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
Corporate Responsibility and Sustainability
Summary Consolidated Information and Highlights
Business and Operations Review
Real Estate Investments
Investment Properties — Shopping Centres
2015 Acquisitions
2014 Acquisitions
2015 Dispositions
2014 Dispositions
Impact of Acquisitions and Dispositions
Operations
Capital Expenditures
Fair Valuation of Investment Properties under IFRS
Properties Under Development
Main and Main Developments
Leasing and Occupancy
Top Forty Tenants
Lease Maturity Profile
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
Net Operating Income
Interest and Other Income
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Interest Expense
Corporate Expenses
Other Gains (Losses) and (Expenses)
Income Taxes
Non-IFRS Supplemental Financial Measures
Capital Structure and Liquidity
Total Capital Employed
Credit Ratings
Consolidated Debt and Principal Amortization
Maturity Profile
Mortgages
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
Critical Accounting Estimates
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”, “FCR” 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, 2015 and
2014. It should be read in conjunction with the Company’s audited annual consolidated financial statements for the years
ended December 31, 2015 and 2014. 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 17, 2016.
First Capital Realty was incorporated in November 1993 and conducts its business directly and through subsidiaries.
FORWARD-LOOKING STATEMENT ADVISORY
Certain statements contained in 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 online 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
liability and compliance costs; unexpected costs or liabilities related to dispositions; challenges associated with the
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 17, 2016 and are qualified by these cautionary
statements.
BUSINESS OVERVIEW AND STRATEGY
First Capital Realty (TSX : FCR) is one of Canada’s largest owners, developers and managers of grocery anchored, urban
properties where people live and shop for everyday life. As at December 31, 2015, the Company owned interests in 158
properties, totaling approximately 24.4 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 growth in 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 focused and disciplined in acquiring well-located properties, primarily where there are value creation opportunities,
including sites in close proximity 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 a competitive cost of capital.
Shopping for Everyday Life®
The Company primarily 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 who provide these essential products and services, including supermarkets, drugstores, banks, liquor
stores, national and discount retailers, restaurants, fitness centres, 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 focused on ensuring the competitive position of its assets in their
respective urban and retail trade areas and closely follows demographic profiles and shopping trends that may impact the
performance of its properties.
In Management’s view, shopping centres, including mixed-use properties with a meaningful retail component, located in
urban markets with tenants who primarily provide non-discretionary goods and services, will be less sensitive to both
economic cycles and changing retail trends, thus adding to the stability and growth of cash flow over the long term.
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FIRST CAPITAL REALTY ANNUAL REPORT 2015
Shopping for Everyday Life®
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Urban Focus
The Company targets specific urban markets in Canada
with stable and/or growing populations. Specifically, the
Company intends to continue to operate primarily in and
around its target urban markets which include the Greater
Toronto Area (including the Golden Horseshoe Area and
London); Greater Calgary Area; Greater Edmonton Area;
Greater Vancouver Area (including Vancouver Island);
Greater Montreal Area; Greater Ottawa Area (including
Gatineau region); and Quebec City. Over 95% of the
Company’s annual minimum rent is derived from these
markets.
The Company has achieved critical mass in its target
markets, which helps generate economies of scale and
operating synergies, as well as deep local knowledge of its
properties, tenants, neighbourhoods and 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 continue to
get stronger over time, therefore attracting high quality
tenants with rent growth potential.
Real Estate Investments
Acquisitions
Management seeks to acquire well-located, high quality retail properties and sites in the Company’s target urban markets.
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 properties in close proximity. These 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. They also provide more flexibility to offer the appropriate
merchandising mix, providing a better overall retail product and service offering for consumers in the property's trade area.
Management believes that its adjacent site acquisitions result in a stronger retail offering 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 strong trade areas within its existing urban markets where the Company does not yet have a
presence.
Dispositions
The Company also recycles its capital to fund new investments by selling assets in certain markets that are no longer
aligned with its core strategy.
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. Redevelopment activities are focused primarily on older, well-located
shopping centres that the Company owns. 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 in which they are situated, an existing tenant base and the ability to increase
density through land use intensification. Redevelopment projects are carefully managed to minimize tenant downtime.
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FIRST CAPITAL REALTY ANNUAL REPORT 2015
When possible, 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, give 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, a secular trend that is occurring in most major cities around the world. The Company’s
land use intensification activities are focused primarily on increasing retail space on a property and, to a lesser degree,
adding mixed-use density, including residential and office space. 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.
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.
Proactive Management
The Company views proactive management of its portfolio 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 high 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 employed by
the Company. The Company's executive leadership team is centralized at the Company’s head office location in Toronto,
which ensures that best practices, procedures and standards are applied consistently across the Company's operating
markets. Property management and operations are executed through local operating platforms in all major urban markets.
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.
Cost of Capital
The Company seeks to maintain financial strength and flexibility in order to achieve a competitive 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, revolving credit facilities, bank indebtedness, convertible debentures and equity provides financing flexibility and
reduces risks, while generating an attractive risk-adjusted return on investment, taking into account the long-term
business strategy of the Company. The Company also recycles capital through the selective disposition of full or partial
interests in properties. When it is deemed appropriate, the Company will raise equity to finance its growth and
strengthen its financial position.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
DBRS Limited (“DBRS”) has rated the Company’s senior unsecured debentures as BBB (high), and Moody's has rated these
debentures as Baa2. 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.
OUTLOOK AND CURRENT BUSINESS ENVIRONMENT
Since 2001, First Capital Realty has successfully grown its business across the country, focusing on key urban markets,
dramatically enhancing the quality of its portfolio and generating modest accretion in funds from operations, while
reducing leverage and achieving an investment grade credit rating. The Company expects to continue to grow its business
and portfolio of high quality properties in urban markets 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's cash flow.
Changing Consumer Habits
The Company continues to observe several demographic and other trends that may affect demand for retail goods and
services, including an increasing reliance by consumers on online information to influence their purchasing decisions and
an increasing desire to purchase products online, as well as an aging population which is increasingly focused on
convenience and health-related goods and services. There is also a shift in consumer demand driven by an increasing
number 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 or frequent trips to the grocery
store, fitness centres, coffee shops and/or restaurants. Management is proactively responding to these consumer changes
through its tenant mix, unit sizes and shopping centre locations and designs.
Evolving Retail Landscape
Over the past several years, the Company has observed an increase in entry and/or expansion into the Canadian
marketplace by several major U.S. retailers including Whole Foods Market, Walmart, Marshalls, and others. Additionally,
there were two major corporate transactions involving four of the Company's tenants: the purchase of Shoppers Drug
Mart by Loblaw and the purchase of Safeway Canada by Sobeys. Although this repositioning resulted in new opportunities
for the Company, it also resulted in an increasingly competitive retail landscape in Canada. More recently, a number of
retailers have announced store closures and/or bankruptcies, including Mexx, Future Shop, Black's, Nine West and Target.
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 and have the potential to impact retail rental rates and leasing
fundamentals.
As a result of these ongoing changes, the Company remains highly focused 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
shopping trends, as well as retailer responses to these trends, and 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.
In Management’s view, shopping centres and mixed-use properties located in urban markets with tenants providing non-
discretionary goods and services, will be less sensitive to both economic cycles and evolving retail trends, thus providing
more stable and growing cash flow over the long term.
Growth
For the year ended December 31, 2015, the Same Property portfolio delivered strong net operating income growth of
3.7% compared to the prior year. The growth in net operating income was primarily due to rental rate step-ups, lease
renewals at higher rates and lease surrender fees. These increases were partially offset by a decrease in Same Property
occupancy primarily as a result of the closure of one Target store in the Same Property category during the second
quarter, as well as the closure of a Canadian Tire store during the third quarter.
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FIRST CAPITAL REALTY ANNUAL REPORT 2015
As at December 31, 2015, the Same Property portfolio was 95.9% occupied and the total portfolio was 94.8% occupied.
The Company had 0.5% of the portfolio held as vacant space for redevelopment.
Urban municipalities where the Company operates continue to focus on increasing density within the existing
boundaries of infrastructure. This provides the Company with multiple development and redevelopment opportunities
in its existing portfolio of urban properties, which includes an inventory of adjacent land sites and development land. As
at December 31, 2015, the Company had identified approximately 13.9 million square feet of incremental density
available in the portfolio for future development including (3.3 million square feet of retail and 10.6 million square feet
of residential space), of which approximately 1.0 million square feet of development projects are currently underway.
Development activities continue to provide the Company with growth within its existing portfolio of assets. These
activities also typically generate higher returns on investment 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 that is associated
more 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 development activities
and will continue to manage carefully the risks associated with such projects.
During the year, the Company delivered 248,000 square feet of developed and redeveloped space of which 235,000
square feet was occupied at an average net rental rate of $28.72 per square foot, well above the average rent for the
entire portfolio.
On September 22, 2015, the Company announced an organizational restructure to streamline and enhance the
efficiency of its operations. The restructuring includes realigning the executive leadership team from a regional
structure to a centralized structure, removing redundancy and over-capacity, streamlining work processes and
procedures, and upgrading information systems. The restructuring resulted in the elimination of 60 roles representing
approximately 13% of the workforce. The Company recognized restructuring costs totaling $13.1 million during the year,
including a $6.4 million non-cash write-off of an investment in proprietary information technology systems that the
Company is in the process of replacing with lower cost third-party solutions. The Company expects to recognize further
restructuring charges of approximately $1.0 million to $3.0 million over the next few quarters bringing the total
estimated restructuring costs to $14.0 million to $16.0 million. As a result of the restructuring and related
organizational enhancements, the Company expects annualized savings to be approximately $4.5 million to $5.5 million.
Transaction Activity
The property acquisition environment remains extremely competitive for assets of similar quality to those owned by the
Company. There are typically multiple bids on high quality properties, and asset valuations reflect strong demand for well-
located income-producing assets. In addition, well-located urban properties rarely trade in the market and attract
significant competition when they do. 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 Operating FFO over the long term. Therefore, the Company expects to focus on development and
redevelopment of existing assets as the primary means to grow the portfolio while continuing to make selective
acquisitions that complement the existing portfolio.
During the year, the Company acquired ten properties for $95.3 million. The properties are located within close proximity
to existing shopping centres undergoing major redevelopments in Toronto and Calgary adding 157,200 square feet of
leasable area to the portfolio. Additionally, the Company invested $276.0 million in development and redevelopment
activities during the period.
The Company continues to evaluate its properties and will occasionally dispose of non-core properties. This allows the
Company to recycle capital into its core urban redevelopment projects where population, rent growth and consumer
trends present the opportunity for better long-term growth. During the year, the Company disposed of three non-core
properties totaling 136,700 square feet and 0.7 acres for total gross proceeds of $23.1 million.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Economy and Access to Capital
Canada's economy contracted in the first half of 2015 primarily due to the significant decline in oil prices over the past
year. The Bank of Canada cut interest rates twice in 2015 as a result of the increased economic uncertainty. The U.S.
continues to show positive signs of accelerating growth but other global economic markets remain uncertain. Long-term
Canadian bond yields declined while market volatility remained high during the year ended December 31, 2015. Although
the equity and long-term debt markets remain accessible, pricing can vary based on the current market outlook for
growth and interest rates. The Company will continue to focus on maintaining access to all sources of long-term capital at
a reasonable cost.
In January 2015, the Company completed the issuance of an additional $90.0 million principal amount of its Series S
senior unsecured debentures. The debentures have an effective interest rate of 3.9%, and mature on July 31, 2025 which
represented a term to maturity of 10.5 years at the time of issuance. The Company repaid $218.8 million of mortgages
during the year with a weighted average effective interest rate of 4.9%. The Company replaced a portion of this debt with
$110.1 million of new mortgages with a weighted average effective interest rate of 3.3%. As at December 31, 2015, the
Company had $3.3 billion of unsecured debentures and mortgages outstanding at a weighted average effective interest
rate of 4.7% and a weighted average term to maturity of 5.5 years.
In February 2015, the Company issued 4.4 million common shares at a price of $19.80 for gross proceeds of $86.5 million.
In June 2015, the Company redeemed the remainder of its 5.70% convertible debentures at par and satisfied its
principal and interest payment obligations by issuing common shares. Additionally, the Company extended the maturity
of its operating credit facility to June 2020. As at December 31, 2015, unencumbered assets increased to $5.8 billion
from $5.0 billion at December 31, 2014.
These financing activities will continue to support the Company’s ongoing development and redevelopment activities.
Outlook
Management is focused on the following five areas to achieve its objectives through 2016 and into 2017:
• development, redevelopment and repositioning activities including land use intensification;
• selective acquisitions of strategic assets and sites in close proximity to existing properties in the Company’s target urban
markets;
• proactive portfolio management that results in higher rent growth;
• increase efficiency and productivity of operations; and
• maintain financial strength and flexibility to achieve a competitive cost of capital over the long-term.
Overall, Management is confident that the quality of the Company’s consolidated balance sheet and the defensive nature
of its assets will continue to serve it well in the current environment and into the future.
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FIRST CAPITAL REALTY ANNUAL REPORT 2015
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 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 2015, the Company was ranked twentieth in Corporate Knights Future 40 Responsible Corporate Leaders in Canada.
This ranking evaluated more than 200 companies with revenues of less than $2.0 billion dollars or maintaining fewer than
2,000 employees in 2013 for their sustainability and disclosure practices. In June 2015, the Company responded to the 2015
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, 2015, 103 projects comprising 3.3 million square feet of GLA were certified to LEED
standards. Another 43 projects comprising 1.4 million square feet of GLA are registered for 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, 2015, 103 properties comprising 9.3 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 focused 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
SUMMARY CONSOLIDATED INFORMATION AND HIGHLIGHTS
As at December 31
Operations Information
Number of properties
GLA (square feet)
Occupancy – Same Property – stable (1)
Total portfolio occupancy
Development pipeline and adjacent land (GLA) (2)
Retail pipeline
Residential pipeline (3)
Average rate per occupied square foot
GLA developed and brought online
Same Property – stable NOI – increase over prior year (1) (4)
Total Same Property NOI – increase over prior year (1) (4)
Financial Information
Investment properties – shopping centres (5)
Investment properties – development land (5)
Total assets
Mortgages (5)
Credit facilities
Senior unsecured debentures
Convertible debentures
Shareholders’ equity
Capitalization and Leverage
2015
2014
2013
158
24,431,000
158
24,331,000
164
24,462,000
95.8%
94.8%
96.8%
96.0%
96.1%
95.5%
3,326,000
10,612,000
18.84
248,000
$
2,421,000
N/A
18.42
289,000
$
3,181,000
N/A
17.96
518,000
$
4.1%
3.7%
2.8%
3.2%
2.7%
3.7%
$ 7,870,719
36,353
$
$ 8,278,526
$ 1,024,002
$
224,635
$ 2,244,091
$
327,343
$ 3,639,952
$ 7,474,329
35,462
$
$ 7,908,184
$ 1,165,625
$
7,785
$ 2,149,174
$
373,277
$ 3,470,271
$ 7,126,008
166,043
$
$ 7,596,255
$ 1,358,798
$
7,785
$ 1,861,953
$
374,012
$ 3,319,370
Shares outstanding (in thousands)
Enterprise value (6)
Net debt to total assets (6) (7) (8)
Weighted average maturity on mortgages and senior unsecured debentures (years)
225,538
$ 8,031,000
216,374
$ 7,762,000
208,356
$ 7,319,000
42.9%
5.5
42.2%
5.9
42.9%
5.9
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FIRST CAPITAL REALTY ANNUAL REPORT 2015
Revenues, Income and Cash Flows
Revenues and other income (9)
Net operating income (“NOI”) (9) (10)
Increase in value of investment properties, net (9)
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”) (10)
Operating FFO (10) (12)
Operating FFO per diluted share
Operating FFO payout ratio
FFO
FFO per diluted share
FFO payout ratio
Adjusted Funds from Operations (“AFFO”) (10)
Operating AFFO (10) (13)
Operating AFFO per diluted share
Operating AFFO payout ratio
AFFO
AFFO per diluted share
AFFO payout ratio
Year ended December 31
2015
2014
2013
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
672,494
411,743
37,773
203,865
0.91
244,433
243,922
192,781
0.86
235,870
236,069
1.05
81.9%
$ 221,265 (11) $
$ 0.99 (11) $
86.9% (11)
$
$
$
$
$
$
$
$
242,808
1.02
84.3%
243,592
1.03
83.5%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
661,438
406,909
42,078
196,748
0.92
271,861
236,293
181,317
0.85
230,533
220,299
1.04
81.7%
208,977
0.98
86.7%
228,617
1.00
85.0%
229,770
1.01
84.2%
642,106
398,010
60,833
214,863
1.01
214,846
228,238
175,092
0.84
229,948
214,528
1.03
81.6%
215,543
1.03
81.6%
218,543
0.97
86.6%
225,210
1.00
84.0%
(1) Same Property – stable NOI and Total Same Property NOI are measures of operating performance not defined by IFRS. Refer to the “Business and Operations Review – Real
Estate Investments - Investment Property Categories” section of this MD&A.
(2) Square footage does not include potential development on properties held through the Company’s Main and Main Developments LP ("Main and Main Developments") joint
venture. Refer to the “Business and Operations Review – Properties Under Development – Main and Main Developments” section of this MD&A.
(3) Prior year amounts have not been disclosed.
(4) Calculated based on the year-to-date NOI.
(5) Includes properties classified as held for sale.
(6) Enterprise value, Net debt to total assets and Adjusted cash flow from operating activities are measures not defined by IFRS. Refer to the “Capital Structure and Liquidity –
Capital Employed” section of this MD&A.
(7) Calculated with joint ventures accounted for on the equity basis under IFRS, proportionately consolidated.
(8) Calculated net of cash balances as at the end of the period.
(9) Calculated excluding the Company’s proportionate share of joint ventures accounted for on an equity basis under IFRS.
(10) NOI, FFO, Operating FFO, AFFO and Operating AFFO are measures of operating performance not defined by IFRS. Refer to the “Results of Operations – Net Operating Income
(“NOI”), Non-IFRS Supplemental Financial Measures” section of this MD&A.
(11) Refer to the organizational restructuring discussion under the “Outlook and Current Business Environment” section of this MD&A for related impact.
(12) Previously referred to as "FFO excluding other gains (losses) and (expenses)" in the Company's 2014 Annual Report.
(13) Previously referred to as "AFFO excluding other gains (losses) and (expenses)" in the Company's 2014 Annual Report.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
11
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 better reflect 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 redevelopment activities or to
major redevelopment.
Same Property with redevelopment – 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 in close proximity 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 – consists of properties that meet the held for sale criteria under
International Financial Reporting Standards ("IFRS").
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.
12
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Reconciliation of Consolidated Balance Sheets 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 include the Company’s two equity accounted joint ventures, net of non-controlling interests, and its share of
revenues, expenses, assets and liabilities at the Company’s ownership interest.
Management presents the proportionate share of the Company's interests in its two joint ventures in the determination
of many key performance measures. Management views this method as relevant in demonstrating the Company's ability
to manage and monitor the underlying financial performance and cash flows of the related investments. This presentation
also depicts the extent to which the underlying assets are leveraged, which are included in the Company's debt metrics.
The following table provides a reconciliation of the Company’s consolidated balance sheets, as presented in its audited
annual consolidated financial statements to its proportionate interest.
As at
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
Credit facilities
Other
Total liabilities
EQUITY
Shareholders' equity
Non-controlling interest
Total equity
Total liabilities and equity
December 31, 2015 December 31, 2014
Consolidated
Balance
Sheet (1)
Adjustments to
Proportionate
Interest
Proportionate
Interest
Proportionate
Interest
$
$
$
7,779,482
29,853
160,119
97,737
211,335
8,278,526
1,024,002
224,635
3,361,575
4,610,212
3,639,952
28,362
3,668,314
$
$
$
105,141
50,702
(160,119)
—
10,056
5,780
2,662
30,953
527
34,142
—
(28,362)
(28,362)
$
$
$
7,884,623
80,555
—
97,737
221,391
8,284,306
1,026,664
255,588
3,362,102
4,644,354
3,639,952
—
3,639,952
$
$
$
7,364,745
53,776
—
205,133
267,778
7,891,432
1,176,038
7,785
3,237,338
4,421,161
3,470,271
—
3,470,271
$
8,278,526
$
5,780
$
8,284,306
$
7,891,432
(1) Certain assets & liabilities have been grouped for purposes of this reconciliation.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
13
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Portfolio Overview
As at December 31, 2015, the Company had interests in 158 investment properties – shopping centres, that were 94.8%
occupied with a total GLA of 24.4 million square feet. This compares to 158 investment properties – shopping centres
which were 96.0% occupied with a total GLA of 24.3 million square feet as at December 31, 2014. The average size of the
shopping centres is approximately 155,000 square feet, ranging from approximately 9,200 to over 577,000 square feet.
The Same Property portfolio includes shopping centres categorized in Same Property – stable and Same Property with
redevelopment. The Same Property portfolio is comprised of 144 properties totaling 21.2 million square feet of GLA with
a fair value of $6.4 billion. These properties represent 91.1% of the Company's property count, 86.9% of its GLA and
80.0% of its fair value. During the year ended December 31, 2015, these properties generated $358.2 million of NOI which
is 85.9% of the Company's total NOI.
The balance of the Company’s real estate assets consists of shopping centres with significant value enhancement
opportunities which are in various stages of redevelopment, shopping centres acquired in 2015 or 2014 and properties in
close proximity to them as well as properties held for sale.
The Company's proportionate interest in its shopping centre portfolio based on property categorization is summarized as
follows:
As at
December 31, 2015
December 31, 2014
(millions of dollars, except other data)
Number
of
Properties
GLA
(000s sq.
ft.)
Fair
Value Occupancy
Number
of
Properties
GLA
(000s sq.
ft.)
Fair
Value Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
95.8% $ 18.71
16.63
96.4%
Weighted
Average
Rate per
Occupied
Square
Foot
96.8% $ 18.48
16.38
96.9%
18,463 $ 5,691
689
2,762
18,511 $ 5,486
640
2,663
21,225
1,907
601
98
468
132
6,380
904
313
81
207
91
95.9%
83.5%
93.2%
87.1%
92.7%
100.0%
18.44
22.55
17.84
35.99
26.86
13.49
21,174
1,887
528
—
473
132
6,126
866
264
—
192
81
96.8%
89.5%
90.9%
—%
92.0%
100.0%
18.22
20.45
18.55
—
26.40
13.07
128
15
143
8
3
—
2
1
Same Property – stable
Same Property with
redevelopment
Total Same Property
Major redevelopment
Ground-up development
Acquisitions – 2015 (1)
Acquisitions – 2014
Investment properties classified
as held for sale (2) (3)
Dispositions – 2015
Total
129
15
144
8
3
—
2
1
—
—
—
—%
—
1
137
22
93.1%
12.65
158
24,431 $ 7,976
94.8% $ 18.84
158
24,331 $ 7,551
96.0% $ 18.42
(1) Properties in close proximity to existing properties.
(2) The number of properties and GLA exclude a shopping centre that is 50% held for sale. The GLA and property count for this shopping centre is included in Same Property
with redevelopment.
(3) The fair value excludes development land held for sale of $6.5 million.
14
FIRST CAPITAL REALTY ANNUAL REPORT 2015
The Company’s shopping centre portfolio summarized by geographic region is as follows:
As at
December 31, 2015
December 31, 2014
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
44
6,601 $ 2,825
96.4% $ 21.96
33%
44
6,637 $ 2,674
96.6% $ 21.23
32%
8
1,570
383
97.1%
15.64
6%
8
1,604
382
99.0% 15.11
6%
7
59
777
8,948
163
3,371
96.3%
96.5%
14.82
20.23
3%
42%
7
59
691
8,932
166
3,222
98.0% 15.40
97.1% 19.66
3%
41%
34
4,891
1,199
90.8%
15.33
16%
35
5,019
1,173
93.6% 15.02
17%
(millions of dollars,
except other data)
Central Region
Greater Toronto
Area
Golden Horseshoe
Area
London Area
Eastern Region
Greater Montreal
Area
Greater Ottawa
11
1,990
465
95.9%
16.72
6%
11
1,964
427
97.1% 16.61
7%
Area
Quebec City
Other
Western Region
Greater Calgary
Area
Greater Vancouver
Area
Greater Edmonton
Area
Red Deer
5
2
52
1,011
215
8,107
175
37
1,876
95.6%
100.0%
92.9%
10.82
12.94
15.04
3%
—%
25%
5
1
52
1,009
121
8,113
168
23
1,791
96.1% 11.20
98.2% 13.90
94.8% 14.91
3%
—%
27%
15
2,553
977
97.6%
22.54
13%
15
2,454
911
98.3% 21.81
12%
19
2,177
927
94.5%
22.26
10%
19
2,192
870
93.8% 22.22
10%
12
2,402
752
92.1%
18.91
9%
12
2,396
684
95.0% 18.38
9%
1
47
244
7,376
73
2,729
95.2%
94.8%
20.17
21.23
1%
33%
1
47
244
7,286
73
2,538
98.8% 19.73
95.9% 20.74
1%
32%
Total
158 24,431 $ 7,976
94.8% $ 18.84
100%
158 24,331 $ 7,551
96.0% $ 18.42
100%
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 $3.7 billion
(2014 - $3.5 billion) or 46% (2014 - 46%) of the Company's aggregate $8.0 billion value. These assets, as a percentage
of the Company's aggregate value, reflects the Company's focus on larger, but fewer strategic assets in its target
urban markets.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
15
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 as follows:
(millions of dollars)
Balance at beginning of period
Acquisitions
Shopping centres and additional adjacent spaces
Land parcels in close proximity to existing properties
Development activities and property improvements
Reclassifications from development land
Reclassification from residential development inventory
Increase (decrease) in value of investment properties, net
Dispositions
Reclassification to equity accounted joint ventures
Other changes
Balance at end of period
Investment in joint ventures – shopping centres (1)
Proportionate interest end of period (2)
Year ended December 31
2015
7,474
95
1
275
2
—
40
(23)
—
7
7,871
105
7,976
$
$
$
2014
7,126
170
38
246
41
25
47
(184)
(34)
(1)
7,474
77
7,551
$
$
$
(1) At the Company's proportionate interest.
(2) Includes investment properties classified as held for sale as at December 31, 2015 and 2014 totaling $91 million and $187 million, respectively.
2015 Acquisitions
Income-producing properties – Shopping Centres and Additional Adjacent Spaces
During the year ended December 31, 2015, the Company acquired ten properties in close proximity to existing shopping
centres, as summarized in the table below:
Count
Property
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
880-16th Ave., 1508-8th Street (Mount Royal Village)
Yorkville Village adjacent properties
1030 King St. West (Shops at King Liberty)
930, 932-17th Ave. SW (Mount Royal Village)
43 Hanna Ave. (Shops at King Liberty)
97 McKenzie Town Blvd. (McKenzie Towne Centre)
850-16th Avenue (Mount Royal Village)
3270 Rue Langelier (Centre Commercial Domaine)
1000 Wellington (Griffintown)
3903-3945, 34 St. NW (Meadowbrook II)(1)
Total
City/Province
Calgary, AB
Toronto, ON
Toronto, ON
Calgary, AB
Toronto, ON
Calgary, AB
Calgary, AB
Montreal, QC
Montreal, QC
Edmonton, AB
Quarter
Acquired
Q1
Q1-Q3
Q2
Q2
Q3
Q3
Q3
Q4
Q4
Q4
GLA (square
feet)
Acquisition Cost
(in millions)
$
42,400
—
17,900
9,600
1,200
7,900
10,600
16,600
22,400
28,600
157,200
$
23.4
2.3
25.7
6.0
0.8
7.5
6.2
2.8
14.3
6.3
95.3
(1) The Company previously owned 50% interest in the property, and the Company acquired the remaining 50% interest in 2015. The square footage acquired was previously
included in the Company’s total gross leasable area.
16
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Development Properties
During the year ended December 31, 2015, the Company invested $1.4 million in the acquisition of two development
properties, comprising 0.2 acres for future development of retail and mixed-use space, as summarized in the table below:
Count
Property Name
Land parcels adjacent to existing properties
City/Province
Quarter
Acquired
Acreage
Acquisition
Cost
(in millions)
1.
2.
3009 Blvd. St-Charles (Centre Kirkland-St. Charles)
Kirkland, QC
1200 Block of Marine Drive (Pemberton Plaza)
North Vancouver, BC
Q2
Q2
Total land parcels adjacent to existing properties
0.2
—
0.2
$
$
0.9
0.5
1.4
2014 Acquisitions
Income-producing Properties – Shopping Centres and Additional Adjacent Spaces
2014 income producing property acquisitions are summarized in the table below:
Count Property Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Seton Gateway
Plaza Baie d’Urfe, 90 Morgan St. (Centre
Commerciale Beaconsfield)
10416 – 80 Avenue (Old Strathcona)
8031 Williams Road (Broadmoor Shopping Centre)
Shops at King Liberty (adjacent property)
Kingsway Mews (adjacent land)
25 Industrial Road (Leaside Village Assets)
Douglas Crescent (Langley Mall)
100 Peel St. (Griffintown)
Shops of Oakville South (South Oakville Properties)
801 Columbia Street (Shops at New West)
150 East Liberty Street (Shops at King Liberty)
Yorkville Village Assets (adjacent properties)
Lanaudiere Assets
Tim Horton's (Place Quatre Bourgeois)
3080 Yonge Street (adjacent land)
940 17th Avenue SW (Mount Royal Village)
128 Atlantic Avenue (Shops at King Liberty)
The Brewery District (land parcel)
Total
City/Province
Calgary, AB
Baie d’Urfe, QC
Edmonton, AB
Richmond, BC
Toronto, ON
Edmonton, AB
Toronto, ON
Langley, BC
Montreal, QC
Toronto, ON
New Westminster,
BC
Toronto, ON
Toronto, ON
Montreal, QC
Quebec City, QC
Toronto, ON
Calgary , AB
Toronto, ON
Edmonton, AB
Quarter
Acquired
Q1
Q1
Q1
Q1
Q1
Q1
Q2
Q2
Q3
Q3
Q3
Q3
Q1-Q4
Q4
Q4
Q4
Q4
Q4
Q4
(1)
GLA
(square
feet)
128,000
60,600
14,000
—
—
—
—
—
127,000
99,000
—
1,000
28,200
—
3,200
—
7,100
1,000
—
469,100
Acreage
Acquisition
Cost
(in millions)
—
—
—
0.3
—
0.3
1.3
0.5
—
—
0.2
—
0.1
—
—
—
—
—
0.8
3.5
$
(1)
$
(2)
36.6
9.4
3.0
1.8
1.4
0.5
2.9
0.8
42.2
27.1
2.2
1.4
32.8
32.6
3.2
2.6
4.6
1.4
1.4
$
207.9
(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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
17
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Development Properties
2014 development land acquisitions are summarized in the table below:
Count
1.
2.
Property Name
Main and Main Developments (1)
Main and Main Developments (1)
Total
City/Province
Toronto, ON
Toronto, ON
Quarter
Acquired
Q1
Q2
Acreage
Acquisition Cost
(in millions)
0.2 $
0.2
0.4 $
3.6
15.4
19.0
(1) Refer to the “2015 Investment Property Development and Redevelopment Activities – Main and Main Developments” section of this MD&A.
2015 Dispositions
During the year ended December 31, 2015, the Company sold three properties, representing 136,700 square feet of GLA
for gross proceeds of $23.1 million. These dispositions are in line with the Company’s strategy of increasing the portfolio’s
focus on core urban markets.
Count
Property Name
1.
2.
3.
Plaza Delson
717 Hillsdale Ave.
497-501 Wellington Rd.
Total
2014 Dispositions
2014 dispositions are summarized in the table below:
Count Property Name
1.
2.
3.
4.
5.
6.
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
7.
8.
9.
10. Main and Main Developments
11.
12.
13.
14.
15.
16.
Northfield Centre
31 Sunpark Plaza
Nepean Medical Centre
Place Bordeaux
Valley Creek Plaza
Plaza Delson
Total
City/Province
Delson, QC
Toronto, ON
London, ON
Quarter
Sold
GLA
(square feet)
Acreage
Gross Sales
Price
(in millions)
Q1
Q2
Q3
136,700
—
—
136,700
—
0.1
0.6
0.7
$
23.1
City/Province
Laval, QC
Edmonton, AB
Nanaimo, BC
Brampton, ON
Oakville, ON
Edmonton, AB
Toronto, ON
Kitchener, ON
Kitchener, ON
Toronto, ON
Kitchener, ON
Calgary, AB
Ottawa, ON
Gatineau, QC
Mississauga, ON
Delson, QC
Quarter
Sold
GLA (square
feet)
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
Gross Sales
Price
(in millions)
Acreage
—
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 “2015 Investment Property Development and Redevelopment Activities – Main and Main Developments” section of this MD&A for additional information.
18
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Impact of Acquisitions and Dispositions on 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, 2015 and 2014 is as follows:
Central Region
Eastern Region
Western Region
Total
Capital Expenditures
Run rate NOI of
properties acquired
Run rate NOI of
properties sold
2015
902
615
2,340
3,857
$
$
2014
1,776
5,420
2,511
9,707
$
$
2015
—
1,510
—
1,510
$
$
$
2014
6,594
1,850
4,281
$
12,725
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 generally not recoverable from
tenants. However, certain leases provide the ability to recover from tenants, over time, a portion of capital expenditures
to maintain the physical aspects of the Company’s shopping centres. Revenue sustaining capital expenditures generally
include tenant improvement costs related to new and renewal leasing, and capital expenditures required to maintain the
physical aspects of the shopping centres, such as roof replacements 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, a strategic repositioning after an acquisition, or in advance
of a planned disposition to maximize the potential sale price. 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 redeveloped to meet the Company’s standards. The Company also considers property age, the potential effects on
occupancy and future rent per square foot, the time leasable space has been vacant and other factors when assessing
whether a capital expenditure is revenue enhancing or sustaining.
Capital expenditures incurred in development and redevelopment projects include pre-development costs, direct
construction costs, leasing costs, tenant improvements, borrowing costs, and overhead including applicable salaries and
other direct costs of internal staff directly attributable to the projects under active development.
Capital expenditures on investment properties by type and property category are as follows:
Year ended December 31
Revenue sustaining
Revenue enhancing
Expenditures recoverable from tenants
Development expenditures
Total
2015
Total Same
Property
Other Property
Categories
$
18,394 $
44,076
9,991
29,378
— $
2,799
277
171,060
Total
18,394 $
46,875
10,268
200,438
$
101,839 $
174,136 $
275,975 $
2014
Total
15,822
48,269
11,518
177,892
253,501
FIRST CAPITAL REALTY ANNUAL REPORT 2015
19
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
During the year ended December 31, 2015, capital expenditures totaled $276.0 million compared to $253.5 million
for the prior year. The $22.5 million increase was primarily the result of higher development expenditures related to
large ground-up and major redevelopment projects underway during the year ended December 31, 2015 including
Yorkville Village, King High Line and The Edmonton Brewery District. Revenue sustaining capital expenditures
increased by $2.6 million over the prior year primarily as a result of a major infrastructure project undertaken and
completed at a property during 2015.
Fair Valuation of Investment Properties
During the year ended December 31, 2015, the weighted average stabilized capitalization rate of the Company’s
investment property portfolio decreased from 5.8% as at December 31, 2014 to 5.7%, including the impact of
dispositions, acquisitions, and development activities. The Company experienced a decrease in the weighted average
stabilized capitalization rate due to capitalization rate compression throughout the portfolio, primarily in the Greater
Vancouver Area. The Company’s proportionate interest in the net increase in value of investment properties was
$45.0 million for the year ended December 31, 2015.
The values of the Company’s proportionate interest in its shopping centres and associated capitalization rates by region
were as follows as at December 31, 2015 and December 31, 2014:
As at December 31, 2015
(millions of dollars, except other data)
Central Region
Eastern Region
Western Region
Total or Weighted Average
As at December 31, 2014
(millions of dollars, except other data)
Central Region
Eastern Region
Western Region
Total or Weighted Average
Capitalization Rate
Number of
Properties
Weighted
Average
59
52
47
158
5.5%
6.1%
5.5%
5.7%
Median
Range
Fair Value
5.8%
6.0%
5.8%
5.8%
4.5%-7.5% $
5.3%-7.5%
4.5%-6.5%
4.5%-7.5% $
3,371
1,876
2,729
7,976
Capitalization Rate
Number of
Properties
Weighted
Average
59
52
47
158
5.6%
6.2%
5.7%
5.8%
Median
Range
Fair Value
5.8%
6.0%
5.8%
6.0%
4.8%-8.2% $
5.0%-7.5%
5.0%-7.0%
4.8%-8.2% $
3,222
1,791
2,538
7,551
Properties Under Development
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 activities include
redevelopment on stable properties, major redevelopment, and ground-up projects. Additionally, properties under
development include land with future development potential. All development activities are strategically managed to
reduce risk, and properties are generally developed after obtaining anchor lease commitments. Individual buildings within
a development are generally constructed only after obtaining commitments on a substantial portion of the space.
Development Pipeline
The Company has identified approximately 13.9 million square feet of incremental density available in the portfolio for
future development of which 1.0 million square feet is currently under development.
20
FIRST CAPITAL REALTY ANNUAL REPORT 2015
A breakdown of the active development and incremental density within the portfolio by component and type is as follows:
As at December 31, 2015
Active Development
Same Property with redevelopment
Major redevelopment
Ground-up development
Future uncommitted incremental density
Medium term
Long term
Total development pipeline
Square Feet (in thousands)
Retail
Residential
53
254
419
726
1,600
1,000
2,600
3,326
—
—
312
312
5,800
4,500
10,300
10,612
Total
53
254
731
1,038
7,400
5,500
12,900
13,938
The Company will assess its course of action with respect to the 5.8 million square feet of uncommitted potential medium
term residential density within its portfolio on a case by case basis given the specifics of each property. The Company’s
course of action for each property may include selling the property, selling the residential density rights, entering into a
joint venture with a partner to develop the property or undertaking the development of the property on its own. The
majority of this density is expected to commence development over the medium term (within approximately seven
years).
The Company has additionally identified long term development potential of up to 1.0 million square feet of retail and
4.5 million square feet of residential GLA, which may become realizable over the longer term.
In addition to the Company's development pipeline, information regarding the development potential of the Company's
Main and Main Developments joint venture can be found in the "Main and Main Developments" section of this MD&A.
Development Spend by Component
Development and redevelopment projects may occur in phases with the completed component of the project included
in income-producing properties and the incomplete component included in properties under development. As at
December 31, 2015, the Company had $564 million of properties and land under development at invested cost.
A breakdown of invested cost on development activities by component is as follows:
As at December 31, 2015
(in millions of dollars)
Same Property with redevelopment
Major redevelopment
Ground-up development
Total 2015 development and redevelopment activities
Total development land and adjacent land parcels
Total
Number of
Properties
Square Feet (1) (2)
(in thousands)
Active
Development
Pre-
Development
Invested Cost
4
8
3
15
53 $
254
731
1,038 $
22 $
149
128
299 $
$
$
6 $
102
19
127 $
138 $
265 $
Total
28
251
147
426
138
564
(1) Includes 312,000 square feet of residential rental apartments for which the Company's interest is 50%.
(2) Square footage related to active development only.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
21
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
2015 Development and Redevelopment Coming Online and Space Going Offline
Development and redevelopment coming online includes both leased and unleased space brought online 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.
During the three months and year ended December 31, 2015, the Company completed 102,000 and 248,000 square
feet, respectively, in development and redevelopment activities. During the year, 235,000 square feet of this space was
occupied at an average rental rate of $28.72 per square foot, 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 and redevelopment activities.
For the three months ended December 31, 2015, the Company had tenant closures for redevelopment of 4,000 square
feet at an average rental rate of $26.93 per square foot. For the year ended December 31, 2015, the Company had tenant
closures for redevelopment of 90,000 square feet at an average rental rate of $17.06 per square foot. Of this 90,000
square feet, 30,000 square feet was demolished during the fourth quarter.
Active Development and Redevelopment Activities
The Company’s properties with development and redevelopment activities currently in progress are expected to have a
weighted average going-in NOI yield of 5.3% upon completion. 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 current forecast costs, if final lease terms include shortfalls from base
rent, operating cost or property tax recoveries, or if there are other unforeseen events that cause actual results to differ
from assumptions. The quality of the Company’s construction is consistent with its strategy of long-term ownership and
value creation, and factors in the Company's high standards in construction, lighting, parking, access, pedestrian
amenities, accessibility, as well as development to LEED standards.
A summary of the Company's development and redevelopment activities is as follows:
As at December 31, 2015
Same Property with redevelopment
Active development
Major redevelopment
Active development
Ground-up development
Active development and at completion
Total
Planned
Square Feet
Upon
Completion
Existing
Square Feet
(in thousands)
Square Feet
Under
Development
Total
Estimated
Cost incl.
Land
Under Active
Development
Income-
producing
Properties
Estimated
Cost to
Complete
at invested Cost (in millions)
53
952
—
698
1,332
2,337
601
1,299
53 $
41 $
22 $
— $
19
254
731
765
444
149
128
504
202
1,038 $
1,250 $
299 $
706 $
112
114
245
Costs to complete the development, redevelopment and expansion activities underway are estimated to be
approximately $245 million. Costs to complete Same Property related developments are planned at $19 million in 2016.
Costs to complete major redevelopments and ground-up developments, respectively, are planned at $64 million and
$51 million in 2016, and $48 million and $63 million thereafter.
The Company's development and redevelopment activities are presented in the tables below by investment property
category and additionally by development status (active development, at completion or in pre-development).
22
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Same Property with Redevelopment
The Company classifies 15 properties as Same Property with redevelopment including the four properties listed in the
table below, seven properties with projects completed in prior periods and four in early pre-development planning stage.
Of the approximately 53,000 square feet under active redevelopment, 36,000 square feet is subject to committed leases
at a weighted average rate of $35.59 per square foot. The Company is currently in various stages of negotiations for the
remaining planned space.
Highlights of the Company’s Same Property with redevelopment projects as at December 31, 2015 are as follows:
As at December 31, 2015
Count/Property
Active redevelopment
1. Wellington Corners, London, ON
Kingston Square, Toronto, ON (2)
2.
Pemberton Plaza, Vancouver, BC
Tenants
BMO
Tim Hortons, The
Beer Store
TD Canada Trust,
Willowbrae
Childcare Academy
3.
4.
Fairway Plaza, Kitchener, ON
Loblaws Plaza, Ottawa, ON
Total Same Property with redevelopment
15
4
53
(1) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively.
(2) This property forms part of an existing stable income-producing property.
(in millions)
Square Feet
Under
Development
(in thousands)
Target
Completion
Date (1)
Total
Estimated
Cost incl.
Land
Invested
Cost
Estimated
Cost to
Complete
4
8
H1 2016 $
H1 2016
2 $
8
1 $
6 $
22
H1 2016
18
H1 2016
H2 2016
9
4
10
4
1
1
2
8
5
3
$
41 $
22 $
19
FIRST CAPITAL REALTY ANNUAL REPORT 2015
23
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Major Redevelopment
The Company classifies eight properties as properties with major redevelopment activities. Of the approximately 254,000
square feet under active redevelopment, 95,000 square feet is subject to committed leases at a weighted average rate of
$33.95 per square foot. As construction on these redevelopment projects occurs in phases, there continue to be ongoing
negotiations in various stages with certain retailers for the remaining planned space.
Highlights of the Company’s current major redevelopment underway as at December 31, 2015, including costs for
completed phases, are as follows:
As at December 31, 2015
Count/Property
Active development
Major Tenants/Development
Status
Planned
Square Feet
Upon
Completion
Completed or
Existing Square
Feet (1)
Square Feet
Under
Development
Target
Completion
Date (2)
Total
Estimated
Cost incl.
Land
Invested Cost
Estimated
Cost to
Complete
(in thousands)
(in millions)
1.
Yorkville Village Assets,
Toronto, ON
Whole Foods Market,
Equinox Fitness
2.
Carre Lucerne Assets,
Provigo, Pharmaprix,
Montreal, QC
Scotiabank
3.
3080 Yonge Street,
Toronto, ON
Loblaws
4. Mount Royal Village
Assets, Calgary, AB
London Drugs, Urban
Fare, GoodLife Fitness,
Canadian Tire
Pre-development
1. Humbertown Shopping
Centre, Toronto, ON
Advanced entitlements
2.
Place Portobello Assets,
Brossard, QC
Planning underway
3.
Semiahmoo Shopping
Planning underway
Centre,
Surrey, BC
4. Macleod Trail Assets,
Calgary, AB
Planning underway
Total major redevelopment
59
H1 2017 (3) $
377 $
339 $
38
38
62
H2 2017
H2 2017
55
112
52
78
95
H1 2018
221
184
3
34
37
254
$
765 $
653 $
112
285
118
245
304
952
226
80
183
209
698
108
577
230
300
1,215
1,913
—
254
$
102 $
—
$
765 $
755 $
112
(1) Includes vacant units held for redevelopment.
(2) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively.
(3) Mall completion is H1 2017; partial redevelopment of street assets is 2018 and beyond.
24
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Ground-up Development
The Company classifies three properties as ground-up development properties underway or completed. Properties under
active development are comprised of approximately 731,000 square feet of which 419,000 square feet is retail space,
including 101,000 square feet subject to committed leases at a weighted average rate of $27.61 per square foot, and
312,000 square feet is residential rental apartments. As construction on ground-up developments occurs in phases, there
continues to be ongoing negotiations in various stages with retailers for the remaining planned space.
Highlights of the Company’s current ground-up projects underway as at December 31, 2015, including costs for completed
phases, are as follows:
As at December 31, 2015
Count/Property
1.
Active development
The Brewery District
Edmonton, AB (1)
(in thousands)
(in millions)
Major Tenants/Development
Status
Planned
Square Feet
Upon
Completion
Completed
or Existing
Square
Feet (1)
Square Feet
Under
Development
Target
Completion
Date (4)
Total
Estimated
Cost incl.
Land
Invested
Cost
Estimated
Cost to
Complete
Loblaws City Market,
GoodLife Fitness,
Shoppers Drug Mart,
Mountain Equipment
Co-op
308
43
265 H2 2017 $
90 $
62 $
28
King High Line (Shops at King Liberty),
Toronto, ON (1) (2) (3)
1.
At completion
Place Viau Assets,
Montreal, QC
Walmart, Michaels,
Marshalls, Dollarama
2.
Carrefour du Plateau-des-Grives,
Canadian Tire, Sports
Gatineau, QC
Experts
Pre-development
Rutherford Marketplace, Vaughan, ON
(Residential) (2)
466
774
335
223
558
—
—
—
43
335
223
558
—
—
466 H2 2018
155
72
83
731
$
245 $
134 $
111
— H1 2015 $
144 $
141 $
— H1 2015
55
55
—
—
—
$
199 $
196 $
$
$
19
19
3
—
3
Total ground-up development
1,332
601
731
$
444 $
349 $
114
(1) The Company has a 50% ownership interest in the property.
(2) These land parcels are additional phases forming part of existing stable income-producing properties.
(3) The square feet under development comprises 154,000 square feet of retail and 312,000 square feet of residential space. The Company and its development partner have
entered into a binding agreement to sell, upon substantial completion, a 1/3 managing interest in the residential component of the property to Canadian Apartment
Properties REIT.
(4) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
25
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Main and Main Developments
The Company has an interest in a Toronto and Ottawa urban development partnership (known as M+M Urban Realty LP
(“Main and Main Urban Realty”)) between the Company, Main and Main Developments (itself, a joint venture between the
Company and a private developer) and a prominent Canadian institutional investor. The partners of Main and Main Urban
Realty have collectively committed a total of $320.0 million of equity capital for current and future growth and the
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 $96.7 million has been invested as at December 31, 2015). Main and Main
Developments was retained to provide asset and property management services for the real estate portfolio.
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 22 assembly projects are located on a major street in
Toronto or Ottawa. Two projects are in the active development phase and seven projects are in the pre-development
planning stage. As at December 31, 2015, the fair value of the Main and Main Urban Realty property portfolio was
approximately $248.1 million.
Main and Main Urban Realty has identified a total of approximately 2.5 million square feet of additional GLA available in its
portfolio, comprised of 0.5 million square feet for future retail and 2.0 million square feet for future residential
development. The Company's proportionate interest in Main and Main Urban Realty is 37.7%.
Leasing and Occupancy
Total Same Property occupancy decreased from 96.8% as at December 31, 2014 to 95.9% as at December 31, 2015
primarily as a result of the closure of a Target store in the second quarter, as well as the closure of a Canadian Tire store
in the third quarter. Total portfolio occupancy, which decreased from 96.0% as at December 31, 2014 to 94.8% as at
December 31, 2015, was primarily driven by the decrease in total Same Property occupancy, as well as the closure of
another Target store (included in the major redevelopment property category), partially offset by the impact of the
Company's leasing, development and redevelopment initiatives.
Occupancy of the Company's shopping centre portfolio by property categorization was as follows:
As at
December 31, 2015
December 31, 2014
Total
Occupied
Square Feet
% Occupied
Weighted
Average
Rate per
Occupied
Square Foot
18.71
16.63
18.44
22.55
17.84
13.49
18.68
35.99
26.86
—
95.8% $
96.4%
95.9%
83.5%
93.2%
100.0%
94.9%
87.1%
92.7%
—%
94.8% $
18.84
Total
Occupied
Square Feet
% Occupied
Weighted
Average Rate
per Occupied
Square Foot
17,911
2,582
20,493
1,690
480
132
22,795
—
434
127
23,356
96.8% $
96.9%
96.8%
89.5%
90.9%
100.0%
96.1%
—%
92.0%
93.1%
96.0% $
18.48
16.38
18.22
20.45
18.55
13.07
18.36
—
26.40
12.65
18.42
17,693
2,662
20,355
1,593
560
132
22,640
85
434
—
23,159
(square feet in thousands, except other data)
Same Property – stable
Same Property with redevelopment
Total Same Property
Major redevelopment
Ground-up development
Investment properties classified as held for sale
Total portfolio before acquisitions and dispositions
Acquisitions – 2015
Acquisitions – 2014
Dispositions – 2015
Total
26
FIRST CAPITAL REALTY ANNUAL REPORT 2015
During the three months ended December 31, 2015, the Company achieved a 7.6% overall rate increase per occupied
square foot on 327,000 square feet of renewal leases over the expiring lease rates, of which the rate increase for the
Same Property portfolio was 7.9% on 273,000 square feet of renewals.
The average rental rate per occupied square foot for the total portfolio increased from $18.83 as at September 30, 2015
to $18.84 as at December 31, 2015 primarily due to rent escalations.
Changes in the Company’s gross leasable area and occupancy for the total portfolio for the fourth quarter are set out
below:
Three months ended
December 31, 2015
Total Same Property
Major redevelopment, ground-
up, acquisitions and
dispositions
Vacancy
Total Portfolio
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
September 30, 2015 (1)
20,243
95.8% $ 18.50
2,721
87.3% $ 21.28
163
0.7%
1,129
4.7% 24,256
94.7% $ 18.83
Tenant openings
Tenant closures
Tenant closures for
redevelopment
Developments – tenant
openings coming
online (2)
Demolitions
Reclassification
Total portfolio before
2015 acquisitions
and dispositions
Acquisitions (at date of
acquisition)
206
(183)
(2)
4
—
87
16.83
(19.19)
(35.00)
22.85
—
—
21
(27)
(2)
98
—
(23)
15.98
(18.62)
(15.44)
25.41
—
—
—
—
4
—
(30)
(4)
(227)
210
—
—
—
7
—
—
—
102
(30)
67
16.75
(19.12)
(26.93)
25.31
—
—
20,355
96.0% $ 18.44
2,788
87.6% $ 21.65
133
0.5%
1,119
4.6% 24,395
94.9% $ 18.83
—
—%
—
16
70.8%
40.58
—
20
36
44.4%
40.58
December 31, 2015
20,355
95.9% $ 18.44
2,804
87.5% $ 21.75
133
0.5%
1,139
4.7% 24,431
94.8% $ 18.84
Renewals
Renewals – expired
273
(273)
Net change per square foot from renewals
$ 22.35
$ (20.71)
$ 1.64
54
(54)
% Increase on renewal of expiring rents
7.9 %
$ 24.61
$ (23.25)
$
1.36
5.8 %
327
(327)
$ 22.73
$ (21.13)
$
1.60
7.6 %
(1) Opening balance is revised to reflect property categories consistent with current period status.
(2) For further discussion of development and redevelopment coming online and under development vacancy, refer to the “Properties Under Development – 2015
Development and Redevelopment Coming Online and Space Going Offline” section of this MD&A.
During the year ended December 31, 2015, the Company achieved a 8.6% overall rate increase per occupied square foot
on 1,761,000 square feet of renewal leases over the expiring lease rates, of which the rate increase for the Same Property
portfolio was 9.2% on 1,607,000 square feet of renewals.
The average rental rate per occupied square foot for the total portfolio increased from $18.42 as at December 31, 2014
to $18.84 as at December 31, 2015 primarily due to rent escalations. 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
27
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Changes in the Company’s gross leasable area and occupancy for the total portfolio for the year are set out below:
Year ended December
31, 2015
Total Same Property
Major redevelopment, ground-
up, acquisitions and dispositions
Vacancy
Total Portfolio
Tenant openings
Tenant closures
Tenant closures for
redevelopment
Developments –
tenant openings
coming online (2)
Demolitions
Reclassification
Total portfolio before
2015 acquisitions
and dispositions
Acquisitions (at date
of acquisition)
Dispositions (at date
of disposition)
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)
December 31, 2014 (1)
20,493
96.8% $ 18.21
2,863
90.7% $ 19.87
661
(924)
(30)
37
—
110
18.20
(16.71)
(22.41)
87
(228)
(60)
24.56
198
—
—
—
(14)
20.85
(13.74)
(14.39)
29.49
—
—
Vacant
Square Feet
(thousands)
%
Total
Square Feet
(thousands)
Occupied
Square
Feet %
%
Weighted
Average Rate
per Occupied
Square Foot
0.3%
891
3.7% 24,331
96.0% $
18.42
(748)
1,152
—
13
(75)
(117)
—
—
—
248
(168)
31
18.51
(16.12)
(17.06)
28.72
—
—
84
—
—
90
—
(93)
52
20,347
96.0% $ 18.45
2,846
87.9% $ 20.86
133
0.5%
1,116
4.6% 24,442
94.9% $
18.74
8
37.7%
25.10
85
81.9%
35.74
—
—
—
(127)
93.1%
(12.65)
—
—
33
(10)
126
73.8%
34.83
(137)
92.7%
(12.65)
December 31, 2015
20,355
95.9% $ 18.44
2,804
87.5% $ 21.75
133
0.5%
1,139
4.7% 24,431
94.8% $
18.84
Renewals
Renewals – expired
1,607
(1,607)
Net change per square foot from renewals
% Increase on renewal of expiring rents
% Increase in rate per square foot –
openings versus all closures
$ 20.12
$ (18.42)
$
1.70
9.2%
7.8%
154
(154)
$ 25.79
$ (24.94)
$
0.85
3.4%
50.3%
1,761
(1,761)
$
20.62
$ (18.99)
$
1.63
8.6%
14.3%
(1) Opening balance is revised to reflect property categories consistent with current period status.
(2) For further discussion of development and redevelopment coming online and under development vacancy, refer to the “Properties Under Development – 2015
Development and Redevelopment Coming Online and Space Going Offline” section of this MD&A.
28
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Top Forty Tenants
As at December 31, 2015, 54.9% of the Company’s annualized minimum rent came from its top 40 tenants
(December 31, 2014 – 55.1%). Of these rents, 76.1% came from tenants that have investment grade credit ratings and
who represent many of Canada’s leading supermarkets, drugstores, national and discount retailers, banks and other
familiar shopping destinations. The weighted average lease term for the Company’s top 10 tenants was 6.5 years as at
December 31, 2015, excluding contractual renewal options.
Rank
Tenant (1) (2)
Loblaw Companies Limited (“Loblaw”)
1.
Sobeys
2.
Metro
3.
Walmart
4.
Canadian Tire
5.
TD Canada Trust
6.
RBC Royal Bank
7.
Dollarama
8.
GoodLife Fitness
9.
10.
CIBC
Top 10 Tenants Total
Rona
11.
LCBO
12.
Rexall
13.
BMO
14.
London Drugs
15.
Restaurant Brands International
16.
Staples
17.
Scotiabank
18.
Save-On-Foods
19.
Longo's
20.
Starbucks
21.
Jean Coutu
22.
Subway
23.
24.
Cara
25. Winners
26. Whole Foods Market
27. Michaels
28.
SAQ
29. McDonald's
Toys "R" Us
30.
Reitmans
31.
The Beer Store
32.
Yum! Brands
33.
34.
The Home Depot
35. Williams-Sonoma
36.
37.
38.
39.
40.
Top 40 Tenants Total
Liquor Stores
Pet Valu
Bulk Barn
Uniprix
Best Buy
Number
of Stores
Square Feet
(thousands)
100
55
33
15
25
46
47
51
25
36
433
4
21
19
30
9
55
11
22
6
4
44
12
73
21
6
2
5
20
21
3
24
11
28
2
2
14
19
12
6
3
942
2,484
1,946
1,172
1,483
855
243
250
495
562
202
9,692
421
214
170
135
231
144
278
121
267
170
71
157
87
94
193
90
110
88
84
127
124
66
53
219
38
54
54
58
68
88
13,766
Percent of
Total Gross
Leasable Area
10.2%
8.0%
4.8%
6.1%
3.5%
1.0%
1.0%
2.0%
2.3%
0.8%
39.7%
1.7%
0.9%
0.7%
0.6%
0.9%
0.6%
1.1%
0.5%
1.1%
0.7%
0.3%
0.6%
0.4%
0.4%
0.8%
0.4%
0.4%
0.4%
0.3%
0.5%
0.5%
0.3%
0.2%
0.9%
0.2%
0.2%
0.2%
0.2%
0.3%
0.4%
56.4%
Percent of Total
Annualized
Minimum Rent
10.4%
6.6%
3.5%
3.0%
2.8%
2.1%
2.0%
1.8%
1.8%
1.5%
35.5%
1.4%
1.3%
1.1%
1.1%
1.0%
1.0%
1.0%
0.9%
0.9%
0.8%
0.7%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.5%
0.5%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.3%
0.3%
0.3%
0.3%
0.3%
54.9%
DBRS Credit
Rating
S&P Credit
Rating
Moody’s
Credit Rating
BBB
BBB (low)
BBB
AA
BBB (high)
AA
AA
BBB
AA
BB (high)
AA (low)
AA
BB (low)
AA
BBB
BBB-
BBB
AA
BBB+
AA-
AA-
A+
BB+
A+
A+
B+
BBB-
A+
Aa2
Aa1
Aa3
Aa3
Aa2
Aa3
Baa2
Aa2
A (high)
AA (low)
A
A-
A2
A+
BBB-
A+
BBB+
B-
A+
BB
A
A2
Baa3
Aa2
Baa1
B3
Aa2
Ba3
A2
BB+
Baa1
(1) The names noted above may be the names of the parent entities and are not necessarily the covenants under the leases.
(2) Tenants noted above include all banners of the respective retailer.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
29
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Lease Maturity Profile
The Company’s lease maturity profile for its shopping centre portfolio as at December 31, 2015, excluding any contractual
renewal options, is as follows:
Maturity Date
Month-to-month tenants (1)
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Thereafter
Total or Weighted Average
Number of
Stores
Occupied
Square Feet
(thousands)
Percent of Total
Square Feet
1.2%
8.6%
12.0%
12.2%
11.0%
10.8%
6.5%
6.5%
6.2%
4.4%
4.1%
1.7%
9.6%
$
Annualized
Minimum Rent at
Expiration
(thousands)
4,769
32,462
51,788
53,894
56,053
52,004
33,319
37,843
30,951
23,177
24,551
9,742
50,111
Percent of Total
Annualized
Minimum Rent
1.0%
7.0%
11.2%
11.7%
12.2%
11.3%
7.2%
8.2%
6.7%
5.0%
5.3%
2.1%
11.1%
$
Average Annual
Minimum Rent
per Square Foot
at Expiration
16.58
15.42
17.69
18.13
20.77
19.75
21.10
24.00
20.42
21.46
24.67
23.51
21.11
288
2,105
2,928
2,972
2,698
2,633
1,579
1,577
1,515
1,080
995
414
2,375
23,159
94.8%
$
460,664
100.0%
$
19.89
145
575
599
607
591
544
251
240
183
176
187
45
94
4,237
(1) Contains tenants on over hold including renewals and extensions under negotiation, month-to-month tenants and tenants in space at properties with future
redevelopment.
The weighted average lease term for the portfolio was 5.5 years as at December 31, 2015, excluding contractual renewal
options, and including month-to-month and other short-term leases with tenants in properties with pre-development
activities underway.
The Company's expected future income through maturity from its existing in-place leases for its shopping centre portfolio
as at December 31, 2015 included:
(thousands of dollars) Revenue Recognition Period
Q1, 2016
Q2, 2016
Q3, 2016
Q4, 2016
Total
2017
2018
2019
2020
Thereafter
Total
Estimated Income
from Operating
and Tax
Recoveries (2)
Minimum
Rent (1)
$
105,841 $
105,518
104,869
102,808
$
419,036 $
378,087
334,453
281,666
228,078
875,379
55,957
55,784
55,412
54,370
221,523
200,125
177,021
149,080
121,111
468,357
$ 2,516,699 $
1,337,217
(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.
30
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Loans, Mortgages and Other Real Estate Assets
As at
Non-current
Loans and mortgages receivable (a)
Available-for-sale ("AFS") investment in limited partnership
Total non-current
Current
Loans and mortgages receivable (a)
Fair value through profit or loss ("FVTPL") investments in equity securities (b)
AFS investments in equity securities
Other receivable
Total current
Total
December 31, 2015 December 31, 2014
$
$
$
$
$
120,173
4,269
124,442
23,499
11,907
—
70
35,476
159,918
$
$
$
$
$
92,132
4,099
96,231
46,067
33,370
292
249
79,978
176,209
(a) Loans and mortgages receivable are primarily secured by interests in investment properties or shares of entities
owning investment properties.
(b) The Company invests from time to time in publicly traded real estate and related securities. These securities are
recorded at market value. Realized and unrealized gains and losses on FVTPL securities are recorded in other gains
(losses) and (expenses).
RESULTS OF OPERATIONS
Net Income
Net income attributable to common shareholders
Net income per share attributable to common
shareholders (diluted)
Weighted average number of common shares – diluted
Three months ended December 31
Year ended December 31
2015
38,947
0.17
$
$
2014
44,807
0.21
2015
203,865
0.91
$
$
$
$
2014
196,748
0.92
$
$
(in thousands)
226,537
226,114
235,870
230,533
For the three months ended December 31, 2015, net income attributable to common shareholders was $38.9 million or
$0.17 per share (diluted) compared to $44.8 million or $0.21 per share (diluted) for the same prior year period.
The decrease in net income attributable to common shareholders of 13.1% or $5.9 million, was primarily due to a
decrease in the value of investment properties of $9.5 million recorded in the fourth quarter compared to an
increase in value of investment properties of $12.1 million for the fourth quarter of 2014. The decrease was
partially offset by a decrease in other gains (losses) and (expenses) of $12.7 million and lower interest expense of
$2.3 million.
For the year ended December 31, 2015, net income attributable to common shareholders was $203.9 million or
$0.91 per share (diluted) compared to $196.7 million or $0.92 per share (diluted) for the prior year. The increase in
net income attributable to common shareholders of 3.6% or $7.1 million, was primarily due to higher NOI of $4.8
million and lower interest expense of $9.8 million, offset by higher deferred income tax expense of $8.2 million.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
31
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Reconciliation of Consolidated Statements of Income, as presented, to the Company’s
Proportionate Interest
The following tables provide the reconciliation of the Company's consolidated statements of income, as presented in the
audited annual consolidated financial statements, to its proportionate interest.
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 (decrease) in value of investment
properties, net
Income before income taxes
Deferred income taxes
Net income
Net income attributable to:
Common shareholders
Non-controlling interest
Three months ended December 31
2015
2014
Consolidated
Statements of
Income
Adjustment to
proportionate
interest
Proportionate
interest
Consolidated
Statements of
Income
Adjustment to
proportionate
interest
Proportionate
interest
$
164,630 $
60,949
103,681
1,947 $
584
1,363
166,577 $
61,533
105,044
162,071 $
59,549
102,522
1,711 $
517
1,194
163,782
60,066
103,716
258
(146)
238
—
(15)
(2,012)
(27)
387
3,569
(41,777)
(8,320)
(71)
(723)
—
360
(9,154)
4,135
(43,893)
(8,396)
(147)
(373)
1,295
(12,277)
12,086
(181)
(126)
256
(4)
—
(1,295)
(70)
138
3,954
(44,019)
(8,140)
(151)
(373)
—
(12,347)
12,224
(1,317)
(56,116)
(47,570)
(1,282)
(48,852)
3,311
(41,631)
(8,558)
(71)
(708)
2,012
387
(9,541)
(54,799)
48,882
9,981
46
—
48,928
9,981
54,952
10,057
$
$
$
38,901 $
46 $
38,947 $
44,895 $
38,947 $
(46)
38,901 $
— $
46
46 $
38,947 $
—
38,947 $
44,807 $
88
44,895 $
(88)
—
(88) $
— $
(88)
(88) $
54,864
10,057
44,807
44,807
—
44,807
Net income per share attributable to common shareholders:
Basic
Diluted
$
$
0.17
0.17
$
$
0.21
0.21
32
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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
2015
Year ended December 31
2014
Condensed
Consolidated
Statements of
Income
$
656,643 $
244,900
411,743
Adjustment to
proportionate
interest
Proportionate
interest
Condensed
Consolidated
Statements of
Income
Adjustment to
proportionate
interest
Proportionate
interest
7,401 $
2,277
5,124
664,044 $
247,177
416,867
648,441 $
241,532
406,909
5,169 $
1,542
3,627
653,610
243,074
410,536
15,851
(163,481)
(35,660)
(786)
(2,892)
12,178
(15,155)
37,773
(62)
(706)
955
—
(26)
(12,178)
(188)
7,226
15,789
(164,187)
(34,705)
(786)
(2,918)
—
(15,343)
44,999
12,997
(173,321)
(31,191)
(907)
(3,552)
9,135
(16,281)
42,078
(152,172)
(4,979)
(157,151)
(161,042)
259,571
55,843
145
8
259,716
55,851
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)
46,690
(166,131)
244,405
47,657
203,728 $
137 $
203,865 $
198,210 $
(1,462) $
196,748
203,865 $
(137)
203,728 $
— $
203,865 $
137
137 $
—
203,865 $
196,748 $
1,462
198,210 $
— $
(1,462)
(1,462) $
196,748
—
196,748
$
$
$
Net income per share attributable to common shareholders:
0.91
0.91
Basic
Diluted
$
$
$
$
0.93
0.92
FIRST CAPITAL REALTY ANNUAL REPORT 2015
33
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Net Operating Income
NOI is defined as property rental revenue less property operating costs. NOI is commonly used as a primary method for
analyzing real estate performance in Canada and, in Management's opinion, is useful in analyzing the operating
performance of the Company’s shopping centre portfolio. 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.
The Company’s proportionate interest in net operating income for the shopping centre portfolio is presented below:
Property rental revenue
Base rent
Operating cost recoveries
Realty tax recoveries
Straight-line rent adjustment
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
Three months ended December 31
Year ended December 31
2015
2014
2015
2014
$
$
104,891
24,553
29,427
1,313
631
1,564
(269)
4,467
166,577
28,317
33,059
(354)
511
61,533
105,044
$
$
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
$
$
415,005
94,751
124,016
4,927
4,292
3,709
386
16,958
664,044
109,696
138,280
(521)
(278)
247,177
416,867
$
$
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
63.1%
63.3%
62.8%
62.8%
For the three months ended December 31, 2015, NOI increased $1.3 million to $105.0 million from $103.7 million for
the same prior year period. For the year ended December 31, 2015, NOI increased $6.3 million to $416.9 million from
$410.5 million for the prior year. The increase in NOI resulted from rent escalations, lease surrender fees, as well as
acquisitions and developments coming online, partially offset by the loss of NOI from properties disposed. The increase
in lease surrender fee income was primarily due to two major lease terminations in the second quarter of 2015.
Total portfolio NOI margin decreased by 0.2% for the three months ended December 31, 2015 compared to the fourth
quarter of 2014 due to a drop in occupancy of 1.2%. For the year ended December 31, 2015, total portfolio NOI margin
has remained flat year over year, primarily due to higher lease surrender fee income offset by the drop in occupancy of
1.2% over the prior year.
34
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Same Property NOI Margin
The following table summarizes the Company's Same Property NOI margin, operating cost and tax recoveries margin, and
occupancy:
Same Property – stable
Same Property with redevelopment
Total Same Property
NOI Margin
Operating Cost and Tax
Recoveries Margin
% Occupied
Year ended December 31
Year ended December 31
As at December 31
2015
64.0%
62.7%
63.9%
2014
63.7%
63.3%
63.7%
2015
92.0%
89.2%
91.7%
2014
91.3%
91.2%
91.3%
2015
95.8%
96.4%
95.9%
2014
96.8%
96.9%
96.8%
For the year ended December 31, 2015, Total Same Property NOI margin improved to 63.9% from 63.7% for the prior
year, primarily due to a higher Same Property recovery margin of 91.7%, an improvement of 0.4% from the prior year.
The improvement in operating cost and tax recovery margins over prior year mainly relate to increased recoveries from
recoverable capital projects and increased prior year recoveries as a result of tax reassessments. The Total Same
Property occupancy rate decreased from 96.8% as at year ended December 31, 2014 to 95.9% as at December 31, 2015
primarily due to the closure of one Target store in the Same Property portfolio in the second quarter and the closure of
a Canadian Tire location in Edmonton during the third quarter of 2015.
NOI by Property Category
The following table summarizes the Company's proportionate interest in NOI by property categorization:
Same Property – stable
Same Property with redevelopment
Total Same Property
Major redevelopment
Ground-up development
Acquisitions – 2015
Acquisitions – 2014
Investment properties classified as held for sale
Dispositions – 2015
Dispositions – 2014
Straight-line rent adjustment
Development land
% change
1.2 % $
(0.9)%
1.0 %
Three months ended December 31
2014
2015
79,425
80,410 $
9,086
9,007
88,511
89,417
9,137
7,917
1,057
1,993
—
788
2,049
2,494
653
1,004
451
16
867
8
892
1,313
99
94
% change
4.1% $
0.4%
3.7%
Year ended December 31
2014
309,647
35,733
345,380
34,879
5,766
—
6,108
3,072
1,787
6,800
5,822
922
2015
322,336 $
35,883
358,219
31,420
6,379
1,902
9,208
3,937
63
397
4,927
415
NOI
$
105,044 $
103,716
$
416,867 $
410,536
For the three months and year ended December 31, 2015, Same Property NOI increased by 1.0% and 3.7%,
respectively, compared to the prior year periods, primarily due to rent escalations as well as two significant lease
surrender fees received in the second quarter, partially offset by the impact of a decrease in Same Property
occupancy.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
35
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
NOI by Region
The shopping centre portfolio NOI by segment at the Company’s proportionate interest is as follows:
Three months ended December 31, 2015
Property rental revenue
Property operating costs
NOI
Three months ended December 31, 2014
Property rental revenue
Property operating costs
NOI
Year ended December 31, 2015
Property rental revenue
Property operating costs
NOI
Year ended December 31, 2014
Property rental revenue
Property operating costs
NOI
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
Total
69,906 $
45,629 $
51,519 $
167,054 $
(477) $
166,577
27,280
19,171
15,715
62,166
(633)
61,533
42,626 $
26,458 $
35,804 $
104,888 $
156 $
105,044
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
280,036 $
178,105 $
208,527 $
666,668 $
(2,624) $
664,044
106,525
76,155
67,224
249,904
(2,727)
247,177
173,511 $
101,950 $
141,303 $
416,764 $
103 $
416,867
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
Total
276,208 $
172,305 $
205,990 $
654,503 $
(893) $ 653,610
105,887
71,157
67,086
244,130
(1,056)
243,074
170,321 $
101,148 $
138,904 $
410,373 $
163 $ 410,536
$
$
$
$
$
$
$
$
(1) Other items principally consist of intercompany eliminations.
Interest and Other Income
For the three months and year ended December 31, 2015, interest and other income totaled $3.6 million and
$15.8 million, compared to $4.0 million and $12.8 million for the same prior year periods, respectively. The
increase of $3.0 million compared to the prior year is primarily due to new fees earned from the Company's joint
venture partnerships, higher interest income from loans and mortgages receivable, offset by lower income from
marketable securities that were largely disposed of in the first quarter of 2015.
Interest Expense
The Company’s proportionate share of interest expense by type is as follows:
Three months ended December 31
2014
14,694
497
2015
12,330
1,874
$
$
Year ended December 31
2014
62,315
2,038
2015
51,654
4,410
$
26,999
5,177
(4,603)
41,777
27,933
5,966
(5,071)
44,019
$
106,844
22,118
(20,839)
108,156
23,735
(22,413)
$
164,187
$
173,831
Mortgages
Credit facilities
Senior unsecured debentures
Convertible debentures (non-cash)
Interest capitalized
Interest expense
$
$
36
FIRST CAPITAL REALTY ANNUAL REPORT 2015
For the three months and year ended December 31, 2015, interest expense decreased by $2.2 million and $9.6 million,
respectively, due to repayment and maturity of mortgages with higher effective interest rates and borrowing of new
mortgages at lower effective interest rates as well as greater use of credit facilities at lower interest rates.
During the year ended December 31, 2015 and 2014, approximately 11.3% and 11.4%, respectively, of interest expense
was capitalized to real estate investments for properties undergoing development or redevelopment projects. Amounts
capitalized are dependent on gross interest expense paid, on the phase and magnitude of development and
redevelopment projects actively underway as well as the portfolio weighted average interest rate. The decrease in
capitalized interest over the prior year is due to the lower weighted average interest rate and timing of completion of
existing developments and the commencement of new development projects.
Corporate Expenses
The Company's proportionate share of corporate expenses is as follows:
Salaries, wages and benefits
Non-cash compensation
Other corporate costs
Total corporate expenses
Amounts capitalized to investment properties under
development
Corporate expenses
Three months ended December 31
2014
2015
Year ended December 31
2014
2015
$
6,645
673
3,057
10,375
(2,055)
$
5,930
606
2,788
9,324
(1,184)
$
28,513
2,941
11,182
42,636
(7,931)
$
24,177
2,599
10,777
37,553
(6,618)
$
8,320
$
8,140
$
34,705
$
30,935
For the three months ended December 31, 2015, net corporate expenses increased by $0.2 million to $8.3 million
compared to the fourth quarter of 2014 primarily as a result of higher compensation expense. For the year ended
December 31, 2015, net corporate expenses increased by $3.8 million to $34.7 million compared to the prior year
primarily as a result of higher employee compensation expense of $2.7 million and the impact of Main and Main
Developments of $1.8 million. The Company's corporate expenses relating to Main and Main Developments increased as
a result of the partial sale of its real estate assets to an institutional investor during the third quarter of 2014. The
Company (through Main and Main Developments) also earned management fee income from the institutional investor of
$0.7 million and $1.4 million, respectively, for the three months and year ended December 31, 2015, which partially
offsets the increased corporate expenses.
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 and so forth, are capitalized in accordance with IFRS to development projects and residential inventory, as
incurred.
During the year ended December 31, 2015 and 2014, approximately 20.0% and 18.9%, respectively, 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.
Changes in capitalized corporate expenses are primarily the result of timing of completion of development and
redevelopment projects and the Company’s current level of pre-development and early redevelopment activity.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
37
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Other Gains (Losses) and (Expenses)
The Company's proportionate share of other gains, losses and expenses is as follows:
Three months ended December 31
2015
2014
Proportionate
Statement of
Income
Included in
FFO
Included in
AFFO
Proportionate
Statement of
Income
Included in
FFO
Included in
AFFO
Realized gains on sale of marketable securities
Unrealized gains (losses) on marketable securities
$
— $
636
— $
636
— $
—
882 $
882 $
(2,160)
(2,160)
classified as FVTPL
Losses on prepayments of debt
Pre-selling costs of residential inventory
Executive transition expense
Investment properties selling costs
Restructuring costs
(71)
(15)
—
(64)
(126)
(71)
(15)
—
—
(126)
—
—
—
—
—
(2,407)
(16)
(5,830)
(2,816)
—
(2,407)
(16)
(5,830)
—
—
$
360 $
424 $
— $
(12,347) $
(9,531) $
882
—
—
(514)
—
—
—
368
2015
Year ended December 31
2014
Proportionate
Statement of
Income
Included in
FFO
Included in
AFFO
Proportionate
Statement of
Income
Included in
FFO
Included in
AFFO
Realized gains on sale of marketable securities
Unrealized losses on marketable securities classified
$
784 $
784 $
(2,022)
(2,022)
784 $
—
1,665 $
(1,501)
1,665 $
(1,501)
1,665
—
as FVTPL
Losses on prepayments of debt
Unrealized losses on hedges
Pre-selling costs of residential inventory and other
Executive transition expense
Investment properties selling costs
Restructuring costs
(310)
—
(171)
—
(539)
(13,085)
(310)
—
(171)
—
—
(13,085)
—
—
—
—
—
—
(3,973)
(80)
(153)
(7,280)
(5,088)
—
(3,973)
(80)
(153)
(7,280)
—
—
—
—
(512)
—
—
—
Total
$
(15,343) $
(14,804) $
784 $
(16,410) $
(11,322) $
1,153
For the three months ended December 31, 2015, the Company recognized a $0.4 million gain in its proportionate
statement of income compared to a $12.3 million loss in the fourth quarter of 2014. The overall gain was primarily due
to higher unrealized gains on marketable securities recognized in the current quarter. The loss in the fourth quarter of
2014 was primarily due to executive transition expense and losses on prepayments of debt.
For the year ended December 31, 2015, the Company recognized a $15.3 million loss in its proportionate statement of
income compared to a $16.4 million loss in 2014. The overall loss in 2015 was primarily due to restructuring costs
recognized in the third quarter, in connection with the Company's organizational restructuring to streamline and
enhance the effectiveness of its operations. The restructuring costs of $13.1 million were primarily comprised of
severance benefits, as well as a $6.4 million non-cash write-off of an investment in proprietary information technology
systems. The overall loss in the year ended December 31, 2014 was primarily due to executive transition expense and
investment property selling costs.
38
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Income Taxes
For the three months ended December 31, 2015, deferred income tax expense totaled $10.0 million compared to
$10.1 million for the same prior year period. For the year ended December 31, 2015, deferred income tax expense
totaled $55.9 million compared to to $47.7 million for the prior year. The increase of $8.2 million over the prior
year is primarily due to an increase in the corporate income tax rate in the Province of Alberta in the second
quarter of 2015.
Non-IFRS Supplemental Financial Measures
In Management’s view, FFO and AFFO are commonly accepted and meaningful indicators of financial performance in the
real estate industry. 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
The Company calculates FFO in accordance with the recommendations of the Real Property Association of Canada
(“REALpac”). 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 as well as certain other items included in the Company's net income that
may not be the most appropriate determinants of the long-term operating performance of the Company, such as
investment property selling costs and deferred income taxes. FFO provides a perspective on the financial performance of
the Company that is not immediately apparent from net income determined in accordance with IFRS. A reconciliation
from net income attributable to common shareholders to FFO can be found below.
The Company’s net income at proportionate interest is reconciled to FFO below:
Net income attributable to common shareholders
Add (deduct):
Decrease (increase) in value of investment properties
Incremental leasing costs
Investment properties – selling costs
Adjustment for equity accounted joint ventures
Deferred income taxes
Three months ended December 31
Year ended December 31
2015
2014
2015
2014
$
38,947
$
44,807
$
203,865
$
196,748
9,154
674
64
28
9,981
(12,224)
1,774
2,816
850
10,057
(44,999)
3,373
539
2,636
55,851
(46,690)
5,324
5,088
850
47,657
FFO
$
58,848
$
48,080
$
221,265
$
208,977
Operating FFO
Management considers Operating FFO as its key operating performance measure that, when compared period over
period, reflects the impact on its core operations, such as changes in net operating income, interest expense, corporate
expenses and other income. Therefore, Operating FFO excludes the impact of certain items in other gains (losses) and
(expenses) that are not considered part of the Company's on-going core operations.
The weighted average number of diluted shares outstanding for FFO and Operating 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
39
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The components of Operating FFO and FFO at proportionate interest are as follows:
Net operating income
Interest and other income
Interest expense (1)
Corporate expenses (2)
Abandoned transaction costs
Amortization expense (corporate assets
and credit facility costs)
Operating FFO (3)
Other gains (losses) and (expenses) (4)
FFO
FFO per diluted share
Operating FFO per diluted share
Weighted average number of common
shares – diluted – FFO (in thousands)
Three months ended December 31
Year ended December 31
% change
2015
2014
% change
2015
2014
$ 105,044
3,569
(41,048)
(8,347)
(71)
(723)
1.4 %
22.4 % $
18.2 % $
(3.7)% $
58,424
424
58,848
0.26
0.26
$ 103,716
3,954
(43,531)
(6,004)
(151)
(373)
57,611
(9,531)
48,080
0.22
0.27
$
$
$
$ 416,867
15,789
(161,551)
(31,332)
(786)
(2,918)
7.2%
236,069
(14,804)
5.9% $ 221,265
0.99
1.0% $
1.05
1.0% $
$ 410,536
12,818
(173,341)
(25,251)
(911)
(3,552)
220,299
(11,322)
$ 208,977
0.98
$
1.04
$
4.3 %
226,537
217,299
5.4%
224,069
212,537
(1) Includes an adjustment to capitalize interest related to the Company's equity accounted joint ventures in accordance with the recommendations of REALpac.
(2) Includes an adjustment to capitalize incremental leasing costs in accordance with the recommendations of REALpac.
(3) Previously referred to as “FFO excluding other gains (losses) and (expenses)” in the Company's 2014 Annual Report.
(4) Refer to the “Results of Operations – Other Gains (Losses) and (Expenses)” section of this MD&A.
For the three months ended December 31, 2015, Operating FFO totaled $58.4 million or $0.26 per share (diluted)
compared to $57.6 million or $0.27 per share (diluted) in the same prior year period. The 1.4% increase in Operating
FFO in total dollars was primarily due to higher NOI and lower interest expense compared to the same prior year
period, partially offset by higher corporate expenses. The 3.7% or $0.01 per share decrease was due to a higher
number of common shares outstanding compared to the same prior year period. For the three months ended
December 31, 2015, FFO totaled $58.8 million or $0.26 per share (diluted) compared to $48.1 million or $0.22 per
share (diluted) in the same prior year period. The increase in FFO was primarily due to the $9.5 million of other losses
and expenses incurred in the fourth quarter of 2014.
For the year ended December 31, 2015, Operating FFO totaled $236.1 million or $1.05 per share (diluted)
compared to $220.3 million or $1.04 per share (diluted) for the prior year. The 1.0% or $0.01 per share (diluted)
increase is primarily due to higher NOI and interest and other income and lower interest expense compared to the
prior year, partially offset by higher corporate expenses. For the year ended December 31, 2015, FFO totaled
$221.3 million or $0.99 per share (diluted) compared to $209.0 million or $0.98 per share (diluted) for the prior
year primarily due to higher NOI, interest and other income and lower interest expense partially offset by higher
corporate expenses. For the year ended December 31, 2015, FFO excluding restructuring costs would have totaled
$234.4 million or $1.05 per share (diluted).
40
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Adjusted Funds from Operations and Operating AFFO
AFFO is a supplementary measure that the Company uses to measure operating cash flow generated from the
business. In calculating AFFO, the Company adjusts FFO for non-cash and other items including interest payable in
shares, straight-line rent adjustment, non-cash compensation expense, Same Property capital expenditures and
leasing costs for maintaining shopping centre infrastructures and certain other gains or losses. Residential inventory
pre-sale costs are recognized in AFFO when the Company recognizes revenue from the sale of residential units. In
addition, the Company calculates Operating AFFO by excluding from AFFO the effects of certain other gains (losses)
and (expenses) that are not deemed part of the Company's on-going core operations. The weighted average number
of diluted shares outstanding for AFFO is adjusted to assume conversion of all the outstanding convertible
debentures, calculated using the holders’ contractual conversion price to be consistent with the treatment of the
interest expense payable in shares in AFFO.
Operating AFFO and AFFO are calculated as follows:
Operating FFO
Add (deduct):
Interest expense payable in shares
Straight-line rent adjustment
Non-cash compensation expense
Same Property revenue sustaining capital
expenditures (1)
Costs not capitalized during development period (2)
Other adjustments
Operating AFFO (3)
Realized gain on marketable securities
AFFO
AFFO per diluted share
Operating AFFO per diluted share
Weighted average number of common shares – diluted
– AFFO (in thousands)
Three months ended December 31
Year ended December 31
% change
2015
2014 % change
2015
2014
$
58,424 $
57,611
$
236,069 $
220,299
5,177
(1,313)
730
(4,097)
643
(66)
59,498 $
—
59,498 $
0.25 $
0.25 $
5,966
(893)
619
(3,652)
1,546
(105)
61,092
368
61,460
0.26
0.26
22,118
(4,927)
3,098
(17,574)
4,317
(293)
242,808 $
784
243,592 $
1.03 $
1.02 $
23,735
(5,821)
2,721
(15,622)
3,653
(348)
228,617
1,153
229,770
1.01
1.00
6.2% $
6.0% $
2.0% $
2.0% $
(2.6)% $
(3.2)% $
(3.8)% $
(3.8)% $
2.8 %
240,409
233,784
4.0%
237,633
228,568
(1) Estimated at $0.85 per square foot per annum (2014 – $0.83) on average gross leasable area of same 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) Previously referred to as “AFFO excluding other gains (losses) and (expenses)” in the Company's 2014 Annual Report.
For the three months ended December 31, 2015, Operating AFFO and AFFO decreased by a $0.01 per share (diluted)
primarily due to lower interest expense payable in shares as a result of the convertible debenture redemption and
higher costs for Same Property revenue sustaining capital expenditures.
For the year ended December 31, 2015, Operating AFFO and AFFO increased by $0.02 per share (diluted) primarily as
a result of higher Operating FFO, partially offset by an increase in Same Property revenue sustaining capital
expenditures.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
41
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
A reconciliation of cash provided by operating activities (an IFRS measure) to AFFO is presented below:
Cash provided by operating activities
Adjustments for equity accounted joint ventures
Realized gains on sale of marketable securities
Incremental leasing costs and other
Net change in non-cash operating items
Adjustments for residential inventory
Amortization expense
Non-cash interest expense
Costs not capitalized during development period
Executive transition expense
Same Property revenue sustaining capital expenditures
Cash component of restructuring costs
Other adjustments
Three months ended December 31
Year ended December 31
$
$
2015
84,757
801
—
674
(17,554)
—
(708)
(5,023)
643
—
(4,097)
68
(63)
2014
87,478
1,452
882
1,774
(31,547)
(762)
(373)
(1,063)
1,546
5,830
(3,652)
—
(105)
$
$
2015
244,433
5,287
784
3,373
(563)
208
(2,892)
539
4,317
—
(17,574)
5,972
(292)
2014
271,861
1,861
1,665
5,324
(14,222)
(21,705)
(3,552)
(6,426)
3,653
7,280
(15,622)
—
(347)
AFFO
$
59,498
$
61,460
$
243,592
$
229,770
CAPITAL STRUCTURE AND LIQUIDITY
Total Capital Employed
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 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.
As at
Liabilities (principal amounts outstanding)
Bank indebtedness
Mortgages
Credit facilities
Mortgages under equity accounted joint ventures
(at the Company's proportionate interest)
Credit facilities under equity accounted joint venture
(at the Company's proportionate interest)
Senior unsecured debentures
Convertible debentures
Equity capitalization
Common shares (based on closing per share price of $18.35;
December 31, 2014 – $18.66)
Total enterprise value
42
FIRST CAPITAL REALTY ANNUAL REPORT 2015
December 31, 2015
December 31, 2014
$
$
26,200
1,020,358
224,635
2,749
30,953
2,250,000
337,271
—
1,158,466
7,785
10,425
—
2,160,000
388,174
4,138,622
4,037,543
$
8,030,788
$
7,762,393
Key Metrics
The Company continues to make progress in reducing the cost of debt and staggering debt maturities. Improvements
have been made in key debt metrics over the past several years including weighted average interest rate and interest
coverage ratios.
The ratios below include measures not specifically defined in IFRS. Refer to definitions of these measures below for
additional information.
As at
Weighted average effective interest rate on mortgages and senior unsecured debentures
Weighted average maturity on mortgages and senior unsecured debentures (years)
Net debt to total assets (1)
Net debt to EBITDA (1)
Unencumbered aggregate assets (2)
Unencumbered aggregate assets to unsecured debt, based on fair value (2)
EBITDA interest coverage (1)
December 31, 2015
December 31, 2014
4.7%
5.5
42.9%
8.7
5,783,452
2.3
2.5
4.8%
5.9
42.2%
8.2
4,959,208
2.3
2.3
(1) Calculated with all joint ventures proportionately consolidated.
(2) Includes all unencumbered assets at fair values.
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, mortgages payable and amounts drawn under credit facilities and bank
indebtedness;
• Debt consists of principal amounts outstanding on credit facilities and mortgages, and the par value of senior unsecured
debentures. Convertible debentures are excluded as the Company has the option 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;
• 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.
• 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.
Credit Ratings
Since November 2012, DBRS has rated 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 2012, Moody’s has rated 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
43
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Consolidated Debt and Principal Amortization Maturity Profile
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Add (deduct): unamortized deferred financing
costs, premiums and discounts, net
$
Mortgages
182,212 $
106,867
144,300
123,878
61,267
86,922
156,319
6,331
65,180
58,788
28,294
1,020,358
3,644
Credit
Facilities
7,785 $
—
21,850
—
195,000
—
—
—
—
—
—
224,635
—
Senior
Unsecured
Debentures
—
250,000
150,000
150,000
175,000
175,000
450,000
300,000
300,000
300,000
—
2,250,000
(5,909)
$
Total
189,997
356,867
316,150
273,878
431,267
261,922
606,319
306,331
365,180
358,788
28,294
3,494,993
(2,265)
% Due
5.5%
10.2%
9.1%
7.8%
12.2%
7.4%
17.4%
8.8%
10.5%
10.3%
0.8%
100.0%
Total
$ 1,024,002 $
224,635 $ 2,244,091
$ 3,492,728
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. The Company also intends to maintain financial strength to achieve a
reasonable 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.
Mortgages
The changes in the Company’s mortgages during the year ended December 31, 2015, excluding mortgages on equity
accounted joint ventures, are set out below:
Year ended December 31, 2015
Balance at beginning of year
Mortgage borrowings
Mortgage assumed on acquisition
Mortgage repayments
Scheduled amortization on mortgages
Amortization and expensing of financing costs and net premium
Balance at end of year
$
$
Amount
1,165,625
110,100
1,453
(218,841)
(30,818)
(3,517)
1,024,002
Weighted Average
Effective Interest Rate
4.7%
3.3%
2.1%
4.9%
—
—
4.5%
As at December 31, 2015, 100% (December 31, 2014 – 100%) of the outstanding mortgages bore interest at fixed
interest rates. The average remaining term of mortgages outstanding increased from 3.8 years as at December 31, 2014
on $1.2 billion of mortgages to 4.1 years as at December 31, 2015 on $1.0 billion of mortgages after reflecting
borrowing activity and repayments during the year.
44
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Mortgage Maturity Profile
As at December 31, 2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Add: unamortized deferred financing costs and premiums, net
Total
Scheduled
Amortization
26,770
23,965
19,979
17,164
15,409
13,525
8,365
6,331
5,606
2,893
169
140,176
$
$
Payments on
Maturity
$
$
155,442
82,902
124,321
106,714
45,858
73,397
147,954
—
59,574
55,895
28,125
880,182
$
Total
182,212
106,867
144,300
123,878
61,267
86,922
156,319
6,331
65,180
58,788
28,294
$ 1,020,358
3,644
$ 1,024,002
Weighted
Average
Effective
Interest Rate
4.0%
4.0%
5.4%
6.5%
5.3%
4.4%
4.0%
0.0%
4.1%
3.6%
3.4%
4.5%
As at December 31, 2015, the Company had mortgages maturing in 2016 of $155.4 million, at an average effective interest
rate of 4.0% per annum, as well as $26.8 million of scheduled amortization of principal balances.
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. The credit facilities
provide liquidity primarily for financing acquisitions, development and redevelopment activities and for general corporate
purposes.
In the second quarter, the Company completed an extension of its senior unsecured revolving credit facility to June
30, 2020 from June 30, 2017 previously, on the same terms.
In the third quarter, one of the Company's joint ventures obtained a new construction facility to finance the construction of
one its development projects. The facility has a borrowing capacity of $225 million plus $5.0 million available for letters of
credit.
The Company did not renew its $75 million operating facility upon its maturity on December 31, 2015.
The following table summarizes the details of the Company’s credit facilities as at December 31, 2015:
As at December 31, 2015
Revolving operating facility:
Borrowing
Capacity
Amounts
Drawn
Bank Overdraft
and Outstanding
Letters of Credit
Available to be
Drawn
Interest Rates
Maturity Date
Unsecured facility
$
800,000 $
(195,000) $
(55,563) $
549,437
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
June 30, 2020
Secured construction facilities
Maturing 2018
112,500
(21,850)
Maturing 2016
7,953
(7,785)
—
(75)
90,650
93
BA + 1.125% or
Prime + 0.125%
BA + 1.125% or
Prime + 0.125%
February 13, 2018
March 31, 2016
Total credit facilities
$
920,453 $
(224,635) $
(55,638) $
640,180
FIRST CAPITAL REALTY ANNUAL REPORT 2015
45
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Senior Unsecured Debentures
As at December 31, 2015
Series Maturity Date
H
I
J
K
L
M
N
O
P
Q
R
S
January 31, 2017
November 30, 2017
August 30, 2018
November 30, 2018
July 30, 2019
April 30, 2020
March 1, 2021
January 31, 2022
December 5, 2022
October 30, 2023
August 30, 2024
July 31, 2025
Weighted Average or Total
Interest Payment Dates
January 31, July 31
May 30, November 30
February 28, August 30
May 31, November 30
January 30, July 30
April 30, October 30
March 1, September 1
January 31, July 31
June 5, December 5
April 30, October 30
August 30, February 28
January 31, July 31
Interest Rate
Coupon
5.85%
5.70%
5.25%
4.95%
5.48%
5.60%
4.50%
4.43%
3.95%
3.90%
4.79%
4.32%
4.70%
Effective
5.99%
5.79%
5.66%
5.17%
5.61%
5.60%
4.63%
4.59%
4.18%
3.97%
4.72%
4.24%
4.78%
$
Remaining
Term to
Maturity
(years)
1.1
1.9
2.7
2.9
3.6
4.3
5.2
6.1
6.9
7.8
8.7
9.6
Principal
Outstanding
125,000
125,000
50,000
100,000
150,000
175,000
175,000
200,000
250,000
300,000
300,000
300,000
6.1
$
2,250,000
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. The $90.0 million issued bear an
effective interest rate of 3.86% per annum with a coupon payable semi-annually on January 31 and July 31.
Convertible Debentures
As at December 31, 2015
Interest Rate
Series Maturity Date
Interest Payment
Dates
Coupon
Effective
E
F
January 31, 2019 March 31
5.40%
6.90%
September 30
January 31, 2019 March 31
5.25%
6.07%
G March 31, 2018
H March 31, 2017
July 31, 2019
I
J
September 30
March 31
September 30
March 31
September 30
March 31
September 30
5.25%
6.66%
4.95%
6.51%
4.75%
6.19%
February 28, 2020 March 31
4.45%
5.34%
September 30
Weighted Average/Total
5.00%
6.28%
Remaining
Term to
Maturity (yrs)
3.1
Principal at
Issue Date
Principal
Liability
$
57,500 $
55,060 $
52,793 $
Equity
2,099
3.1
2.3
1.3
3.6
4.2
2.8
57,500
53,720
52,506
365
50,000
49,582
48,144
1,146
75,000
71,006
69,697
1,415
52,500
51,604
49,579
1,414
57,500
56,299
54,624
394
$ 350,000 $ 337,271 $ 327,343 $
6,833
(i) Principal and Interest
During the year ended December 31, 2015, 1.0 million common shares (year ended December 31, 2014 – 1.1 million
common shares) were issued totaling $18.9 million (year ended December 31, 2014 – $19.9 million) to pay interest to
holders of convertible debentures.
(ii) Principal Redemption and Holder Conversion
On June 30, 2015, the Company redeemed its remaining Series D 5.70% convertible debentures at par by issuing common
shares in satisfaction of the remaining principal outstanding and interest owing.
46
FIRST CAPITAL REALTY ANNUAL REPORT 2015
During the year ended December 31, 2015, the Company issued 38,827 common shares in connection with $0.7 million
convertible debentures converted by the holder.
(iii) Normal Course Issuer Bid
On August 27, 2015, the Company renewed its NCIB for all of its then outstanding series of convertible debentures. The
NCIB will expire on August 26, 2016 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.
For the year ended December 31, 2015 and 2014, principal amounts of convertible debentures purchased and amounts
paid for the purchases are represented in the table below:
Year ended December 31
Total
Shareholders’ Equity
2015
2014
Principal
Amount
Purchased
12,289
$
Amount Paid
$
12,436
$
Principal
Amount
Purchased
4,243
Amount Paid
$
4,295
Shareholders’ equity amounted to $3.6 billion as at December 31, 2015, compared to $3.5 billion as at
December 31, 2014.
As at December 31, 2015, the Company had 225.5 million (December 31, 2014 – 216.4 million) issued and outstanding
common shares with a stated capital of $2.8 billion (December 31, 2014 – $2.6 billion). During the year ended
December 31, 2015, a total of 9.2 million common shares were issued as follows: 4.4 million shares from public
offerings, 2.2 million shares for the redemption of the Series D convertible debenture, 1.6 million shares from the
exercise of common share options, Restricted Share Units (“RSUs”) and Deferred Share Units ("DSUs") and 1.0 million
shares for interest payments on convertible debentures.
As at February 16, 2016, there were 225.6 million common shares outstanding.
Share Purchase Options
As at December 31, 2015, the Company had 4.2 million share purchase options outstanding, with an average exercise
price of $17.55, which, if exercised, would result in the Company receiving proceeds of $74.1 million.
Liquidity
Liquidity risk exists due to the possibility of the Company not being able to generate sufficient cash flow, and/or not having
access to sufficient debt and equity capital to fund its ongoing operations and growth and to refinance or meet existing
payment obligations.
The Company manages its liquidity risk by staggering debt maturities; renegotiating expiring credit arrangements
proactively; using revolving credit facilities; maintaining a large pool of unencumbered assets; and issuing equity when
considered appropriate.
Sources of liquidity primarily consist of cash flow from operations, cash and cash equivalents, and availability under the
Company’s existing revolving credit facilities. If necessary, the Company is also able to obtain financing on its unencumbered
assets. The following table summarizes the Company's liquidity position:
As at (millions of dollars)
Total available under credit facilities
Cash and cash equivalents
Unencumbered assets
Total, based on fair value
Based on debt covenants (1)
December 31, 2015
December 31, 2014
$
640
9
5,783
5,512
$
875
17
4,959
4,801
(1) Includes unencumbered assets as defined by debt covenants, excluding investment properties under development and deferred taxes, with shopping centres valued under
IFRS at the average capitalization rate over the last 10 fiscal quarters.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
47
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The Company has historically used mortgages, credit facilities, senior unsecured debentures, convertible debentures and
equity issuances 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
view of the appropriate leverage in the business. 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.
Planned and completed financings subsequent to December 31, 2015, and availability on existing credit facilities, address
substantially all of the contractual 2016 debt maturities and contractually committed costs to complete current
development projects.
Cash Flows
Cash flow from operating activities represents the Company's primary source of liquidity for servicing debt and funding
planned revenue sustaining expenditures, corporate expenses and dividends to shareholders. Interest and other income
and cash on hand are other sources of liquidity.
Cash provided by operating activities
Cash provided by (used in) financing activities
Cash used in investing activities
Net change in cash and cash equivalents
Three months ended December 31
Year ended December 31
2015
84,757
3,913
(99,197)
$
2014
87,478
(206,474)
(85,570)
$
2015
244,433
63,572
(342,392)
$
2014
271,861
62,894
(322,379)
(10,527)
$
(204,566)
$
(34,387)
$
12,376
$
$
Adjusted cash flow from operating activities is not a measure defined by IFRS. Management defines this measure as 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.
Three months ended December 31
Year ended December 31
Cash provided by operating activities
$
Net change in non-cash operating items
Receipts of proceeds from sales of residential
inventory
2015
84,757
(17,554)
—
$
Expenditures on residential development inventory
—
Adjusted cash flow from operating activities
$
67,203
$
2014
87,478
(31,547)
(2,138)
1,872
55,665
$
2015
244,433
(563)
—
$
2014
271,861
(14,222)
(29,849)
52
8,503
$
243,922
$
236,293
For the year ended December 31, 2015, adjusted cash flow from operating activities improved by $7.6 million primarily due
to higher NOI of $4.8 million and lower cash interest paid associated with operating activities of $1.3 million.
48
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Contractual Obligations
Scheduled mortgage principal amortization
Mortgage principal repayments on maturity
Mortgages under equity accounted joint ventures
Credit facilities
Credit facilities under equity accounted joint venture
Senior unsecured debentures
Interest obligations (1)
Land leases (expiring between 2023 and 2061)
Contractually committed costs to complete current
development projects
Other committed costs
Total contractual obligations (2)
Payments Due by Period
2016
2017 to 2018
2019 to 2020
Thereafter
Total
$
26,770 $
43,944 $
32,573 $
36,889 $
155,442
—
7,785
2,711
—
158,568
947
56,227
207,223
2,749
21,850
28,242
400,000
269,839
1,939
18,974
152,572
—
195,000
—
325,000
200,371
1,962
—
364,945
—
—
—
1,525,000
208,924
16,210
—
140,176
880,182
2,749
224,635
30,953
2,250,000
837,702
21,058
75,201
155,525
7,250
—
—
162,775
$
563,975 $ 1,002,010 $
907,478 $ 2,151,968 $ 4,625,431
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2015 (assuming balances remain outstanding through to
maturity) and senior unsecured debentures, as well as standby credit facility fees.
(2) The Company has the option 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 has $55.6 million of bank overdrafts and outstanding letters of credit 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 $245.0 million, of which $75.2 million
is contractually committed. The balance of the costs to complete will only be committed once leases are signed and/or
construction activities are underway. These contractual and potential obligations primarily consist of construction contracts
and additional planned development expenditures and are expected to be funded in the normal course as the work is
completed.
Contingencies
The Company is involved in litigation and claims which arise from time to time in the normal course of business. In the
opinion of Management, none of these 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 $78.4 million (December 31, 2014 – $68.2 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 are declared 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.
(in dollars)
Regular dividends paid per common share
$
2015
0.215
2014
0.215
$
$
2015
0.86
$
2014
0.85
Three months ended December 31
Year ended December 31
Quarterly Dividend
The Company announced that it will pay a first quarter dividend of $0.215 per common share on April 12, 2016 to
shareholders of record on March 30, 2016.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
49
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 present select 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) consolidation 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)
Year ended December 31
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Property rental revenue
$
NOI
Net income attributable to
common shareholders
269 $
170
262 $
164
420 $
244
414 $
243
203
208
297
213
8 $
5
8
6 $
4
(40) $
(7)
(34) $
(4)
657 $
412
14
(304)
(238)
204
648
407
197
Balance Sheet Data
(millions of dollars)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Balance Sheet Data
(millions of dollars)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
FCR (1)
Guarantors (2)
Non-Guarantors (3)
Consolidation
Adjustments (4)
Total Consolidated
As at December 31, 2015
$
135 $
230 $
23 $
(218) $
7,715
559
3,623
4,910
210
589
334
263
89
(4,851)
(584)
(138)
170
8,108
448
4,163
FCR (1)
Guarantors (2)
Non-Guarantors (3)
Consolidation
Adjustments (4)
Total Consolidated
As at December 31, 2014
$
233 $
231 $
15 $
(130) $
6,977
424
3,278
4,570
231
610
292
256
—
(4,280)
(419)
31
349
7,559
492
3,919
(1) This column accounts for investments in all subsidiaries of FCR under the equity method.
(2) This column accounts for investments in subsidiaries of FCR other than the guarantors under the equity method.
(3) This column accounts for investments in all subsidiaries of FCR 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.
50
FIRST CAPITAL REALTY ANNUAL REPORT 2015
RELATED PARTY TRANSACTIONS
Major Shareholder
Gazit-Globe Ltd. (“Gazit”) is the principal shareholder of the Company, and, as of December 31, 2015, beneficially owned
42.2% (December 31, 2014 – 44.0%) of the common shares of the Company. Norstar Holdings Inc. is the ultimate
controlling party. As of December 31, 2015, Alony-Hetz Properties and Investments Ltd. (‘‘Alony-Hetz’’) also beneficially
owns 6.2% (December 31, 2014 – 8.3%) of the common shares of the Company. Alony-Hetz and Gazit have entered into a
shareholders’ agreement pursuant to which, among other terms, (i) Gazit has agreed to vote its common shares of the
Company in favour of the election of up to two representatives of Alony-Hetz to the Board of Directors of the Company,
and (ii) Alony-Hetz has agreed to vote its common shares of the Company as directed by Gazit with respect to the election
of the remaining directors of the Company. Subsequent to the year ended December 31, 2015, Gazit and Alony-Hetz
disposed of 6,500,000 and 980,000 common shares, respectively, of the Company, reducing their beneficial ownership to
39.3% and 5.8%.
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.
Joint Venture
During the three months and year ended December 31, 2015, a subsidiary of Main and Main Developments earned
property-related and asset management fees from MMUR, which are included in interest and other income on a
proportionate basis in the amount of $0.8 million and $1.7 million, respectively.
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.
SUBSEQUENT EVENTS
On February 1, 2016, the Company purchased a 100% interest in a 171,000 square foot shopping centre in South Surrey,
B.C. for $78 million and, in a separate transaction, disposed of a 50% non-managing interest in three properties totaling
269,500 square feet in Lachenaie, Quebec, for $71 million.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
51
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
QUARTERLY FINANCIAL INFORMATION
2015
2014
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$
164,630
$
161,409
$
166,630
$
163,974
$
162,071
$
162,306
$
161,197
$
162,867
103,681
103,355
104,614
100,093
102,522
103,761
102,042
Net income attributable to common shareholders
38,947
24,750
94,267
45,901
44,807
39,020
77,707
(share counts in thousands)
Property rental revenue
Net operating income
Net income per share attributable to common
shareholders:
Basic
Diluted
Weighted average number of diluted common
shares outstanding – EPS
Cash provided by operating activities
Operating FFO
Operating FFO per diluted share
FFO
FFO per diluted share
Weighted average number of diluted common
shares outstanding – FFO
AFFO
AFFO per diluted share
Operating AFFO
Operating AFFO per diluted share
Weighted average number of diluted shares
outstanding – AFFO
Regular dividend
Total assets
$
$
$
$
$
$
$
$
$
$
$
$
0.17
0.17
226,537
84,757
58,424
0.26
58,848
0.26
226,537
59,498
0.25
59,498
0.25
$
$
$
$
$
$
$
$
$
$
$
0.11
0.11
225,536
59,811
61,651
0.27
47,477
0.21
225,537
62,306
0.26
62,306
0.26
$
$
$
$
$
$
$
$
$
$
$
0.42
0.41
241,494
62,172
60,940
0.27
59,509
0.27
223,298
63,824
0.27
63,905
0.27
$
$
$
$
$
$
$
$
$
$
$
0.21
0.21
223,652
37,696
55,054
0.25
55,432
0.25
220,861
57,960
0.24
57,095
0.24
$
$
$
$
$
$
$
$
$
$
$
0.21
0.21
226,114
84,472
57,611
0.27
48,080
0.22
217,299
61,460
0.26
61,092
0.26
$
$
$
$
$
$
$
$
$
$
$
0.18
0.18
215,360
58,236
55,202
0.26
53,405
0.25
212,367
57,370
0.25
57,223
0.25
$
$
$
$
$
$
$
$
$
$
$
0.37
0.36
231,141
56,016
55,412
0.26
54,031
0.26
210,786
56,961
0.25
56,805
0.25
$
$
$
$
$
$
$
$
$
$
$
98,584
35,214
0.17
0.17
209,597
70,131
52,073
0.25
53,461
0.26
209,597
53,978
0.24
53,495
0.24
240,409
239,504
237,381
237,315
233,784
228,983
227,449
226,260
0.215
$
0.215
$
0.215
$
0.215
$
0.215
$
0.215
$
0.21
$
0.21
$ 8,278,526
$ 8,212,411
$ 8,124,267
$ 8,022,510
$ 7,908,184
$ 8,075,552
$ 8,017,673
$ 7,784,774
Total mortgages and credit facilities
1,248,637
1,201,018
1,094,150
1,093,808
1,173,410
1,230,026
1,269,633
1,245,691
Shareholders’ equity
Other data
Number of properties
Gross leasable area (in thousands)
Total portfolio occupancy %
3,639,952
3,645,911
3,660,290
3,566,144
3,470,271
3,468,010
3,363,510
3,321,059
158
158
157
157
158
163
164
164
24,431
24,256
24,270
24,238
24,331
24,555
24,373
24,525
94.8%
94.7%
94.7%
95.6%
96.0%
95.9%
95.5%
95.3%
52
FIRST CAPITAL REALTY ANNUAL REPORT 2015
CRITICAL ACCOUNTING ESTIMATES
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. Management believes that the policies that are most subject to estimation and Management’s
judgment are those outlined below.
Judgments
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.
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.
Estimates and Assumptions
Valuation of Investment properties
The fair value of investment properties is determined by Management using the following three approaches 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.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
53
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Refer to Note 2(f) of the audited consolidated financial statements for the year ended December 31, 2015 for further
information on the estimates and assumptions made by Management in connection with the fair values of investment
properties.
Fair Valuation of Financial Instruments
The Company is required to determine the fair value of its loans, mortgages and credit facilities, 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 are calculated based on market interest 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.
Income 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.
Additional critical accounting estimates and assumptions include those used for determining the 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.
FUTURE ACCOUNTING POLICY CHANGES
The IASB has issued new standards and amendments to existing standards. These changes are not yet adopted by the
Company and could have an impact on future periods. These changes are described in detail below:
Financial instruments
IFRS 9, “Financial Instruments” (“IFRS 9”), was issued in July 2014, and replaces 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 introduced 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. 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 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.
54
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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 “Leases”; 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, 2018. Earlier adoption is permitted. The Company
is in the process of assessing the impact of IFRS 15 on its consolidated financial statements.
Leases
IFRS 16, “Leases” (“IFRS 16”), was issued in January 2016, and replaces IAS 17, “Leases” (“IAS 17”). IFRS 16 eliminates the
classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single
lessee accounting model. Certain leases will be exempt from these requirements. The most significant effect expected of
the new requirements will be an increase in lease assets and financial liabilities for companies with material off-balance
sheet leases. Lessor accounting requirements under IFRS 16 are carried forward from IAS 17 and accordingly, leases may
be classified and accounted for as operating or finance leases by lessors.
IFRS 16 is required for annual periods beginning on or after January 1, 2019. Earlier adoption is permitted. The Company
does not expect any significant impact on its consolidated financial statements.
CONTROLS AND PROCEDURES
As at December 31, 2015, 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 the design of its internal controls over financial reporting, First Capital Realty used the 2013 framework published by
the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 COSO Framework”).
The Chief Executive Officer and the Chief Financial Officer of the Company have evaluated, or caused the evaluation of,
under their supervision, the effectiveness of the Company’s disclosure controls and procedures and its internal controls
over financial reporting (each as defined in National Instrument 52-109-Certification of Disclosure in Issuers’ Annual and
Interim Filings) as at December 31, 2015, and have concluded that such disclosure controls and procedures and internal
controls over financial reporting were operating effectively.
The Company did not make any changes in its internal controls over financial reporting during the year ended
December 31, 2015 that have had, or are reasonably likely to have, a material effect on the Company's internal controls
over financial reporting. The Company continues to analyze its controls and procedures for potential areas of
improvement on an ongoing basis.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
55
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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.
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, fluctuations in interest rates and unemployment levels) 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. The Company may also incur significant costs in making improvements or
repairs to a property required in order to re-lease vacated premises to a new tenant.
First Capital Realty’s net income could be adversely affected in the event of a downturn in the business, or the bankruptcy
or insolvency, of any anchor store or anchor tenant. Anchor tenants generally occupy large amounts of leasable area, 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.
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.
56
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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.
The amount of indebtedness outstanding could require the Company to dedicate a substantial portion of its cash flow
from operations to service its debt, thereby reducing funds available for operations, acquisitions, development activities
and other business opportunities that may arise. There is a possibility that the Company’s internally generated cash may
not be sufficient to repay all of its outstanding indebtedness. Upon the expiry of the term of the financing on any
particular property owned by the Company, refinancing on a conventional mortgage loan basis may not be available in the
amount required or may be available only on terms less favourable to the Company than the existing financing. The
Company may elect to repay certain indebtedness through the issuance of equity securities or the sale of assets, where
appropriate.
Interest rates have a significant effect on the profitability of commercial properties as interest represents a significant
cost in the ownership of real property where debt financing is used as a source of capital. The Company has a total of
$0.9 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 5.3%. 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 $8.8 million. In addition, as at December 31, 2015, the Company had $224.6 million principal amount of
debt (or 6% of the Company’s aggregate 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.
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. Refer to “Corporate Structure - Credit Ratings”. Any lowering, withdrawal or revision of a credit rating may
have an adverse effect on the market price of the senior unsecured debentures and the other securities of the Company,
may adversely affect a securityholder’s ability to sell its senior unsecured debentures or other securities of the Company
and may adversely affect the Company’s access to financial markets and its cost of borrowing.
Acquisition, Expansion, Development, Redevelopment and Strategic Dispositions
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; (v) the Company’s investigation of a property or building prior to acquisition, may
fail to reveal various liabilities, which could reduce the cash flow from the property or increase its acquisition cost;
and (vi) representations and warranties obtained from third party vendors may not adequately protect against
unknown, unexpected or undisclosed liabilities and any recourse against such vendors may be limited by the financial
capacity of such vendors.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
57
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 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) an increase
in interest rates during the life of the development or redevelopment.
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.
In addition, the Company undertakes strategic property dispositions from time to time in order to recycle its capital and
maintain an optimal portfolio composition. The Company may be subject to unexpected costs or liabilities related to such
dispositions, which could adversely affect the Company's financial position and results of operations and its ability to
meet its obligations.
Competition
The real estate business is competitive. Numerous other developers, managers and owners of retail properties compete
with the Company in seeking tenants. Some of the properties located in the same markets as the Company’s properties
may be newer, better located and/or have stronger anchor tenants than the Company’s properties. The existence of
developers, managers and owners in the markets in which the Company operates, or any increase in supply of available
space in such markets (due to new construction, tenant insolvencies or other vacancy) 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 increasingly play a more significant role
in consumer preferences and shopping patterns, which presents an evolving competitive risk to the Company that is not
easily assessed. Any of the aforementioned factors could have an adverse effect on the Company’s financial position and
results of operations.
Residential Development Sales and Leasing
First Capital Realty is and expects to be increasingly involved in the development of mixed-use properties that include
residential condominiums and rental apartments. These developments are often carried out with an experienced
residential developer as the Company's partner. Purchaser demand for residential condominiums is cyclical and is
significantly affected by changes in general and local economic and industry conditions, such as employment levels,
availability of financing for homebuyers, 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.
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FIRST CAPITAL REALTY ANNUAL REPORT 2015
Environmental Matters
The Company maintains comprehensive environmental insurance and conducts environmental due diligence upon the
acquisition of new properties. There is, however, a risk that the value of any given property in the Company’s portfolio could
be adversely affected as a result of unforeseen or uninsured environmental matters or changes in governmental regulations.
Under various federal, provincial and local laws, the Company, as an owner, and potentially as a person in control of or
managing real property, could potentially be liable for costs of investigation, remediation and monitoring of certain
contaminants, hazardous or toxic substances present at or released from its properties or disposed of at other locations,
whether the Company knows of, or is responsible for, the environmental contamination and whether the contamination
occurred before or after the Company acquired the property. The costs of investigation, removal or remediation of
hazardous or toxic substances are not estimable, may be substantial and could adversely affect the Company’s results of
operations or financial position. The presence of contamination or the failure to remediate such substances, if any, may
adversely affect the Company’s ability to sell such real estate or to borrow using such real estate as collateral and could
potentially also result in claims, including proceedings by government regulators or third-party lawsuits. Environmental
legislation can change rapidly and the Company may become subject to more stringent environmental laws in the future,
and compliance with more stringent environmental laws, or increased enforcement of the same, could have a material
adverse effect on its business, financial position or results of operations.
Partnerships
The Company has investments in properties with 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, 2015, Chaim Katzman, a director of the Company (formerly the Chairman of the Board of Directors of
the Company), and several of the Company's shareholders affiliated with Mr. Katzman (the “Gazit Group”), including
Gazit-Globe and related entities, beneficially owned approximately 42.2% of the outstanding Common Shares. Gazit-
Globe is a public company listed on the Toronto Stock Exchange, the New York Stock Exchange and the Tel-Aviv Stock
Exchange. Additional information concerning Gazit-Globe is available in its public disclosure. Dori J. Segal, the Chairman of
the Board of Directors of First Capital Realty, is also the Executive Vice Chairman of Gazit-Globe. Mr. Katzman as well as
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
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.
In addition, as of December 31, 2015, Alony-Hetz beneficially owned approximately 6.2% 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.
Subsequent to the year ended December 31, 2015, Gazit and Alony-Hetz disposed of 6,500,000 and 980,000 common
shares, respectively, of the Company, reducing their beneficial ownership to 39.3% and 5.8%. The Company's most current
Annual Information Form contains additional information concerning the Company's significant shareholders.
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 significant interest in the Company, it may be able to exercise a controlling influence over the
outcome of 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. The Gazit Group will also be able to exercise a controlling influence in the
FIRST CAPITAL REALTY ANNUAL REPORT 2015
59
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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”). The occurrence of an
event of default under the Gazit Group Credit Facilities 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 the 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.
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FIRST CAPITAL REALTY ANNUAL REPORT 2015
FS
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
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Management's Responsibility
Independent Auditor's 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 Adoption of New and Amended IFRS Pronouncements
4 Investment Properties
5 Investment in Joint Ventures
6 Loans, Mortgages and Other Real Estate Assets
7 Amounts Receivable
8 Other Assets
9 Capital Management
10 Mortgages and Credit Facilities
11 Senior Unsecured Debentures
12 Convertible Debentures
13 Accounts Payable and Other Liabilities
14 Shareholders' Equity
15 Net Operating Income
16 Interest and Other Income
17 Interest Expense
18 Corporate Expenses
19 Other Gains (Losses) and (Expenses)
20 Income Taxes
21 Per Share Calculations
22 Risk Management
23 Fair Value Measurement
24 Subsidiary with Non-controlling Interest
25 Co-ownership Interests
26 Supplemental Other Comprehensive Income (Loss) Information
100
101
102
102
27 Supplemental Cash Flow Information
28 Commitments and Contingencies
29 Related Party Transactions
30 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 17, 2016.
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.
Adam E. Paul
President and Chief Executive Officer
Toronto, Ontario
February 17, 2016
Kay Brekken
Executive Vice President and Chief Financial Officer
62
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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, 2015 and 2014, 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 audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the 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, 2015 and 2014, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board.
Toronto, Ontario
February 17, 2016
FIRST CAPITAL REALTY ANNUAL REPORT 2015
63
Consolidated Balance Sheets
As at
(thousands of 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
Credit facilities
Senior unsecured debentures
Convertible debentures
Other liabilities
Deferred tax liabilities
Total non-current liabilities
Current Liabilities
Bank indebtedness
Mortgages
Credit facilities
Accounts payable and other liabilities
Total current liabilities
Total liabilities
EQUITY
Shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
Refer to accompanying notes to the consolidated financial statements.
Approved by the Board of Directors:
Jon Hagan
Director
Adam E. Paul
Director
64
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Notes
December 31, 2015
December 31, 2014
4
4
5
6
8
27(d)
6
7
8
4(d)
10
10
11
12
13
20
27(d)
10
10
13
14
24
$
$
$
$
7,779,482
29,853
160,119
124,442
8,093,896
14,284
8,108,180
9,164
35,476
—
17,705
10,264
72,609
97,737
170,346
8,278,526
839,891
216,850
2,244,091
327,343
29,685
504,701
4,162,561
26,200
184,111
7,785
229,555
447,651
4,610,212
3,639,952
28,362
3,668,314
8,278,526
$
$
$
$
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
22,925
453,903
3,918,732
—
246,172
7,785
237,654
491,611
4,410,343
3,470,271
27,570
3,497,841
7,908,184
Consolidated Statements of Income
Year ended December 31
(thousands of dollars, except per share amounts)
Note
2015
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 (decrease) 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
Refer to accompanying notes to the consolidated financial statements.
15
16
17
18
5
19
4
20
24
21
21
656,643 $
244,900
411,743
15,851
(163,481)
(35,660)
(786)
(2,892)
12,178
(15,155)
37,773
(152,172)
259,571
55,843
203,728 $
203,865 $
(137)
203,728 $
2014
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
0.91 $
0.91 $
0.93
0.92
FIRST CAPITAL REALTY ANNUAL REPORT 2015
65
Consolidated Statements of Comprehensive Income
(thousands of dollars)
Net income
Other comprehensive income (loss)
Unrealized gains (losses) on available-for-sale marketable securities (1)
Reclassification of losses on available-for-sale marketable securities to net income
Unrealized losses on cash flow hedges (1)
Reclassification of net losses on cash flow hedges to net income
Deferred tax recovery
Other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to:
Common shareholders
Non-controlling interest
(1) Items that may subsequently be reclassified to net income
Refer to accompanying notes to the consolidated financial statements.
Year ended December 31
Note
2015
2014
$
203,728
$
198,210
26
26
26
26
26
24
$
$
$
(34)
147
(12,232)
1,101
(11,018)
(3,026)
(7,992)
195,736
195,873
(137)
195,736
13
69
(12,537)
557
(11,898)
(3,235)
(8,663)
189,547
188,085
1,462
189,547
$
$
$
66
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Consolidated Statements of Changes in Equity
(thousands of dollars)
December 31, 2014
Changes during the period:
Net income
Issuance of common shares
Issue costs, net of tax and other
Dividends
Convertible debenture interest paid in common
shares
Redemption and conversion of convertible
debentures
Options, deferred share units and
restricted share units, net
Other comprehensive loss
Contributions from non-controlling interest, net
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
(Note 14(a))
(Note 14(b))
$ 833,298 $
(9,070) $2,600,605 $
45,438 $3,470,271 $
27,570 $3,497,841
203,865
—
—
(192,781)
—
—
—
—
—
—
—
—
203,865
87,277
(2,749)
(137)
203,728
—
—
87,277
(2,749)
— (192,781)
— (192,781)
—
87,277
(2,749)
—
18,857
38,614
—
—
—
—
—
—
—
—
(891)
18,857
37,723
26,379
(898)
25,481
—
—
—
—
18,857
37,723
25,481
(7,992)
929
(7,992)
—
—
—
—
—
(7,992)
—
929
December 31, 2015
$ 844,382 $
(17,062) $2,768,983 $
43,649 $3,639,952 $
28,362 $3,668,314
(thousands of dollars)
December 31, 2013
Changes during the period:
Net income
Issuance of common shares
Issue costs, net of tax and other
Dividends
Convertible debenture interest paid in common
shares
Redemption and conversion of convertible
debentures
Options, deferred share units and
restricted share units, net
Other comprehensive loss
Contributions from non-controlling interest, net
196,748
—
—
(181,317)
—
—
—
—
—
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
(Note 14(a))
(Note 14(b))
$ 817,867 $
(407) $2,457,310 $
44,600 $ 3,319,370 $
3,638 $3,323,008
—
—
—
—
—
—
—
—
102,834
(2,700)
—
19,914
500
—
—
—
—
(80)
—
196,748
102,834
(2,700)
(181,317)
19,834
500
22,747
918
23,665
1,462
—
—
198,210
102,834
(2,700)
— (181,317)
—
—
—
—
19,834
500
23,665
(8,663)
22,470
(8,663)
—
—
—
—
—
(8,663)
—
22,470
December 31, 2014
$ 833,298 $
(9,070) $2,600,605 $
45,438 $ 3,470,271 $
27,570 $3,497,841
Refer to accompanying notes to the consolidated financial statements.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
67
Consolidated Statements of Cash Flows
(thousands of dollars)
OPERATING ACTIVITIES
Net income
Adjustments for:
(Increase) decrease in value of investment properties, net
Interest expense
Amortization expense
Share of profit of joint ventures
Distributions from joint ventures
Cash interest paid associated with operating activities
Items not affecting cash and other items
Net change in non-cash operating items
Proceeds from sales of residential inventory
Expenditures on residential development inventory
Cash provided by operating activities
FINANCING ACTIVITIES
Mortgages and credit facilities
Borrowings, net of financing costs
Principal instalment payments
Repayments
Repayment of loans on residential development inventory
Issuance of senior unsecured debentures, net of issue costs
Repayment of senior unsecured debentures
Settlement of hedges
Repurchase of convertible debentures
Issuance of common shares, net of issue costs
Payment of dividends
Net contributions from (distributions to) non-controlling interest
Cash provided by (used in) financing activities
INVESTING ACTIVITIES
Acquisition of shopping centres
Acquisition of development land
Net proceeds from property dispositions
Deferred purchase price of shopping centre
Distributions from joint ventures
Contributions 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 (bank indebtedness)
Cash and cash equivalents (bank indebtedness), beginning of year
Year ended December 31
Note
2015
2014
$
203,728
$
198,210
4
17
5
5
17
27(a)
27(b)
10
10
11
11
12(c)
4(c)
4(c)
4(d)
13
27(c)
(37,773)
163,481
2,892
(12,178)
2,505
(141,900)
63,167
563
—
(52)
244,433
325,274
(30,817)
(218,535)
(3,572)
93,573
—
(5,363)
(12,436)
104,727
(190,208)
929
63,572
(96,246)
—
22,668
—
45,098
(56,967)
(275,973)
2,514
16,514
(342,392)
(34,387)
17,351
(42,078)
173,321
3,552
(9,135)
2,082
(143,161)
53,502
14,222
29,849
(8,503)
271,861
126,315
(36,058)
(254,247)
(5,228)
510,288
(228,260)
(8,315)
(4,295)
118,111
(177,887)
22,470
62,894
(206,007)
(19,050)
209,707
(4,993)
—
(6,985)
(253,501)
2,481
(44,031)
(322,379)
12,376
4,975
17,351
Cash and cash equivalents (bank indebtedness), end of year
27(d) $
(17,036)
$
Refer to accompanying notes to the consolidated financial statements.
68
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Notes to the Consolidated Financial Statements
1. DESCRIPTION OF THE COMPANY
First Capital Realty Inc. ("First Capital Realty", "FCR", or 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 as well as for
future accounting periods are described in Note 3 – “Adoption of New and Amended IFRS Pronouncements”.
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 17, 2016.
(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
FIRST CAPITAL REALTY ANNUAL REPORT 2015
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
transferred by the Company at its acquisition date fair value. Goodwill is initially measured at cost, being the excess of the
purchase price over the fair value of the net identifiable assets acquired and liabilities assumed. Acquisition-related costs
are expensed in the period incurred.
When the acquisition of property does not represent a business, it is accounted for as an acquisition of a group of assets
and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair
values, and no goodwill is recognized. Acquisition-related costs are capitalized to investment property at the time the
acquisition is completed.
(e) Investments in joint arrangements
The Company accounts for its investment in 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 its 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 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.
70
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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.
As required by IFRS, the Company makes no adjustments for portfolio premiums and discounts, nor for any value
attributable to the Company's management platform.
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 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(g) 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.
(h) 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.
(i) 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 in the
consolidated statements of income on a proportionate basis consistent with the vesting features of each grant.
(j) Revenue recognition
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 rents based on tenant sales, and recoveries of operating expenses and property
taxes. Percentage 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.
(k) 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.
72
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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).
The following summarizes the Company’s classification and measurement of financial assets and liabilities:
Financial assets
Investments designated as AFS
Derivative assets
Loans and mortgages receivable
Equity securities designated as FVTPL
Amounts receivable
Cash and cash equivalents
Restricted cash
Financial liabilities
Mortgages
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
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
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 Company's own assumptions about the data 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).
FIRST CAPITAL REALTY ANNUAL REPORT 2015
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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.
(l) Cash and cash equivalents
Cash and cash equivalents include cash, bank indebtedness, and short-term investments with original maturities at the
time of acquisition of three months or less.
(m) 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.
(n) 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 23), 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 14).
74
FIRST CAPITAL REALTY ANNUAL REPORT 2015
3. ADOPTION OF NEW AND AMENDED IFRS PRONOUNCEMENTS
The Company has adopted the new and amended International Financial Reporting Standards ("IFRS") pronouncement
listed below as at January 1, 2015, in accordance with the transitional provisions outlined.
(a) Investment Property (Annual Improvements 2011-2013 Cycle)
The amended IAS 40, “Investment Property” (“IAS 40”) is effective for annual periods beginning on or after July 1, 2014.
The amended IAS 40 clarifies that judgment is required to determine whether the acquisition of an investment property
is the acquisition of an asset or a group of assets or a business combination within the scope of IFRS 3, “Business
Combinations”. The adoption of the amendment by the Company did not result in a material impact to the consolidated
financial statements.
(b) Recent Accounting Pronouncements Not Yet Adopted
The IASB has issued new standards and amendments to existing standards. These changes are not yet adopted by the
Company and could have an impact on future periods. These changes are described in detail below:
Financial instruments
IFRS 9, “Financial Instruments” (“IFRS 9”), was issued in July 2014, and replaces 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 introduced 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. 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 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.
The revised hedge accounting model permits additional hedging strategies used for risk management to qualify for hedge
accounting.
IFRS 9 is required for annual periods beginning on or after January 1, 2018. 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 “Leases”; 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, 2018. Earlier adoption is permitted. The Company
is in the process of assessing the impact of IFRS 15 on its consolidated financial statements.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Leases
IFRS 16, “Leases” (“IFRS 16”), was issued in January 2016, and replaces IAS 17, “Leases” (“IAS 17”). IFRS 16 eliminates the
classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single
lessee accounting model. Certain leases will be exempt from these requirements. The most significant effect expected of
the new requirements will be an increase in lease assets and financial liabilities for lessees with material off-balance sheet
leases. Lessor accounting requirements under IFRS 16 are carried forward from IAS 17 and accordingly, leases will
continue to classified and accounted for as operating or finance leases by lessors.
IFRS 16 is required for annual periods beginning on or after January 1, 2019. Earlier adoption is permitted. The Company
does not expect any significant impact on its consolidated financial statements.
4. INVESTMENT PROPERTIES
(a) Activity
The following tables summarize the changes in the Company’s investment properties for the years ended
December 31, 2015 and 2014:
Central
Region
Eastern
Region
Western
Region
Total
Year ended December 31, 2015
Shopping
Centres
Development
Land
Balance at beginning of year
$ 3,207,544
$ 1,744,533
$ 2,557,714
$ 7,509,791
$ 7,474,329
$
35,462
Acquisitions
Capital expenditures
Reclassifications between
shopping centres and
development land
Reclassification from residential
development inventory
Increase (decrease) in value of
investment properties, net
29,030
115,596
—
4,016
18,539
69,091
50,130
91,289
—
—
—
—
97,699
275,976
—
97,699
275,133
1,546
—
843
(1,546)
4,016
—
4,016
(20,100)
12,705
45,168
37,773
40,195
(2,422)
Straight-line rent and other
3,383
(2,374)
3,945
4,954
4,954
(1,610)
(21,527)
—
(23,137)
(23,137)
$ 3,337,859
$ 1,820,967
$ 2,748,246
$ 7,907,072
$ 7,870,719
—
—
36,353
29,853
6,500
36,353
$
$
$
$ 7,779,482
91,237
$ 7,870,719
changes
Dispositions
Balance at end of year
Investment properties
Investment properties classified as held for sale
Total
76
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Central
Region
Eastern
Region
Western
Region
$ 3,141,304
88,940
111,051
—
$ 1,639,162
87,798
74,362
—
$ 2,511,585
50,164
68,088
—
$
Total
$ 7,292,051
226,902
253,501
—
Year ended December 31, 2014
Shopping
Centres
7,126,008
207,852
246,257
40,988
$
Development
Land
166,043
19,050
7,244
(40,988)
25,151
—
—
25,151
25,151
—
62,801
(26,959)
6,236
42,078
47,162
(5,084)
1,591
1,984
2,275
5,850
5,850
—
(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 beginning of year
Acquisitions
Capital expenditures
Reclassifications between
shopping centres and
development land
Reclassification from
residential development
inventory
Increase (decrease) in value
of investment properties,
net
Straight-line rent and other
changes
Dispositions
Reclassification to equity
accounted joint venture (1)
Revaluation of deferred
purchase price of shopping
centre
Balance at end of year
$ 3,207,544
$ 1,744,533
$ 2,557,714
$ 7,509,791
Investment properties – non-current
Investment properties classified as held for sale
Total
$
$
$
7,474,329
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 5 – “Investment in Joint Ventures” for additional information.
Investment properties with a fair value of $2.4 billion (December 31, 2014 – $2.7 billion) are pledged as security for
$1.2 billion in mortgages and credit facilities.
(b) Investment property valuation
Capitalization rates by region for investment properties – shopping centres are set out in the table below:
As at
Shopping Centres
Central Region
Eastern Region
Western Region
Total or Weighted Average
December 31, 2015
Fair Value
($ millions)
Weighted Average
Capitalization Rate
Fair Value
($ millions)
December 31, 2014
Weighted Average
Capitalization Rate
$
$
3,328
1,814
2,729
7,871
5.5%
6.1%
5.5%
5.7%
$
$
3,200
1,736
2,538
7,474
5.6%
6.2%
5.7%
5.8%
FIRST CAPITAL REALTY ANNUAL REPORT 2015
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The sensitivity of the fair values of shopping centres to capitalization rates as at December 31, 2015 is set out in the table
below:
As at December 31, 2015
(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
$
$
$
$
$
$
1,119
709
337
(312)
(597)
(860)
Additionally, a 1% increase or decrease in stabilized net operating income ("SNOI") would result in a $72 million increase
or a $75 million decrease, respectively, in the fair value of shopping centres. 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%. 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 $414 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 $382 million.
(c) Investment properties – Acquisitions
During the years ended December 31, 2015 and 2014, the Company acquired shopping centres and development land for
rental income and future development and redevelopment opportunities as follows:
Year ended December 31
Total purchase price, including acquisition costs
Deferred purchase price and ground lease liabilities
Mortgage assumption on acquisition
Total cash paid
2015
Shopping
Centres
Development
Land
$
$
97,699
—
(1,453)
96,246
$
$
—
—
—
—
Shopping
Centres
207,852
(1,845)
—
206,007
$
$
2014
Development
Land
$
$
19,050
—
—
19,050
(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
Aggregate fair value
December 31, 2015
December 31, 2014
$
97,737 $
205,133
The decrease of $107.4 million in investment properties classified as held for sale from December 31, 2014, arises from
2015 dispositions of $23.1 million with the remainder being transferred back to investment properties – shopping centres
and Investment properties – development land resulting from a slower disposition program than previously planned.
78
FIRST CAPITAL REALTY ANNUAL REPORT 2015
For the years ended December 31, 2015 and 2014, the Company sold shopping centres and development land as follows:
Total sales price (1)
Mortgages assumed and vendor take-back mortgages on sale
Property selling costs
Total cash proceeds
Year ended December 31
2015
2014
Shopping
Centres and
Development Land
Shopping
Centres and
Development Land
$
$
23,137 $
—
(469)
22,668 $
245,716
(30,921)
(5,088)
209,707
(1) Total sales price by region is: Central $1.6 million (2014 – $140 million); Eastern $21.5 million (2014 – $32 million); and Western $nil (2014 – $74 million).
(e) Reconciliation of investment properties to total assets
Shopping centres and development land by region and a reconciliation to total assets are set out in the tables below:
As at December 31, 2015
Total shopping centres and development land (1)
Cash and cash equivalents
Loans, mortgages and other real estate assets
Other assets
Amounts receivable
Investment in joint ventures
Total assets
As at December 31, 2014
Total shopping centres and development land (1)
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.
Central
Region
Eastern
Region
Western
Region
Total
$ 3,337,859
$ 1,820,967
$ 2,748,246
$ 7,907,072
9,164
159,918
24,548
17,705
160,119
$
8,278,526
Central
Region
Eastern
Region
Western
Region
Total
$ 3,207,544
$ 1,744,533
$ 2,557,714
$
7,509,791
17,351
176,209
45,753
16,580
138,578
3,922
$
7,908,184
FIRST CAPITAL REALTY ANNUAL REPORT 2015
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
5. INVESTMENT IN JOINT VENTURES
As at December 31, 2015, the Company had interests in two joint ventures that it accounts for using the equity method.
The Company, through direct and indirect investment, owns on a consolidated basis a 53.1% interest in M+M Urban
Realty LP (“Main and Main Urban Realty”), a joint venture between the Company, Main and Main Developments LP
(“MMLP”, further described in Note 24) and an institutional investor. The Company has determined that Main and Main
Urban Realty is a joint venture as all decisions regarding its activities are made unanimously as between MMLP and the
Company on one hand, and the institutional investor on the other hand. In addition, the Company has a 50% interest in a
joint venture that operates a shopping centre known as "College Square" located in Ottawa, Ontario.
Summarized financial information of the joint ventures’ financial position and performance is set out below:
As at
Total assets
Total liabilities
Net assets at 100%
The Company's investment in equity accounted joint ventures
For the year ended
Revenue
Expenses
Increase in value of investment properties, net
Income before income taxes
Current income taxes
Net income and total comprehensive income at 100%
The Company's share of income in equity accounted joint ventures
December 31, 2015 December 31, 2014
$
399,759
93,649
306,110
$
290,099
23,232
266,867
$
160,119
$
138,578
December 31, 2015 December 31, 2014
$
$
$
$
16,940
7,865
9,545
18,620
15
18,605
12,178
$
$
$
$
11,057
4,618
11,723
18,162
—
18,162
9,135
As at December 31, 2015, MMLP and its joint venture partners have collectively committed a total of $320.0 million
of equity capital for the current growth and the future development of the Main and Main Urban Realty portfolio. As
at December 31, 2015, the Company’s direct and indirect commitment was approximately $167.0 million, of which
$96.7 million had been invested as at December 31, 2015 (December 31, 2014 – $93.8 million).
During 2015, the Company received distributions from its joint ventures of $47.6 million (2014 - $2.1 million) and made
contributions to its joint ventures of $57.0 million (2014 - $7.0 million).
As at December 31, 2015, Main and Main Urban Realty had outstanding commitments related to acquisitions, subject to
customary closing conditions, as well as capital commitments for an aggregate amount of $39.9 million. There were no
outstanding commitments for College Square as at December 31, 2015. The Company's share of these outstanding
commitments relating to its joint ventures at its interest is $21.2 million. Main and Main Urban Realty and College Square
did not have any contingent liabilities as at December 31, 2015 and 2014.
80
FIRST CAPITAL REALTY ANNUAL REPORT 2015
6. LOANS, MORTGAGES AND OTHER REAL ESTATE ASSETS
As at
Non-current
Loans and mortgages receivable (a)
AFS investment in limited partnership
Total non-current
Current
Loans and mortgages receivable (a)
FVTPL investments in equity securities (b)
AFS investments in equity securities
Other receivable
Total current
Total
December 31, 2015
December 31, 2014
$
$
$
$
$
$
120,173
4,269
124,442
23,499
11,907
—
70
35,476
159,918
$
$
$
$
$
$
92,132
4,099
96,231
46,067
33,370
292
249
79,978
176,209
(a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning
investment properties. As at December 31, 2015, the non-current balance of these receivables bear interest at
weighted average coupon and effective interest rates of 6.3% (December 31, 2014 – 5.7% and 5.9% per annum,
respectively) and mature between 2017 and 2025. The current balance of loans and mortgages receivable bears
interest at a weighted average coupon and effective interest rate of 6.1% and 6.2% per annum, respectively
(December 31, 2014 – 9.6% per annum).
(b) The Company invests from time to time in publicly traded real estate and related securities. These securities are
recorded at market value. Realized and unrealized gains and losses on FVTPL securities are recorded in other gains
(losses) and (expenses).
Scheduled principal receipts of loans and mortgages receivable as at December 31, 2015 are as follows:
2016
2017
2018
2019
2020
2021 to 2025
Unamortized deferred financing fees, net
Weighted
Average Effective
Interest Rate
6.10%
7.30%
10.00%
6.70%
0.00%
5.50%
6.30%
Payments on
Maturity
$
$
23,010
3,254
2,880
64,987
73
47,786
141,990
1,682
143,672
FIRST CAPITAL REALTY ANNUAL REPORT 2015
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
7. AMOUNTS RECEIVABLE
As at
December 31, 2015
December 31, 2014
Trade receivables (net of allowances for doubtful accounts of $2.8 million;
$
16,064
$
15,106
2014 – $3.1 million)
Construction and development related chargebacks and receivables
Corporate and other amounts receivable
Total
780
861
374
1,100
$
17,705
$
16,580
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.
8. OTHER ASSETS
As at
Notes
December 31, 2015
December 31, 2014
Non-current
Fixtures, equipment and computer hardware and software
(net of accumulated amortization of $3.9 million; 2014 - $5.3 million)
Deferred financing costs on credit facilities
(net of accumulated amortization of $3.1 million; 2014 - $2.7 million)
Environmental indemnity and insurance proceeds receivable
Deposits and costs on investment properties under option
Held-to-maturity investment in bond
Total non-current
Current
Deposits and costs on investment properties under option
Prepaid expenses
Other deposits
Restricted cash
Derivatives at fair value
Total current
Total
$
3,153
$
9,721
2,172
8,274
—
685
14,284
3,824
4,457
1,924
59
—
10,264
24,548
$
$
$
$
1,591
5,418
2,000
685
19,415
4,144
7,388
792
13,733
281
26,338
45,753
$
$
$
$
13(a)
23
9. 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 to shareholders over the long term. The
Company’s capital structure currently includes common shares, senior unsecured debentures, mortgages, convertible
debentures, revolving credit facilities and bank indebtedness, 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.
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’s strategy also involves maintaining its moderate leverage and continuing to improve the interest coverage
and fixed charge coverage ratios to allow continued access to capital at a reasonable cost. The Company’s senior
82
FIRST CAPITAL REALTY ANNUAL REPORT 2015
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.
Periodically, the Company re-evaluates its overall financing and capital execution strategy to ensure the best access to
available capital at a reasonable cost.
The components of the Company’s capital are set out in the table below:
As at
December 31, 2015
December 31, 2014
Liabilities (principal amounts outstanding)
Bank indebtedness
Mortgages
Credit facilities
Mortgages under equity accounted joint venture (at the Company’s interest)
Credit facilities under 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 $18.35; December 31, 2014 – $18.66)
Total
$
26,200
1,020,358
224,635
3,878
43,669
2,250,000
337,271
$
—
1,158,466
7,785
10,425
—
2,160,000
388,174
4,138,622
4,037,543
$ 8,044,633
$ 7,762,393
The Company is subject to financial covenants in agreements governing its senior unsecured debentures and its credit
facilities. In accordance with the terms of the Company's credit agreements, all ratios are calculated with joint ventures
proportionately consolidated. As at December 31, 2015, the Company remains in compliance with all of its applicable
financial covenants. The following table summarizes a number of the Company's key ratios:
As at
Net debt to total assets
Unencumbered aggregate assets to unsecured debt, using 10 quarter average
capitalization rate (1)
Shareholders’ equity, using four quarter average (billions) (1)
Secured indebtedness to total assets (1)
For the rolling four quarters ended
Interest coverage (EBITDA to interest expense) (1)
Fixed charge coverage (EBITDA to debt service) (1)
Measure/
Covenant
December 31, 2015
December 31, 2014
$
42.9%
2.2
3.6
13.1%
2.5
2.1
42.2%
2.2
3.4
15.0%
2.3
1.9
$
>$1.6B
<35%
>1.65
>1.50
(1) Calculations required under the Company's credit facility agreements or indenture governing the senior unsecured debentures.
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 the Company has the option 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 any draws under the secured 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
•
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 and excludes properties under development. 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.
10. MORTGAGES AND CREDIT FACILITIES
As at
Fixed rate mortgages
Unsecured facility
Secured construction facilities
Mortgages and credit facilities
Current
Non-current
Total
December 31, 2015
December 31, 2014
$ 1,024,002
195,000
29,635
$ 1,248,637
191,896
$
1,056,741
$ 1,165,625
—
7,785
$ 1,173,410
253,957
$
919,453
$ 1,248,637
$ 1,173,410
Mortgages and secured construction facilities are secured by the Company's investment properties. As at
December 31, 2015, approximately $2.4 billion (December 31, 2014 – $2.7 billion) of investment properties of
$7.9 billion (December 31, 2014 – $7.5 billion) had been pledged as security under the mortgages and the
secured facility (Note 4(a)).
As at December 31, 2015, mortgages bear coupon interest at a weighted average coupon rate of 4.8% per annum
(December 31, 2014 – 5.0% per annum) and mature in the years ranging from 2016 to 2026. The weighted average
effective interest rate on all mortgages as at December 31, 2015 is 4.5% per annum (December 31, 2014 – 4.7% per
annum).
Principal repayments of mortgages outstanding as at December 31, 2015 are as follows:
2016
2017
2018
2019
2020
2021 to 2026
Unamortized deferred financing costs and premiums, net
Total
Scheduled
Amortization
Payments on
Maturity
Weighted
Average Effective
Interest Rate
Total
$
$
26,770 $
23,965
19,979
17,164
15,409
36,889
140,176 $
155,442 $
82,902
124,321
106,714
45,858
364,945
880,182 $
$
182,212
106,867
144,300
123,878
61,267
401,834
1,020,358
3,644
1,024,002
4.0%
4.0%
5.4%
6.5%
5.3%
3.9%
4.5%
Effective June 30, 2015, the Company extended the maturity of its $800 million unsecured facility to June 30, 2020 on the
same terms.
84
FIRST CAPITAL REALTY ANNUAL REPORT 2015
The following table summarizes the details of the Company’s credit facilities as at December 31, 2015:
As at December 31, 2015
Revolving Operating Facilities
Borrowing
Capacity
Amounts
Drawn
Bank Overdraft
and
Outstanding
Letters of
Available to be
Drawn
Unsecured facility
$
800,000 $
(195,000) $
(55,563) $
549,437
Interest Rates
Maturity Date
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
June 30, 2020
Secured Construction Facilities
Maturing 2018
112,500
(21,850)
Maturing 2016
7,953
(7,785)
—
(75)
90,650
93
BA + 1.125% or
Prime + 0.125%
BA + 1.125% or
Prime + 0.125%
February 13, 2018
March 31, 2016
Total credit facilities
$
920,453 $
(224,635) $
(55,638) $
640,180
During the year, one of the Company's development projects, in which the Company has a 50% interest, obtained a new
facility to finance the construction of its project. The facility has a borrowing capacity of $225 million plus $5.0 million
available for letters of credit. The Company did not renew its $75 million operating facility upon its maturity on
December 31, 2015.
11. SENIOR UNSECURED DEBENTURES
As at
December 31, 2015 December 31, 2014
Series Maturity Date
Coupon
Effective
Interest Rate
H
I
J
K
L
January 31, 2017
November 30, 2017
August 30, 2018
November 30, 2018
July 30, 2019
M April 30, 2020
N March 1, 2021
O
P
Q
R
S
January 31, 2022
December 5, 2022
October 30, 2023
August 30, 2024
July 31, 2025
Weighted Average/Total
5.85%
5.70%
5.25%
4.95%
5.48%
5.60%
4.50%
4.43%
3.95%
3.90%
4.79%
4.32%
4.70%
5.99%
5.79%
5.66%
5.17%
5.61%
5.60%
4.63%
4.59%
4.18%
3.97%
4.72%
4.24%
4.78%
Principal
Outstanding
Liability
$
125,000 $
124,814 $
125,000
50,000
100,000
150,000
175,000
175,000
200,000
250,000
300,000
300,000
300,000
124,809
49,678
99,411
149,382
174,985
174,002
198,323
246,637
298,643
301,466
301,941
Liability
124,653
124,717
49,498
99,229
149,230
174,984
173,835
198,091
246,227
298,499
301,622
208,589
$
2,250,000 $
2,244,091 $
2,149,174
Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
12. CONVERTIBLE DEBENTURES
As at
December 31, 2015
December 31, 2014
Interest Rate
Series Maturity Date
Coupon
Effective
Principal
Liability
Equity
Principal
Liability
Equity
D
E
F
G
H
I
J
June 30, 2017
January 31, 2019
January 31, 2019
March 31, 2018
March 31, 2017
July 31, 2019
February 28, 2020
Weighted Average/Total
5.70%
5.40%
5.25%
5.25%
4.95%
4.75%
4.45%
5.00%
6.88%
6.90%
6.07%
6.66%
6.51%
6.19%
5.34%
$
— $
— $
— $ 42,903 $ 41,756 $
983
55,060
53,720
49,582
71,006
51,604
56,299
52,793
52,506
48,144
69,697
49,579
54,624
2,099
365
1,146
1,415
1,414
394
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
6.28%
$ 337,271 $ 327,343 $
6,833 $ 388,174 $ 373,277 $
7,964
(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 20-day volume weighted average trading price of the Company’s common shares ending five days prior to
maturity date. The Company also has the option of paying the semi-annual interest through the issuance of common
shares. 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.
During the year ended December 31, 2015, 1.0 million common shares (year ended December 31, 2014 – 1.1 million
common shares) were issued for $18.9 million (year ended December 31, 2014 – $19.9 million) to pay interest to
holders of the convertible debentures. Each series of the Company’s convertible debentures bears interest payable
semi-annually and is convertible at the option of the holders in the conversion periods into common shares of the
Company at the conversion prices indicated below.
Maturity
Date
January 31, 2019
January 31, 2019
March 31, 2018
March 31, 2017
July 31, 2019
February 28, 2020
Coupon
Rate
5.40%
5.25%
5.25%
4.95%
4.75%
4.45%
TSX
FCR.DB.E
FCR.DB.F
FCR.DB.G
FCR.DB.H
FCR.DB.I
FCR.DB.J
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
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
$22.62
$23.77
$23.25
$23.75
2012-2019
Jul 31, 2015 - Jul 30, 2017
Jul 31, 2017 - Jul 31, 2019
$26.75; $27.75
2013-2020
Feb 28, 2016 - Feb 27, 2018
Feb 28, 2018 - Feb 28, 2020
$26.75; $27.75
(3)
(4)
(1) Period of time during which the Company may redeem the debentures at their principal amount plus accrued and unpaid interest, provided that the volume weighted
average trading price for the 20 consecutive trading days ending five days prior to the notice of redemption is not less than 125% of the Conversion Price, by giving
between 30 and 60 days' written notice.
(2) Period of time during which the Company may redeem the debentures at their principal amount plus accrued and unpaid interest by giving between 30 and 60 days'
written notice.
(3) These debentures are convertible at the option of the holder into common shares of the Company at a conversion price of $26.75 per common share until July 31, 2017
and $27.75 per common share thereafter.
(4) These debentures are convertible at the option of the holder into common shares of the Company at a conversion price of $26.75 per common share until
February 28, 2018 and $27.75 per common share thereafter.
(b) Principal redemption and holder conversion
On June 30, 2015, the Company redeemed its remaining Series D 5.70% convertible debentures at par by issuing common
shares in satisfaction of the remaining principal outstanding and interest owing.
During the year ended December 31, 2015, the Company issued 38,827 common shares in connection with $0.7 million
convertible debentures converted by the holder.
86
FIRST CAPITAL REALTY ANNUAL REPORT 2015
(c) Normal course issuer bid
On August 27, 2015, the Company renewed its normal course issuer bid (“NCIB”) for all of its then outstanding series of
convertible debentures. The NCIB will expire on August 26, 2016 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 year ended December 31, 2015 and 2014, principal amounts of convertible debentures purchased and amounts
paid for the purchases are represented in the table below:
Year ended December 31
2015
2014
Total
$
12,289
$
12,436
$
4,243
$
4,295
Principal
Amount
Purchased
Amount Paid
Principal
Amount
Purchased
Amount Paid
13. ACCOUNTS PAYABLE AND OTHER LIABILITIES
As at
Note
December 31, 2015 December 31, 2014
Non-current
Asset retirement obligations (a)
Ground leases payable
Derivatives at fair value
Deferred purchase price of investment property – shopping centre
Deferred income
Total non-current
Current
Trade payables and accruals
Construction and development payables
Dividends payable
Interest payable
Tenant deposits
Derivatives at fair value
Short positions in marketable securities
Loan payable
Deferred purchase price of investment property – shopping centre
Total current
Total
23
23
$
$
$
$
$
8,353
9,789
8,171
1,699
1,673
29,685
59,222
49,593
48,491
38,537
23,391
788
—
—
9,533
229,555
259,240
$
$
$
$
$
8,973
9,883
2,370
1,699
—
22,925
57,841
46,399
46,520
39,192
22,130
—
12,467
3,572
9,533
237,654
260,579
(a) The Company has obligations for environmental remediation at certain sites within its property portfolio. The
Company has also recognized a related environmental indemnity and insurance proceeds receivable in other assets
(Note 8).
FIRST CAPITAL REALTY ANNUAL REPORT 2015
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
14. 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
2015
Note
Number of
Common Shares
Stated Capital
Number of
Common Shares
Issued and outstanding at beginning of year
Payment of interest on convertible debentures
Redemption and conversion of convertible debentures
Exercise of options and restricted and deferred share
12
12
units
Issuance of common shares
Share issue costs and other, net of tax effect
216,374 $
1,024
2,152
1,577
4,411
—
2,600,605
18,857
38,614
26,379
87,277
(2,749)
2014
Stated Capital
2,457,310
19,914
500
22,747
208,356 $
1,132
22
1,446
5,418
—
102,834
(2,700)
Issued and outstanding at end of year
225,538 $
2,768,983
216,374 $
2,600,605
On February 3, 2015, the Company issued 4.4 million common shares at a price of $19.80 per share for gross proceeds of
$86.5 million. Issue costs associated with the offering were approximately $3.7 million.
Regular dividends paid per common share were $0.86 for the year ended December 31, 2015 (year ended
December 31, 2014 – $0.85).
(b) Contributed surplus and other equity items
Contributed surplus and other equity items comprise the following:
Year ended December 31
2015
Contributed
Surplus
Convertible
Debentures
Equity
Component
(Note 12)
Options
Restricted
and
Deferred
Share
Units
Total
Contributed
Surplus
Options
Restricted
and
Deferred
Share
Units
Convertible
Debentures
Equity
Component
(Note 12)
2014
Total
Balance at beginning of year
Issuance of convertible debentures
Redemption of convertible debentures in
common shares
Repurchase of convertible debentures
Options vested
Exercise of options
Deferred share units granted
Restricted share units vested
Exercise of restricted and deferred share units
$ 19,292 $ 7,964 $ 18,182 $ 45,438 $ 19,278 $ 8,058 $ 17,264 $ 44,600
(19)
(19)
—
—
—
—
—
—
—
240
—
—
—
—
—
(885)
(246)
—
—
—
—
—
—
—
652
(1,280)
984
2,617
(3,871)
(885)
(6)
652
(1,280)
984
2,617
(3,871)
—
14
—
—
—
—
—
—
(75)
—
—
—
—
—
—
—
—
903
(1,060)
928
2,916
(2,769)
(61)
903
(1,060)
928
2,916
(2,769)
Balance at end of year
$ 19,532 $ 6,833 $ 17,284 $ 43,649 $ 19,292 $
7,964 $ 18,182 $ 45,438
88
FIRST CAPITAL REALTY ANNUAL REPORT 2015
(c) Stock options
As of December 31, 2015, the Company is authorized to grant up to 15.2 million (December 31, 2014 – 15.2 million)
common share options to the employees, officers and directors of the Company. As of December 31, 2015, 2.7 million
(December 31, 2014 – 3.3 million) common share options are available to be granted to the employees, officers and
directors of the Company. In addition, as at December 31, 2015, 4.2 million common share options were outstanding.
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, 2015 have exercise prices ranging from $9.81 – $19.96 (December 31, 2014 –
$9.81 – $19.02).
As at
December 31, 2015
December 31, 2014
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)
743 $ 14.97
1,284 $ 17.18
1,023 $ 18.18
1,170 $ 19.06
4,220 $ 17.55
4.4
3.2
8.1
8.1
5.9
623 $ 14.83
995 $ 17.01
239 $ 17.90
295 $ 18.88
2,152 $ 16.73
1,485 $
1,815 $
600 $
1,056 $
4,956 $
Weighted
Average
Exercise
Price per
Common
Share
14.79
17.15
17.90
18.85
16.89
Weighted
Average
Remaining
Life
(years)
Number of
Common
Shares
Issuable
(in thousands)
Weighted
Average
Exercise
Price per
Common
Share
4.4
3.9
7.3
8.6
5.4
1,212 $ 14.59
1,379 $ 16.95
224 $ 17.90
153 $ 18.97
2,968 $ 16.16
Exercise Price
Range ($)
9.81 – 16.33
16.34 – 17.84
17.85 – 18.40
18.41 – 19.96
9.81 – 19.96
During the year ended December 31, 2015, $0.4 million (year ended December 31, 2014 – $0.6 million) was recorded as
an expense related to stock options.
Year ended December 31
Outstanding at beginning of year
Granted (a)
Exercised (b)
Forfeited
Expired
Outstanding at end of year
Number of
Common Shares
Issuable
(in thousands)
4,956
907
(1,338)
(305)
—
$
4,220
$
2015
Weighted
Average
Exercise Price
16.89
18.93
15.84
18.46
—
17.55
Number of
Common Shares
Issuable
(in thousands)
5,968
784
(1,446)
(235)
(115)
$
4,956
$
2014
Weighted
Average
Exercise Price
16.37
18.05
14.99
18.15
18.81
16.89
(a) The fair value associated with the options issued was calculated using the Black-Scholes model for option valuation
based on the following assumptions:
Year ended December 31
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)
2015
907
10 years
18.93
15.0%
6 years
4.56%
1.20%
920
$
$
2014
784
10 years
18.05
15.0%
6 years
4.68%
1.78%
883
$
$
(b) The weighted average market share price at which options were exercised for the year ended December 31, 2015 was
$19.17 (year ended December 31, 2014 – $18.31).
FIRST CAPITAL REALTY ANNUAL REPORT 2015
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(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 of grant for RSUs granted prior to June 1, 2015, and, for
all subsequent RSUs granted, on the third anniversary of the grant date. Holders of DSUs and RSUs receive dividends
in the form of additional units when the Company declares dividends on its common shares.
Year ended December 31
(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 year
$
Deferred
Share Units
2015
Restricted
Share Units
Deferred
Share Units
2014
Restricted
Share Units
452
29
17
(149)
—
349
258
670
328
121
16
(88)
(3)
374
343
$
1,888
$
393
39
20
—
—
452
303
780
286
193
17
(168)
—
328
890
$
1,507
(a) The fair value of the DSUs granted during the year ended December 31, 2015 was $0.5 million (year ended
December 31, 2014 – $0.7 million), measured based on the Company’s prevailing share price on the date of
grant. The fair value of the RSUs granted during the year ended December 31, 2015 was $1.8 million (year ended
December 31, 2014 – $3.3 million), measured based on the Company’s share price on the date of grant.
15. NET OPERATING INCOME
Net operating income is as follows:
Year ended December 31, 2015
Property rental revenue
Property operating costs
Net operating income
Year ended December 31, 2014
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
277,163 $
173,577 $
208,527 $
659,267 $
(2,624) $
105,602
74,802
67,224
247,628
(2,728)
Total
656,643
244,900
171,561 $
98,775 $
141,303 $
411,639 $
104 $
411,743
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
(1) Other items principally consist of intercompany eliminations.
For the year ended December 31, 2015, property operating costs includes $21.9 million (year ended December 31, 2014 –
$22.0 million) related to employee compensation.
90
FIRST CAPITAL REALTY ANNUAL REPORT 2015
16. INTEREST AND OTHER INCOME
Interest, dividend and distribution income from marketable securities and cash
investments
Interest income from loans and mortgages receivable
Fees and other income
Total
Note
6
6
$
Year ended December 31
2015
1,605
9,366
4,880
$
2014
4,304
8,034
659
$
15,851
$
12,997
17. INTEREST EXPENSE
Mortgages
Credit facilities
Senior unsecured debentures
Convertible debentures (non-cash)
Total interest expense
Interest capitalized to investment properties under development
Interest expense
Convertible debenture interest paid in common shares
Change in accrued interest
Effective interest rate in excess of coupon interest rate on senior unsecured and
convertible debentures
Coupon interest rate in excess of effective interest rate on assumed mortgages
Amortization of deferred financing costs
Note
10
10
11
12
12
$
$
Year ended December 31
2014
2015
61,806
51,327
2,037
4,031
108,156
106,844
23,735
22,118
195,734
184,320
(22,413)
(20,839)
$
163,481
$
173,321
(18,857)
655
(788)
3,692
(6,283)
(19,913)
(7,171)
(1,247)
4,145
(5,974)
Cash interest paid associated with operating activities
$
141,900
$
143,161
18. CORPORATE EXPENSES
Salaries, wages and benefits
Non-cash compensation
Other corporate costs
Total corporate expenses
Amounts capitalized to investment properties under development
Corporate expenses
Year ended December 31
2014
2015
$
$
29,164
2,941
11,486
43,591
(7,931)
$
35,660
$
24,284
2,599
10,926
37,809
(6,618)
31,191
FIRST CAPITAL REALTY ANNUAL REPORT 2015
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
19. OTHER GAINS (LOSSES) AND (EXPENSES)
Realized gains on sale of marketable securities
Unrealized losses on marketable securities classified as FVTPL
Losses on prepayments of debt
Unrealized losses on hedges
Pre-selling costs of residential inventory
Executive transition expense
Investment properties selling costs
Restructuring costs
Total
$
Note
23
$
Year ended December 31
2014
2015
1,665
784
(1,501)
(2,022)
(3,973)
(310)
(80)
—
(24)
—
(7,280)
—
(5,088)
(522)
—
(13,085)
$
(15,155)
$
(16,281)
During the year, the Company announced an organizational restructuring to streamline and enhance the effectiveness of
operations. The Company recognized restructuring costs of $13.1 million for year ended December 31, 2015, primarily
related to severance benefits, as well as a $6.4 million non-cash write-off of an investment in proprietary information
technology systems.
20. INCOME TAXES
The sources of deferred tax balances and movements are as follows:
December 31, 2014
Net income
Recognized in OCI
Equity and other December 31, 2015
Deferred taxes related to non-capital losses $
Deferred tax liabilities related to difference
in tax and book basis primarily related to
real estate, net
Net deferred taxes
$
(21,388) $
475,291
(14,157) $
70,000
(1,421) $
(1,605)
(1,028) $
(991)
(37,994)
542,695
453,903 $
55,843 $
(3,026) $
(2,019) $
504,701
As at December 31, 2015, the Company had approximately $143.8 million of non-capital losses which expire between 2016
and 2035.
December 31, 2013
Net income
Recognized in OCI
Equity and other December 31, 2014
Deferred taxes related to non-capital losses $
Deferred tax liabilities related to difference
in tax and book basis primarily related to
real estate, net
Net deferred taxes
$
(13,172) $
423,450
(5,943) $
53,600
(1,375) $
(1,860)
(898) $
101
(21,388)
475,291
410,278 $
47,657 $
(3,235) $
(797) $
453,903
As at December 31, 2014, the Company had approximately $81.7 million of non-capital losses which expire between 2015
and 2034.
92
FIRST CAPITAL REALTY ANNUAL REPORT 2015
The following reconciles the Company’s expected tax expense computed at the statutory tax rate to its actual tax
expense for the years ended December 31, 2015 and 2014:
Income tax expense at the Canadian federal and provincial income tax rate of 26.4%
(2014 – 26.2%)
Increase (decrease) in income taxes due to:
Non-taxable portion of capital gains and other
Impact of change in statutory income tax rate
Non-deductible interest expense
Other
Deferred income taxes
Year ended December 31
2015
$
68,527 $
2014
64,417
(19,574)
(16,063)
7,375
414
(899)
$
55,843 $
—
419
(1,116)
47,657
The Canadian federal and provincial income tax rate increased primarily due to an increase in the general corporate
income tax rate in the Province of Alberta during the second quarter of 2015.
21. PER SHARE CALCULATIONS
The following table sets forth the computation of per share amounts:
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
Year ended December 31
2014
2015
$
$
203,865
10,037
213,902
223,644
424
11,802
235,870
$
$
196,748
15,374
212,122
211,999
539
17,995
230,533
The following securities were not included in the diluted net income per share calculation as the effect would have been
anti-dilutive:
Year ended December 31
Number of Shares if Exercised
(in dollars, number of options in thousands)
Exercise Price
Common share options
Common share options
Common share options
Convertible debentures - 5.70%
Convertible debentures - 5.40%
Convertible debentures - 5.25%
$
$
$
19.96
—
—
—
22.62
23.25
2015
246
—
—
—
2,795
2,491
$
$
$
$
Exercise Price
18.97
19.02
18.41
18.75
—
—
2014
766
50
240
2,234
—
—
FIRST CAPITAL REALTY ANNUAL REPORT 2015
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
22. RISK MANAGEMENT
In the normal course of its business, the Company is exposed to a number of risks that can affect its operating
performance. 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, bond forwards 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.
Interest represents a significant cost in financing the ownership of real property. The Company has a total of $0.9 billion
principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured
debentures and convertible debentures maturing between January 1, 2016 and December 31, 2018 at a weighted
average coupon interest rate of 5.3%. 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 $8.8 million.
The Company’s loans and mortgages receivable 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 from tenants
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, 2015, Loblaw Companies Limited
(“Loblaw”) accounts for 10.4% of the Company’s annualized minimum rent and has an investment grade credit rating.
Other than Loblaw, no other tenant accounts for more than 10% 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 typically
mitigates the risk of credit loss from debtors by obtaining registered mortgage charges on real estate properties.
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
$
2015
419,036
1,222,284
875,379
$ 2,516,699
(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.
94
FIRST CAPITAL REALTY ANNUAL REPORT 2015
An analysis of the Company’s contractual maturities of its material financial liabilities and other contractual commitments
as at December 31, 2015 is set out below:
Scheduled mortgage principal amortization
Mortgage principal repayments on maturity
Mortgages under equity accounted joint ventures
Credit facilities
Credit facilities under equity accounted joint venture
Senior unsecured debentures
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
2016
2017 to 2018
2019 to 2020
Thereafter
$
26,770 $
43,944 $
32,573 $
36,889 $
155,442
—
7,785
3,825
—
157,769
947
56,227
207,223
3,878
21,850
39,844
400,000
269,068
1,939
18,974
152,572
—
195,000
—
325,000
200,146
1,962
—
364,945
—
—
—
1,525,000
208,924
16,210
—
Total
140,176
880,182
3,878
224,635
43,669
2,250,000
835,907
21,058
75,201
155,525
7,250
—
—
162,775
$
564,290 $ 1,013,970 $
907,253 $ 2,151,968 $ 4,637,481
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2015 (assuming balances remain outstanding through to
maturity), and senior unsecured debentures, as well as standby credit facility fees.
(2) The Company has the option 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 manages its liquidity risk by staggering debt maturities; renegotiating expiring credit arrangements
proactively; using revolving credit facilities; and issuing equity when considered appropriate. As at December 31, 2015,
there was $195.0 million (December 31, 2014 – nil) of cash advances drawn against the Company’s revolving credit
facilities.
In addition, as at December 31, 2015, the Company has $55.6 million (December 31, 2014 – $42.2 million) of bank
overdrafts and outstanding letters of credit issued by financial institutions primarily to support certain of the Company’s
contractual obligations.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
23. FAIR VALUE MEASUREMENT
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:
Carrying Amount
Fair Value
Notes
2015
2014
2015
2014
Financial assets
FVTPL investments in equity securities
AFS investments in equity securities
Loans and mortgages receivable
Derivatives at fair value
Financial liabilities
Mortgages
Credit facilities
Senior unsecured debentures
Convertible debentures
Derivatives at fair value
Short positions in marketable securities
6
6
6
8
10
10
11
12
13
13
$
11,907 $
4,269
143,672
—
33,370 $
4,391
138,199
281
11,907 $
4,269
141,354
—
33,370
4,391
136,569
281
$ 1,024,002 $ 1,165,625 $ 1,048,090 $ 1,220,094
7,785
2,326,507
392,003
2,370
12,467
224,635
2,414,392
341,874
8,959
—
224,635
2,244,091
327,343
8,959
—
7,785
2,149,174
373,277
2,370
12,467
The fair values of the Company’s cash and cash equivalents, amounts receivable, deposits, restricted cash and accounts
payable and other liabilities approximate their carrying values as at December 31, 2015 and 2014 due to their short term
nature.
The fair values of the Company’s investments in FVTPL as well as any 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 securities, 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, 2015, the risk-adjusted interest rates ranged from 4.0% to 10.0%
(December 31, 2014 – 4.0% to 11.0%).
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, 2015, these rates ranged from 2.3% to 3.3%
(December 31, 2014 – 2.4% to 3.4%).
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, 2015, these rates ranged
from 1.7% to 3.8% (December 31, 2014 – 2.0% to 3.9%).
The fair values of the convertible debentures are based on the TSX closing bid prices.
96
FIRST CAPITAL REALTY ANNUAL REPORT 2015
The fair value hierarchy of financial instruments on the audited annual consolidated balance sheets is as follows:
As at
December 31, 2015
December 31, 2014
Note
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Measured at fair value
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
Measured at amortized cost
Financial Assets
Loans and mortgages receivable
Financial Liabilities
Mortgages
Credit facilities
Senior unsecured debentures
Convertible debentures
6
6
8
13
13
6
10
10
10
11
12
$
11,907 $
—
—
— $
—
—
— $
4,269
—
33,370 $
292
—
— $
—
281
—
—
8,959
—
—
—
—
12,467
2,370
—
—
4,099
—
—
—
$
— $
— $
141,354 $
— $
— $
136,569
— 1,048,090
—
224,635
— 2,414,392
—
341,874
—
—
—
—
— 1,220,094
—
7,785
— 2,326,507
—
392,003
—
—
—
—
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 other comprehensive income 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 19).
The fair values of the Company's asset (liability) hedging instruments are as follows:
As at
Bond forward contracts
Interest rate swaps
Net
Designated as
Hedging
Instrument
Maturity
December 31, 2015 December 31, 2014
Yes
Yes
January 2016
March 2022 - June 2025
$
$
(788)
(8,171)
(8,959)
$
$
281
(2,370)
(2,089)
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, 2015, the interest rates ranged from
1.5% to 3.2% (December 31, 2014 – 1.9% to 3.7%).
FIRST CAPITAL REALTY ANNUAL REPORT 2015
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
24. 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 from 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:
December 31, 2015
December 31, 2014
$
$
$
$
$
$
$
$
$
84,724
1,746
86,470
—
502
502
85,968
28,362
$
$
$
$
83,416
705
84,121
—
548
548
83,573
27,570
Year ended December 31
2015
2,168
602
3,189
—
(419)
(137)
$
$
$
2014
4,887
480
5,010
4,108
4,465
1,462
Year ended December 31
2015
(940)
2,813
(706)
1,167
2014
6,827
61,290
(68,689)
(572)
$
$
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Non-controlling interests
Revenue
Share of profit from joint venture
Expenses
Increase in value of investment properties, net
Net income
Non-controlling interests
Cash provided by operating activities
Cash provided by financing activities
Cash used in investing activities
Net decrease in cash and cash equivalents
98
FIRST CAPITAL REALTY ANNUAL REPORT 2015
25. CO-OWNERSHIP INTERESTS
The Company has co-ownership interests 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)
The Edmonton Brewery District
King High Line
Hunt Club Marketplace
Hunt Club – Petrocan
Kanata Terry Fox (land)
Mclaughlin Corners
Meadowbrook Centre (II)
Midland (land)
Seton Gateway
Sherwood Park
South Oakville Properties (1)
West Oaks Mall
West Springs Village
Location
Calgary, AB
Edmonton, AB
Toronto, ON
Ottawa, ON
Ottawa, ON
Ottawa, ON
Brampton, ON
Edmonton, AB
Midland, ON
Calgary, AB
Sherwood Park, AB
Oakville, ON
Abbotsford, BC
Calgary, AB
Ownership Interest
December 31, 2015
75%
50%
50%
33%
50%
50%
50%
100%
50%
50%
50%
50%
50%
50%
December 31, 2014
75%
50%
50%
33%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
(1) South Oakville Properties includes one property at 50% interest, with the remaining properties held at 100% interest.
26. SUPPLEMENTAL OTHER COMPREHENSIVE INCOME (LOSS)
INFORMATION
(a) Accumulated other comprehensive loss
Year ended December 31
2015
2014
Unrealized (losses) gains on AFS
investments in equity securities
Unrealized losses on cash flow
hedges
Accumulated other comprehensive
loss
$
$
Opening
Balance
January 1
Net Change
During
the Year
Closing
Balance
December 31, 2015
Opening
Balance
January 1
Net Change
During
the Year
Closing
Balance
December 31, 2015
(53) $
98 $
45 $
(124) $
71 $
(9,017)
(8,090)
(17,107)
(283)
(8,734)
(9,070) $
(7,992) $
(17,062) $
(407) $
(8,663) $
(53)
(9,017)
(9,070)
FIRST CAPITAL REALTY ANNUAL REPORT 2015
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(b) Tax effects relating to each component of other comprehensive (loss) income
Year ended December 31
Unrealized (losses) gains on AFS
investments in equity securities
$
Reclassification of gains (losses) on
AFS equity securities to net
income
Unrealized (losses) gains on cash
flow hedges
Reclassification of losses on cash
flow hedges to net income
Before-Tax
Amount
Tax (Expense)
Recovery
2015
Net of Tax
Amount
Before-Tax
Amount
Tax (Expense)
Recovery
(34) $
5 $
(29) $
13 $
(2) $
147
(20)
127
69
(9)
2014
Net of Tax
Amount
11
60
(12,232)
3,334
(8,898)
(12,537)
3,392
(9,145)
1,101
(293)
808
557
(146)
411
Other comprehensive (loss) income
$
(11,018) $
3,026 $
(7,992) $
(11,898) $
3,235 $
(8,663)
27. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Items not affecting cash and other items
Straight-line rent adjustment
Investment properties – selling costs
Realized gains on sale of marketable securities
Unrealized losses (gains) on marketable securities classified as FVTPL
Losses on prepayments of debt
Non-cash compensation expense
Deferred income taxes
Unrealized losses on hedges
Other non-cash items
Total
(b) Net change in non-cash operating items
The net change in non-cash operating assets and liabilities consists of the following:
Amounts receivable
Prepaid expenses
Trade payables and accruals
Tenant security and other deposits
Other working capital changes
Total
100
FIRST CAPITAL REALTY ANNUAL REPORT 2015
Note
$
19
19
19
19
20
19
$
$
$
$
Year ended December 31
2014
2015
(5,851)
(4,957)
5,088
522
(1,665)
(784)
1,501
2,022
3,973
310
2,721
3,098
47,657
55,843
80
—
(2)
7,113
53,502
63,167
$
$
Year ended December 31
2014
2015
1,854
(1,124)
(871)
1,237
8,206
2,173
5,135
1,749
(102)
(3,472)
14,222
563
$
(c) Changes in loans, mortgages and other real estate assets
Advances of loans and mortgages receivable
Repayments of loans and mortgages receivable
Investment in marketable securities, net
Proceeds from disposition of marketable securities
Net
(d) Cash and cash equivalents (bank indebtedness)
$
$
$
Year ended December 31
2014
2015
(39,396)
(48,349)
263
43,445
(36,921)
(3,154)
32,023
24,572
(44,031)
16,514
$
As at
Cash (1)
Term deposits
Bank indebtedness
Total
(1) Principally consisting of cash related to co-ownerships and properties managed by third parties.
December 31, 2015
9,164
—
(26,200)
(17,036)
$
$
December 31, 2014
17,251
100
—
17,351
$
$
28. 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 $78.4 million
(December 31, 2014 – $68.2 million) to various lenders in connection with certain third-party obligations, including,
without limitation, loans advanced to its joint arrangement partners secured by the partners’ interest in the joint
arrangements and underlying assets.
(c) The Company is contingently liable by way of letters of credit in the amount of $29.4 million (December 31, 2014 –
$42.2 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 leases for land. Annual commitments under these ground
leases are approximately $0.9 million (December 31, 2014 – $1.0 million) with a total obligation of $21.1 million
(December 31, 2014 – $22.2 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 is contingently liable by way of a put option on a property by the owner that is exercisable up to
October 2022.
FIRST CAPITAL REALTY ANNUAL REPORT 2015
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
29. RELATED PARTY TRANSACTIONS
(a) Major Shareholder
Gazit-Globe Ltd. (“Gazit”) is the principal shareholder of the Company and, as of December 31, 2015, beneficially owns
42.2% (December 31, 2014 – 44.0%) of the common shares of the Company. Norstar Holdings Inc. is the ultimate controlling
party. As of December 31, 2015, Alony-Hetz Properties and Investments Ltd. (‘‘Alony-Hetz’’) also beneficially owns 6.2%
(December 31, 2014 – 8.3%) of the common shares of the Company. Alony-Hetz and Gazit have entered into a shareholders’
agreement pursuant to which, among other terms, (i) Gazit has agreed to vote its common shares of the Company in favour
of the election of up to two representatives of Alony-Hetz to the Board of Directors of the Company, and (ii) Alony-Hetz has
agreed to vote its common shares of the Company as directed by Gazit with respect to the election of the remaining
directors of the Company. Subsequent to the year ended December 31, 2015, Gazit and Alony-Hetz disposed of 6,500,000
and 980,000 common shares, respectively, of the Company, reducing their beneficial ownership to 39.3% and 5.8%.
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:
Reimbursements for professional services
Year ended December 31
2014
2015
$
213
$
591
As at December 31, 2015, amounts due from Gazit were $0.1 million (December 31, 2014 – $0.2 million).
(b) Joint venture
During the year ended December 31, 2015, a subsidiary of MMLP earned property-related and asset management fees
from MMUR, which are included in the Company’s consolidated fees and other income in the amount of $1.9 million
(December 31, 2014 – $0.4 million).
(c) Subsidiaries of the Company
These audited annual consolidated financial statements include the financial statements of First Capital Realty and all of
First Capital Realty's subsidiaries, including First Capital Holdings Trust. First Capital Holdings Trust is the only significant
subsidiary of First Capital Realty and is wholly owned by the Company.
(d) Compensation of Key Management Personnel
Aggregate compensation for directors and the Chief Executive Officer and Chief Financial Officer included in corporate
expenses is as follows:
Salaries and short-term employee benefits
Share-based compensation (non-cash compensation expense)
Executive transition expense
Year ended December 31
2015
3,225
1,661
—
4,886
$
$
2014
2,051
1,862
7,280
11,193
$
$
30. SUBSEQUENT EVENTS
The Company announced that it will pay a first quarter dividend of $0.215 per common share on April 12, 2016 to
shareholders of record on March 30, 2016.
On February 1, 2016, the Company purchased a 100% interest in a 171,000 square foot shopping centre in South Surrey, B.C.
for $78 million and, in a separate transaction, disposed of a 50% non-managing interest in three properties totaling 269,500
square feet in Lachenaie, Quebec, for $71 million.
102
FIRST CAPITAL REALTY ANNUAL REPORT 2015