Main Developments (2)
Northfield Centre
31 Sunpark Plaza
Nepean Medical Centre
Place Bordeaux
Valley Creek Plaza
Plaza Delson
Dispositions for the year ended December 31, 2014
City
Laval
Edmonton
Nanaimo
Brampton
Oakville
Edmonton
Toronto
Kitchener
Kitchener
Toronto
Kitchener
Calgary
Ottawa
Gatineau
Mississauga
Delson
Province
Quarter
Sold
Gross
Leasable
Area
(square feet)
Acreage
Gross Sales
Price
(in millions)
QC
AB
BC
ON
ON
AB
ON
ON
ON
ON
ON
AB
ON
QC
ON
QC
Q1
Q1
Q2
Q2
Q2
Q2
Q2
Q3
Q3
Q3
Q4
Q4
Q4
Q4
Q4
Q4
26,800
—
104,200
—
—
—
—
46,500
35,100
—
52,400
124,700
46,900
29,000
23,200
49,200
538,000
—
0.2
—
10.8
12.5
0.6
—
—
—
8.9
—
—
—
—
—
15.1
48.1
$
245.7
(1) The Company has 50% ownership interest in the property.
(2) Refer to the “2014 Investment Property Development and Redevelopment Activities – Main and Main Developments” section of this MD&A for additional information.
In aggregate, the gross sales price on the 2014 sales have exceeded invested cost at the Company's proportionate interest
by approximately $13.7 million. The mortgage financing of $21.5 million was assumed by the purchaser on the sale of an
investment property. The 2014 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 2014
43
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, 2014 and 2013 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
2014
1,776
5,420
2,511
9,707
$
$
2013
1,246
4,177
2,624
8,047
$
$
$
2014
6,594
1,850
4,281
$
2013
5,931
5,597
3,210
$
12,725
$
14,738
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 sheet.
Included in investment properties as at December 31, 2014 are eight shopping centres and two development land parcels
with an approximate value of $205.1 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 that meet the criteria for classification as held for sale, the Company is also considering, in
2015 to 2016, subject to market conditions, the sale of an additional three properties and a 50% interest in one
property comprising 404,000 square feet of GLA, and three land parcels with an aggregate fair value of approximately
$134.1 million.
Acquisitions and Dispositions Subsequent to December 31, 2014
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.
2013 Acquisitions
Total acquisitions of investment properties in 2013, which included shopping centres and additional space and adjacent
land parcels for shopping centres, as well as development land, amounted to $224.7 million, adding 0.3 million square
feet of gross leasable area and 12.6 acres of development land to the portfolio.
44
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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 were 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
City
Province
Quarter
Acquired
New
Trade Area
Supermarket-
Anchored
Drugstore-
Anchored
Gross
Leasable
Area
(square
feet)
Acquisition
Cost
(in millions)
Victoria Professional and Medical Dental
Victoria
Building
False Creek Village
Total
Vancouver
BC
BC
Q1
Q4
—
—
45,000 $
13.9
63,000
108,000 $
46.4
60.3
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
City
Province
Toronto
Toronto
Toronto
Toronto
Toronto
Kitchener
Toronto
Toronto
Toronto
Central Region
Leaside Village
Main and Main Developments (1)
Yorkville Village Assets
Meadowvale Town Centre (Aquitaine Plaza)
Leaside Village
Fairway Plaza (569 Fairway)
Yorkville Village Assets (adjacent property)
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)
Galeries Normandie (2655, rue de Salaberry)
Montreal
Western Region
Tuscany Village (3959 Shelbourne Street)
Victoria
Total
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
—
—
1.4
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
—
178,000
0.4
1.7
3.6 $
127.9
(1) Refer to the “2014 Investment Property Development and Redevelopment Activities – Main and Main Developments” section of this MD&A for additional information.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
45
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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.
Property Name
Main and Main Developments (1)
Suncor Land (Kanata Terry Fox)
Molson Site (Edmonton Brewery District)
Royal Orchard
5210 Rue Jean Talon Ouest
Total
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
Acquisition
Cost
(in millions)
(at Company’s
interest)
2.8
0.8
8.2
23.2
1.5
0.3 $
0.6
4.0
3.9
0.2
9.0 $
36.5
(1) Refer to the “2014 Investment Property Development and Redevelopment Activities – Main and Main Developments” section of this MD&A for additional information.
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, the
Company acquired $15 million in equity instruments of the buyer.
City
Burlington
Tillsonburg
Bowmanville
Toronto
Toronto
Guelph
Dartmouth
L’ile-Perrot
Mont-Tremblant
Gatineau
Drummondville
St. John’s
Red Deer
Cochrane
Abbotsford
Edmonton
Province
Quarter
Sold
Gross
Leasable Area
(square feet)
Gross Sales
Price
(in millions)
Acreage
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
Property Name
Central Region
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)
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
46
FIRST CAPITAL REALTY ANNUAL REPORT 2014
In aggregate, the gross sales price on the 2013 sales 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.
2014 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.
The Company’s properties with development and redevelopment activities currently in progress or at completion are
expected to have a weighted average going-in NOI yield of 6.2% on completion, and range from 4.7% to 12.0%. This yield
is derived from the expected going-in 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 development costs exceed currently
forecast costs, if final lease terms include shortfalls from operating cost or property tax recoveries, or if there are other
unforeseen events that 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 its strategy of long-term ownership and value creation.
A summary of the Company's development portfolio is as follows:
As at December 31, 2014
(thousands of dollars, except for other data)
Planned
Square Feet
Upon
Completion
Gross Leasable
Area
(square feet)
Square Feet
Under
Development
Total Estimated
Cost incl. Land
Investment
Cost
Estimated Cost
to Complete
Same property with incremental redevelopment and expansion
—
—
—
Active development and at completion
In pre-development
—
—
—
36,000 $
45,000
81,000
22,987 $
26,900
49,887
9,510 $
12,325
21,835
13,477
14,575
28,052
Major redevelopment
Active development and at completion
In pre-development
Ground-up development
Active development and at completion
In pre-development
Total
1,250,000
TBD
1,250,000
986,000
1,931,000
2,917,000
264,000
TBD
264,000
725,342
TBD
725,342
616,162
534,341
1,150,503
1,700,000
—
1,700,000
2,950,000
868,000
—
868,000
3,785,000
832,000
—
832,000
536,511
16,866
553,377
1,177,000 $ 1,328,606 $ 1,554,067 $
364,863
16,866
381,729
109,180
TBD
109,180
171,648
—
171,648
308,880
Costs to complete the development, redevelopment and expansion activities underway are estimated to be
approximately $308.9 million. Costs to complete major redevelopments and ground-up developments, respectively, are
planned at $72.6 million and $103.0 million in 2015, and $36.6 million and $68.7 million in 2016 and beyond. The cost to
complete major redevelopments 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 redevelopment and ground-up development) and by development
status (active development, at completion and in pre-development).
FIRST CAPITAL REALTY ANNUAL REPORT 2014
47
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, 2014, the invested cost in these projects totalled $21.8 million, and
includes incremental investment primarily related to pads or building extensions and often includes facade, parking,
lighting and building upgrades. Of the 36,000 square feet under active redevelopment, 24,404 square feet is subject to
committed leases at a weighted average rate of $34.46 per square foot. The Company is currently in various stages of
negotiations for the remaining planned space.
As at December 31, 2014
(thousands of dollars, except for other data)
Count/Property
Tenants
Square Feet
Under
Development
Target
Completion
Date
Total
Estimated
Cost incl.
Land
Investment
Cost
Estimated
Cost to
Complete
Same property with incremental redevelopment and expansion – active development
Place Lorraine,
Lorraine, QC
SAQ
6,000
Q1, 2015 $ 3,481 $
1,720 $
1,761
Faubourg-des-Prairies, Montreal, QC
Tim Hortons
Wellington Corner, London, ON
BMO
7,000
4,000
Q3, 2015
Q3, 2015
2,701
2,423
Fairway Plaza, Kitchener, ON
State and Main
14,000
Q4, 2015
11,165
West Springs Village, Calgary, AB
Shoppers Drug Mart,
Loblaws,
Scotiabank,
Starbucks, Mercato
5,000
Q2, 2015
1,301
1,673
1,029
4,363
240
1,028
1,394
6,802
1,061
36,000
$ 21,071 $
9,025 $ 12,046
Same property with incremental redevelopment and expansion – at completion (1)
Red Deer Village, Red Deer, AB
Carrefour St-Hubert Assets, Longueuil, QC RBC Royal Bank, TD
Various tenants
—
—
Langley Mall, Langley, BC
Canada Trust
Tim Hortons
Grimsby Square Shopping Centre,
Pita Pit
Grimsby, ON
Tomken Plaza, Mississauga, ON
Bulk Barn, Dairy
Queen
—
—
—
—
Q1, 2014 $
Q2, 2014
59 $
1,024
— $
485
Q3, 2014
Q4, 2014
Q3, 2014
168
375
290
—
—
—
59
539
168
375
290
$ 1,916 $
485 $
1,431
5
5
Same property with incremental redevelopment and expansion – in pre-development
Carrefour Charlemagne, Charlemagne, QC Dollarama, Barbies
Loblaws Plaza, Ottawa, ON
Pemberton Plaza, Vancouver, BC
BMO
3
13 Total same property with incremental redevelopment and
expansion
16,000
8,000
21,000
45,000
81,000
Q3, 2015 $ 6,092 $
Q2, 2016
Q2, 2016
7,760
13,048
1,743 $
3,357
7,225
4,349
4,403
5,823
$ 26,900 $
12,325 $ 14,575
$ 49,887 $
21,835 $ 28,052
(1) Total estimated cost relates only to residual tenant improvements and other similar expenditures.
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 four 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 25 properties classified as same property with incremental redevelopment and expansion.
48
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Major Redevelopment
The Company classifies 13 properties totalling $1.2 billion in invested cost as properties with major redevelopment
activities. Of the 264,000 square feet under active redevelopment, 124,436 square feet is subject to committed leases,
including a supermarket tenant, at a weighted average rate of $32.36 per square foot. In addition, approximately 11,000
square feet of space is in the latter stages of lease negotiations with a national retailer. As construction on these
redevelopment projects occurs in phases, 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, 2014
(thousands of dollars, except for other data)
Count/Property
Major Tenants
Planned
Square Feet
Upon
Completion
Completed
or Existing
Square
Feet
Square Feet
Under
Development
Target
Completion
Date
Total
Estimated
Cost incl.
Land
Investment
Cost
Estimated
Cost to
Complete
Fair
Value
Major redevelopment – with active development
Carre Lucerne Assets,
Montreal, QC
Mount Royal Village Assets,
Calgary, AB
Yorkville Village Assets,
Toronto, ON
3
Provigo,
Pharmaprix
London Drugs,
Oasis Spa and
Wellness,
GoodLife
Fitness,
Whole Foods
Market
As at December 31, 2014
(thousands of dollars, except for other data)
Count/Property
Major Tenants
Major redevelopment – at completion
126,000
48,000
78,000 Q3, 2017 $ 58,058 $ 33,588
$ 24,470
312,000
193,000
119,000 Q1, 2017
178,395
134,434
43,961
285,000
218,000
67,000 Q2, 2016
334,189
293,440
(1)
40,749
723,000
459,000
264,000
$ 570,642 $ 461,462
$109,180
Planned
Square Feet
Upon
Completion
Completed
/Existing
Square
Feet
Square Feet
Under
Development
Completion
Date
Total Cost
incl. Land
Investment
Cost
Estimated
Cost to
Complete
Fair
Value
5051-5061 Yonge St.,Toronto,
Michael’s,
37,000
37,000
— Q3, 2013 $ 27,051 $ 27,051
ON
Jack Astor’s
Chartwell Shopping Centre,
Bestco Food, CIBC,
156,000
156,000
— Q3, 2013
52,968
52,968
Toronto, ON
Dollarama
Carrefour Soumande,
Quebec City, QC
Super C (Metro)
119,000
119,000
— Q2, 2013
22,317
22,317
Deer Valley Marketplace,
Walmart, Shoppers
215,000
215,000
— Q2, 2013
52,364
52,364
Calgary, AB
Drug Mart
(Loblaws),
Dollarama, CIBC,
RBC Royal Bank,
Liquor Store,
Co-op
4
527,000
527,000
—
$ 154,700 $ 154,700
FIRST CAPITAL REALTY ANNUAL REPORT 2014
49
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
As at December 31, 2014
(thousands of dollars, except for other data)
Count/Property
Development
Status
Current
Square Feet (2)
Total Est. Cost
incl. Land
Investment Cost
Estimated Cost
to Complete
Fair Value
Major redevelopment – in pre-development
Humbertown Shopping Centre,
Toronto, ON
Victoria Park Centres,
Toronto, ON
Place Portobello Assets,
Brossard, QC
Semiahmoo Shopping Centre,
Surrey, BC
Macleod Trail Assets,
Calgary, AB
3080 Yonge Street,
Toronto, ON
6
13 Total major redevelopment
Advanced
entitlements
Planning
underway
Planning
underway
Planning
underway
Planning
underway
Planning
underway
108,000
485,000
575,000
230,000
300,000
233,000
1,931,000
2,917,000
(1) Investment cost excludes mortgage investment of $47 million.
(2) Includes vacant units held for redevelopment.
$
59,045
131,717
88,155
97,825
92,718
64,881
$
534,341
$
725,342
$ 1,150,503 $ 109,180 $ 1,095,203
Details of certain major redevelopment properties are included in the Company’s largest properties summaries (refer to
the “Business and Operations Review – Real Estate Investments” section of this MD&A). Additional details of three major
redevelopment projects are included below:
Carre Lucerne Assets, Montreal, Quebec
The Carre Lucerne Assets is an assembly of five separate properties currently comprising two assets totalling 73,000
square feet with 477 parking stalls on 8.7 acres located in the affluent borough of Ville Mont-Royal in Montreal. The
population within five kilometres is approximately 415,000 with an average household income of approximately $73,000.
Major tenants include Provigo le Marche (Loblaws) and Pharmaprix (Loblaws), Scotiabank, Starbucks, and other
restaurants and personal services.
The first phase of the redevelopment comprising a multi-tenant single-level building in the parking lot of the existing
shopping centre is complete, and the Company is proceeding with the remainder of the redevelopment, including
demolition of the existing shopping centre and the construction of a 49,000 square foot Provigo 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
125,700 square feet of retail/commercial space, 420 parking stalls at grade and may incorporate residential density.
Humbertown Shopping Centre, Toronto, Ontario
Humbertown Shopping Centre, originally developed in 1958, is a 108,000 square foot grocery-anchored property located
on 9.0 acres of land in 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 (Loblaws), 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
50
FIRST CAPITAL REALTY ANNUAL REPORT 2014
developed in 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.
3080 Yonge Street, Toronto, Ontario
The Company acquired this medical and office building at the northwest corner of Yonge Street and Lawrence Avenue in
2012. The property is 1.74 acres in size and has an existing GLA of 233,000. The population within five kilometers is
approximately 349,000 with an average household income of $148,000. Entitlements are underway to add retail uses,
including a grocery store, a full-service restaurant and smaller retail units, along with an interior and exterior
redevelopment of the existing building. The GLA on completion of the project will be 240,000 square feet. Construction
of this project is expected to start in mid-2015 with an expected completion by mid-2017.
Ground-up Development
The Company classifies five properties totalling $401 million of invested cost as ground-up development properties
underway or completed. Of the 528,000 square feet under active development, 92,583 square feet is subject to
committed leases, including a supermarket tenant and a fitness centre tenant at a weighted average rate of $24.00 per
square foot. As construction on ground-up developments occurs in phases, 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, 2014
(thousands of dollars, except for other data)
Count/Property
Major Tenants
Planned
Square Feet
Upon
Completion
Completed
or Existing
Square
Feet
Square Feet
Under
Development
Target
Completion
Date
Total
Estimated
Cost incl.
Land
Investment
Cost
Estimated
Cost to
Complete
Fair
Value
Ground-up development – with active development
Place Viau Assets,
Montreal, QC
Carrefour du Plateau-des-
Grives,
Gatineau, QC
The Brewery District
Edmonton, AB (1)
King High Line (Shops at King
Liberty), Toronto, ON
Walmart,
Michael’s,
Marshalls
Canadian Tire,
Sports Experts
Loblaws City
Market,
GoodLife
Fitness
332,000
327,000
5,000 Q1, 2015 $ 140,301 $ 132,463 $
7,838
222,000
201,000
21,000 Q2, 2015
55,849
44,219
11,630
319,000
—
319,000 Q2, 2016
80,004
26,321
53,683
487,000
—
487,000 Q3, 2017
142,528
44,031
98,497
3
1,360,000
528,000
832,000
$ 418,682 $ 247,034 $ 171,648
FIRST CAPITAL REALTY ANNUAL REPORT 2014
51
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
As at December 31, 2014
(thousands of dollars, except for other data)
Count/Property
Major Tenants
Ground-up development – at completion
Leaside Village
Toronto, ON
Clairfield Commons (Pergola
Commons), Guelph, ON
Longo's, The Beer
Store, CIBC,
Linen Chest,
Pet Valu
RBC Royal Bank,
BMO, The
Beer Store,
Cineplex,
Dollarama,
GoodLife
Fitness
Planned
Square Feet
Upon
Completion
Completed
or Existing
Square
Feet
Square Feet
Under
Development
Target
Completion
Date
Total
Estimated
Cost incl.
Land
Investment
Cost
Estimated
Cost to
Complete
Fair
Value
112,000
112,000
— Q1, 2013 $ 48,363 $
48,363 $
—
228,000
228,000
— Q4, 2013
69,466
69,466
—
2
340,000
340,000
—
$ 117,829 $ 117,829 $
—
As at December 31, 2014
(thousands of dollars, except for other data)
Count/Property
Major Tenants
Vaughan, ON (Residential)
Ground-up development – pre-development
RBC Royal Bank,
Rutherford Marketplace,
BMO, The Beer
Store, Cineplex,
Dollarama,
GoodLife Fitness
Planned
Square Feet
Upon
Completion
Completed
or Existing
Square
Feet
Square Feet
Under
Development
Target
Completion
Date
Total
Estimated
Cost incl.
Land
Investment
Cost
Estimated
Cost to
Complete
Fair
Value
—
—
—
$ 16,866 $
16,866 $
—
—
—
—
—
$ 16,866 $
16,866 $
—
5 Total ground-up development
1,700,000
868,000
832,000
$ 553,377 $ 381,729 $ 171,648 $ 408,804
Properties adjacent acquired in 2014 and 2013
included in acquisitions (2)
$
19,167
$ 18,431
(1) The Company has 50% ownership interest in the property.
(2) Refer to the “Business and Operations Review – 2014 Acquisitions” and “Business and Operations Review – 2013 Acquisitions” sections of this MD&A.
Details of certain ground-up development properties are included in the Company’s largest properties summaries (refer
to the “Business and Operations Review – Real Estate Investments” section of this MD&A). Additional details of one
ground-up development project are included below:
The Brewery District, Edmonton, Alberta
A 50% development project with a partner, Sun Life Financial, The Brewery District is a 14.9 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 The Brewery District in late 2013 to allow for retail, office and high-density
residential use. The Company has also obtained development permits for the project and construction has commenced.
The 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
279,000 square feet of retail and 40,000 square feet of office, with a total of 393 at grade and 534 underground parking
stalls. The project enjoys strong leasing interest and the Company is in advanced lease negotiations with various tenants.
To date, Loblaws, GoodLife Fitness and Shoppers Drug Mart (Loblaws) have been secured. In addition to the mixed use
development, the site includes 2.34 acres of development land that is zoned for high-rise residential which may be sold to
a third party residential developer for construction of up to 430,000 square feet of residential density.
52
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Following completion, The 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.
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, 2014, with
bifurcation of the income-producing and development activity components, is as follows:
As at December 31, 2014
Number of Sites/
Properties (1)
Square Feet (2)
(in thousands)
Investment Cost
(in millions) (3)
Fair Value
(in millions)
Shopping centres – income-producing only
158
24,331
$
5,857
Same property with incremental redevelopment and expansion
Major redevelopment
Ground-up development
Shopping centres with development activities (1) (3)
Land parcels adjacent to/part of existing properties
Land parcels adjacent to/part of existing properties available for
expansion
Other development related costs
Adjacent land parcels (1)
Total shopping centres with development activities or
potential development activities
Total shopping centres
Development land
Total
13
13
5
31
34
4
—
38
69
4
81
264
832
1,177
768
37
—
805
1,982
439
2,421
$
$
22
262
92
376
97
—
9
106
482
6,339
75
6,414
$
$
7,551
73
7,624
(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 158.
(2) Includes both municipally approved developable commercial square feet and square feet the Company expects to be approved, excluding residential density until the zoning
process is complete.
(3) Includes cost for phases under development only. Aggregate cost of the Company’s investment under development is approximately $561 million, which includes shopping
centres with development activities or potential of development activities of approximately $482 million, development land of approximately $75 million and residential
development inventory of approximately $4 million. Refer to the “Business and Operations Review – 2014 Investment Property Development and Redevelopment Activities”
section of this MD&A.
The Company has currently identified 2.4 million square feet available in the portfolio for future development of retail
space, excluding 0.4 million square feet classified as held for sale (December 31, 2013 – 3.2 million square feet, including
0.2 million square feet classified as held for sale), as follows:
Shopping Centres with Development Activities
The Company currently has 1,177,000 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 and Operations Review – 2014 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 805,000 square feet. Certain of these adjacent land parcels are in various stages of development and in
various property categories.
Development Land
The Company has six land sites of which two are classified as held for sale. The four land sites being retained have
potential, if developed, to provide a further 0.1 to 0.5 million square feet of GLA.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
53
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Development land by region is as follows:
Region
Central
Eastern
Western
Total
Number of Sites
2
2
—
4
Square Feet
(in thousands)
211
228
—
439
Acreage
14
14
—
28
Fair Value
(in millions)
9
10
—
19
$
$
Main and Main Developments
During the third quarter of 2014, the Company’s Toronto and Ottawa urban development partnership, Main and Main
Developments LP, sold a 46.9% interest in its real estate assets to a prominent Canadian institutional investor. As part of the
transaction, Main and Main Developments was retained to provide asset and property management services for the real
estate portfolio.
The transaction comprised the transfer of all of Main and Main Developments’ real estate assets to a newly formed
partnership (known as M+M Urban Realty LP (“Main and Main Urban Realty”)) between the Company, Main and Main
Developments and the institutional investor. First Capital Realty also continues to directly own a 67% interest in Main and
Main Developments and also to primarily fund its private development partner’s interest. The partners of Main and Main
Urban Realty have collectively committed a total of $320.0 million of equity capital for the current and future growth and
development of the Main and Main Urban Realty portfolio, of which First Capital Realty’s direct and indirect commitment is
approximately $167.0 million (of which $93.8 million has been invested as at December 31, 2014). Decisions in Main and
Main Urban Realty are made unanimously as between Main and Main Developments and First Capital Realty together on
the one hand, and the institutional investor on the other hand. The chart below illustrates in a simplified fashion the
ownership of Main and Main Developments and Main and Main Urban Realty.
54
FIRST CAPITAL REALTY ANNUAL REPORT 2014
The Main and Main Developments management team brings a skill set and focus to the assembly and redevelopment of
sites that are much smaller than the Company’s typical properties and are normally acquired or assembled via multiple
adjacent parcel acquisitions, often from private individuals. Main and Main Developments’ core business strategy is to
create value in the Main and Main Urban Realty portfolio through the strategic acquisition of assets in under-serviced
transit-oriented urban retail nodes and then reposition, rezone and/or redevelop (including through mixed use
development) these assets to their highest and best use, with a view to creating and owning new urban retail formats in
high-demand locations. Each of Main and Main Urban Realty’s 18 assembly projects are located on a major street in Toronto
or Ottawa. Two projects in Toronto and one project in Ottawa are in the pre-development planning stage. As at
December 31, 2014, the fair value of the Main and Main Urban Realty’s portfolio was approximately $168.0 million. As at
December 31, 2014, Main and Main Urban Realty had binding agreements to purchase six properties for an aggregate
amount of $76.0 million, expected to close in 2015, subject to customary closing conditions. First Capital Realty's share of
funding commitments at its interest is $40.4 million.
Residential Development Inventory
The Company has partnered with a Toronto-based condominium developer to develop its residential density projects at
Shops at King Liberty in Toronto. The Company has a 50% interest in these two projects and recognizes its right to the
assets and obligations for liabilities in its financial results. The Company's residential development inventory comprises
the construction of rental or 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 at 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 in a condominium tower and approximately 9,000 square feet of retail space.
Interim occupancy for the Fuzion residential units commenced during the first quarter of 2013 and registration and final
closings occurred on all units in the first quarter of 2014. As at December 31, 2014, all units were sold, with possession
and occupancy taken, however, the Company is in process of selling some remaining parking stalls. Proceeds at the
Company’s 50% interest of approximately $29.8 million were received of which approximately $22.0 million was directed
to repay the Company’s indebtedness on the project’s credit facility. The Company's total gain realized on its share of the
project was $3.0 million. During the first quarter of 2014, the Company acquired the remaining 50% interest in the retail
space from its partner.
The 1071 King Street development site has 100,000 square feet of density entitlements.
During the three months ended December 31, 2014, the King High Line mixed-use retail and residential project, with a fair
value and invested cost of $25 million was transferred from residential development inventory to mixed-use shopping
centres as a ground-up development (refer to “Business and Operations Review – Real Estate Investments – Portfolio
Overview” section of this MD&A).
FIRST CAPITAL REALTY ANNUAL REPORT 2014
55
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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
maintain the physical aspects of 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, disposition or the same property
categories. 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
maintain physical aspects of the Company’s shopping centres as property operating costs.
Revenue enhancing or 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, 2014, the weighted average age based on year constructed
or redeveloped and square footage, for the Company's total shopping centre portfolio was as follows:
Total Portfolio
Central
Eastern
Western
5 year or newer
14%
14%
15%
13%
6 – 10 years
27%
28%
26%
25%
11 – 15 years
23%
15%
25%
29%
16 – 20 years
12%
21%
7%
6%
Over 20 years
24%
22%
27%
27%
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.
The three-year weighted average rate of revenue sustaining expenditures on a same property basis for the year ended
December 31, 2014 on an estimated annualized basis was $0.83 per square foot compared to $0.84 per square foot for
2013. The Company continues 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 redevelopment and expansion
Revenue sustaining – total same property
Enhancing capital expenditures
Revenue enhancing and other
Expenditures recoverable from tenants
Development expenditures
Total
56
FIRST CAPITAL REALTY ANNUAL REPORT 2014
$
Year ended December 31
2013
2014
11,691
12,252
3,419
3,570
15,110
15,822
$
48,269
11,518
177,892
49,546
14,463
187,407
$
253,501
$
266,526
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 – current year
Acquisitions – prior year
Investment properties classified
as held for sale
Dispositions – current and prior
year
Development land
Total
2014
Same Property
– Stable
Same Property with
incremental
redevelopment and
expansion
Total
Same Property
– Stable
Same Property with
incremental
redevelopment and
expansion
$
$
12,252 $
23,601
7,026
—
42,879 $
3,570 $
4,728
2,328
15,822 $
28,329
9,354
11,691 $
15,415
1,062
23,128
33,754 $
23,128
76,633 $
—
28,168 $
3,419 $
17,343
3,956
38,548
63,266 $
101,181
48,529
1,610
6,478
7,874
2,147
9,049
2013
Total
15,110
32,758
5,018
38,548
91,434
68,803
65,272
1,822
24,384
2,894
2,345
9,572
$
253,501
$
266,526
Leasing and Occupancy
Total portfolio occupancy as at December 31, 2014 increased to 96.0% from 95.5% as at December 31, 2013. Same
property portfolio occupancy increased to 96.9% from 96.5% for the same period, and comprised 18.2 million occupied
square feet. Occupancy for the remainder of the portfolio, including major redevelopments, ground-up developments,
acquisitions, dispositions and assets held for sale, totaled 93.0% as at December 31, 2014, representing an increase from
92.2% as at December 31, 2013, and comprised 5.2 million occupied square feet, providing potential net operating
income growth as the redevelopment, development and expansion activities are completed.
Occupancy of the Company's shopping centre portfolio by property categorization as at December 31, 2014 is as follows:
As at
December 31, 2014
December 31, 2013
(square feet in thousands, except other data)
Same property – stable
Same property with incremental redevelopment
and expansion
Total same property
Major redevelopment
Ground-up development
Investment properties classified as held for sale
Total portfolio before acquisitions and dispositions
Acquisitions – 2014
Acquisitions – 2013
Dispositions – 2014
Total
Total
Occupied
Square Feet
% Occupied
Weighted
Average
Rate per
Occupied
Square Foot
18.68
16.85
97.2% $
96.1%
96.9%
91.9%
94.2%
94.9%
96.0%
91.9%
94.2%
—%
96.0% $
18.24
18.68
21.25
12.55
18.16
26.31
26.94
—
18.42
13,793
4,413
18,206
2,625
825
964
22,620
426
310
—
23,356
Total
Occupied
Square Feet
% Occupied
Weighted
Average Rate
per Occupied
Square Foot
13,821
4,385
18,206
2,813
663
955
22,637
—
269
466
23,372
96.7% $
96.1%
96.5%
91.1%
98.2%
89.5%
95.6%
—%
94.0%
95.5%
95.5% $
18.35
16.56
17.92
17.89
22.80
12.57
17.83
—
27.92
18.30
17.96
FIRST CAPITAL REALTY ANNUAL REPORT 2014
57
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
During 2014, the Company achieved a 9.6% rate increase per occupied square foot increase on 2,415,000 square feet of
renewal leases over the expiring lease rates on the total portfolio basis. The rate increase for the same property portfolio
amounted to 8.4% on 1,736,000 square feet and for the remainder of the portfolio to 12.9% on 679,000 square feet,
demonstrating Management’s ability to increase rents on renewals.
The Company also achieved 9.1% growth in rate per square foot on new tenant openings versus tenant closures on the
total portfolio basis. This rate was 1.4% for the same property portfolio and 2.0% for the remainder of the portfolio.
The average rental rate per occupied square foot for the same property portfolio increased to $18.24 as at
December 31, 2014 from $17.92 as at December 31, 2013. 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 5.7 years as at December 31, 2014, 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 6.8 years as at
December 31, 2014, excluding options in favour of tenants.
Changes in the Company’s gross leasable area and occupancy for the total portfolio are set out below:
Year ended December
31, 2014
Total Same Property
Major redevelopment, ground-
up, acquisitions and dispositions
Vacancy
Portfolio Total
Occupied
Square Feet
(thousands)
%
Weighted
Average
Rate per
Occupied
Square Foot
Occupied
Square Feet
(thousands)
%
Weighted
Average
Rate per
Occupied
Square Foot
Under
Redevelop-
ment
Square Feet
(thousands)
Vacant
Square Feet
(thousands)
%
Total
Square Feet
(thousands)
Occupied
Square
Feet %
%
Weighted
Average Rate
per Occupied
Square Foot
December 31, 2013 (1)
18,206 96.5% $ 17.92
5,166
92.2% $ 18.10
179
0.7%
911
3.7% 24,462
95.5% $
17.96
Tenant openings
Tenant closures
Tenant closures for
redevelopment
Developments – tenant
openings coming on
line
Redevelopments –
tenant openings
coming on line
Demolitions
Reclassification
Total portfolio before
dispositions and
acquisitions
Dispositions (at date of
disposition)
Acquisitions (at date of
acquisition)
434
(377)
(2)
33
—
—
(91)
19.54
(19.24)
(23.99)
315
(307)
(210)
28.00
192
—
—
—
4
—
51
12.19
(12.01)
(12.18)
17.46
—
—
212
—
23.98
(4)
—
—
(235)
(67)
18,203 96.9% $ 18.23
5,211
92.8% $ 18.50
85
0.3%
—
—
(482)
89.6% (18.51)
3 57.6%
26.96
421
90.8%
25.55
—
—
(749)
684
—
60
—
(29)
24
901
(56)
45
—
—
—
285
—
(264)
(83)
16.45
(16.00)
(12.29)
19.02
23.98
—
—
3.7% 24,400
96.0% $
18.29
(538)
89.6%
(18.51)
469
90.4%
25.56
December 31, 2014
18,206 96.9% $ 18.24
5,150
93.0% $ 19.07
85
0.3%
890
3.7% 24,331
96.0% $
18.42
Renewals
Renewals – expired
1,736
(1,736)
Net increase per square foot from renewals
% Increase on renewal of expiring rents
% Increase in rate per square foot – openings
versus all closures
$ 18.54
$ (17.10)
$
1.44
8.4%
1.4%
679
(679)
$ 18.63
$ (16.50)
$
2.13
12.9%
2.0%
(1) Opening balance is revised to reflect property categories consistent with current period status.
2,415
(2,415)
$
18.56
$ (16.93)
$
1.63
9.6%
9.1%
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 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.
58
FIRST CAPITAL REALTY ANNUAL REPORT 2014
During 2014, the Company completed 289,000 square feet in development and redevelopment activities. 229,000 square
feet of this space were occupied during the year at the average rate of $19.09 per square foot (including 171,000 square
feet of anchor tenants), and the remainder is expected to be leased in the next 12 months. The average lease rate on the
space was above the average rate for the portfolio, thus realizing on the growth potential through development.
Year ended December
31, 2013
Total Same Property
Major redevelopment, ground-
up, acquisitions and
dispositions
Vacancy
Portfolio Total
Occupied
Square Feet
(thousands)
%
Weighted
Average
Rate per
Occupied
Square Foot
Occupied
Square Feet
(thousands)
%
Weighted
Average
Rate per
Occupied
Square Foot
Under
Redevelop-
ment
Square Feet
(thousands)
Vacant
Square Feet
(thousands)
%
Total
Square Feet
(thousands)
Occupied
Square
Feet %
%
Weighted
Average
Rate per
Occupied
Square Foot
December 31, 2012
(1)
18,063 96.4% $ 17.72
5,810
93.4% $ 16.89
172
0.7%
924
3.7% 24,969
95.6% $ 17.51
Tenant openings
Tenant closures
Tenant closures for
redevelopment
Developments –
tenant openings
coming on line
Redevelopments –
tenant openings
coming on line
Demolitions
Reclassification
Total portfolio before
dispositions and
acquisitions
Dispositions (at date
of disposition)
Acquisitions (at date
of acquisition)
429
(403)
(30)
20.50
(20.68)
115
(163)
17.01
(16.10)
—
—
(18.60)
(91)
(21.64)
121
125
22.65
236
24.12
—
15
—
28
8.61
—
—
88
—
(91)
22.69
—
—
(103)
—
(11)
(544)
566
—
54
—
(31)
3
—
—
—
415
—
(31)
(71)
19.77
(19.36)
(20.87)
23.61
20.56
—
—
18,227 96.5% $ 17.92
5,904
92.2% $ 17.21
179
0.7%
972
3.8% 25,282
95.4% $ 17.74
(21) 84.6% (13.45)
(1,009)
93.3% (15.51)
271
94.7%
27.82
—
—
(76)
15
(1,106)
93.1% (15.47)
286
94.8%
27.82
December 31, 2013
18,206 96.5% $ 17.92
5,166
92.2% $ 18.10
179
0.7%
911
3.7% 24,462
95.5% $ 17.96
Renewals
Renewals – expired
985
(985)
Net increase per square foot from renewals
% Increase on renewal of expiring rents
% Increase on openings versus all closures
$ 21.24
$(19.25)
$ 1.99
10.3 %
(2.2)%
431
(431)
$ 17.49
$ (16.04)
$
1.45
9.0%
7.7%
(1) Opening balance is revised to reflect property categories consistent with current period status.
1,416
(1,416)
$ 20.13
$ (18.30)
$
1.83
10.0%
1.3%
FIRST CAPITAL REALTY ANNUAL REPORT 2014
59
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Development and redevelopment coming on line in 2014 included the following:
Property Name
City
Province
Same property with incremental redevelopment and expansion
Hunt Club Marketplace (1)
Eagleson Place
Place Pointe-aux-Trembles
Ottawa
Montreal
Ottawa
ON
ON
QC
Other properties
Shops at New West
Tomken Plaza
Red Deer Village
Major redevelopment
Yorkville Village Assets
Carré Lucerne Assets
Mount Royal Village Assets
Ground-up development
Place Viau Assets
Carrefour du Plateau-des-Grives
Acquisitions – current year
Shops at King Liberty Assets
Total development brought on line
Total other redevelopment brought on line
New
Westminster
Mississauga
Red Deer
Toronto
Montreal
Calgary
Montreal
Gatineau
Toronto
BC
ON
AB
ON
QC
AB
QC
QC
ON
Square
Feet
12,000
11,000
8,000
Major Tenants of Developed Space
Spaces with leasing underway
Kids & Company (Daycare)
Double Pizza and spaces with leasing underway
8,000
TD Canada Trust, Tim Hortons, Fresh East and
spaces with leasing underway
5,000
Various tenants
6,000
5,000
13,000
12,000
5,000
Bulk Barn and Dairy Queen
Spaces with leasing underway
Andrew's and various other tenants
Scotiabank, Subway and various other tenants
Calgary Family Dental
116,000
Marshalls, Michael’s, Econofitness, Dollarama
and spaces with leasing underway
86,000
Canadian Tire
2,000
Various tenants
289,000
285,000
4,000
289,000
Leased to various tenants
(1) The Company has 33.33% ownership interest in the property. The square footage represents 100% of GLA that came on line.
60
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Development and redevelopment coming on line in 2013 included the following:
Property Name
City
Province
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
Yorkville Village Assets
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
Square
Feet
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
Major Tenants of Developed Space
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 (Loblaws), 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
FIRST CAPITAL REALTY ANNUAL REPORT 2014
61
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Lease Maturity Profile
The Company’s lease maturity profile for its shopping centre portfolio as at December 31, 2014 was as follows:
Maturity Date (1)
Month-to-month tenants (2)
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Thereafter
Total or Weighted Average
Number of
Stores
Occupied
Square Feet
(000s)
Percent of Total
Square Feet
1.0%
8.4%
9.1%
12.0%
12.2%
10.7%
7.1%
5.3%
6.6%
7.0%
4.6%
2.5%
9.5%
$
Annualized
Minimum Rent at
Expiration
(000s)
4,257
36,591
35,932
52,567
53,576
54,393
30,627
28,469
38,217
32,892
24,050
14,449
45,917
Percent of Total
Annualized
Minimum Rent
0.9%
8.0%
8.0%
11.6%
11.9%
12.0%
6.8%
6.3%
8.5%
7.3%
5.3%
3.2%
10.2%
$
Average Annual
Minimum Rent
per Square Foot
at Expiration
17.49
18.07
16.17
17.96
18.03
20.83
17.78
22.06
23.64
19.40
21.58
23.92
19.87
243
2,025
2,222
2,926
2,972
2,612
1,723
1,291
1,617
1,695
1,115
604
2,311
23,356
96.0%
$
451,937
100.0%
$
19.35
177
572
550
580
585
560
270
199
240
183
179
68
96
4,259
(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.
Included in 2015 lease maturities of 2,025,000 square feet is 1,707,000 square feet related to the same property portfolio,
which represents 84.3% of the lease maturities for the total shopping centre portfolio. The expiring leases on the same
property basis generate an annual minimum rent of $30.2 million, representing 82.6% of the annual minimum rent from
the expiring leases for 2015 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, 2014 included:
(thousands of dollars)Revenue Recognition Period
Q1, 2015
Q2, 2015
Q3, 2015
Q4, 2015
Total
2016
2017
2018
2019
Thereafter
Total
Estimated Income
from Operating
and Tax
Recoveries (2)
Minimum
Rent (1)
$
$
103,503 $
102,333
99,726
97,841
403,403 $
367,026
326,800
281,016
229,877
893,667
55,008
54,414
53,093
52,095
214,610
195,360
174,074
149,783
122,566
478,066
$ 2,501,789 $
1,334,459
(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.
62
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Top Forty Tenants
As at December 31, 2014, 55.1% of the Company’s annualized minimum rent came from its top 40 tenants
(December 31, 2013 – 54.4%). Of those rents, 77.7% was from top 40 tenants that have investment grade credit ratings
and who represent many of Canada’s leading supermarket operators, drugstore chains, national and discount retailers,
banks and other familiar shopping destinations.
Tenant
Loblaws (1)
Sobeys (2)
Metro
Canadian Tire
TD Canada Trust
RBC Royal Bank
Dollarama
CIBC
GoodLife Fitness
1
2
3
4
5 Walmart
6
7
8
9
10
Top 10 Tenants Total
Rona
11
LCBO
12
Rexall
13
BMO
14
London Drugs
15
Staples
16
Scotiabank
17
Tim Hortons
18
Save-On-Foods
19
Longo's
20
21
Starbucks
22 Michaels
Jean Coutu
23
Subway
24
25
Cara
26 Winners
27
28
29 Whole Foods Market
SAQ
30
Reitmans
31
32
Yum! Brands
33 McDonald's
Target
34
The Beer Store
35
The Home Depot
36
Pet Valu
37
Bulk Barn
38
Uniprix
39
Liquor Stores
40
Top 40 Tenants Total
Toys "R" Us
Best Buy
Number
of Stores
Square Feet
(thousands)
100
57
34
26
15
45
46
44
36
19
422
4
21
19
30
9
11
22
50
6
4
44
5
12
72
22
6
4
5
2
22
26
29
21
2
11
2
20
12
6
13
934
2,493
1,983
1,217
916
1,481
242
256
455
202
429
9,674
421
218
168
134
231
254
121
133
267
170
71
110
155
86
97
194
156
140
90
95
132
58
84
246
66
219
54
58
68
51
14,021
DBRS Credit
Rating
S&P Credit
Rating
Moody’s
Credit Rating
BBB
BBB (low)
BBB
BBB (high)
AA
AA
AA
BBB
AA
BB (high)
AA (low)
AA
AA
BB (low)
BBB
BBB-
BBB
BBB+
AA
AA-
AA-
A+
BB+
AA-
A+
BBB-
A+
Aa2
Aa1
Aa3
Aa3
Aa2
Aa3
Baa2
Aa2
A-
B
A3
B3
A+
B-
BB
BBB-
A+
BBB
A
A
AA-
A
A3
B3
Baa2
Aa2
Baa3
A2
A2
Aa2
A2
A (high)
AA (low)
A
Percent of
Total Gross
Leasable Area
10.2%
8.1%
5.0%
3.8%
6.1%
1.0%
1.1%
1.9%
0.8%
1.8%
39.8%
1.7%
0.9%
0.7%
0.6%
1.0%
1.0%
0.5%
0.5%
1.1%
0.7%
0.3%
0.5%
0.6%
0.4%
0.4%
0.8%
0.6%
0.6%
0.4%
0.4%
0.5%
0.2%
0.3%
1.0%
0.3%
0.9%
0.2%
0.2%
0.3%
0.2%
57.6%
Percent of Total
Annualized
Minimum Rent
10.2%
6.8%
3.5%
3.1%
3.0%
2.0%
2.0%
1.7%
1.6%
1.5%
35.4%
1.4%
1.3%
1.1%
1.0%
1.0%
0.9%
0.9%
0.9%
0.8%
0.7%
0.7%
0.6%
0.6%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.4%
0.4%
0.3%
0.3%
0.3%
0.3%
55.1%
(1) As at December 31, 2014, Loblaw Companies Limited (“Loblaws”) comprises 10.2% of the Company’s annualized minimum rent (December 31, 2013 – 4.2%) as a result of the
merger of Loblaws and Shoppers Drug Mart completed in Q1 2014. The Company earned from Loblaws base rent revenue of $10.5 million and $42.1 million for the three
months and year ended December 31, 2014, respectively.
(2) Sobeys includes space occupied by Safeway Canada, resulting from the merger of the companies in 2013.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
63
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Loans, Mortgages and Other Real Estate Assets
As at (thousands of dollars)
December 31, 2014 December 31, 2013
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
Other receivable
Total current loans, mortgages and other real estate assets
$
$
92,132
4,099
96,231
33,370
292
46,067
—
249
79,978
68,150
3,631
71,781
27,764
455
24,457
22,522
2,251
77,449
Total mortgages and other real estate assets
$
176,209
$
149,230
(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 as at
December 31, 2014 of 5.65% and 5.93% per annum, respectively (December 31, 2013 – 6.33% per annum). The
loans and mortgages receivable mature between 2015 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 coupon and effective interest rate of 9.59% per
annum (December 31, 2013 – 9.54% per annum). The loans and mortgages receivable mature between 2015 and
2025.
Scheduled principal receipts of loans and mortgages receivable as at December 31, 2014 are as follows:
(thousands of dollars, except other data)
2015
2016
2017
2018
2019
2020 to 2025
Unamortized deferred financing fees, premiums and discounts, net and interest receivable
Current
Non-current
Payments on
Maturity
Weighted
Average
Effective
Interest Rate
$
$
$
$
$
48,708
4,809
6,147
—
28,852
48,004
136,520
1,679
138,199
46,067
92,132
138,199
9.55%
8.05%
6.02%
—%
5.87%
5.53%
7.15%
9.59%
5.93%
7.15%
64
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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
$
$
2014
196,748
0.92
230,533
$
$
2013
214,863
1.01
229,948
Net income attributable to common shareholders for the year ended December 31, 2014 was $196.7 million or $0.92 per
share (diluted) compared to $214.9 million or $1.01 per share (diluted) for the year ended December 31, 2013.
The 8.9% or $0.09 decrease in net income per share (diluted) was primarily due to higher net other losses and expenses
largely related to executive transition expense, coupled with a lower fair value gain on investment properties and the
related decrease in deferred income taxes compared to the prior year. The above decrease in net income was partially
offset by an increase in total same property NOI.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
65
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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
audited annual consolidated financial statements, to proportionate interest.
(thousands of dollars)
2014
Consolidated
Statements of
Income (Equity
method)
Adjustment for
equity method to
proportionate
interest
Proportionate
interest
Year ended December 31
Consolidated
Statements of
Income
(Equity method)
(Restated) (1)
Adjustment for
equity method to
proportionate
interest
2013
Proportionate
interest
(Restated) (1)
Property rental revenue
Property operating costs
Net operating income
$
648,441 $
241,532
406,909
5,169 $
1,542
3,627
653,610 $
243,074
410,536
631,605 $
233,595
398,010
4,324 $
1,384
2,940
635,929
234,979
400,950
Other income and expenses
Interest and other income
Interest expense
Corporate expenses
Abandoned transaction costs
Amortization expense
Share of profit from joint ventures
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
$
$
$
$
$
12,997
(173,321)
(31,191)
(907)
(3,552)
9,135
(16,281)
42,078
(161,042)
245,867
47,657
(179)
(510)
256
(4)
—
(9,135)
(129)
4,612
(5,089)
(1,462)
—
12,818
(173,831)
(30,935)
(911)
(3,552)
—
(16,410)
10,501
(164,909)
(29,958)
(2,231)
(3,873)
2,334
(4,280)
—
(537)
—
—
—
(2,334)
—
10,501
(165,446)
(29,958)
(2,231)
(3,873)
—
(4,280)
46,690
60,833
(69)
60,764
(166,131)
(131,583)
(2,940)
(134,523)
244,405
47,657
266,427
51,418
—
—
266,427
51,418
198,210 $
(1,462) $
196,748 $
215,009 $
— $
215,009
196,748 $
1,462
198,210 $
— $
196,748 $
(1,462)
(1,462) $
—
196,748 $
214,863 $
146
215,009 $
— $
— $
— $
214,863
146
215,009
0.93
0.92
$
$
1.03
1.01
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A for further details.
66
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Funds from Operations and Adjusted Funds from Operations
In Management’s view, funds from operations and adjusted funds from operations 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. 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, incremental leasing costs, property taxes reflected ratably, adjustments for equity accounted joint
ventures and to non-controlling interest to reflect FFO attributable to the Company. FFO 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 for the year ended December 31, 2014 totalled $209.0 million or $0.98 per share (diluted) compared to $215.5
million or $1.03 per share (diluted) for the year ended December 31, 2013. The 4.9% or $0.05 decrease in FFO per share
(diluted) over the prior year is primarily due to higher interest expense, executive transition expense and higher net other
gains in 2013 primarily arising from sale of residential inventory and a gain on settlement of litigation. This was partially
offset by total same property NOI growth as compared to the prior year.
FFO excluding other gains (losses) and (expenses) for the year ended December 31, 2014 totalled $220.3 million or $1.04
per share (diluted) compared to $214.5 million or $1.03 per share (diluted) for the year ended December 31, 2013. The
1.0% or $0.01 increase in FFO per share (diluted) excluding other gains (losses) and (expenses) over the prior year was
primarily due to total same property NOI growth and higher interest income from investments, which was partially offset
by higher interest expense resulting from higher debt levels during 2014 compared to the prior year.
The Company’s net income with proportionate interest is reconciled to FFO below:
(thousands of dollars)
Net income attributable to common shareholders
Add (deduct):
Increase (decrease) in value of investment properties, net
Incremental leasing costs and other
Investment properties – selling costs
Adjustment for equity accounted joint ventures
Deferred income taxes
FFO
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A for further details.
Year ended December 31
2014
2013
(Restated) (1)
$
196,748
$
214,863
(46,690)
5,324
5,088
850
47,657
(60,764)
4,731
5,295
—
51,418
$
208,977
$
215,543
FIRST CAPITAL REALTY ANNUAL REPORT 2014
67
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The components of FFO with proportionate interest are as follows:
(thousands of dollars, except share and per share amounts and percentages)
%
change
Net operating income
Interest expense
Corporate expenses and other
Abandoned transaction costs
Amortization expense (corporate assets and credit facility costs)
Interest and other income
FFO excluding other gains (losses) and (expenses)
Other gains (losses) and (expenses) (2)
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)
2.7 %
(3.0)%
(4.9)%
1.0 %
1.8 %
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A for further details.
(2) Refer to the “Results of Operations – Other Gains (Losses) and (Expenses)” section in the following pages for details.
Adjusted Funds from Operations
Year ended December 31
2014
410,536
(173,341)
(25,251)
(911)
(3,552)
12,818
220,299
(11,322)
208,977
0.98
1.04
212,537
$
$
$
$
2013
(Restated) (1)
400,950
(165,446)
(25,373)
(2,231)
(3,873)
10,501
214,528
1,015
215,543
1.03
1.03
208,877
$
$
$
$
AFFO is calculated by adjusting FFO for non-cash and other items including interest payable in shares, adjustments for
rental revenue recognized on a straight-line basis, non-cash compensation expense, same property 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 for the year ended December 31, 2014 totalled $229.8 million or $1.01 per share (diluted) compared to $225.2
million or $1.00 per share (diluted) for the year ended December 31, 2013. The 1.0% or $0.01 increase in AFFO per share
(diluted) over prior year is primarily due to growth in AFFO excluding other gains (losses) and (expenses) offset by higher
net gains in 2013 arising from sale of residential inventory and a gain on settlement of litigation.
AFFO excluding other gains (losses) and (expenses) for the year ended December 31, 2014 totalled $228.6 million or $1.00
per share (diluted) compared to $218.5 million or $0.97 per share (diluted) for the year ended December 31, 2013. The
3.1% or $0.03 increase in AFFO per share (diluted) excluding other gains (losses) and (expenses) over prior year is
primarily due to growth in FFO excluding other gains (losses) and (expenses) and a smaller adjustment for the impact of
rental revenue recognized on a straight-line basis as compared to the prior year.
68
FIRST CAPITAL REALTY ANNUAL REPORT 2014
AFFO is calculated as follows:
(thousands of dollars, except share and per share amounts and percentages)
% change
2014
2013
Year ended December 31
FFO
Add (deduct):
Interest expense payable in shares
Rental revenue recognized on a straight-line basis
Non-cash compensation expense
Same property revenue sustaining capital expenditures (1)
Change in cumulative unrealized losses (gains) on marketable securities
Losses on prepayments of debt
Hedge accounting losses (gains)
Pre-selling costs of residential inventory units
Executive transition expense
Costs not capitalized during development period (2)
Other adjustments
AFFO
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)
$
208,977
$
215,543
23,735
(5,821)
2,721
(15,622)
1,501
3,973
80
(359)
7,280
3,653
(348)
229,770
(1,153)
228,617
1.01
1.00
228,568
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
$
$
$
2.0%
4.6%
1.0%
3.1%
1.7%
$
$
$
(1) Estimated at $0.83 per square foot per annum (2013 – $0.84) 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
69
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 from joint ventures
Distribution from joint ventures
Adjustment for equity accounted entities
Realized gains on sale of marketable securities
Incremental leasing costs
Net change in non-cash operating items
Expenditures on residential development inventory
Receipts of proceeds from sales of residential inventory
Amortization expense
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
Executive transition expense
Gain on sale of residential inventory
Same property revenue sustaining capital expenditures
Non-controlling interest
Other adjustments
AFFO
Year ended December 31
$
2014
269,092
9,135
(2,082)
(5,192)
1,665
5,324
(14,222)
8,503
(29,849)
(3,552)
(10,248)
2,769
(19,913)
23,735
3,653
(359)
7,280
—
(15,622)
—
(347)
$
2013
(Restated) (1)
212,967
2,435
(2,062)
—
2,564
4,747
287
14,984
—
(3,873)
(3,852)
1,879
(19,054)
23,292
2,549
(127)
—
2,966
(14,090)
(162)
(240)
$
229,770
$
225,210
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A for further details.
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 $410.5 million for the year ended December 31, 2014 from $401.0 million for the year ended
December 31, 2013.
The increase in overall shopping centre portfolio NOI resulted from growth in base rent 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 overall occupancy increased by 0.5% to 96.0% as compared to 95.5%
as at December 31, 2013. The increase in overall occupancy primarily arises as a result of the Company's
development, redevelopment initiatives and leasing activities. On a same property basis, occupancy increased to
96.9% (December 31, 2013 – 96.5%). On a comparative period basis, the shopping centre portfolio size decreased by
0.1 million square feet due to net property dispositions partially offset by net development and redevelopment space
coming on line.
70
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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
Rental revenue recognized on a straight-line basis
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
2014
2013
$
$
410,176
96,972
120,751
5,821
2,171
2,957
(1,779)
16,541
653,610
112,898
134,380
(2,033)
(2,171)
243,074
410,536
62.8%
85.9%
89.9%
$
$
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%
The change in the total portfolio NOI margin is primarily driven by occupancy, non recoverable operating costs, operating
costs and tax recovery margins and base rent growth. For the year ended December 31, 2014, the total portfolio NOI
margin has decreased slightly to 62.8% from 63.0% when compared to the year ended December 31, 2013. The total
portfolio operating costs and tax recoveries margin was 88.1% for the year ended December 31, 2014, a decrease of 0.8%
from the prior year. These decreases are primarily due to lower recovery rates at a recently completed ground-up
development.
The same property NOI margin and the same property recovery margin for the year ended December 31, 2014
remained consistent with the prior year.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
71
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 – 2014
Acquisitions – 2013
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
2014
64.2%
62.9%
63.9%
57.0%
60.1%
65.1%
63.7%
61.7%
65.2%
62.8%
2013
64.5%
62.6%
64.1%
57.2%
66.7%
—%
62.2%
58.4%
65.2%
63.0%
2014
92.3%
89.7%
91.7%
77.1%
77.1%
86.3%
84.9%
81.0%
91.3%
88.1%
2013
92.3%
89.0%
91.6%
79.0%
94.6%
—%
86.1%
79.8%
88.7%
88.9%
2014
97.2%
96.1%
96.9%
91.9%
94.2%
91.9%
94.2%
94.9%
—%
96.0%
2013
96.7%
96.1%
96.5%
91.1%
98.2%
—%
94.0%
89.5%
95.5%
95.5%
The following table summarizes the Company's proportionate interest in NOI by property categorization:
(thousands of dollars, except for percentages)
Same property – stable NOI
Same property with incremental redevelopment and expansion NOI
Total same property
% change
2.8%
5.0%
3.2%
$
Year ended December 31
2014
243,410
64,991
308,401
48,299
13,719
4,258
10,066
12,217
6,674
126
5,821
955
$
2013
236,812
61,905
298,717
48,881
10,319
—
6,243
10,589
8,645
6,456
10,452
648
$
410,536
$
400,950
Major redevelopment
Ground-up development
Acquisitions – 2014
Acquisitions – 2013
Investment properties classified as held for sale
Dispositions – 2014
Dispositions – 2013
Rental revenue recognized on a straight-line basis
Development land
NOI
Same property NOI increased by 3.2% for the year ended December 31, 2014 compared to the year ended December
31, 2013, primarily as a result of increases in same property occupancy, rental rates due to step-ups, lease renewals,
and tenant openings with higher rental rates than the rental rates on tenant closures.
In comparison to 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.
72
FIRST CAPITAL REALTY ANNUAL REPORT 2014
The shopping centre portfolio NOI by segment at the Company’s proportionate interest is as follows:
Year ended December 31, 2014
(thousands of dollars)
Property rental revenue
Property operating costs
Net operating income
Year ended December 31, 2013
(thousands of dollars)
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
276,208 $
172,305 $
205,990 $
654,503 $
(893) $
105,887
71,157
67,086
244,130
(1,056)
Total
653,610
243,074
170,321 $
101,148 $
138,904 $
410,373 $
163 $
410,536
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
273,516 $
165,040 $
198,406 $
636,962 $
(1,033) $
104,094
66,734
65,954
236,782
(1,803)
Total
635,929
234,979
169,422 $
98,306 $
132,452 $
400,180 $
770 $
400,950
(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
Total
Year ended December 31
2014
4,304
8,093
421
12,818
$
$
2013
3,695
5,911
895
10,501
$
$
The increase in interest and other income is primarily due to an increase in mortgages and loans receivable and
marketable securities balances.
Fee income for the year ended December 31, 2013 relates primarily to fees received in connection with the sale of a
portfolio of properties.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
73
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Interest Expense
The Company’s proportionate share of interest expense is as follows:
(thousands of dollars)
Mortgages and credit facilities
Senior unsecured debentures
Convertible debenture (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
$
2014
64,353
108,156
$
19,910
1,595
2,230
23,735
(22,413)
2013
75,769
88,913
19,721
1,517
2,054
23,292
(22,528)
Total interest expense
$
173,831
$ 165,446
Mortgage and credit facilities interest expense decreased due to net repayments of mortgages during the past 12 months
and due to the decrease in the weighted average borrowing rate from 5.21% per annum as at December 31, 2013 to
5.03% per annum as at December 31, 2014.
The increase in interest expense for the senior unsecured debentures for the year ended December 31, 2014 is primarily
due to the issuances of $510.0 million principal amount senior unsecured debentures with a weighted average coupon
rate of 4.60% (weighted average effective rate of 4.59%) during 2014 and the issuances of $450.0 million principal amount
of senior unsecured debentures with a weighted average coupon rate of 3.97% (weighted average effective rate of 4.12%)
in 2013, partially offset by the redemption of $225.0 million of principal amount with a weighted average coupon rate of
5.67% (weighted average effective rate of 5.84%) during 2014 and the redemption of $53.9 million of principal amount
with a weighted average coupon rate of 5.36% (weighted average effective rate of 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 for the year ended December 31, 2014 is a result of issuances
in 2013 of $57.5 million in convertible debentures, partially offset by repurchases in the Normal Course Issuer Bid
(“NCIB”) of $4.2 million and $3.2 million during 2014 and 2013, respectively. Refer to the “Capital Structure and
Liquidity” section of this MD&A.
During the years ended December 31, 2014 and 2013, approximately 11.4% and 12.0%, respectively, of interest expense
was capitalized to real estate investments for properties undergoing development or redevelopment projects. Amounts
capitalized are based on development and redevelopment projects actively underway. The decrease in capitalized interest
percentage is commensurate with the decrease in qualified development and redevelopment expenditures primarily
resulting from certain development and redevelopment projects completed during the year but only partially offset by
new developments projects commenced. The reduction is also due to the sale of an interest in the assets of Main and
Main Developments during the year.
74
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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 residential inventory (1)
Corporate expenses, excluding non-cash compensation and incremental leasing costs
As a percentage of rental revenue
As a percentage of total assets
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A.
Year ended December 31
$
2014
24,177
2,599
10,777
37,553
(6,618)
$
2013
(Restated)
23,389
2,802
10,487
36,678
(6,720)
$
30,935
$
29,958
3.5%
0.3%
3.5%
0.3%
Net corporate expenses increased by 3.3% for the year ended December 31, 2014 as compared to the year ended
December 31, 2013, and remained consistent with prior year as a percentage of total revenue and total assets. 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 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 and other team
members.
The Company manages all of its acquisitions, development and redevelopment and leasing activities internally. Certain
internal costs directly related to development, including salaries and related costs for planning, zoning, leasing,
construction, etc., are capitalized in accordance with IFRS to development projects and residential inventory, as incurred.
In March 2014, the IFRIC issued a decision related to the meaning of “incremental costs” in the context of initial direct
leasing costs in IAS 17. The IFRIC determined that internal fixed costs, such as the salary costs of permanent staff
involved in negotiating and arranging new leases, do not qualify as incremental costs within the context of IAS 17 and,
therefore, should not be capitalized as initial direct leasing costs. The Company has adopted the interpretation effective
January 1, 2014, with retrospective restatement of the prior period presented. Prior to the adoption of this
interpretation, certain costs associated with the Company’s internal leasing staff were capitalized to investment
properties. The adoption of the interpretation has resulted in an increase in corporate expenses and an increase in fair
value gains on investment properties. Refer to Note 3 to the audited annual consolidated financial statements for
further details.
During the years ended December 31, 2014 and 2013, respectively, approximately 18.8% and 19.8% of compensation-
related and other corporate expenses were capitalized to real estate investments for properties undergoing development
or redevelopment projects. Amounts capitalized are based on 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 completion of development and redevelopment projects and the Company’s
current level of pre-development and early redevelopment activity is commensurate with the decrease in the level of
corporate expenses capitalized compared to the prior year.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
75
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Other Gains (Losses) and (Expenses)
(thousands of dollars)
Realized gains on sale of marketable securities
Change in cumulative unrealized gains (losses) on
marketable securities classified as FVTPL
Losses on prepayments of debt
Unrealized losses (gains) on hedges
Gain on settlement of litigation
Gain on foreign currency exchange
Pre-selling costs of residential inventory
Executive transition expense
Net gain on sale of residential inventory
Investment properties – selling costs
Included in
Consolidated
Statements of
Income
1,665 $
(1,501)
$
(3,973)
(80)
—
2
(155)
(7,280)
—
(5,088)
2014
Year ended December 31
2013
Included in
FFO
Included in
AFFO
Included in
FFO
Included in
AFFO
Included in
Consolidated
Statements of
Income
2,564 $
(1,988)
1,665 $
—
—
—
—
2
(514)
—
—
—
(4,092)
301
1,376
43
(155)
—
2,966
(5,295)
1,665 $
(1,501)
(3,973)
(80)
—
2
(155)
(7,280)
—
—
2,564 $
(1,988)
(4,092)
301
1,376
43
(155)
—
2,966
—
2,564
—
—
—
1,376
43
(282)
—
2,966
—
6,667
$
(16,410) $
(11,322) $
1,153 $
(4,280) $
1,015 $
For the year ended December 31, 2014, the losses on prepayments of debt primarily relate to penalties on the early
redemption of $100.0 million 5.32% Series F and $125.0 million 5.95% Series G senior unsecured debentures and
penalties for the early repayment of $54.0 million of mortgages.
The 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 and properties held for sale.
Executive transition expense relates to the transition of the Chief Executive Officer ("CEO") to Executive Vice Chairman to
support the Company’s succession planning and growth, as well as, the departure of the former Chief Financial Officer.
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).
Income Taxes
(thousands of dollars)
Deferred income taxes
Year ended December 31
2013
2014
$
47,657
$
51,418
Deferred income taxes decreased compared to the prior year primarily due to the change in the value of investment
properties and the executive transition expense incurred in the year ended December 31, 2014.
76
FIRST CAPITAL REALTY ANNUAL REPORT 2014
CAPITAL STRUCTURE AND LIQUIDITY
Capital Employed
The ratios below include measures not specifically defined in IFRS. Refer to definition of these measures on the following
page for additional information. Certain calculations are required pursuant to debt covenants and for this reason are
meaningful measures.
As at (thousands of dollars, except for other data)
December 31, 2014
December 31, 2013
Common shares outstanding (in thousands)
216,374
208,356
Mortgages and credit facilities (principal amount)
Mortgage on equity accounted joint ventures (principal amount at the Company's
$
1,166,251
10,425
$
1,350,307
10,859
interest)
Senior unsecured debentures (principal amount)
Convertible debentures (principal amount)
Equity capitalization
2,160,000
388,174
1,875,000
392,917
Common shares (based on closing per share price of $18.66; December 31, 2013 –
4,037,543
3,689,981
$17.71)
Total enterprise value (total capital employed)
$
7,762,393
$
7,319,064
Net debt to enterprise value (1)
Net debt to total assets (1)
Net debt to total assets (at invested cost) (1)
Net debt to total assets (based on unsecured debt covenants) (1) (2) (3)
Net debt to EBITDA (1)
Net debt to EBITDA – on run rate on components of EBITDA (1)
Weighted average interest rate on fixed rate debt and senior unsecured debentures
Weighted average maturity on mortgages, other secured debt and senior unsecured
debentures (years) (4)
Unencumbered aggregate assets to unsecured debt
Total, based on IFRS value (5)
Based on unsecured debt covenants (2) (6)
EBITDA interest coverage (1) (2)
EBITDA interest coverage excluding capitalized interest on development (1)
42.9%
42.2%
49.6%
43.0%
8.2
8.2
4.9%
5.9
2.3
2.2
2.3
2.7
44.3%
42.9%
50.5%
44.6%
8.2
8.2
5.1%
5.3
2.3
2.2
2.3
2.8
(1) Calculated with the joint ventures proportionately consolidated.
(2) Calculations required under the Company's credit facility agreements or indenture governing the senior unsecured debentures.
(3) Includes investment properties at IFRS value, calculated using the average capitalization rate over the last 10 fiscal quarters.
(4) Weighted average term to maturity is calculated net of cash balances as at the end of the year.
(5) Includes all unencumbered assets at IFRS values.
(6) Includes unencumbered assets as defined by debt covenants, except investment properties under development and deferred tax assets, with shopping centres valued
under IFRS using the average capitalization rate over the last 10 fiscal quarters.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
77
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Measures used in these ratios are defined below:
• Enterprise value consists of the market value of the Company’s common shares, the par value of senior unsecured
debentures and convertible debentures, and principal amounts outstanding on mortgages and credit facilities;
• 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;
• Net debt is calculated as Debt, as defined above, reduced by cash balances at the end of the year;
• Secured indebtedness includes mortgages and credit facilities which are collateralized against investment property;
• EBITDA, as adjusted, 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 or non-recurring items. The Company also adjusts for incremental leasing costs and costs not
capitalized during the development period, which are recognized adjustments to FFO and AFFO, respectively.
• Run rate is an annualized NOI for a property based upon the existing tenants in place and current operating cost profile
for the property;
• Unencumbered assets include the value of assets that have not been pledged as security under any credit agreement or
mortgage. 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 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 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, 2013, the Company has issued $960 million of unsecured debt for terms from 8.4 years to 11.1 years
using certain proceeds to repay early over $475 million in debt and over $266 million in debt upon maturity resulting in a
extension of the term to maturity for all term debt from 5.3 years at January 1, 2013 to 5.9 years at December 31, 2014. In
addition, the Company increased its equity capital by approximately $174 million since the beginning of 2013.
These financings, along with planned and completed financings subsequent to December 31, 2014, and availability on
existing credit facilities, address substantially all of the remaining contractual 2015 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.
78
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Credit Ratings
Since November 14, 2012, DBRS rates the Company’s senior unsecured debentures as BBB (high) with a stable trend.
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 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.
Since November 20, 2012, Moody’s rates the Company’s senior unsecured debentures as Baa2 with a stable outlook. 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)
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025 - 2026
Mortgages
and Other
Secured Debt
$
251,027
$
182,056
104,588
140,741
121,528
58,841
84,418
156,343
3,523
62,281
905
1,166,251
Senior
Unsecured
Debentures
—
—
250,000
150,000
150,000
175,000
175,000
450,000
300,000
300,000
210,000
2,160,000
Total
$
251,027
182,056
354,588
290,741
271,528
233,841
259,418
606,343
303,523
362,281
210,905
3,326,251
% Due
7.6%
5.5%
10.7%
8.7%
8.2%
7.0%
7.8%
18.2%
9.1%
10.9%
6.3%
100.0%
Add (deduct): unamortized deferred financing costs
and premium and discounts, net
7,159
(10,826)
(3,667)
$ 1,173,410
$ 2,149,174
$ 3,322,584
Mortgages and Credit Facilities
The changes in the book value of the Company’s mortgages and credit facilities during the year ended December 31,
2014, excluding the $10.4 million mortgage on an equity accounted joint venture, are set out below:
(thousands of dollars, except for percentages)
Balance, December 31, 2013
Additional borrowings
Vendor take back
Repayments
Scheduled amortization
Assumed mortgages on sale of investment
properties
Mortgages and
Other Secured
Debt
Weighted
Average
Interest Rate
Outstanding
cheques
$ 1,361,583
79,533
2,500
(208,488)
(36,058)
(21,541)
5.21% $
4.03%
6.00%
5.93%
—%
4.03%
5,000 $
—
—
(5,000)
—
—
Amortization and expensing of issue costs and net
(4,119)
—
—
premium
Balance, December 31, 2014
$ 1,173,410
5.03% $
— $
Secured
Credit
Facilities
—
45,000
—
(45,000)
—
—
—
—
Weighted
Average
Interest Rate
3.00%
Total
— $ 1,366,583
124,533
2,500
(258,488)
(36,058)
(21,541)
—
—
—
—
(4,119)
—% $ 1,173,410
FIRST CAPITAL REALTY ANNUAL REPORT 2014
79
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
As at December 31, 2014, 99.3% (December 31, 2013 – 97.0%) 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 5 to 10 years, and incremental contractual rent steps during
the term of the lease. The average remaining term of mortgages outstanding has decreased from 4.0 years as at
December 31, 2013 on $1.4 billion of mortgages to 3.8 years as at December 31, 2014 on $1.2 billion of mortgages after
reflecting the application of cash balances, borrowing activity, assumptions and repayments during the year.
During the year ended December 31, 2014, the Company prepaid or repaid at maturity $208.5 million amount of
mortgage financing with a weighted average interest rate of 5.93% per annum.
During the year ended December 31, 2014, the Company financed approximately $82.0 million of mortgages which were
secured on four of its properties.
Mortgages and Other Secured Debt Maturity and Lender Type Profile
(thousands of dollars, except for percentages)
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025 and thereafter
Add (deduct): unamortized deferred
financing costs and premium and
discounts, net
Scheduled
Amortization
$
30,132 $
24,523
21,686
17,696
14,814
12,983
11,021
5,691
3,523
2,707
905
Payments on
Maturity
220,895 $
157,533
82,902
123,045
106,714
45,858
73,397
150,652
—
59,574
—
Total
251,027
182,056
104,588
140,741
121,528
58,841
84,418
156,343
3,523
62,281
905
$
145,681 $ 1,020,570 $ 1,166,251
7,159
$ 1,173,410
Breakdown of Mortgage Maturities
by Type of Lender (as a percentage)
Weighted
Average
Interest Rate
Banks
Conduits
Insurance Co’s
and
Pension Funds
4.98%
5.09%
5.17%
5.53%
6.36%
5.20%
5.05%
3.98%
—%
3.97%
—%
5.03%
11.1%
33.1%
7.6%
4.9%
33.8%
10.6%
70.9%
35.3%
47.4%
64.4%
—%
26.3%
31.7%
5.2%
39.2%
0.4%
0.1%
1.1%
0.9%
10.3%
—%
—%
—%
12.7%
57.2%
61.7%
53.2%
94.7%
66.1%
88.3%
28.2%
54.4%
52.6%
35.6%
100.0%
61.0%
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, 2014, the Company had mortgages maturing in 2015 of
$220.9 million, at an average interest rate of 4.98% per annum and $30.1 million of scheduled amortization of principal
balances in 2015. The Company’s liquidity position, which was approximately $0.9 billion as at December 31, 2014,
including $17.4 million in cash, provides the Company with significant flexibility in addressing 2015 maturities. Coupon
interest rates range from 2.73% to 7.24% on existing mortgage debt. Mortgage debt by region is $568.0 million for the
Central region, $188.0 million for the Eastern region and $409.0 million for the 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 June 13, 2014, the Company completed an increase and extension of its senior unsecured revolving credit facility with
a syndicate of nine banks, increasing the availability from $600 million to $700 million and extending the maturity to June
80
FIRST CAPITAL REALTY ANNUAL REPORT 2014
30, 2017. The facility pricing was also reduced from BA + 1.325% or Prime rate + 0.325% to BA + 1.20% or Prime rate +
0.20%. On December 1, 2014, the Company completed an additional increase of this senior unsecured revolving credit
facility, increasing the availability from $700 million to $800 million on the same terms.
On June 30, 2014, the Company extended the maturity of, and reduced the pricing on its $75 million secured credit
facility. The maturity has been extended by one year to December 31, 2015 and the facility pricing has been reduced from
BA + 1.25% or Prime rate + 0.25% to BA + 1.125% or Prime rate + 0.125%.
The following table summarizes the details of the Company’s lines of credit as at December 31, 2014:
(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
800,000
—
(42,174)
757,826
Total secured and unsecured facilities
$ 875,000 $
— $ (42,197) $ 832,803
Senior Unsecured Debentures
December 31, 2015
June 30, 2017
BA + 1.125% or
Prime + 0.125%
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR
+ 1.20%
(thousands of dollars, except for other data)
Interest Rate
Principal Outstanding
Maturity Date
Interest Payment Dates
Series
Date of Issue
Coupon
Effective
Remaining Term
to Maturity (yrs) December 31, 2014 December 31, 2013
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
F
G
H
I
I
I
J
K
K
L
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
August 30, 2024
August 30, February 28
August 30, 2024
August 30, February 28
August 30, 2024
August 30, February 28
July 31, 2025
July 31, 2025
July 31, January 31
July 31, January 31
R
R
R
S
S
January 20, 2014
February 18, 2014
March 11, 2014
June 17, 2014
July 14, 2014
Weighted Average/Total
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%
4.79%
4.79%
4.79%
4.32%
4.32%
4.71%
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%
4.91%
4.63%
4.43%
4.43%
4.33%
4.81%
—
—
2.1
2.9
2.9
2.9
3.7
3.9
3.9
4.6
5.3
5.3
6.2
7.1
7.1
7.1
7.9
7.9
8.8
8.8
9.7
9.7
9.7
10.6
10.6
7.0
$
— $
—
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
150,000
75,000
75,000
150,000
60,000
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
—
—
—
—
—
$
2,160,000 $
1,875,000
FIRST CAPITAL REALTY ANNUAL REPORT 2014
81
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
On January 20, 2014, the Company completed the issuance of $150.0 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, Series R, which was a re-opening of this series of
debentures with an effective rate of 4.63% per annum. On March 11, 2014, the Company completed the issuance of an
additional $75 million principal amount of the senior unsecured debentures, Series R, which was a second re-opening of
this series of debentures with an effective rate of 4.43% per annum.
On June 17, 2014, the Company completed the issuance of $150.0 million principal amount of senior unsecured
debentures, Series S, due July 31, 2025. These debentures bear interest at a coupon rate of 4.32% per annum payable
semi-annually commencing January 31, 2015. On July 14, 2014, the Company completed the issuance of an additional
$60 million principal amount of the senior unsecured debentures, Series S, which was a re-opening of this series of
debentures with an effective rate of 4.33% per annum.
On July 14, 2014, the Company redeemed $50.0 million principal amount outstanding of its $100.0 million 5.32% Series F
senior unsecured debentures due October 30, 2014. The debentures were redeemed at a price of $1,011.77 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 $51.0 million was paid to the
holders, which consisted of $50.0 million of principal, $0.5 million in premium and $0.5 million in accrued but unpaid
interest. On August 7, 2014, the remaining outstanding aggregate principal amount of this series of debentures was
redeemed at a price of $1,009.13 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 $51.2 million was paid to the holders, which consisted of $50.0 million of principal, $0.5 million in premium
and $0.7 million in accrued but unpaid interest.
On December 29, 2014, the Company redeemed the $125.0 million principal amount outstanding of its 5.95% Series G
senior unsecured debentures due June 1, 2015. The debentures were redeemed at a price of $1,017.72 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 $127.8 million was paid to the
holders, which consisted of $125.0 million of principal, $2.2 million in premium and $0.6 million in accrued but unpaid
interest.
Convertible Debentures
(thousands of dollars, except other data)
As at December 31, 2014
Maturity Date
June 30, 2017
January 31, 2019
January 31, 2019
March 31, 2018
March 31, 2017
July 31, 2019
February 28, 2020
Interest Payment
Dates
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
Interest Rate
Series
Date of Issue
Coupon
Effective
Remaining
Term to
Maturity (yrs)
Principal at
Issue Date
Principal
Liability
Equity
D
E
F
G
H
I
J
December 30, 2009
5.70%
6.88%
April 28, 2011
5.40%
6.90%
August 9, 2011
5.25%
6.07%
December 15, 2011
5.25%
6.66%
February 16, 2012
4.95%
6.51%
May 22, 2012
4.75%
6.19%
February 19, 2013
4.45%
5.08%
5.34%
6.35%
2.5
4.1
4.1
3.3
2.3
4.6
5.2
3.7
$
50,000 $ 42,903 $ 41,756 $
983
57,500
56,593
53,608
2,158
57,500
56,549
54,904
384
50,000
49,927
47,900
1,154
75,000
72,561
70,228
1,446
52,500
52,500
49,841
1,439
57,500
57,141
55,040
400
$ 400,000 $ 388,174 $ 373,277 $
7,964
82
FIRST CAPITAL REALTY ANNUAL REPORT 2014
(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, 2014, 1.1 million common shares (year ended December 31, 2013 – 1.1 million
common shares) were issued totalling $19.9 million (year ended December 31, 2013 – $19.1 million) to pay interest
to holders of convertible debentures.
(ii) Principal Redemptions
For the year ended December 31, 2014, the Company issued 22,104 common shares in connection with $0.5 million
convertible debentures redeemed or converted.
(iii) Normal Course Issuer Bid
On August 27, 2014, the Company renewed its NCIB for all of its then outstanding series of convertible unsecured
subordinated debentures. The NCIB will expire on August 26, 2015 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.
For the years ended December 31, 2014 and 2013, principal amounts of convertible debentures purchased and amounts
paid for the purchases are represented in the table below:
(thousands of dollars)
Total
2014
Year ended December 31
2013
Principal
Amount
Purchased
4,243
$
Amount Paid
$
4,295
$
Principal
Amount
Purchased
3,175
Amount Paid
$
3,426
Shareholders’ Equity
Shareholders’ equity amounted to $3.5 billion as at December 31, 2014, compared to $3.3 billion as at
December 31, 2013.
On September 12, 2014, the Company issued 5,250,000 common shares at a price of $19.06 per share for gross proceeds
of $100.0 million, with 883,000 and 167,000 of these units purchased by affiliates of Gazit-Globe Ltd. and Alony-Hetz
Properties and Investments Ltd., respectively (refer to the “Related Party Transactions” section of this MD&A for
additional information). Issue costs associated with the offering were approximately $2.7 million.
As at December 31, 2014, the Company had 216.4 million (December 31, 2013 – 208.4 million) issued and
outstanding common shares with a stated capital of $2.6 billion (December 31, 2013 – $2.5 billion). During the year
ended December 31, 2014, a total of 8.0 million common shares were issued for proceeds of $146.0 million as
follows: 5.3 million shares from public offerings, 1.1 million shares for interest payments on convertible debentures
and 1.6 million shares from the exercise of common share options and RSUs.
As at February 10, 2015, there were 221.1 million common shares outstanding.
Share Purchase Options
As at December 31, 2014, the Company had outstanding 5.0 million share purchase options, with an average exercise
price of $16.89. 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
83
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
If all options outstanding as at December 31, 2014 were exercised, approximately 5.0 million shares would be issued and
the Company would receive proceeds of $83.7 million.
Liquidity
As at (millions of dollars)
Revolving credit facilities
Cash and cash equivalents
Unencumbered assets
Total, based on IFRS value (1)
Based on debt covenants (2)
December 31, 2014
December 31, 2013
$
875
17
4,959
4,801
$
675
5
4,292
4,038
(1) Includes all unencumbered assets at IFRS values.
(2) Includes unencumbered assets as defined by debt covenants, except investment properties under development and deferred taxes, 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. As at December 31, 2014, this debt ratio was 42.9% based on the Company’s
calculation. Maturing debt is generally repaid from proceeds from existing liquidity.
Cash and cash equivalents were $17.4 million as at December 31, 2014 (December 31, 2013 – $5.0 million). As at
December 31, 2014, the Company had secured and unsecured credit facilities totalling $875.0 million of which
$832.8 million is available to be drawn. The Company also had unencumbered assets with a fair value of
approximately $5.0 billion. During the year ended December 31, 2014, the Company issued $510.0 million of senior
unsecured debentures. This increased liquidity was partially used to prepay or repay $208.5 million of mortgage
debt during the year ended December 31, 2014. As a result, the Company also held average cash balances of
approximately $139.2 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 and repay debt. 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)
Adjusted cash flow from operating activities
Net change in non-cash operating items
Receipts of proceeds from sales of residential inventory
Expenditures on residential development inventory
Cash provided by operating activities
Cash provided by financing activities
Cash used in investing activities
Net change in cash and cash equivalents
84
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Year ended December 31
$
2014
233,524
14,222
29,849
(8,503)
269,092
65,663
(322,379)
$
2013
228,238
(287)
—
(14,984)
212,967
72,072
(344,079)
$
12,376
$
(59,040)
Operating Activities
For the year ended December 31, 2014, cash provided by operating activities increased primarily due to cash flow
generated from growth in net operating income from the Company’s shopping centre portfolio, the receipts of proceeds
from sales of residential inventory, the timing of receipts and payments on working capital and other non-cash items and
decreased expenditures on residential development inventory.
Financing Activities
For the year ended December 31, 2014, financing activities are lower as a result of higher debenture repayments partially
offset by the issuance of common shares and debentures during the year. 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 for the year ended December 31, 2014 is primarily as a result of higher
net proceeds from property dispositions and lower advances on loans and mortgages receivable, partially offset by higher
capital expenditures on investment properties as compared to the prior year activity. Details of the Company’s
investments in acquisitions and developments are provided in the “Business and Operations Review” section of this
MD&A.
Contractual Obligations
(thousands of dollars)
Mortgages
Scheduled amortization
Payments on maturity
Total mortgage obligations
Mortgage on equity accounted joint venture
Senior unsecured debentures
Loans and mortgage payable
Interest obligations (1)
Land leases (expiring between 2023 and 2061)
Contractual committed costs to complete current
development projects
Other committed costs
Total contractual obligations (2)
Payments Due by Period
2015
2016 to 2017
2018 to 2019
Thereafter
Total
$
30,132 $
46,209 $
32,510 $
36,830 $
220,895
251,027
10,425
—
36
158,271
969
99,399
240,435
286,644
—
250,000
3,608
269,903
1,960
10,045
229,759
262,269
—
300,000
—
208,580
1,988
—
329,481
366,311
—
1,610,000
—
259,451
17,300
—
145,681
1,020,570
1,166,251
10,425
2,160,000
3,644
896,205
22,217
109,444
24,126
65,522
—
—
89,648
$
544,253 $
887,682 $
772,837 $ 2,253,062 $ 4,457,834
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2014 (assuming balances remain outstanding through to
maturity) and senior unsecured debentures, as well as standby credit facility fees.
(2) 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, convertible debentures have been excluded from this table.
In addition, the Company has $42.2 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 $308.9 million, of which
$109.4 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
85
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 contingencies, 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 $68.2 million (December 31, 2013 –
$60.0 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.
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
Funds from operations excluding other gains (losses) and (expenses)
Adjusted funds from operations
Adjusted funds from operations excluding other gains (losses) and (expenses)
$
Year ended December 31
$
2014
0.85
86.7%
81.7%
84.2%
85.0%
2013
0.84
81.6%
81.6%
84.0%
86.6%
Quarterly Dividend
The Company announced that it will pay a first quarter dividend of $0.215 per common share on April 9, 2015 to
shareholders of record on March 27, 2015.
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.
Statement of Income Data
FCR (1)
Guarantors (2)
Non-Guarantors (3)
Consolidation Adjustments (4)
Total Consolidated
(millions of dollars)
Property rental revenue
$
NOI
Net income attributable
to common
shareholders
2014
2013
2014
2013
2014
2013
2014
2013
2014
262 $
164
252 $
156
414 $
243
405 $
240
6 $
4
5 $
4
(34) $
(4)
(30) $
(2)
648 $
407
2013
632
398
Year ended December 31
208
215
213
218
14
3
(238)
(221)
197
215
86
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Balance Sheet Data
(millions of dollars)
FCR (1)
Guarantors (2)
Non-Guarantors (3)
Consolidation Adjustments (4)
Total Consolidated
As at December 31
Current assets
$
233 $
203 $
231 $
129 $
15 $
3 $
(130) $
(3) $
349 $
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
332
Non-current assets
Current liabilities
Non-current liabilities
6,977
6,630
4,570
4,324
424
544
3,278
2,966
231
610
110
635
292
256
—
176
17
122
(4,280)
(3,866)
7,559
7,264
(417)
28
(56)
(65)
494
615
3,916
3,658
(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.
RELATED PARTY TRANSACTIONS
(a) Major Shareholder
Gazit-Globe Ltd. (“Gazit”) is the principal shareholder of the Company, and, as of December 31, 2014, beneficially owns
44.0% (December 31, 2013 – 45.3%) of the common shares of the Company. Norstar Holdings Inc. is the ultimate
controlling party. As of December 31, 2014, Alony-Hetz Properties and Investments Ltd. (‘‘Alony-Hetz’’) also beneficially
owns 8.3% (December 31, 2013 – 8.5%) 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.
During the third quarter of 2014, Gazit and Alony-Hetz purchased 883,000 and 167,000 of the common shares of the
Company, respectively, under the Company’s 5,250,000 common share equity offering for $19.06 per share. Gazit and
Alony-Hetz purchased the common shares as part of and at the same price as the public offering, and no underwriting
commissions were paid by the Company in connection with the common shares purchased by them.
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.
Such amounts consist of the following:
(thousands of dollars)
Reimbursements for professional services
Year ended December 31
2014
591
$
2013
720
$
As at December 31, 2014, amounts due from Gazit were $0.2 million (December 31, 2013 – $0.2 million).
(b) Subsidiaries of the Company
The audited annual 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
87
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
SUBSEQUENT EVENTS
(a) Senior Unsecured Debentures Issued
On January 26, 2015, the Company completed the issuance of an additional $90.0 million principal amount of the Series S
senior unsecured debentures, which was a re-opening of this series of debentures. These debentures bear interest at a
coupon rate of 4.32% per annum, payable semi-annually commencing July 31, 2015. The debentures were sold at a price
of $104.943 per $100 principal amount, plus accrued interest, with an effective yield to investors of 3.750% per annum if
held to maturity.
(b) Equity Issuance
Subsequent to year end, the Company issued 4,370,000 common shares at $19.80 per common share for gross proceeds
of approximately $86.5 million. Issue costs were approximately $3.7 million.
(c) Dividend
The Company announced that it will pay a first quarter dividend of $0.215 per common share on April 9, 2015 to
shareholders of record on March 27, 2015.
88
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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 (decrease) in value of
investment properties, net (1)
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
2014
2013
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$
162,071
$
162,306
$
161,197
$
162,867
$
161,094
$
154,804
$
157,910
$
157,797
59,549
58,545
59,155
102,522
103,761
102,042
64,283
98,584
58,588
102,506
56,435
98,369
58,518
99,392
60,054
97,743
12,086
(7,196)
43,476
(6,288)
2,261
1,125
41,848
15,599
44,807
39,020
77,707
35,214
47,901
41,078
73,163
52,720
0.21
0.21
0.18
0.18
0.37
0.36
0.17
0.17
0.23
0.23
0.20
0.20
0.35
0.34
0.25
0.25
226,114
215,360
231,141
209,597
228,908
208,819
225,785
211,581
FFO
$
48,080
$
53,405
$
54,031
$
53,461
$
55,816
$
53,535
$
53,305
$
52,879
FFO per diluted share
0.22
0.25
Cash provided by operating activities
82,593
58,236
0.26
56,016
0.26
0.27
0.26
0.26
70,131
84,556
51,228
38,951
0.25
38,220
Weighted average number of diluted
common shares outstanding – FFO
AFFO
AFFO per diluted share
Weighted average number of diluted
shares outstanding – AFFO
217,299
212,367
210,786
209,597
209,486
208,819
209,010
208,207
$
61,460
$
57,370
$
56,961
$
53,978
$
57,190
$
56,069
$
57,699
$
54,252
0.26
0.25
0.25
0.24
0.25
0.25
0.26
0.24
233,784
228,983
227,449
226,260
226,183
225,539
225,785
223,686
Regular dividend
$
0.215
$
0.215
$
0.21
$
0.21
$
0.21
$
0.21
$
0.21
$
0.21
Fair value of investment properties –
shopping centres
Weighted average capitalization rate of
shopping centres
7,474,329
7,386,709
7,283,908
7,210,150
7,126,008
6,996,401
6,920,530
6,940,557
5.79%
5.82%
5.85%
5.86%
5.86%
5.89%
5.89%
5.98%
Total assets
$ 7,908,184
$ 8,075,552
$ 8,017,673
$ 7,784,774
$ 7,596,255
$ 7,580,839
$ 7,531,620
$ 7,518,732
Total mortgages and credit facilities
1,173,410
1,230,026
1,269,633
1,245,691
1,366,583
1,371,047
1,387,240
1,547,530
Shareholders’ equity
Other data
Number of properties
Gross leasable area
(in thousands)
Occupancy %
3,470,271
3,468,010
3,363,510
3,321,059
3,319,370
3,313,802
3,304,866
3,267,033
158
163
164
164
164
164
164
172
24,331
24,555
24,373
24,525
24,462
24,313
24,123
25,029
96.0%
95.9%
95.5%
95.3%
95.5%
95.0%
95.2%
95.1%
(1) Increase (decrease) in value of investment properties, net have been restated for 2013 only. Refer to the “Adoption of New Accounting Standards” section of this MD&A.
Refer to the applicable MD&A and the quarterly financial statements for discussion and analysis relating to the first three
quarters of 2014 and the four quarters in 2013.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
89
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
FOURTH QUARTER 2014 OPERATIONS AND RESULTS
Investment Property Development and Redevelopment Activities
During the fourth quarter of 2014, the Company invested $49.4 million in the acquisition of eight additional spaces and
adjacent land parcels totalling 27,700 square feet and 0.8 acres.
For the three months ended December 31, 2014, the increase in value of investment properties, net was $10.9 million
resulting from the decrease in the weighted average stabilized capitalization rate from 5.82% to 5.79% during the quarter.
In addition to acquisitions of income-producing properties and development lands, the Company invested $85.0 million
during the fourth quarter in its active development projects as well as in certain improvements to existing properties.
The Company also sold six properties comprising 325,400 square feet of gross leasable area for a total of $97.1 million.
Capital Expenditures on Investment Properties
Revenue sustaining and enhancing capital expenditures on investment properties, which include shopping centres and
development land, are as follows:
Three months ended December 31
2013
3,744
1,296
5,040
2014
2,678
2,182
4,860
$
20,823
4,276
55,079
85,038
13,006
8,784
49,031
75,861
$
(thousands of dollars)
Revenue sustaining – same property – stable
Revenue sustaining – same property with incremental redevelopment and expansion
Revenue sustaining – total same property
Enhancing capital expenditures
Revenue enhancing and other
Expenditures recoverable from tenants
Development expenditures
Total
$
$
90
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Leasing and Occupancy
In the fourth quarter of 2014, the Company increased its occupancy to 96.0% from 95.9%, achieved a 4.2% increase on
809,000 square feet of renewal leases over the expiry rates and increased its average rate per square foot to $18.42 from
$18.34.
Changes in the Company’s gross leasable area and occupancy for its shopping centre portfolio in the fourth quarter of
2014 are set out below:
Three months
ended December
31, 2014
September 30,
2014 (1)
Tenant openings
Tenant closures
Tenant closures for
redevelopment
Developments –
tenant openings
coming on line
Redevelopments –
tenant openings
coming on line
Demolitions
Reclassification
Total portfolio
before
dispositions and
acquisitions
Dispositions (at
date of
disposition)
Acquisitions (at
date of
acquisition)
Total Same Property
Major redevelopment, ground-
up, acquisitions and dispositions
Vacancy
Portfolio Total
Occupied
Square Feet
(thousands)
%
Weighted
Average
Rate per
Occupied
Square Foot
Occupied
Square Feet
(thousands)
%
Weighted
Average
Rate per
Occupied
Square
Foot
Under
Redevelop-
ment
Square Feet
(thousands)
Vacant
Square Feet
(thousands)
%
Total
Square Feet
(thousands)
Occupied
Square
Feet %
%
Weighted
Average Rate
per
Occupied
Square Foot
18,170
96.8% $ 18.15
5,384
93.0% $ 18.98
105
(88)
—
—
—
—
16
18.90
(19.49)
—
—
—
—
—
203
(151)
(106)
25
—
—
57
8.69
(9.37)
(8.28)
9.30
—
—
—
18,203
96.9% $ 18.23
5,412
92.6% $ 19.09
52
—
—
106
—
—
(72)
(1)
85
0.2%
949
3.9% 24,555
95.9% $ 18.34
(308) —
239
—
43
—
—
5
—
—
—
—
—
—
—
—
—
68
—
(72)
77
12.18
(13.09)
(8.28)
9.30
—
—
—
0.3%
928
3.8% 24,628
95.9% $ 18.43
—
—
—
(285)
87.6% (19.97)
3
57.6%
26.96
23
100.0% 25.08
(40)
2
(325)
87.7%
(19.97)
28
92.9%
25.28
December 31, 2014
18,206
96.9% $ 18.24
5,150
93.0% $ 19.07
85
0.3%
890
3.7% 24,331
96.0% $ 18.42
Renewals
Renewals – expired
526
(526)
$ 14.99
$ (14.60)
283
(283)
Net increase per square foot from renewals $
0.39
% Increase on renewal of expiring rents
2.7%
$ 17.75
$ (16.61)
$ 1.14
6.9%
(1) Opening balance is revised to reflect property categories consistent with current period status.
809
(809)
$ 15.96
$ (15.31)
$
0.65
4.2%
Total development and redevelopment of 68,000 square feet was completed in the three months ended December 31, 2014
compared with 172,000 square feet developed in the three months ended December 31, 2013. The occupied development
and redevelopment space was leased at an average rental rate of $9.30 per square foot for the three months ended
December 31, 2014 compared to $20.37 per square foot during the comparative period of 2013.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
91
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Development and redevelopment coming on line during the fourth quarter of 2014 included the following:
Property Name
City
Province
Same property with incremental redevelopment and expansion
Square
Feet
Major Tenants of Developed Space
Place Pointe-aux-Trembles
Major redevelopment
Yorkville Village Assets
Ground-up development
Place Viau Assets
Acquisitions – current year
Shops at King Liberty Assets
Montreal
Toronto
Montreal
Toronto
QC
ON
QC
ON
1,000
Double Pizza and spaces with leasing underway
2,000
Various tenants
63,000
Econofitness, Dollarama and spaces with leasing underway
2,000
Various tenants
Total development brought on line
68,000
In the fourth quarter of 2013, gross new leasing totalled 348,000 square feet including development and redevelopment
space coming on line compared to 375,000 square feet in the fourth quarter of 2012. This gross new leasing generated
additional annual minimum rent of approximately $6.8 million. Renewal leasing totalled 768,000 square feet with a 10.2%
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
2013 are set out below:
Three months
ended December
31, 2013
September 30,
2013 (1)
Tenant openings
Tenant closures
Tenant closures for
redevelopment
Developments –
tenant openings
coming on line
Redevelopments –
tenant openings
coming on line
Demolitions
Reclassification
Total portfolio
before
dispositions and
acquisitions
Dispositions (at
date of
disposition)
Acquisitions (at
date of
acquisition)
Total Same Property
Major redevelopment, ground-
up, acquisitions and dispositions
Vacancy
Portfolio Total
Occupied
Square Feet
(thousands)
%
Weighted
Average
Rate per
Occupied
Square Foot
Occupied
Square Feet
(thousands)
%
Weighted
Average
Rate per
Occupied
Square
Foot
Under
Redevelop-
ment
Square Feet
(thousands)
Vacant
Square Feet
(thousands)
%
Total
Square Feet
(thousands)
Occupied
Square
Feet %
%
Weighted
Average Rate
per
Occupied
Square Foot
18,060
96.1% $ 17.83
5,036
91.2% $ 17.74
192
0.8%
1,025
4.2% 24,313
95.0% $ 17.83
160
(82)
(6)
59
9
—
6
19.76
(21.69)
(27.46)
20.54
11.17
—
—
36
(25)
(8)
59
25
—
(8)
15.03
(16.61)
(18.44)
20.45
—
—
14
—
23.18
(34)
—
—
—
7
(196)
107
—
20
—
—
(33)
—
—
—
138
—
—
(28)
18.90
(20.51)
(22.13)
20.50
19.83
—
—
18,206
96.5% $ 17.92
5,115
91.9% $ 17.93
179
0.7%
923
3.8% 24,423
95.5% $ 17.92
(21)
52.5% (18.64)
72
91.1% 30.19
(19)
7
(40)
52.5%
(18.64)
79
91.1%
30.19
December 31, 2013
18,206
96.5% $ 17.92
5,166
92.2% $ 18.10
179
0.7%
911
3.7% 24,462
95.5% $ 17.96
Renewals
Renewals – expired
490
(490)
$ 21.36
$ (19.41)
278
(278)
Net increase per square foot from renewals $
1.95
% Increase on renewal of expiring rents
10.0%
$ 15.85
$ (14.35)
$ 1.50
10.5%
(1) Opening balance is revised to reflect property categories consistent with current period status.
92
FIRST CAPITAL REALTY ANNUAL REPORT 2014
768
(768)
$ 19.37
$ (17.58)
$
1.79
10.2%
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)
Three months ended December 31
$
$
2014
44,807
0.21
226,114
$
$
2013
47,901
0.23
228,908
Net income attributable to common shareholders for the three months ended December 31, 2014 was $44.8 million
or $0.21 per share (diluted) compared to $47.9 million or $0.23 per share (diluted) for the three months ended
December 31, 2013.
The 8.7% or $0.02 decrease in net income per share (diluted) over the prior year period was primarily due to higher net
other losses and expenses, primarily related to executive transition expense and losses on prepayment of debt, which
was partially offset by higher total same property NOI and a higher fair value gain on investment properties as
compared to the prior year period.
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
audited annual consolidated financial statements, to proportionate interest.
(thousands of dollars)
2014
Consolidated
Statements of
Income (Equity
method)
Adjustment for
equity method to
proportionate
interest
Proportionate
interest
Three months ended December 31
Consolidated
Statements of
Income
(Equity method)
(Restated) (1)
Adjustment for
equity method to
proportionate
interest
2013
Proportionate
interest
(Restated) (1)
Property rental revenue
Property operating costs
Net operating income
$
162,071 $
59,549
102,522
1,711 $
517
1,194
163,782 $
60,066
103,716
161,094 $
58,588
102,506
1,116 $
352
764
162,210
58,940
103,270
Other income and expenses
Interest and other income
Interest expense
Corporate expenses
Abandoned transaction costs
Amortization expense
Share of profit from joint ventures
Other gains (losses) and (expenses)
Increase (decrease) in value of investment
properties, net
Income before income taxes
Deferred income taxes
Net income
4,135
(43,893)
(8,396)
(147)
(373)
1,295
(12,277)
12,086
(47,570)
54,952
10,057
(181)
(126)
256
(4)
—
(1,295)
(70)
(1,236)
(2,656)
(1,462)
—
3,954
(44,019)
(8,140)
(151)
(373)
—
(12,347)
10,850
2,766
(40,940)
(8,282)
(950)
(1,008)
611
(423)
2,262
—
(132)
—
—
—
(611)
—
(21)
2,766
(41,072)
(8,282)
(950)
(1,008)
—
(423)
2,241
(50,226)
(45,964)
(764)
(46,728)
53,490
10,057
56,542
8,506
—
—
— $
56,542
8,506
48,036
$
44,895 $
(1,462) $
43,433 $
48,036 $
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A for further details.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
93
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Funds from Operations
FFO for the three months ended December 31, 2014 totalled $48.1 million or $0.22 per share (diluted) compared to
$55.8 million or $0.27 per share (diluted) in the same prior year period. The 18.5% or $0.05 decrease in FFO per share
(diluted) over the prior year period was primarily due to higher net other losses and expenses mainly related to
executive transition expense and losses on prepayment of debt as compared to the same prior year period.
FFO excluding other gains (losses) and (expenses) for three months ended December 31, 2014 totalled $57.6 million or
$0.27 per share (diluted) compared to $55.7 million or $0.27 per share (diluted) in the same prior year period. The
increase was primarily due to higher interest from mortgages and loans receivable and lower corporate expenses,
partially offset by higher interest expense as a result of higher debt levels compared to the same prior year period.
The Company’s net income with proportionate interest is reconciled to FFO below:
(thousands of dollars)
Net income attributable to common shareholders
Add (deduct):
Increase (decrease) in value of investment properties, net
Incremental leasing costs and other
Investment properties – selling costs
Adjustment for equity accounted joint ventures
Deferred income taxes
FFO
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A for further details.
The components of FFO with proportionate interest are as follows:
Three months ended December 31
2014
2013
(Restated) (1)
$
43,433
$
47,901
(10,850)
1,774
2,816
850
10,057
(2,241)
1,077
573
—
8,506
$
48,080
$
55,816
Three months ended December 31
(thousands of dollars, except share and per share amounts and percentages)
% change
2014
Net operating income
Interest expense
Corporate expenses and other
Abandoned transaction costs
Amortization expense (corporate assets and credit facility costs)
Interest and other income
FFO excluding other gains (losses) and (expenses)
Other gains (losses) and (expenses) (2)
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)
$
103,716 $
(43,531)
(6,004)
(151)
(373)
3,954
57,611
(9,531)
3.5 %
2013
(Restated) (1)
103,270
(41,072)
(7,340)
(950)
(1,008)
2,766
55,666
150
(13.9)% $
48,080 $
55,816
(18.5)% $
— % $
3.7 %
0.22 $
0.27 $
217,299
0.27
0.27
209,486
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A for further details.
(2) Refer to the “Fourth Quarter 2014 Operations and Results – Other Gains (Losses) and (Expenses)” section in the following pages for details.
94
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Adjusted Funds from Operations
AFFO for the three months ended December 31, 2014 totalled $61.5 million or $0.26 per share (diluted) compared to
$57.2 million or $0.25 per share (diluted) for the same prior year period. AFFO excluding other gains (losses) and
(expenses) for the three months ended December 31, 2014 totalled $61.1 million or $0.26 per share (diluted) compared
to $57.1 million or $0.25 per share (diluted) for the same prior year period. The 4.0% or $0.01 increase in AFFO per share
(diluted) excluding other gains (losses) and (expenses) over the prior year period is primarily due to growth in FFO
excluding other gains (losses) and (expenses) and a smaller adjustment for the impact of rental revenue recognized on a
straight-line basis compared to the same prior year period.
AFFO is calculated as follows:
(thousands of dollars, except share and per share amounts and percentages)
% change
2014
2013
Three months ended December 31
FFO
Add (deduct):
Interest expense payable in shares
Rental revenue recognized on a straight-line basis
Non-cash compensation expense
Same property revenue sustaining capital expenditures (1)
Change in cumulative unrealized losses (gains) on marketable securities
Losses on prepayments of debt
Hedge accounting losses (gains)
Pre-selling costs of residential inventory units
Executive transition expense
Costs not capitalized during development period (2)
Other adjustments
AFFO
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)
$
48,080
$
55,816
5,966
(893)
619
(3,652)
2,160
2,406
—
(496)
5,830
1,546
(106)
61,460
(368)
61,092
0.26
0.26
5,982
(2,637)
737
(3,523)
(149)
29
(11)
61
—
947
(62)
57,190
(80)
57,110
0.25
0.25
$
$
$
233,784
226,183
7.5%
7.0%
4.0%
4.0%
3.4%
$
$
$
(1) Estimated at $0.83 per square foot per annum (2013 – $0.84) 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 2014 Operations and Results – Other Gains (Losses) and (Expenses)” section for details.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
95
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 from joint ventures
Distribution from joint ventures
Adjustment for equity accounted entities
Realized gains on sale of marketable securities
Incremental leasing costs
Net change in non-cash operating items
Expenditures on residential development inventory
Receipts of proceeds from sales of residential inventory
Amortization expense
Non-cash interest expense and change in accrued interest
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
Executive transition expense
Gain on sale of residential inventory
Same property revenue sustaining capital expenditures
Non-controlling interest
Other adjustments
AFFO
Three months ended December 31
$
2014
82,593
1,295
(456)
613
881
1,774
(31,547)
1,850
—
(373)
(7,024)
—
5,966
1,546
(498)
5,830
—
(3,652)
—
(107)
$
2013
(Restated) (1)
84,569
625
(530)
—
80
1,083
(37,184)
3,599
—
(1,008)
818
—
5,982
947
61
—
—
(3,523)
(142)
(66)
$
61,460
$
57,190
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A for further details.
Net Operating Income
NOI increased to approximately $103.7 million for the three months ended December 31, 2014 from $103.3 million for
the same prior year period.
The increase in overall shopping centre portfolio NOI resulted from growth in base rent 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 overall occupancy increased by 0.5% as compared to 95.5% as at December 31, 2013.
The increase in overall occupancy primarily arises as a result of the Company's development, redevelopment initiatives
and leasing activities. On a same property basis, occupancy increased to 96.9% (December 31, 2013 – 96.5%). On a
comparative period basis, the shopping centre portfolio size decreased by 0.1 million square feet due to net property
dispositions partially offset by net development and redevelopment space coming on line.
The change in NOI margin is primarily driven by occupancy, non-recoverable operating costs, operating costs and tax
recovery margins and base rent growth. For the three months ended December 31, 2014, the total portfolio NOI
margin has decreased slightly to 63.3% from 63.7% compared to the three months ended December 31, 2013. The
total portfolio operating cost and tax recovery margin was 86.2% for the three months ended December 31, 2014, a
decrease of 3.1% from the same prior year period. These decreases were primarily due to lower recovery rates at a
recently completed ground-up development.
For the three months ended December 31, 2014, same property NOI margin increased by 0.7% to 64.6% from 63.9%
compared to the three months ended December 31, 2013 due to an increase in occupancy, increase in rental rates
96
FIRST CAPITAL REALTY ANNUAL REPORT 2014
from step-ups and lease renewals. For the three months ended December 31, 2014, the same property recovery
margin remained consistent compared to the same prior year period.
(thousands of dollars, except other data)
Property rental revenue
Base rent (1)
Operating cost recoveries
Realty tax recoveries
Rental revenue recognized on a straight-line basis
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
2014
2013
$
$
103,049
23,315
30,018
893
682
1,438
110
4,277
163,782
28,292
33,567
(430)
(1,363)
60,066
103,716
63.3%
82.4%
89.4%
$
$
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%
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 – 2014
Acquisitions – 2013
Investment properties classified as
held for sale
Dispositions and other
NOI Margin
Operating Cost and Tax
Recoveries Margin
% Occupied
Three months ended
December 31
Three months ended
December 31
As at December 31
2014
65.1%
62.9%
64.6%
59.3%
54.8%
56.6%
61.4%
56.3%
83.6%
63.3%
2013
64.3%
62.5%
63.9%
59.6%
64.6%
—%
68.0%
58.2%
79.6%
63.7%
2014
91.8%
87.5%
90.8%
74.1%
71.5%
83.4%
92.5%
75.7%
60.5%
86.2%
2013
92.2%
91.1%
91.1%
76.5%
94.1%
—%
98.7%
78.7%
150.4%
89.3%
2014
97.2%
96.1%
96.9%
91.9%
94.2%
91.9%
94.2%
94.9%
—%
96.0%
2013
96.7%
96.1%
96.5%
91.1%
98.2%
—%
94.0%
89.5%
95.5%
95.5%
FIRST CAPITAL REALTY ANNUAL REPORT 2014
97
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Same property NOI increased by 4.1% for the three months ended December 31, 2014 compared to the same prior year
period, primarily as a result of increases in same property occupancy, rental rates due to step-ups, lease renewals, and
tenant openings with higher rental rates than the rental rates on tenant closures. This is offset by the slight decrease in
NOI margin due to an increase in other non-recoverable operating costs and prior year operating costs and tax recovery
adjustments.
The following table summarizes the Company's proportionate interest in NOI by property categorization:
(thousands of dollars, except for percentages)
Same property – stable NOI
Same property with incremental redevelopment and expansion NOI
Total same property
% change
3.3%
7.4%
4.1%
$
Major redevelopment
Ground-up development
Acquisitions – 2014
Acquisitions – 2013
Investment properties classified as held for sale
Dispositions – 2014
Dispositions – 2013
Rental revenue recognized on a straight-line basis
Development land
NOI
Three months ended December 31
2014
62,696
16,602
79,298
12,472
3,064
2,051
2,324
2,634
785
80
893
115
$
2013
60,699
15,455
76,154
13,346
2,702
—
2,533
2,700
2,650
—
2,637
548
$
103,716
$
103,270
For the three months ended December 31, 2014 in comparison to the same prior year period, both Eastern and Western
regions 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. The Central region NOI decreased for the three months ended December 31, 2014 in comparison to the
same prior year period due to the disposition of shopping centres during the fourth quarter of 2014.
The shopping centre portfolio NOI by segment at the Company’s proportionate interest is as follows:
Three months ended December 31, 2014
(thousands of dollars)
Property rental revenue
Property operating costs
Net operating income
Three months ended December 31, 2013
(thousands of dollars)
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
Total
67,938 $
44,620 $
51,319 $
163,877 $
(95) $
163,782
25,831
18,713
16,141
60,685
(619)
60,066
42,107 $
25,907 $
35,178 $
103,192 $
524 $
103,716
Central
Region
Eastern
Region
Western
Region
Subtotal
Other(1)
Total
70,847 $
42,429 $
49,095 $
162,371 $
(161) $
162,210
26,540
17,084
15,913
59,537
(597)
58,940
44,307 $
25,345 $
33,182 $
102,834 $
436 $
103,270
(1) Other items are principally operating costs and adjustments that are not attributable to a region.
98
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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
Three months ended December 31
2014
1,218
2,473
263
3,954
$
$
2013
1,037
1,729
—
2,766
$
$
The increase in interest and other income for the three months ended December 31, 2014 is primarily due to an increase
in mortgages and loans receivable and marketable securities balances.
Interest Expense
The Company’s proportionate share of interest expense is as follows:
(thousands of dollars)
Mortgages and credit facilities
Senior unsecured debentures
Convertible debenture (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
Three months ended December 31
$
2014
15,191
27,933
4,977
411
578
5,966
(5,071)
$
2013
17,490
23,431
5,040
393
549
5,982
(5,831)
Total interest expense
$
44,019
$
41,072
Mortgage and credit facilities interest expense for the three months ended December 31, 2014 has decreased due to net
repayments of mortgages during the past 12 months and due to the decrease in the weighted average borrowing rate to
5.03% per annum as at December 31, 2014 from 5.21% per annum as at December 31, 2013.
The increase in interest expense for the senior unsecured debentures for the three months ended December 31, 2014 is
primarily due to the issuances of $510.0 million principal amount senior unsecured debentures with a weighted average
coupon rate of 4.60% (weighted average effective rate of 4.59%) during 2014 and the issuance of $450.0 million principal
amount of senior unsecured debentures with a weighted average coupon rate of 3.97% (weighted average effective rate
of 4.12%) in 2013. These issuances were partially offset by the repayment of $125 million principal amount with a
weighted average coupon rate of 5.95% (weighted average effective rate of 6.13%) during 2014 and the repayment of
$53.9 million principal amount with a weighted average coupon rate of 5.36% (weighted average effective rate of 5.52%)
during the year ended December 31, 2013 as described in the “Capital Structure and Liquidity” section of this MD&A.
The decrease in convertible debentures interest expense for the three months ended December 31, 2014 is a result of
repurchases in the NCIB of $4.2 million and $3.2 million during 2014 and 2013, respectively, partially offset by net
issuances in 2013 of $55.5 million. Refer to the “Capital Structure and Liquidity” section of this MD&A for additional
information.
During the three months ended December 31, 2014 and 2013, respectively, approximately 10.3% and 12.4% of interest
expense was capitalized to real estate investments for properties undergoing development or redevelopment projects.
Amounts capitalized are based on development and redevelopment projects actively underway. The decrease in
capitalized interest percentage is commensurate with the decrease in qualified development and redevelopment
expenditures primarily resulting from certain development and redevelopment projects completed during the year but
only partially offset by new developments projects commenced. The reduction is also due to the sale of an interest in the
assets of Main and Main Developments in the third quarter.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
99
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 and residential inventory (1)
Corporate expenses, excluding non-cash compensation and incremental leasing costs
As a percentage of rental revenue
As a percentage of total assets
(1) Refer to the “Adoption of New Accounting Standards” section of this MD&A.
Three months ended December 31
$
2014
5,930
606
2,788
9,324
(1,184)
$
2013
(Restated)
6,893
695
2,605
10,193
(1,911)
$
8,140
$
8,282
3.7%
0.3%
4.0%
0.3%
The overall level of net corporate expenses has decreased by 1.7% for the three months ended December 31, 2014, as
compared to the same prior year period. The variances are primarily a result of the timing of the recognition of incentive
compensation in the prior year period.
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 and other team
members.
The Company manages all of its acquisitions, development and redevelopment and leasing activities internally. Certain
internal costs directly related to development, including salaries and related costs for planning, zoning, leasing,
construction, etc., are capitalized in accordance with IFRS to development projects and residential inventory, as incurred.
Other Gains (Losses) and (Expenses)
(thousands of dollars)
Realized gains on sale of marketable securities
Change in cumulative unrealized gains (losses) on
marketable securities classified as FVTPL
Losses on prepayments of debt
Unrealized losses (gains) on hedges
Pre-selling costs of residential inventory
Executive transition expense
Investment properties – selling costs
Three months ended December 31
2014
2013
Included in
Consolidated
Statements of
Income
Included in
FFO
Included in
AFFO
Included in
Consolidated
Statements of
Income
Included in
FFO
Included in
AFFO
$
882 $
882 $
(2,161)
(2,161)
882 $
—
80 $
149
80 $
149
(2,406)
—
(16)
(5,830)
(2,816)
(2,406)
—
(16)
(5,830)
—
—
—
(514)
—
—
$
(12,347) $
(9,531) $
368 $
(29)
11
(61)
—
(573)
(423) $
(29)
11
(61)
—
—
150 $
80
—
—
—
—
—
—
80
For the three months ended December 31, 2014, the losses on prepayments of debt primarily relate to penalties on the
early redemption of $125.0 million of the 5.95% Series G senior unsecured debentures.
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.
Investment properties – selling costs were incurred on dispositions of properties and properties held for sale.
100
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Executive transition expense for the three months ended December 31, 2014 relates to the transition of the Chief
Executive Officer to Executive Vice Chairman to support the Company’s succession planning and growth.
Income Taxes
(thousands of dollars)
Deferred income taxes
Three months ended December 31
2014
2013
$
10,057
$
8,506
Deferred income taxes increased compared to the same prior year period primarily due to the changes associated with
investment properties.
Mortgages and Credit Facilities
During the three months ended December 31, 2014, the Company repaid $25.5 million of mortgage financings relating to
three properties with a weighted average interest rate of 6.32%, and the mortgage financing of $21.5 million was
assumed by the purchaser on the sale of an investment property.
During the three months ended December 31, 2013, the Company repaid $46.6 million amount of mortgage financing
relating to three properties with a weighted average interest rate of 3.69%.
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 change in cash and cash equivalents
Three months ended December 31
$
2014
52,896
31,547
(1,850)
82,593
(203,705)
(83,453)
$
2013
50,984
37,184
(3,599)
84,569
(52,930)
(104,711)
$
(204,565)
$
(73,072)
Operating Activities
Cash provided by operating activities decreased over the prior year period primarily due to the timing of receipts and
payments on working capital and other non-cash items, partially offset by increased cash flow growth in net operating
income from the Company’s shopping centre portfolio as well as decreased expenditures on residential development
inventory.
Financing Activities
Cash used in financing activities increased over the same prior year period primarily as a result of the redemption of
Series G senior unsecured debentures of approximately $127.8 million. These activities are more fully described in the
“Capital Structure and Liquidity” section of this MD&A.
Investing Activities
Cash used in investing activities decreased over the same prior year period as a result of higher net proceeds from
dispositions offset by increased capital expenditures on investment properties. Details of the Company’s investments in
acquisitions and developments are provided in the “Business and Operations Review” section of this MD&A.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
101
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 audited annual consolidated financial
statements for the year ended December 31, 2014. 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.
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 consolidated 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 $38.7 million and $41.1 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 $186.9 million and $76.7 million, respectively, and for the derivative instruments would change the fair value by
$15.4 million and $16.9 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 $4.6 million and $4.9 million, respectively.
102
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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.
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
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.
FUTURE ACCOUNTING POLICY CHANGES
The Company is currently evaluating the impact of the following future accounting policy changes.
Financial Instruments
IFRS 9, “Financial Instruments” (“IFRS 9”), was issued in July 2014, which will replace IAS 39, “Financial Instruments:
Recognition and Measurement” (“IAS 39”). IFRS 9 addresses the classification and measurement of all financial assets and
financial liabilities within the scope of the current IAS 39 and a new expected loss impairment model that will require
more timely recognition of expected credit losses and a substantially-reformed model for hedge accounting. Also included
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 or as fair value through other
comprehensive income (“FVTOCI”). No amounts are reclassified out of other comprehensive income (“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 permitting additional
hedging strategies used for risk management to qualify for hedge accounting.
The IASB has set January 1, 2018 as the effective date for the mandatory application of IFRS 9. Earlier adoption is
permitted if initial application is prior to February 1, 2015. The Company is in the process of assessing the impact of IFRS 9
on its consolidated financial statements and will not be early adopting the standard.
Revenue from Contracts with Customers
IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), was issued in May 2014, which will replace IAS 11,
“Construction Contracts”, IAS 18, “Revenue Recognition”, IFRIC 13, “Customer Loyalty Programmes”, IFRIC 15,
“Agreements for the Construction of Real Estate”, IFRIC 18, “Transfers of Assets from Customers”, and SIC-31, “Revenue
– Barter Transactions Involving Advertising Services”. IFRS 15 provides a single, principles based five-step model that will
FIRST CAPITAL REALTY ANNUAL REPORT 2014
103
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
apply to all contracts with customers with limited exceptions, including, but not limited to, leases within the scope of
IAS 17; financial instruments and other contractual rights or obligations within the scope of IFRS 9, IFRS 10,
“Consolidated Financial Statements” and IFRS 11, “Joint Arrangements”. In addition to the five-step model, the standard
specifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a
contract. The incremental costs of obtaining a contract must be recognized as an asset if the entity expects to recover
these costs. The standard’s requirements will also apply to the recognition and measurement of gains and losses on the
sale of some non-financial assets that are not an output of the entity’s ordinary activities.
IFRS 15 is required for annual periods beginning on or after January 1, 2017. Earlier adoption is permitted. The Company
is in the process of assessing the impact of IFRS 15 on its consolidated financial statements.
CONTROLS AND PROCEDURES
As at December 31, 2014, 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 the Company’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 May 2013, the Committee of Sponsoring Organizations of the Treadway Commission published an updated version (the
"COSO 2013 Framework") of its 1992 COSO Framework. The COSO 2013 Framework further formalizes the principles
embedded in the original 1992 COSO Framework, incorporates business and operating environment changes over the
past two decades and improves the 1992 COSO Framework’s ease of use and application.
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, 2014, and have concluded that such disclosure controls and procedures and internal
controls over financial reporting were operating effectively. Management assessed the effectiveness of internal controls
over financial reporting using the COSO 2013 Framework.
The Company did not make any changes in its internal controls over financial reporting during the quarter ended
December 31, 2014 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. Income-
producing and development properties are affected by general economic conditions and local market conditions such as
oversupply of similar properties or a reduction in tenant demand. It is the responsibility of Management, under the
supervision of the Board of Directors, to identify and, to the extent possible, mitigate or minimize the impact of all such
business risks. The major categories of risk the Company encounters in conducting its business and some of the actions it
takes to mitigate these risks are outlined below. The Company’s most current Annual Information Form provides a more
detailed discussion of these and other risks and can be found on SEDAR at www.sedar.com and the Company’s website at
www.firstcapitalrealty.ca.
104
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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.
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
FIRST CAPITAL REALTY ANNUAL REPORT 2014
105
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 January 1, 2015 and December 31, 2017 at a
weighted average coupon interest rate of 5.53%. 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 $8.2 million. In addition, as at December 31, 2014, the Company had $7.8 million principal amount of
debt (or 1% 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
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 unforeseen delays; (ii) cost overruns; (iii) the failure of
106
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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.
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.
Geographic and Tenant Concentration
As at December 31, 2014, approximately 45%, 23%, 22% and 10% of First Capital Realty’s annualized minimum rent was
from, and approximately 42%, 28%, 21% and 9% of the Company’s gross leasable area was located in, the provinces of
Ontario, Quebec, Alberta and British Columbia, respectively. Moreover, within each of these provinces, the Company’s
portfolio is concentrated predominantly in selected urban markets. As a result, economic, real estate and other general
conditions in one or more markets where First Capital Realty has a concentration of shopping centres will significantly
affect the Company’s revenues and the value of its properties. Business layoffs or downsizing, industry slowdowns,
declines in real estate values, changing demographics, increases in insurance costs and real estate taxes and other factors
may adversely affect the economic climate in the markets in which the Company operates. Any resulting reduction in
demand for retail properties in one or more markets where First Capital Realty has a concentration of shopping centres
will adversely affect the Company’s financial position, results of operations and the value of its properties concerned.
The Company’s top 10 tenants represented 35.4% of the Company’s annualized minimum rent and occupied 39.8% of the
Company’s gross leasable area. First Capital Realty’s single largest tenant, Loblaws, (which operates stores under multiple
banners and formats), accounts for 10.2% of the Company’s annual minimum rent and 10.2% of the Company’s gross
leasable area. In the event that one or more tenants of the Company that individually or collectively account for an
important amount of the Company’s annual minimum rent experience financial difficulty and are unable to pay rent or
fulfill their lease commitments, the Company’s financial position, results of operations and the value of its properties
concerned would be adversely affected.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
107
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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.
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.
108
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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, 2014, 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 44.0% 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 Executive 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. As of December 31, 2014, 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, 2014, Alony-Hetz beneficially owned approximately 8.3% 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
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 77.9% of the common shares reported as
beneficially owned by the Gazit Group (representing approximately 34.3% 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
109
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 regarding Gazit Group 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.
110
FIRST CAPITAL REALTY ANNUAL REPORT 2014
FS
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
112
113
114
115
116
117
119
120
120
120
126
127
128
132
133
133
134
134
134
137
139
140
141
142
143
146
146
147
147
148
148
149
150
152
153
154
155
156
157
157
158
Management's Responsibility
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
1 Description of the Company
2 Significant Accounting Policies
3 Change in Accounting Policies
4 Future Accounting Policy Changes
5 Investment Properties
6 Investment in Joint Ventures
7 Loans, Mortgages and Other Real Estate Assets (Non-Current)
8 Loans, Mortgages and Other Real Estate Assets (Current)
9 Amounts Receivable
10 Other Assets
11 Capital Management
12 Mortgages and Credit Facilities
13 Senior Unsecured Debentures
14 Convertible Debentures
15 Other Liabilities
16 Accounts Payable and Other Liabilities
17 Shareholders' Equity
18 Net Operating Income
19 Interest and Other Income
20 Interest Expense
21 Corporate Expenses
22 Other Gains (Losses) and (Expenses)
23 Income Taxes
24 Per Share Calculations
25 Risk Management
26 Financial Assets and Liabilities
27 Subsidiary with Non-controlling Interest
28 Co-ownership Interests
29 Supplemental Other Comprehensive Income (Loss) Information
30 Supplemental Cash Flow Information
31 Commitments and Contingencies
32 Related Party Transactions
33 Subsequent Events
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 11, 2015.
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 of 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 11, 2015
Kay Brekken
Executive Vice President and Chief Financial Officer
112
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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, 2014 and 2013, 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, 2014 and 2013, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Toronto, Ontario
February 11, 2015
FIRST CAPITAL REALTY ANNUAL REPORT 2014
113
Consolidated Balance Sheets
As at
(thousands of Canadian dollars)
ASSETS
Non-Current Assets
Real Estate Investments
Investment properties – shopping centres
Investment properties – development land
Investment in joint ventures
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
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
114
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Notes
December 31, 2014
December 31, 2013
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
$
$
$
$
7,287,650
17,008
138,578
96,231
7,539,467
19,415
7,558,882
17,351
79,978
3,922
16,580
26,338
144,169
205,133
349,302
7,908,184
919,453
2,149,174
373,277
20,555
453,903
3,916,362
253,957
—
240,024
493,981
—
493,981
4,410,343
3,470,271
27,570
3,497,841
7,908,184
$
$
$
$
6,989,055
147,497
38,166
71,781
7,246,499
17,965
7,264,464
4,975
77,449
21,569
18,600
53,699
176,292
155,499
331,791
7,596,255
1,089,969
1,762,026
374,012
21,476
410,278
3,657,761
254,367
99,927
238,945
593,239
22,247
615,486
4,273,247
3,319,370
3,638
3,323,008
7,596,255
Consolidated Statements of Income
Year ended December 31
(thousands of Canadian dollars, except per share amounts)
Notes
2014
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 ventures
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.
$
648,441
$
241,532
406,909
12,997
(173,321)
(31,191)
(907)
(3,552)
9,135
(16,281)
42,078
(161,042)
245,867
47,657
198,210
196,748
1,462
198,210
0.93
0.92
$
$
$
$
$
$
$
$
$
$
18
19
20
21
6
22
5
23
27
24
24
2013
(Restated – Note 3)
631,605
233,595
398,010
10,501
(164,909)
(29,958)
(2,231)
(3,873)
2,334
(4,280)
60,833
(131,583)
266,427
51,418
215,009
214,863
146
215,009
1.03
1.01
FIRST CAPITAL REALTY ANNUAL REPORT 2014
115
Consolidated Statements of Comprehensive Income
(thousands of Canadian dollars)
Net income
Other comprehensive (loss) income
Items that may be reclassified subsequently to net income
Unrealized gains (losses) on available-for-sale marketable securities
Reclassification of gains on available-for-sale marketable securities to net income
Unrealized (losses) gains on cash flow hedges
Reclassification of net losses on cash flow hedges to net income
Deferred tax (recovery) expense
Other comprehensive (loss) income
Comprehensive income
Comprehensive income attributable to:
Common shareholders
Non-controlling interest
See accompanying notes to the consolidated financial statements.
Year ended December 31
Notes
2014
2013
$
198,210
$
215,009
13
69
(12,537)
557
(11,898)
(3,235)
(8,663)
189,547
188,085
1,462
189,547
$
$
$
(254)
58
4,392
949
5,145
1,372
3,773
218,782
218,636
146
218,782
23
29(b)
$
$
$
116
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Consolidated Statements of Changes in Equity
(thousands of Canadian dollars)
December 31, 2013
Changes during the year:
Net income
Issuance of common shares
Issue costs, net of tax and other
Dividends
Convertible debentures, net
Redemption and conversion of convertible
debentures
Options, deferred share units and
restricted share units, net
Other comprehensive loss
Contributions from non-controlling interest
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
(Note 29(a))
(Note 17(a))
(Note 17(b))
$ 817,867 $
(407) $2,457,310 $
44,600 $3,319,370 $
3,638 $3,323,008
196,748
—
—
(181,317)
—
—
—
—
—
—
—
—
196,748
102,834
(2,700)
1,462
—
—
198,210
102,834
(2,700)
— (181,317)
— (181,317)
—
102,834
(2,700)
—
19,914
500
—
—
—
—
—
—
—
(80)
—
19,834
500
22,747
918
23,665
—
—
—
—
19,834
500
23,665
(8,663)
(8,663)
—
—
—
—
—
(8,663)
—
22,470
22,470
December 31, 2014
$ 833,298 $
(9,070) $2,600,605 $
45,438 $3,470,271 $
27,570 $3,497,841
See accompanying notes to the consolidated financial statements.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
117
Consolidated Statements of Changes in Equity
(thousands of Canadian dollars)
December 31, 2012
Changes during the year:
Net income
Issue costs, net of tax and other
Dividends
Convertible debenture, net
Options, deferred share units and
restricted share units, net
Expiry of warrants
Other comprehensive income
Contributions from non-controlling interest
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
(Note 29(a))
(Note 17(a))
(Note 17(b))
$ 778,096 $
(4,180) $2,426,836 $
44,416 $3,245,168 $
3,386 $3,248,554
214,863
—
(175,092)
—
—
—
—
—
—
1,247
—
19,054
8,496
—
—
—
—
—
—
1,677
(1,677)
3,773
—
—
—
—
—
—
—
214,863
1,247
146
—
215,009
1,247
— (175,092)
— (175,092)
233
1,628
19,287
10,124
—
3,773
—
—
—
—
—
106
19,287
10,124
—
3,773
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 2014
Consolidated Statements of Cash Flows
(thousands of Canadian dollars)
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 ventures
Distribution from joint ventures
Items not affecting cash and other items
Net change in non-cash operating items
Receipts of proceeds from sales of residential inventory
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
Repayment of mortgage and loans on residential development inventory and other
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, net of issue costs
Payment of dividends
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
Deferred purchase price of shopping centre
Contribution to joint ventures
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 year
Notes
5
20
20
20
6
30(a)
30(b)
13
13
14
14(b)
5(c)
5(c)
5(d)
16
30(c)
Year ended December 31
2014
2013
$
198,210
$
215,009
(42,078)
173,321
22,413
(165,574)
3,552
(9,135)
2,082
50,733
14,222
29,849
(8,503)
269,092
126,315
—
(13,543)
(36,058)
(254,247)
510,288
(228,260)
—
(4,295)
120,880
(177,887)
22,470
65,663
(206,007)
(19,050)
209,707
(4,993)
(6,985)
(253,501)
2,481
(44,031)
(322,379)
12,376
4,975
(60,833)
164,909
22,528
(164,532)
3,873
(2,334)
2,062
47,556
(287)
—
(14,984)
212,967
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
—
—
(266,526)
(4,659)
(50,188)
(344,079)
(59,040)
64,015
Cash and cash equivalents, end of year
30(d)
$
17,351
$
4,975
See accompanying notes to the consolidated financial statements.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
119
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, Canada, 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 (“IASB”).
(b) Basis of presentation
The audited annual 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”.
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 any changes are 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.
These audited annual consolidated financial statements were approved by the Board of Directors and authorized for issue
on February 11, 2015.
(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.
(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.
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 its acquisition date fair value. Goodwill is initially measured at cost, being the excess of the
120
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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 joint ventures 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 the net assets of the joint ventures, less distributions received and less any impairment in the
value of individual investments. The Company's income statement reflects the share of the results of operations of the
joint ventures after tax.
(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.
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, in accordance with professional appraisal standards
and IFRS. On an annual basis, the Company has a minimum threshold of approximately 25% (as measured by fair value)
of the property portfolio requiring external appraisal.
2. Internal appraisals – by certified staff appraisers employed by the Company, in accordance with professional appraisal
standards and IFRS.
3. Value updates – primarily consisting of management review of the key assumptions from previous appraisals and
updating the value for changes in the property cash flow, physical condition and changes in market conditions.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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 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 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 incremental
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.
The Company’s investment property is measured using Level 3 inputs (in accordance with IFRS fair value hierarchy), 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).
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.
Incremental initial direct leasing costs are added to the cost of investment properties. Refer to Note 3 – “Change in
Accounting Policies” for further discussion.
122
FIRST CAPITAL REALTY ANNUAL REPORT 2014
(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 development inventory where no
development activity is taking place. Residential development inventory is presented separately on the consolidated
balance sheets as current assets. Residential development inventory is classified as current because the Company intends
to sell this asset 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.
(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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(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).
124
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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 at the time of acquisition of
three months or less.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(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 and value updates.
(ii) 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.
(iii) 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.
(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).
3. CHANGE IN ACCOUNTING POLICIES
The Company adopted each of the standards below on January 1, 2014:
(a) Levies
IFRIC 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. It also clarifies that a levy liability is accrued ratably only if the
activity that triggers payment occurs over a period of time, in accordance with the relevant legislation. The interpretation
applies to realty taxes and has been applied retrospectively. 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 interpretation does not apply to accounting for income taxes or fines and penalties.
The primary consideration for the Company, in the adoption of IFRIC 21, relates to the timing of recognizing a liability to
pay realty taxes. The adoption of IFRIC 21 did not result in a material impact to the consolidated financial statements, as
the relevant municipal legislation governing realty taxes indicates that recognition progressively through the year is
appropriate, which is consistent with the Company’s historic accounting.
126
FIRST CAPITAL REALTY ANNUAL REPORT 2014
(b) Internal leasing costs
In March 2014, the IFRS Interpretations Committee (“IFRIC”) issued an agenda decision related to the meaning of
“incremental costs” in the context of initial direct leasing costs in IAS 17, “Leases” (“IAS 17”). The IFRIC determined that
internal fixed costs, such as the salary costs of permanent staff involved in negotiating and arranging new leases, do not
qualify as incremental costs within the context of IAS 17 and, therefore, should not be capitalized as initial direct leasing
costs.
Prior to January 1, 2014, the Company’s accounting policy was to capitalize internal leasing costs of the Company to
investment properties, which was then adjusted to fair value through net income. Adoption of this agenda decision
resulted in an increase in corporate expenses and an increase in fair value gains (or decrease in fair value losses) on
investment properties in the consolidated statements of income, with no change in net income. There is no material
impact on the consolidated balance sheets or the consolidated statements of cash flows.
The impact of the Company’s adoption of the agenda decision on the consolidated statements of income for the year
ended December 31, 2013 is as follows:
Year ended December 31
(thousands of Canadian dollars)
Increase in value of investment properties, net
Increase in corporate expenses
Net income impact
4. FUTURE ACCOUNTING POLICY CHANGES
Financial instruments
$
2013
4,747
4,747
—
IFRS 9, “Financial Instruments” (“IFRS 9”), was issued in July 2014, which will replace IAS 39, “Financial Instruments:
Recognition and Measurement” (“IAS 39”). IFRS 9 addresses the classification and measurement of all financial assets and
financial liabilities within the scope of the current IAS 39 and a new expected credit loss impairment model that will
require more timely recognition of expected credit losses and a substantially reformed model for hedge accounting.
Included also 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 or as fair value through
other comprehensive income (“FVTOCI”). No amounts are reclassified out of other comprehensive income (“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 permitting additional
hedging strategies used for risk management to qualify for hedge accounting.
The IASB has set January 1, 2018 as the effective date for the mandatory application of IFRS 9. The Company is in the
process of assessing the impact of IFRS 9 on its consolidated financial statements.
Revenue from contracts with customers
IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), was issued in May 2014, and replaces IAS 11,
“Construction Contracts”, IAS 18, “Revenue Recognition”, IFRIC 13, “Customer Loyalty Programmes”, IFRIC 15,
“Agreements for the Construction of Real Estate”, IFRIC 18, “Transfers of Assets from Customers”, and SIC-31, “Revenue
– Barter Transactions Involving Advertising Services”. IFRS 15 provides a single, principles-based five-step model that
will apply to all contracts with customers with limited exceptions, including, but not limited to, leases within the scope
of IAS 17; financial instruments and other contractual rights or obligations within the scope of IFRS 9, IFRS 10,
“Consolidated Financial Statements” and IFRS 11, “Joint Arrangements”. In addition to the five-step model, the standard
specifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a
contract. The incremental costs of obtaining a contract must be recognized as an asset if the entity expects to recover
FIRST CAPITAL REALTY ANNUAL REPORT 2014
127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
these costs. The standard’s requirements will also apply to the recognition and measurement of gains and losses on the
sale of some non-financial assets that are not an output of the entity’s ordinary activities.
IFRS 15 is required for annual periods beginning on or after January 1, 2017. Earlier adoption is permitted. The Company
is in the process of assessing the impact of IFRS 15 on its consolidated financial statements.
5. INVESTMENT PROPERTIES
(a) Activity
(thousands of Canadian dollars)
Central
Region
Eastern
Region
Western
Region
Total
Year ended December 31, 2014
Shopping
Centres
Development
Land
Balance at beginning of year
$ 3,141,304
$ 1,639,162
$ 2,511,585
$ 7,292,051
$ 7,126,008
$
166,043
Acquisitions
Capital expenditures
Reclassifications between
shopping centres and
development land
Reclassification from
residential development
inventory
Increase (decrease) in value
of investment properties,
net
88,940
111,051
—
25,151
87,798
74,362
—
—
50,164
68,088
—
—
226,902
253,501
—
207,852
246,257
40,988
19,050
7,244
(40,988)
25,151
25,151
—
62,801
(26,959)
6,236
42,078
47,162
(5,084)
Straight-line rent and other
1,591
1,984
2,275
5,850
5,850
—
changes
Dispositions
Reclassification to equity
accounted joint ventures (1)
Revaluation of deferred
purchase price of shopping
centre (Note 16)
(140,394)
(82,900)
—
—
—
(31,814)
(73,508)
—
(245,716)
(82,900)
(183,513)
(34,300)
(62,203)
(48,600)
(7,126)
(7,126)
(7,126)
—
Balance at end of year
$ 3,207,544
$ 1,744,533
$ 2,557,714
$ 7,509,791
$ 7,474,329
Investment properties – non-current
Investment properties classified as held for
sale
Total
$ 7,287,650
186,679
$ 7,474,329
$
$
$
35,462
17,008
18,454
35,462
(1) Effective September 25, 2014, a subsidiary controlled by the Company sold all of its real estate assets to a newly created joint venture between the Company, the
subsidiary, and an institutional investor, in exchange for cash consideration and an equity interest in the joint venture. The Company's direct and indirect investment in the
new joint venture is accounted for using the equity method. Refer to Note 6 – “Investment in Joint Ventures” for additional information.
128
FIRST CAPITAL REALTY ANNUAL REPORT 2014
(thousands of Canadian dollars)
Central
Region
Eastern
Region
Western
Region
Total
Year ended December 31, 2013
Shopping
Centres
Development
Land
(Restated – Note 3)
(Restated – Note 3)
(Restated – Note 3)
(Restated – Note 3)
(Restated – Note 3)
(Restated – Note 3)
Balance at beginning of year $ 2,975,141
130,481
Acquisitions
89,397
Capital expenditures
(93,231)
Dispositions
—
Reclassifications between
shopping centres and
development land
$ 1,588,179
24,090
107,124
(92,401)
—
$ 2,413,163
70,094
70,005
(56,559)
—
$ 6,976,483
224,665
266,526
(242,191)
—
$ 6,849,078
188,224
254,804
(232,486)
1,528
$
127,405
36,441
11,722
(9,705)
(1,528)
Increase in value of
investment properties,
net
37,583
9,818
13,432
60,833
59,125
1,708
Straight-line rent and other
1,933
2,352
1,450
5,735
5,735
—
changes
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
147,497
18,546
166,043
Investment properties with a fair value of $2.7 billion (December 31, 2013 – $3.0 billion) are pledged as security for
$1.2 billion in mortgages and credit facilities.
(b) Investment property valuation
Capitalization rates and stabilized net operating income ("SNOI"), by region, for investment properties – shopping centres
are set out in the table below:
As at
December 31, 2014
December 31, 2013
Shopping Centres
Central Region
Eastern Region
Western Region
Fair Value (1)
($ millions)
$
3,200.0
1,736.0
2,538.0
$
7,474.0
SNOI (2)
($ millions)
$
$
177.0
104.0
143.0
424.0
Weighted
Average
Capitalization
Rate
5.63%
6.18%
5.74%
5.79%
Fair Value (1)
($ millions)
$
3,021.9
1,630.7
2,473.4
$
7,126.0
SNOI (2)
($ millions)
$
$
167.0
104.0
143.0
414.0
Weighted
Average
Capitalization
Rate
5.75%
6.31%
5.70%
5.86%
(1)
Fair value of properties under development includes a deduction for costs to complete of $308.9 million as at December 31, 2014 (December 31, 2013 – $95.5 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%.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The sensitivity of the fair values of shopping centres to capitalization rates as at December 31, 2014 is set out in the table
below:
As at December 31, 2014
(Decrease) increase in capitalization rate
(0.75)%
(0.50)%
(0.25)%
0.25%
0.50%
0.75%
(millions of Canadian dollars)
Resulting increase (decrease) in
value of shopping centres
$
$
$
$
$
$
1,023
650
310
(285)
(547)
(789)
Additionally, a 1% increase or decrease in SNOI would result in an increase or decrease, respectively, in the fair value of
shopping centres of $69 million. A 1% increase in SNOI coupled with a 0.25% decrease in capitalization rate would result
in an increase in the fair value of shopping centres of $382 million, and a 1% decrease in SNOI coupled with a 0.25%
increase in capitalization rate would result in a decrease in the fair value of shopping centres of $351 million.
(c) Investment properties – Acquisitions
During the years ended December 31, 2014 and 2013, 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
Deferred purchase price and ground lease liabilities
Mortgage assumptions and vendor take-back mortgages on
acquisitions
$
Shopping
Centres
207,852
(1,845)
—
2014
Development
Land
$
19,050
—
—
$
Shopping
Centres
188,224
—
(9,957)
2013
Development
Land
$
36,441
—
—
Difference between principal amount and fair value of
—
—
(728)
—
assumed mortgage financing
Total cash paid
$
206,007
$
19,050
$
177,539
$
36,441
(d) Investment properties classified as held for sale
The Company has certain investment properties classified as held for sale. These properties are considered to be non-core
assets and are as follows:
As at (thousands of Canadian dollars, except other data)
Aggregate fair value
Mortgages secured by investment properties classified as held for sale
Weighted average coupon interest rate of mortgages secured by investment properties
December 31, 2014 December 31, 2013
$
$
205,133
$
— $
—%
155,499
22,247
4.03%
130
FIRST CAPITAL REALTY ANNUAL REPORT 2014
For the years ended December 31, 2014 and 2013, 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
2014
2013
Shopping
Centres and
Development Land
Shopping
Centres and
Development Land
$
$
245,716 $
(30,921)
(5,088)
209,707 $
242,191
(45,788)
(5,129)
191,274
(1) Total sales price by region is: Central $140 million (2013 – $93 million); Eastern $32 million (2013 – $93 million); and Western $74 million (2013 – $56 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, 2014
(thousands of Canadian dollars)
Total shopping centres and development land (1)
A reconciliation of shopping centres and development land to
Central
Region
Eastern
Region
Western
Region
Total
$ 3,207,544
$ 1,744,533
$ 2,557,714
$ 7,509,791
total assets is as follows:
Cash and cash equivalents
Loans, mortgages and other real estate assets
Other assets
Amounts receivable
Investment in joint ventures
Residential development inventory
Total assets
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 ventures
Residential development inventory
Total assets
(1) Includes investment properties classified as held for sale.
17,351
176,209
45,753
16,580
138,578
3,922
$
7,908,184
Central
Region
Eastern
Region
Western
Region
Total
$ 3,141,304
$ 1,639,162
$ 2,511,585
$ 7,292,051
4,975
149,230
71,664
18,600
38,166
21,569
$ 7,596,255
FIRST CAPITAL REALTY ANNUAL REPORT 2014
131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
6. INVESTMENT IN JOINT VENTURES
The Company contractually controls Main and Main Developments LP (“MMLP”), a subsidiary in which it holds a 67%
ownership interest, until such time that all loans receivable to the joint venture partner have been paid in full. At such
time that the loans receivable to the Company are paid in full, all decisions regarding the activities of MMLP will require
unanimous consent of the partners (refer to Note 27 – "Subsidiary with Non-controlling Interest").
Effective September 25, 2014, MMLP sold its real estate assets to a newly created joint venture, M+M Urban Realty LP
(“Main and Main Urban Realty”) between the Company, MMLP and an institutional investor, in exchange for cash
consideration and an equity interest in Main and Main Urban Realty. Upon closing of the transaction, the Company,
through direct and indirect investment, owns on a consolidated basis a 53.1% interest in Main and Main Urban Realty,
which the Company has determined to be a joint venture as all decisions regarding the activities of Main and Main Urban
Realty are made unanimously as between MMLP and the Company on one hand, and the institutional investor on the
other hand. Accordingly, the Company accounts for its interests in Main and Main Urban Realty using the equity method.
In addition, the Company has a 50% ownership interest in a joint venture that operates a shopping centre located in
Ottawa, Ontario which is accounted for using the equity method.
Summarized financial information of the joint ventures’ financial position and performance is set out below:
As at
(in thousands of Canadian dollars)
Total assets
Total liabilities
Net assets at 100%
The Company's investment in equity accounted joint ventures
For the year ended
(in thousands of Canadian dollars)
Revenue
Expenses
Increase (decrease) in value of investment properties, net
Net income and total comprehensive income at 100%
The Company's share of income in equity accounted joint ventures
December 31, 2014 December 31, 2013
$
290,099
23,232
266,867
$
138,578
$
$
101,012
24,680
76,332
38,166
December 31, 2014 December 31, 2013
$
$
11,057
4,618
11,723
18,162
9,135
$
$
8,649
3,843
(138)
4,668
2,334
The Company has received distributions of $2.1 million from the joint ventures in both 2014 and 2013, and made
contributions of $7.0 million and nil to the joint ventures in 2014 and 2013, respectively.
As at December 31, 2014, Main and Main Urban Realty had outstanding commitments to purchase six properties for an
aggregate amount of $76.0 million, expected to close in 2015, subject to customary closing conditions. The Company's
share of funding commitments at its interest is $40.4 million.
Main and Main Urban Realty has no contingent liabilities or material capital commitments as at December 31, 2014 and
2013. The joint venture is restricted from distributing its profits until it obtains the consent of the joint venture partners.
132
FIRST CAPITAL REALTY ANNUAL REPORT 2014
7. LOANS, MORTGAGES AND OTHER REAL ESTATE ASSETS (NON-CURRENT)
As at (thousands of Canadian dollars)
Loans and mortgages receivable (a)
Available-for-sale (“AFS”) investments in equity securities
Total
December 31, 2014
December 31, 2013
$
$
92,132
4,099
96,231
$
$
68,150
3,631
71,781
(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 as at December 31,
2014 of 5.65% and 5.93% per annum, respectively (December 31, 2013 – coupon and effective interest rate of 6.33%
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, 2014 are as
follows:
(thousands of Canadian dollars, except other data)
2015
2016
2017
2018
2019
2020 to 2025
Unamortized deferred financing fees, premiums and discounts, net and interest receivable
Current (Note 8)
Non-current
Payments on
Maturity
Weighted
Average
Effective
Interest Rate
$
$
$
$
48,708
4,809
6,147
—
28,852
48,004
136,520
1,679
138,199
46,067
92,132
138,199
9.55%
8.05%
6.02%
—%
5.87%
5.53%
7.15%
9.59%
5.93%
7.15%
8. LOANS, MORTGAGES AND OTHER REAL ESTATE ASSETS (CURRENT)
As at (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
Other receivable
Total
December 31, 2014
December 31, 2013
$
$
33,370
292
46,067
—
249
79,978
$
$
27,764
455
24,457
22,522
2,251
77,449
(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 9.59% per
annum (December 31, 2013 – 9.54% per annum). The loans and mortgages receivable mature during the 12 months
ending December 31, 2015. Refer to Note 7(a).
FIRST CAPITAL REALTY ANNUAL REPORT 2014
133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
9. AMOUNTS RECEIVABLE
As at (thousands of Canadian dollars)
Trade receivables (net of allowances for doubtful accounts of $3.1 million
(December 31, 2013 – $2.8 million))
Construction and development related chargebacks and receivables
Corporate and other amounts receivable
Total
December 31, 2014
December 31, 2013
$
15,106
$
17,161
374
1,100
348
1,091
$
16,580
$
18,600
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.
10. OTHER ASSETS
As at (thousands of Canadian dollars)
Notes
December 31, 2014
December 31, 2013
Non-current
Fixtures, equipment and computer hardware and software
(net of accumulated amortization of $5.3 million)
Deferred financing costs on credit facilities
(net of accumulated amortization of $2.7 million)
Environmental indemnity and insurance proceeds receivable
Deposits and costs on investment properties under option
Held to maturity investment in bond
Total
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)
Total
$
9,721
$
8,070
1,591
5,418
2,000
685
19,415
4,144
7,388
792
13,733
281
—
—
26,338
$
$
$
1,451
8,444
—
—
17,965
8,095
6,648
2,826
10,366
3,148
5,189
17,427
53,699
$
$
$
15
16 (b)
16 (a)
16(c)
(a) In connection with the acquisition of a property, the Company assumed a third-party loan that had previously been
defeased. The loan was repaid in full in November 2014 at maturity. The defeasance collateral was a bond issued by an
agency of the Canadian federal government which had an effective interest rate of 1.25% per annum (contractual rate
of 5.96% per annum) and was settled in November 2014 (Note 16(c)).
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.
134
FIRST CAPITAL REALTY ANNUAL REPORT 2014
The components of the Company’s capital are set out in the table below:
As at (thousands of Canadian dollars, except per share amounts)
December 31, 2014
December 31, 2013
Liabilities (principal amounts outstanding)
Mortgages
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 $18.66; December 31, 2013 – $17.71)
$ 1,166,251
10,425
2,160,000
388,174
$ 1,350,307
10,859
1,875,000
392,917
4,037,543
3,689,981
$ 7,762,393
$ 7,319,064
The Company monitors a number of financial ratios in conjunction with its credit agreements and financial planning. In
accordance with the terms of the Company's credit agreements, all ratios are calculated with joint ventures
proportionately consolidated, unless otherwise noted, as set out in the table below:
December 31, 2014
December 31, 2013
As at
Net debt to enterprise value
Net debt to total assets (investment properties at cost)
Joint ventures proportionately consolidated
Joint ventures proportionately consolidated, cash balances, net
Measure/
Covenant
N/A
<65%
Net debt to total assets (investment properties at IFRS value)
<65%
Joint ventures proportionately consolidated
Joint ventures proportionately consolidated, cash balances, net
Joint ventures proportionately consolidated, cash balances, net, using ten
quarter average capitalization rate (1)
Net debt to EBITDA
Unencumbered aggregate assets to unsecured debt (investment properties
N/A
>1.30
at IFRS value)
Joint ventures proportionately consolidated
Joint ventures proportionately consolidated, using ten quarter average
capitalization rate (1)(2)
Unencumbered aggregate assets to unsecured debt (investment properties at
>1.30
cost)
Joint ventures proportionately consolidated
Shareholders’ equity, using four quarter average (billions of Canadian dollars) (1)
Secured indebtedness to total assets (investment properties at fair value) (1)
>$1.4B
<40%
$
42.9%
49.7%
49.6%
42.4%
42.2%
43.0%
8.2
2.3
2.2
1.8
3.4
15.0%
$
44.3%
50.5%
50.5%
43.0%
42.9%
44.6%
8.2
2.3
2.2
1.9
3.3
18.2%
Year ended
Interest coverage (EBITDA to interest expense)
Joint ventures proportionately consolidated (1)
Fixed charges coverage (consolidated EBITDA to debt service)
Joint ventures proportionately consolidated (1)
Measure/
Covenant
>1.65
>1.5
December 31, 2014
December 31, 2013
2.3
1.9
2.3
1.9
(1) Calculations required under the Company's credit facility agreements or indenture governing the senior unsecured debentures.
(2) Includes unencumbered assets as defined by debt covenants, except investment properties under development and deferred tax assets, with shopping centres valued
under IFRS using the average capitalization rate over the last ten fiscal quarters.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The above ratios include measures not specifically defined in IFRS. Certain calculations are required pursuant to debt
covenants and for this reason are meaningful measures. Measures used in these ratios are defined as follows:
• Debt consists of principal amounts outstanding on mortgages and credit facilities 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.
• Net debt is calculated as Debt, as defined above, reduced by cash balances at the end of the year.
•
•
•
•
Secured indebtedness includes mortgages which are collateralized against investment property.
Enterprise value consists of the market value of the Company’s common shares, the par value of senior unsecured
debentures and convertible debentures, and principal amounts outstanding on mortgages, loans and credit facilities.
EBITDA, as adjusted, 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 or non-recurring items. The Company also adjusts for incremental leasing costs and costs not
capitalized during the development period, which are recognized adjustments to FFO and AFFO, respectively.
Fixed charges include regular principal and interest payments and capitalized interest in the calculation of interest
expense and do 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. 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 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. Based on the above calculations, the Company remains in compliance with all of its applicable
financial covenants.
136
FIRST CAPITAL REALTY ANNUAL REPORT 2014
12. MORTGAGES AND CREDIT FACILITIES
(i) Mortgages
As at (thousands of Canadian dollars)
Fixed rate mortgages
Floating rate mortgages and secured credit facilities
Outstanding cheques
Current
Mortgages on investment properties classified as held for sale
Non-current
December 31, 2014
December 31, 2013
$ 1,165,625
7,785
—
$ 1,173,410
253,957
$
—
919,453
$ 1,331,833
29,750
5,000
$ 1,366,583
254,367
$
22,247
1,089,969
$ 1,173,410
$ 1,366,583
Mortgages and the secured credit facilities are secured by investment properties. Of the fair value of investment
properties of $7.5 billion as at December 31, 2014 (December 31, 2013 – $7.3 billion), approximately $2.7 billion
(December 31, 2013 – $3.0 billion) has been pledged as security under the mortgages and the secured credit facilities
(Note 5(a)).
Mortgages bear coupon interest at a weighted average interest rate of 5.03% per annum as at December 31, 2014
(December 31, 2013 – 5.21% per annum) and mature in the years ranging from 2015 to 2025. The weighted average
effective interest rate on all fixed rate mortgage financing as at December 31, 2014 is 4.70% per annum
(December 31, 2013 – 4.90% per annum).
(ii) Credit facilities
On June 13, 2014, the Company completed an increase and extension of its senior unsecured revolving credit facility
with a syndicate of nine banks, increasing the availability from $600 million to $700 million and extending the maturity
to June 30, 2017. The facility pricing was also reduced from BA + 1.325% or Prime rate + 0.325% to BA + 1.20% or Prime
rate + 0.20%. On December 1, 2014, the Company completed an additional increase to this senior unsecured revolving
credit facility, increasing the availability from $700 million to $800 million on the same terms.
On June 30, 2014, the Company extended the maturity of, and reduced the pricing on its $75 million secured credit
facility. The maturity has been extended by one year to December 31, 2015 and the facility pricing has been reduced from
BA + 1.25% or Prime rate + 0.25% to BA + 1.125% or Prime rate + 0.125%.
The following table summarizes the details of the Company’s credit facilities as at December 31, 2014:
(thousands of Canadian dollars, except other
data)
Borrowing
Capacity
Amounts
Drawn
Outstanding
Letters of
Credit
Available to
be Drawn
Secured by development properties
$
75,000 $
— $
(23) $
74,977
Unsecured
800,000
—
(42,174)
757,826
Interest Rates
Maturity Date
December 31, 2015
June 30, 2017
BA + 1.125% or
Prime + 0.125%
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR
+ 1.20%
Total facilities
$
875,000 $
— $
(42,197) $
832,803
FIRST CAPITAL REALTY ANNUAL REPORT 2014
137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Principal repayments of mortgages and credit facilities outstanding as at December 31, 2014 are as follows:
(thousands of Canadian dollars, except other data)
2015
2016
2017
2018
2019
2020 to 2025
Unamortized deferred financing costs, premiums and discounts, net
Scheduled
Amortization
Payments on
Maturity
30,132 $
24,523
21,686
17,696
14,814
36,830
145,681 $
220,895 $
157,533
82,902
123,045
106,714
329,481
1,020,570 $
$
$
$
Total
251,027
182,056
104,588
140,741
121,528
366,311
1,166,251
7,159
1,173,410
Coupon
Weighted
Average Interest
Rate
4.98%
5.09%
5.17%
5.53%
6.36%
4.39%
5.03%
As at December 31, 2014, the Company had mortgages maturing of $220.9 million at an average interest rate of 4.98% per
annum and $30.1 million of scheduled amortization of principal balances in 2015. Subsequent to December 31, 2014, the
Company paid mortgages totalling $12.3 million upon maturity, and expects to pay an additional $58.2 million upon
maturity in the first quarter of 2015.
138
FIRST CAPITAL REALTY ANNUAL REPORT 2014
13. SENIOR UNSECURED DEBENTURES
As at (thousands of Canadian dollars, except other data)
December 31, 2014 December 31, 2013
Maturity Date
Series Date of Issue
Coupon
Effective
Interest Rate
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
F
G
H
I
I
I
J
K
K
L
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
R
R
January 20, 2014
February 18, 2014
R March 11, 2014
S
S
June 17, 2014
July 14, 2014
August 30, 2024
August 30, 2024
August 30, 2024
July 31, 2025
July 31, 2025
Current
Non-current
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%
4.79%
4.79%
4.79%
4.32%
4.32%
4.71%
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%
4.91%
4.63%
4.43%
4.43%
4.33%
4.81%
$
Principal
Outstanding
— $
—
Liability
— $
—
125,000
124,653
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
150,000
75,000
75,000
150,000
60,000
49,801
24,921
49,995
49,498
49,390
49,839
149,230
109,356
65,628
173,835
99,253
50,032
48,806
147,923
98,304
123,507
174,992
148,619
75,910
77,093
148,597
59,992
Liability
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
—
—
—
—
—
$
2,160,000 $
2,149,174 $
1,861,953
$
$
— $
2,149,174
2,149,174 $
99,927
1,762,026
1,861,953
Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity.
On January 20, 2014, the Company completed the issuance of $150.0 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
$75.0 million principal amount of the senior unsecured debentures, Series R, which was a re-opening of this series of
debentures with an effective rate of 4.63% per annum. On March 11, 2014, the Company completed the issuance of an
additional $75.0 million principal amount of the senior unsecured debentures, Series R, which was a second re-opening of
this series of debentures with an effective rate of 4.43% per annum.
On June 17, 2014, the Company completed the issuance of $150.0 million principal amount of senior unsecured
debentures, Series S, due July 31, 2025. These debentures bear interest at a coupon rate of 4.32% per annum payable
semi-annually commencing January 31, 2015. On July 14, 2014, the Company completed the issuance of an additional
FIRST CAPITAL REALTY ANNUAL REPORT 2014
139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
$60.0 million principal amount of the senior unsecured debentures, Series S, which was a re-opening of this series of
debentures with an effective rate of 4.33% per annum.
On July 14, 2014, the Company redeemed $50.0 million principal amount outstanding of its $100.0 million 5.32% Series F
senior unsecured debentures due October 30, 2014. The debentures were redeemed at a price of $1,011.77 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 $51.0 million was paid to the
holders, which consisted of $50.0 million of principal, $0.5 million in premium and $0.5 million in accrued but unpaid
interest. On August 7, 2014, the Company redeemed the remaining outstanding aggregate principal amount of this series
of debentures redeemed at a price of $1,009.13 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 $51.2 million was paid to the holders, which consisted of $50.0 million of principal, $0.5 million
in premium and $0.7 million in accrued but unpaid interest.
On December 29, 2014, the Company redeemed the $125.0 million principal amount outstanding of its 5.95% Series G
senior unsecured debentures due June 1, 2015. The debentures were redeemed at a price of $1,017.72 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 $127.8 million was paid to the
holders, which consisted of $125.0 million of principal, $2.2 million in premium (Note 22) and $0.6 million in accrued but
unpaid interest.
14. CONVERTIBLE DEBENTURES
As at (thousands of Canadian dollars, except other data)
December 31, 2014
December 31, 2013
Date of Issue
Coupon
Effective
Principal
Liability
Equity
Principal
Liability
Interest Rate
Maturity Date
June 30, 2017
December 30, 2009
January 31, 2019
April 28, 2011
January 31, 2019
August 9, 2011
March 31, 2018
December 15, 2011
March 31, 2017
February 16, 2012
July 31, 2019
May 22, 2012
February 28, 2020
February 19, 2013
5.70%
5.40%
5.25%
5.25%
4.95%
4.75%
4.45%
5.08%
6.88%
$
42,903 $
41,756 $
983 $
42,917 $
41,362 $
6.90%
6.07%
6.66%
6.51%
6.19%
5.34%
56,593
56,549
49,927
72,561
52,500
57,141
53,608
54,904
47,900
70,228
49,841
55,040
2,158
384
1,154
1,446
1,439
400
57,500
57,500
50,000
75,000
52,500
57,500
53,844
55,477
47,427
71,620
49,277
55,005
Equity
984
2,192
390
1,155
1,495
1,439
403
6.35%
$
388,174 $
373,277 $
7,964 $
392,917 $
374,012 $
8,058
(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, 2014, 1.1 million common shares (year ended December 31, 2013 – 1.1 million
common shares) were issued for $19.9 million (year ended December 31, 2013 – $19.1 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.
140
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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
FCR.DB.D
2009-2016
Jun 30, 2013 - Jun 29, 2015
Jun 30, 2015 - Jun 30, 2017
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.E
FCR.DB.F
FCR.DB.G
FCR.DB.H
FCR.DB.I
FCR.DB.J
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
2011-2018
Mar 31, 2015 - Mar 30, 2016
Mar 31, 2016 - Mar 30, 2018
2012-2017
Mar 31, 2015 - Mar 30, 2016
Mar 31, 2016 - Mar 31, 2017
2012-2019
Jul 31, 2015 - Jul 30, 2017
Jul 31, 2017 - Jul 31, 2019
$18.75
$22.62
$23.77
$23.25
$23.75
$26.75-$27.75
(3)
(4)
2013-2020
Feb 28, 2016 - Feb 27, 2018
Feb 28, 2018 - Feb 28, 2020
$26.75-$27.75
(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.
(b) Principal redemptions
For the year ended December 31, 2014, the Company issued 22,104 common shares in connection with $0.5 million
convertible debentures redeemed or converted.
(c) Normal course issuer bid
On August 27, 2014, 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, 2015 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, 2014 and 2013, 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, 2014
Year ended December 31, 2013
Total
$
4,243
$
4,295
$
3,175
$
3,426
Principal
Amount
Purchased
Amount Paid
Principal
Amount
Purchased
Amount Paid
15. OTHER LIABILITIES
As at (thousands of Canadian dollars)
Asset retirement obligations (a)
Ground leases payable
Deferred purchase price of investment property – shopping centre
December 31, 2014
December 31, 2013
$
$
8,973
9,883
1,699
20,555
$
$
11,168
10,308
—
21,476
(a) The Company has obligations for environmental remediation at certain sites within its property portfolio. The
amounts recorded as liabilities are net of those environmental indemnity and insurance proceeds receivable
(Note 10).
FIRST CAPITAL REALTY ANNUAL REPORT 2014
141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
16. ACCOUNTS PAYABLE AND OTHER LIABILITIES
As at (thousands of Canadian dollars)
Note
December 31, 2014
December 31, 2013
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
Loan payable (c)
Deferred purchase price of investment property – shopping centre
$
57,841
46,399
46,520
39,192
22,130
2,370
12,467
3,572
—
9,533
$
46,618
41,260
43,755
32,021
18,779
936
8,089
8,800
17,427
21,260
$
240,024
$
238,945
10(a)
(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 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).
The fair values of the Company's asset (liability) hedging instruments are as follows:
As at (thousands of Canadian dollars)
Bond forward contracts
Interest rate swaps
Interest rate swaps
Designated as
Hedging
Instrument
Yes
Yes
N/A
Maturity
December 31, 2014
December 31, 2013
January 2015
March 2022 - July 2024
N/A
$
$
281
(2,370)
—
(2,089)
$
$
321
2,827
(936)
2,212
(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, 2014, a restricted cash balance of
$13.7 million (Note 10) was maintained on account with the Company’s security broker as collateral for the
Company’s investment in short positions.
(c)
In connection with the acquisition of a property, the Company assumed a third-party loan that had previously been
defeased. The loan was repaid in full in November 2014 at maturity. The defeasance collateral was a bond issued by
an agency of the Canadian federal government which had an effective interest rate of 1.25% per annum (contractual
rate of 5.96% per annum) and was settled in November 2014 (Note 10(a)).
142
FIRST CAPITAL REALTY ANNUAL REPORT 2014
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:
Year ended December 31, 2014
Year ended December 31, 2013
(thousands of Canadian dollars and thousands of common
shares)
Note
Number of
Common Shares
Stated Capital
Number of
Common Shares
Stated Capital
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
Expiry of warrants
Share issue costs and other, net of tax effect
14
14
208,356 $
1,132
22
1,446
5,418
—
—
2,457,310
19,914
500
22,747
102,834
—
(2,700)
206,546 $
1,102
—
600
108
—
—
2,426,836
19,054
—
8,496
1,623
1,677
(376)
Issued and outstanding at end of year
216,374 $
2,600,605
208,356 $
2,457,310
On September 12, 2014, the Company issued 5,250,000 common shares at a price of $19.06 per share for gross proceeds
of $100.0 million with 883,000 and 167,000 of these shares purchased by affiliates of Gazit-Globe Ltd. and Alony-Hetz
Properties and Investments Ltd., respectively. Refer to Note 32 – “Related Party Transactions” for additional information.
Issue costs associated with the offering were approximately $2.7 million.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(b) Contributed surplus and other equity items
Contributed surplus and other equity items comprise the following:
(thousands of Canadian dollars)
Year ended December 31, 2014
Year ended December 31, 2013
Options
Restricted
and
Deferred
Share
Units
Contributed
Surplus
Convertible
Debentures
Equity
Component
(Note 14)
Total
Contributed
Surplus
Options
Restricted
and
Deferred
Share
Units
Convertible
Debentures
Equity
Component
(Note 14)
Warrants
Total
Balance at beginning of year
Issuance of convertible debentures
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
Balance at end of year
$ 19,278 $ 8,058 $ 17,264 $ 44,600 $19,401 $ 7,702 $15,636 $ 1,677 $ 44,416
403
(170)
1,171
(223)
870
1,668
—
(19)
—
(75)
—
903
— (1,060)
928
—
2,916
—
(19)
(61)
903
(1,060)
928
2,916
—
—
1,171
(223)
870
1,668
—
(123)
—
—
—
—
403
(47)
—
—
—
—
—
14
—
—
—
—
—
—
—
—
—
—
—
—
— (2,769)
(2,769)
—
—
—
—
—
— (1,858)
— (1,858)
—
— (1,677)
(1,677)
$ 19,292 $ 7,964 $ 18,182 $ 45,438 $ 19,278 $ 8,058 $ 17,264 $
— $ 44,600
(c) Stock options
As of December 31, 2014, the Company is authorized to grant up to 15.2 million (December 31, 2013 – 15.2 million)
common share options to the employees, officers and directors of the Company. As of December 31, 2014, 3.3 million
(December 31, 2013 – 3.8 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, 2014 have exercise prices ranging from $9.81 – $19.02 (December 31, 2013 –
$9.81 – $18.97) and comprise the following:
(In Canadian dollars, except other data)
December 31, 2014
December 31, 2013
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)
85 $
9.81
436 $ 13.76
2,343 $ 16.44
2,092 $ 18.35
4,956 $ 16.89
4.2
4.1
3.2
8.3
5.4
85 $ 9.81
436 $ 13.76
2,070 $ 16.53
377 $ 18.34
2,968 $ 16.16
130 $
1,162 $
2,849 $
1,827 $
5,968 $
Weighted
Average
Exercise
Price per
Common
Share
9.85
13.76
16.38
18.48
16.37
Weighted
Average
Remaining
Life
(years)
Number of
Common
Shares
Issuable
(in thousands)
Weighted
Average
Exercise
Price per
Common
Share
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
Exercise Price
Range ($)
9.81 – 10.81
13.00 – 14.26
15.46 – 16.96
17.77 – 19.02
9.81 – 19.02
During the year ended December 31, 2014, $0.6 million (year ended December 31, 2013 – $1.0 million) was recorded as
an expense related to stock options.
144
FIRST CAPITAL REALTY ANNUAL REPORT 2014
(In Canadian dollars, except other data)
Year ended December 31, 2014
Year ended December 31, 2013
Outstanding at beginning of year
Granted (a)
Exercised (b)
Forfeited
Expired
Outstanding at end of year
Number of
Common Shares
Issuable
(in thousands)
5,968
784
(1,447)
(234)
(115)
$
4,956
$
Weighted
Average
Exercise Price
16.37
18.05
14.99
18.15
18.81
16.89
Number of
Common Shares
Issuable
(in thousands)
5,676
1,036
(600)
(118)
(26)
$
5,968
$
Weighted
Average
Exercise Price
15.65
18.97
13.80
17.67
17.02
16.37
(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
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
$
2014
784
10 years
18.05
15.0%
6 years
4.68%
1.78%
$
2013
1,036
10 years
18.97
15.0%
6 years
4.32%
1.39%
$
883
$
1,233
(b) The weighted average market share price at which options were exercised for the year ended December 31, 2014 was
$18.31 (year ended December 31, 2013 – $19.05).
(d) Share unit plans
The Company’s share unit plans include a Directors' Deferred Share Unit Plan and a 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.
(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
Expense recorded for the period (thousands of
Canadian dollars)
$
Year ended December 31, 2014
Year ended December 31, 2013
Deferred
Share Units
Restricted
Share Units
Deferred
Share Units
Restricted
Share Units
393
39
20
—
—
452
303
780
286
193
17
(168)
—
328
890
$
1,507
$
345
31
17
—
—
393
187
795
302
117
18
(121)
(30)
286
435
$
1,382
FIRST CAPITAL REALTY ANNUAL REPORT 2014
145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(a) The fair value of the DSUs granted during the year ended December 31, 2014 was $0.7 million (year ended
December 31, 2013 – $0.6 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, 2014 was $3.3 million (year ended
December 31, 2013 – $2.2 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, 2014
(thousands of Canadian dollars)
Property rental revenue
Property operating costs
Net operating income
Year ended December 31, 2013
(thousands of Canadian dollars)
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
276,208 $
167,136 $
205,990 $
649,334 $
(893) $
105,887
69,615
67,086
242,588
(1,056)
Total
648,441
241,532
170,321 $
97,521 $
138,904 $
406,746 $
163 $
406,909
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
273,516 $
160,716 $
198,406 $
632,638 $
(1,033) $
104,094
65,350
65,954
235,398
(1,803)
Total
631,605
233,595
169,422 $
95,366 $
132,452 $
397,240 $
770 $
398,010
(1) Other items are principally operating costs and other adjustments that are not attributable to a region.
Property operating costs for the year ended December 31, 2014 includes $22.0 million (year ended December 31, 2013 –
$20.5 million) related to employee compensation.
19. INTEREST AND OTHER INCOME
(thousands of Canadian dollars)
Interest, dividend and distribution income from marketable securities and cash
investments
Interest income from mortgages and loans receivable
Fees and other income
Notes
7,8
7,8
Year ended December 31
2014
4,304
8,034
659
12,997
$
$
2013
3,695
5,911
895
10,501
$
$
146
FIRST CAPITAL REALTY ANNUAL REPORT 2014
20. INTEREST EXPENSE
(thousands of Canadian dollars)
Mortgages and credit facilities
Senior unsecured debentures
Convertible debentures
Coupon interest
Accretion of discounts
Amortization of deferred issue costs
Total interest expense
Note
Year ended December 31
2013
2014
$
63,843
108,156
$
75,232
88,913
19,910
1,595
2,230
195,734
(22,413)
19,721
1,517
2,054
187,437
(22,528)
$
173,321
$
164,909
(19,913)
(7,171)
(1,247)
4,145
(5,974)
22,413
(19,054)
(1,775)
(1,471)
4,699
(5,304)
22,528
Interest capitalized to investment properties and residential development inventory
Interest expense
Convertible debenture interest paid in common shares
14
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
Cash interest paid
$
165,574
$
164,532
21. CORPORATE EXPENSES
(thousands of Canadian dollars)
Salaries, wages and benefits
Non-cash compensation
Other corporate costs
Amounts capitalized to investment properties under development and residential inventory
Total
Year ended December 31
2014
2013
(Restated – Note 3)
$
24,284
2,599
10,926
37,809
(6,618)
$
23,389
2,802
10,487
36,678
(6,720)
$
31,191
$
29,958
FIRST CAPITAL REALTY ANNUAL REPORT 2014
147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
22. OTHER GAINS (LOSSES) AND (EXPENSES)
(thousands of Canadian dollars)
Realized gains on sale of marketable securities
Change in cumulative unrealized (losses) gains on marketable
securities classified as FVTPL
Losses on prepayments of debt
Unrealized (losses) gains on hedges
Gain on settlement of litigation
Gain on foreign currency exchange
Pre-selling costs of residential inventory (a)
Executive transition expense
Net gain on sale of residential inventory (a)
Investment properties – selling costs
Total
Year ended December 31
Note
$
16(a)
$
2014
1,665
(1,501)
(3,973)
(80)
—
2
(26)
(7,280)
—
(5,088)
$
(16,281)
$
2013
2,564
(1,988)
(4,092)
301
1,376
43
(155)
—
2,966
(5,295)
(4,280)
(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
Net gain on sale
Year ended December 31
2014
999
(999)
—
2013
28,850
(25,884)
2,966
$
$
$
$
23. INCOME TAXES
The sources of deferred tax balances and movements are as follows:
(thousands of Canadian dollars)
December 31, 2013
Net income
Recognized in OCI
Equity and other December 31, 2014
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
$
$
(13,172) $
(5,943) $
(1,375) $
(898) $
(21,388)
423,450
53,600
410,278 $
47,657 $
(1,860)
(3,235) $
101
(797) $
475,291
453,903
As at December 31, 2014, the Company had approximately $81.7 million of non-capital losses which expire between 2015
and 2034.
(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.
148
FIRST CAPITAL REALTY ANNUAL REPORT 2014
The major components of income tax expense include the following:
(thousands of Canadian dollars)
Deferred income taxes
Year ended December 31
2014
2013
$
47,657
$
51,418
The following reconciles the Company’s statutory tax rate to its effective tax rate for the years ended December 31,
2014 and 2013:
(thousands of Canadian dollars)
Income tax expense at the Canadian federal and provincial income tax rate of 26.20%
(2013 – 26.26%)
(Decrease) increase in income taxes due to:
Non-taxable portion of capital gains and other
Non-deductible interest
Changes in timing of reversals
Other
Deferred income taxes
24. PER SHARE CALCULATIONS
The following table sets forth the computation of per share amounts:
(thousands of Canadian dollars, except per share amounts and other data)
Net income attributable to common shareholders
Adjustment for dilutive effect of convertible debentures, net of tax
Income for diluted per share amounts
(in thousands)
Weighted average number of shares outstanding for basic per share amounts
Options
Convertible debentures
Weighted average diluted share amounts
Basic net income per share attributable to common shareholders
Diluted net income per share attributable to common shareholders
Year ended December 31
2014
2013
$
64,417
$
69,965
(16,063)
419
—
(1,116)
(19,443)
398
630
(132)
$
47,657
$
51,418
Year ended December 31
2014
2013
$
$
$
$
196,748
15,374
212,122
211,999
539
17,995
230,533
0.93
0.92
$
$
$
$
214,863
17,321
232,184
208,227
650
21,071
229,948
1.03
1.01
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
(in Canadian dollars, number of options in thousands)
Exercise Price
Common share options
Common share options
Common share options
Convertible debentures - 5.70%
$
$
$
$
18.97
19.02
18.41
18.75
Number of Shares if Exercised
2014
766
50
240
2,234
Exercise Price
$
$
$
$
17.90
18.97
—
—
2013
833
994
—
—
FIRST CAPITAL REALTY ANNUAL REPORT 2014
149
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Regular dividends paid per common share were $0.85 for the year ended December 31, 2014 (year ended
December 31, 2013 – $0.84).
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 structures 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, 2014 is a net liability of $2.1 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 OCI by $15.4 million. A 100 basis point decrease in the yield curve for these contracts would decrease the
Company’s net asset and OCI by $16.9 million.
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, 2015 and December 31, 2017 at a weighted
average coupon interest rate of 5.53%. 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 $8.2 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 $1.4 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 high quality tenants, ensuring that its tenant mix is diversified, and
by limiting its exposure to any one tenant. As at December 31, 2014, Loblaw Companies Limited (“Loblaws”) accounts for
10.2% of the Company’s annualized minimum rent and has an investment grade credit rating. Other than Loblaws, no
other tenant accounts for more than 6.8% of the 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
150
FIRST CAPITAL REALTY ANNUAL REPORT 2014
$
2014
403,403
1,204,719
893,667
$ 2,501,789
(c) Liquidity risk
Real estate investments are relatively illiquid. This tends 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
as at December 31, 2014 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
Loan and mortgage payable
Interest obligations (1)
Land leases (expiring between 2023 and 2061)
Contractual committed costs to complete current
development projects
Other committed costs
Total contractual obligations (2)
Payments Due by Period
2015
2016 to 2017
2018 to 2019
Thereafter
Total
$
30,132 $
46,209 $
32,510 $
36,830 $
220,895
251,027
10,425
—
36
158,271
969
99,399
240,435
286,644
—
250,000
3,608
269,903
1,960
10,045
229,759
262,269
—
300,000
—
208,580
1,988
—
329,481
366,311
—
1,610,000
—
259,451
17,300
—
145,681
1,020,570
1,166,251
10,425
2,160,000
3,644
896,205
22,217
109,444
24,126
65,522
$
544,253 $
887,682 $
—
—
772,837 $ 2,253,062 $ 4,457,834
89,648
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2014 (assuming balances remain outstanding through to
maturity), and senior unsecured debentures, as well as standby credit facility fees.
(2) 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 convertible debentures have been excluded from this table.
The Company’s total estimated costs to complete development projects currently under construction are $308.9 million,
with $109.4 million contractually committed as at December 31, 2014.
The Company manages its liquidity risk by staggering debt maturities; renegotiating expiring credit arrangements
proactively; using lines of credit; and issuing equity when considered appropriate. As at December 31, 2014, there was nil
(December 31, 2013 – nil) of cash advances drawn against the Company’s revolving credit facilities.
In addition, as at December 31, 2014, the Company has $42.2 million (December 31, 2013 – $43.4 million) of outstanding
letters of credit that have been issued by financial institutions primarily to support certain of the Company’s contractual
obligations.
FIRST CAPITAL REALTY ANNUAL REPORT 2014
151
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)
2014
2013
2014
2013
Notes
Carrying Amount
Fair Value
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
8
7,8
7,8
10
12
13
14
16
16
$
33,370 $
4,391
136,520
281
27,764 $
4,086
91,570
3,148
33,370 $
4,391
136,569
281
27,764
4,086
91,570
3,148
$ 1,173,410 $ 1,366,583 $ 1,227,879 $ 1,384,810
1,915,997
390,093
936
2,326,507
392,003
2,370
2,149,174
373,277
2,370
1,861,953
374,012
936
12,467
8,089
12,467
8,089
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, 2014 and 2013 due to their short term nature.
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. As at December 31, 2014, the risk-adjusted interest rates ranged from 4.00% to
11.00% (December 31, 2013 – 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, 2014, these rates ranged from 2.38% to 3.37%
(December 31, 2013 – 2.63% to 4.39%).
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, 2014, these rates ranged
from 1.98% to 3.88% (December 31, 2013 – 1.73% to 4.85%).
The fair values of the convertible debentures are based on the TSX closing bid prices.
The fair value of derivative instruments is 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. As at December 31, 2014, the interest rates ranged from
1.88% to 3.71% (December 31, 2013 – 2.77% to 4.50%).
152
FIRST CAPITAL REALTY ANNUAL REPORT 2014
The fair value hierarchy of financial instruments measured at fair value on the consolidated balance sheet is as
follows:
As at
December 31, 2014
December 31, 2013
(thousands of Canadian dollars)
Notes
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Financial assets
FVTPL investments in equity securities
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
$
33,370 $
292
—
— $
—
281
— $
4,099
—
27,764 $
455
—
— $
—
3,148
—
12,467
2,370
—
—
—
—
8,089
936
—
—
3,631
—
—
—
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:
As at
December 31, 2014
December 31, 2013
(thousands of Canadian dollars)
Notes
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Financial assets
Loans and mortgages receivable (Current
and Non-Current)
Financial liabilities
Mortgages and credit facilities
Senior unsecured debentures
Convertible debentures
7,8
$
— $
— $
136,569 $
— $
— $
91,570
12
13
14
— 1,227,879
— 2,326,507
392,003
—
—
—
—
— 1,384,810
— 1,915,997
390,093
—
—
—
—
27. SUBSIDIARY WITH NON-CONTROLLING INTEREST
The Company contractually controls MMLP, a subsidiary in which it holds a 67% ownership interest, until such time that
all loans receivable to the joint venture partner have been paid in full. At such time that the loans receivable to the
Company are repaid, all decisions regarding the activities of MMLP will require unanimous consent of the partners.
Non-controlling interest in the equity and the results of this subsidiary, before any inter-company eliminations, are as
follows:
(thousands of Canadian dollars)
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Non-controlling interests
December 31, 2014
December 31, 2013
$
$
$
$
83,416
705
84,121
—
548
548
83,573
27,570
$
$
$
$
134,614
779
135,393
80,031
43,419
123,450
11,943
3,638
FIRST CAPITAL REALTY ANNUAL REPORT 2014
153
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
(thousands of Canadian dollars)
Revenue
Expenses
Increase (decrease) in value of investment properties, net
Net income
Non-controlling interests
(thousands of Canadian dollars)
Cash provided by operating activities
Cash provided by financing activities
Cash used in investing activities
Net decrease in cash and cash equivalents
Year ended December 31
2014
5,367
5,010
4,108
4,465
1,462
2013
5,719
5,229
(49)
441
146
$
$
$
Year ended December 31
2014
6,827
61,290
(68,689)
(572)
2013
152
38,106
(38,365)
(107)
$
$
$
$
$
$
$
28. CO-OWNERSHIP INTERESTS
The Company has co-ownership interest in several properties, as listed below, that are subject to joint control and
represent 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
Bow Valley Crossing (land)
Edmonton Brewery District
Fuzion and King High Line
Hunt Club Marketplace
Hunt Club – Petrocan
Kanata Terry Fox (land)
Lanaudiere Assets
Mclaughlin Corners
Meadowbrook Centre (II)
Midland (land)
Seton Gateway
Sherwood Towne Square
South Oakville Properties
West Oaks Mall
West Springs Village
Location
Calgary, AB
Edmonton, AB
Toronto, ON
Ottawa, ON
Ottawa, ON
Ottawa, ON
Montreal, QC
Brampton, ON
Edmonton, AB
Midland, ON
Calgary, AB
Sherwood Park, AB
Oakville, ON
Abbotsford, BC
Edmonton, AB
Ownership Interest
December 31, 2014
75%
50%
50%
33%
50%
50%
100%
50%
50%
50%
50%
50%
50%
50%
50%
December 31, 2013
75%
50%
50%
33%
50%
50%
50%
50%
50%
50%
—%
50%
—%
50%
50%
154
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Summarized below is the financial information for the co-ownerships as a total at the Company's interest.
As at (thousands of Canadian dollars)
December 31, 2014
December 31, 2013
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
(thousands of Canadian dollars)
Revenue
Expenses
Increase (decrease) in value of investment properties, net
Net income
$
$
$
$
$
$
$
318,556
11,593
330,149
255,465
17,174
272,639
57,510
$
$
$
$
$
220,491
4,670
225,161
150,084
4,738
154,822
70,339
Year ended December 31
2014
20,631
9,070
(709)
10,852
2013
16,244
6,890
1,065
10,419
$
$
29. SUPPLEMENTAL OTHER COMPREHENSIVE INCOME (LOSS) INFORMATION
(a) Accumulated other comprehensive loss
Year ended December 31
2014
2013
(thousands of Canadian dollars)
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
Change in cumulative unrealized
$
(124) $
71 $
(53) $
19 $
(143) $
(124)
(losses) gains on available-for-sale
marketable securities
Unrealized losses on cash flow
(283)
(8,734)
(9,017)
(4,199)
3,916
(283)
hedges
Accumulated other comprehensive
loss
$
(407) $
(8,663) $
(9,070) $
(4,180) $
3,773 $
(407)
(b) Tax effects relating to each component of other comprehensive (loss) income
Year ended December 31
(thousands of Canadian dollars)
Unrealized gains (losses) on AFS
$
marketable securities
Reclassification of gains (losses) on
AFS marketable securities to net
income
Before-Tax
Amount
Tax (Expense)
Recovery
2014
Net of Tax
Amount
Before-Tax
Amount
Tax (Expense)
Recovery
13 $
69
(2) $
(9)
11 $
(254) $
60
58
68 $
(15)
2013
Net of Tax
Amount
(186)
43
Unrealized (losses) gains on cash flow
(12,537)
3,392
(9,145)
4,392
(1,172)
3,220
hedges
Reclassification of losses on cash flow
557
(146)
411
949
(253)
696
hedges to net income
Other comprehensive (loss) income
$
(11,898) $
3,235 $
(8,663) $
5,145 $
(1,372) $
3,773
FIRST CAPITAL REALTY ANNUAL REPORT 2014
155
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
30. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Items not affecting cash and other items
(thousands of Canadian dollars)
Rental revenue recognized on a straight-line basis
Investment properties – selling costs
Realized gains on sale of marketable securities
Change in cumulative unrealized losses (gains) on marketable
securities classified as FVTPL
Losses on prepayments of debt
Gain on sale of residential inventory
Non-cash compensation expense
Settlement of restricted share units
Gain on foreign currency exchange
Deferred income taxes
Unrealized (gains) losses on hedges
Note
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
$
$
$
Year ended December 31
2014
(5,851)
5,088
(1,665)
1,501
3,973
—
2,721
(2,769)
(2)
47,657
80
50,733
2013
(10,483)
5,295
(2,564)
1,988
4,092
(2,966)
2,999
(1,879)
(43)
51,418
(301)
47,556
$
$
Year ended December 31
$
2014
1,854
(871)
8,206
5,135
(102)
2013
(3,383)
(1,070)
2,822
1,824
(480)
(287)
(c) Changes in loans, mortgages and other real estate assets
$
14,222
$
(thousands of Canadian dollars)
Increase in loans and mortgages receivable, net
Investment in marketable securities, net
Proceeds from disposition of marketable securities
(d) Cash and cash equivalents
As at (thousands of Canadian dollars)
Cash
Term deposits
156
FIRST CAPITAL REALTY ANNUAL REPORT 2014
Year ended December 31
2014
(39,133)
(36,921)
32,023
(44,031)
2013
(38,506)
(43,051)
31,369
(50,188)
$
$
Year ended December 31
2014
17,251
100
17,351
2013
4,679
296
4,975
$
$
$
$
$
$
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 contingencies, 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 or as guarantor, for approximately $68.2 million
(December 31, 2013 – $60.0 million) to various lenders in connection with certain third party obligations, including,
without limitation, loans advanced to its joint venture partners secured by the partners’ interest in the joint
ventures and underlying assets.
(c) The Company is contingently liable by way of letters of credit in the amount of $42.2 million (December 31, 2013 –
$43.4 million), 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, 2013 – $1.0 million) with a total obligation of
$22.2 million (December 31, 2013 – $23.5 million).
(e) The Company is involved, in the normal course of business, in discussions, and has various agreements, with
respect to possible acquisitions of new properties and dispositions of existing properties in its portfolio. None of
these commitments or contingencies, individually or in aggregate, would have a significant impact on the
financial position of the Company.
(f) The Company has a call option, which expires in 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-Globe Ltd. (“Gazit”) is the principal shareholder of the Company and, as of December 31, 2014, beneficially owns
44.0% (December 31, 2013 – 45.3%) of the common shares of the Company. Norstar Holdings Inc. is the ultimate
controlling party. As of December 31, 2014, Alony-Hetz Properties and Investments Ltd. (‘‘Alony-Hetz’’) also beneficially
owns 8.3% (December 31, 2013 – 8.5%) 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.
During the third quarter of 2014, Gazit and Alony-Hetz purchased 883,000 and 167,000 of the common shares of the
Company, respectively, under the Company’s 5,250,000 common share equity offering for $19.06 per share. Gazit and
Alony-Hetz purchased the common shares as part of and at the same price as the public offering (refer to Note 17(a)), and
no underwriting commissions were paid by the Company in connection with the common shares purchased by them.
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.
Such amounts consist of the following:
(thousands of Canadian dollars)
Reimbursements for professional services
Year ended December 31
2014
591
$
2013
720
$
As at December 31, 2014, amounts due from Gazit were $0.2 million (December 31, 2013 – $0.2 million).
FIRST CAPITAL REALTY ANNUAL REPORT 2014
157
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(b) Subsidiaries of the Company
The audited annual 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 expenses
is as follows:
(thousands of Canadian dollars)
Salaries and short-term employee benefits
Share-based compensation (non-cash compensation expense)
Executive transition expense
33. SUBSEQUENT EVENTS
Year ended December 31
2014
2,051
1,862
7,280
11,193
$
$
2013
2,567
1,871
—
4,438
$
$
(a) Senior Unsecured Debentures Issued
On January 26, 2015, the Company completed the issuance of an additional $90.0 million principal amount of the Series S
senior unsecured debentures, which was a re-opening of this series of debentures. These debentures bear interest at a
coupon rate of 4.32% per annum, payable semi-annually commencing July 31, 2015. The debentures were sold at a price
of $104.943 per $100 principal amount, plus accrued interest.
(b) Equity Issuance
Subsequent to year end, the Company issued 4,370,000 common shares at $19.80 per common share for gross proceeds
of approximately $86.5 million. Issue costs were approximately $3.7 million.
(c) Dividend
The Company announced that it will pay a first quarter dividend of $0.215 per common share on April 9, 2015 to
shareholders of record on March 27, 2015.
158
FIRST CAPITAL REALTY ANNUAL REPORT 2014