BUILT TO
DELIVER
FIRST CAPITAL REALTY INC.
2016
ANNUAL REPORT
Well Defined Strategy
CORPORATE PROFILE
First Capital Realty (TSX: FCR) is one of Canada’s largest owners, developers and managers of
grocery-anchored, retail-focused urban properties where people live and shop for everyday life.
As at December 31, 2016, the Company owned interests in 160 properties, totaling approximately
25.3 million square feet of gross leasable area. At December 31, 2016, First Capital Realty had an
enterprise value of $9.2 billion. The common shares of the Company trade on the Toronto Stock Exchange.
BUSINESS STRATEGY
First Capital Realty’s primary strategy is the creation of value over the long term by generating
sustainable growth in cash flow and capital appreciation of its portfolio. To achieve the Company’s
strategic objectives, Management continues to:
• undertake selective development, redevelopment and repositioning activities on its properties,
including land use intensification;
• be focused and disciplined in acquiring well-located properties, primarily where there are
value-creation opportunities, including sites in close proximity to existing properties in the
Company’s target urban markets;
• proactively manage its existing portfolio to drive rent growth;
• increase efficiency and productivity of operations; and
• maintain financial strength and flexibility to achieve a competitive cost of capital.
PROPERTY RENTAL REVENUE
($ millions)
CAGR 5.4%
TOTAL NOI
($ millions)
CAGR 4.7%
684
652
662
634
581
427
399
409
415
369
TOTAL ASSETS
($ billions)
Total assets $
Unencumbered assets $
% Debt to total assets
7.3
7.6
7.9
9.2
6.6
8.3
5.8
5.0
42.2
42.9
42.6
4.3
42.9
3.4
42.1
12
13
14
15
16
12
13
14
15
16
12
13
14
15
16
Best in Class Properties
(cid:31) Greater Toronto Area
(cid:31) Greater Montreal Area
(cid:31) Greater Calgary Area
(cid:31)(cid:3)Greater Vancouver Area
(cid:31)(cid:3)Greater Edmonton Area
(cid:31)(cid:3)Greater Ottawa Area
(cid:31) Golden Horseshoe Area
(cid:31)(cid:3)London Area
(cid:31)(cid:3)Quebec City
(cid:31) Red Deer and Other
Total
33%
15%
12%
11%
10%
6%
6%
3%
2%
2%
100%
URBAN MARKETS
High-quality portfolio
of Canadian urban
retail assets
Over 95% of the Company’s
annual minimum rent is
derived from urban markets
with high barriers to entry
PORTFOLIO
DEMOGRAPHICS
Industry-leading
demographic profile
Annual Minimum Rents as of December 31, 2016
207,000
134,000
$106,000
$76,000
2009
2016
2009
2016
5 Km Population
5 Km Household Income
FCR Portfolio Demographics
INDUSTRY-LEADING
PERFORMANCE
Track record of above-
industry-average Same
Property NOI growth
6.8%
4.9%
3.8%
3.4%
2.5% 2.3%
3.7%
3.7%
3.2%
5 year average – 2.8%
10 year average – 3.5%
1.1%
07
08
09
10
11
12
13
14
15
16
Total Same Property NOI Growth
INVESTMENT
Approximately $1 billion
planned investment in
existing properties with
development potential
$1B
Sustainable Cash Flow
HIGHLIGHTS
TENANT PROFILE
143 of 160 properties, or 95% of the portfolio fair
value is supermarket and/or drugstore anchored
Annual minimum rents
Over 90% of revenue comes from necessity-based
retail (~35% from e-commerce proof categories)
9 of the top 10 tenants have investment-grade
credit ratings
Track record of consistently high occupancy
Investment-grade credit ratings from Moody’s:
Baa(2) and DBRS: BBB (high)
23 consecutive years of paying dividends
Focused sustainability program – listed on
Corporate Knights Future 40 Responsible
Corporate Leaders in Canada in 2014, 2015 and
2016
9%
18%
5%
30%
8%
3
5
%
16%
E
-
C
O
M
M
14%
E
R
CE
PRO O F T E N A N T
S
(cid:31) Supermarkets, drugstores and liquor stores
(cid:31) Banks & Credit Unions
(cid:31) Restaurants & Cafes
(cid:31)(cid:3)Medical, Professional & Personal Services
(cid:31)(cid:3)Fitness Facilities, Daycare & Learning Centres
(cid:31) Other Necessity-based Retailers
(cid:31) Other Tenants
Total
30%
8%
14%
16%
5%
18%
9%
100%
TOP 10 TENANTS
TOTAL PORTFOLIO OCCUPANCY
5 year average – 95.4%
10 Year average – 95.6%
96.4%
96.2%
96.4% 96.2%
96.0%
95.6% 95.5%
95.3%
94.8% 95.0%
07
08
09
10
11
12
13
14
15
16
Financial Highlights
As at December 31
Reflects joint ventures proportionately consolidated.
(millions of dollars, except per share amounts)
Total assets
Total equity market capitalization(1)
Enterprise value(1)
Net debt to total assets
Annual dividend per common share
Operating Highlights
As at December 31
Reflects joint ventures proportionately consolidated.
(millions of dollars, except per share amounts)
Property Rental Revenue
Net Operating Income (“NOI”)(1)
Funds from Operations (“FFO”)(1)
Operating FFO
Operating FFO per diluted share
FFO
FFO per diluted share
Adjusted Funds from Operations (“AFFO”)(1)
Operating AFFO
Operating AFFO per diluted share
AFFO
AFFO per diluted share
(1) These measures are not defined by IFRS. Refer to the company’s Management’s Discussion & Analysis for further information.
2016
$ 9,171
$ 5,033
$ 9,162
42.6%
$ 0.86
2016
$ 684
$ 427
$ 261
$ 1.10
$ 263
$ 1.11
$ 261
$ 1.07
$ 265
$ 1.08
2015
$ 8,284
$ 4,139
$ 8,031
42.9%
$ 0.86
2015
$ 662
$ 415
$ 236
$ 1.05
$ 221
$ 0.99
$ 243
$ 1.02
$ 244
$ 1.03
Message from the
President & CEO
Dear Fellow Shareholder,
In my first letter to you last year, I noted that 2015 would likely
be remembered as a year of transition. Notwithstanding that the
business was and continues to be in excellent shape, we made
several changes in order to maximize our performance as we
looked ahead to our next phase of growth. Our 2016 results
were positively impacted by the traction we now have from these
changes, which I expect will be carried into 2017 and beyond.
In order for a publicly listed real estate company to be successful, it must deliver both Net Asset Value (NAV)
growth and Funds from Operations (FFO) growth, both measured on a per-share basis, of course. Our track
record of creating value through growth in NAV per share is something we are very proud of. While we have a
history of growing our FFO per-share as well, I will be frank by saying our historical FFO growth, considering our
industry-leading property-level performance, has not met expectations (including our own). Therefore, growing
our FFO per-share was a metric that we identified as a top priority.
In 2016, we were pleased with our progress. We translated our property-level performance into FFO growth that
exceeded the expectations we had at the beginning of the year. FFO per diluted share increased to $1.11 in 2016
from $0.99 in 2015, representing an increase of 12%. We had several one-time items that impacted these figures.
Accordingly, we also continued to focus on Operating Funds from Operations (OFFO), a more normalized metric.
The result however, was similar. We reported OFFO per share equal to $1.10 in 2016, which is the highest in
FCR’s history, representing an increase of 4.7% over the prior year.
OFFO Per Share
$1.10
$1.04
$1.05
2014
2015
2016
Continuing Strong Performance
We continued to perform very well at the property level in 2016. Despite several macro headwinds, as always,
we remained focused on the micro factors, which resulted in high occupancy levels, above-industry-average
rental-rate increases on lease renewals, and growth in same-property NOI.
It was another active year on the leasing front with a total of 2.6 million square feet of completed lease transactions.
This resulted in a 20 bps increase to occupancy, which stood at 95.0% at year-end with the opportunity for further
improvement before we reach our historical long-term average occupancy.
We achieved a rental rate increase on 1.6 million square feet of lease renewals equal to 7.5% (8.2% on 1.5 million
square feet in our same property portfolio). Together with new space completed from our development program
(average net rental rate of $31.96 per square foot) and new leasing in the balance of the portfolio where market
rental rates are well in excess of those in-place, our total average net rental rate increased by 2.9% to $19.39 per
square foot, up from $18.84 per square foot in 2015.
A key measure of a real estate portfolio’s year-over-year performance is same-property NOI. In 2016, same
property NOI rose 1.1%. While it was below our historical average, we were pleased as 2016 was not a typical
year. First, we had above-average lease-termination-fee income of $3.0 million in the second quarter of 2015, which
would not repeat in 2016. Second, we were transitioning an above-average amount of anchor tenant space, most
notably Target. This anchor space created a significant value-creating opportunity for us as we entered into new
leases at higher current market rents. This is great news, but much of this space was not income-generating in 2016 as
the space was being prepared for our new tenants to open. Many of these tenants are now operating and paying
rent. Therefore we expect our 2017 same-property NOI growth to resume to a level that is more typical for FCR.
From a balance sheet perspective, we maintained a strong and flexible financial position at year-end with a conservative
debt-to-asset ratio. In total, we raised $1.0 billion of equity and debt capital to fund our growth and satisfy our obligations in
2016. We continued to maintain a well-staggered debt maturity profile with a weighted average term of 5.5 years. We
also reduced our weighted average interest rate to 4.5% at the end of 2016 from 4.7% in 2015. Our unencumbered
assets grew by $800 million to $6.6 billion, which represented 72% of our total assets at the end of 2016 and
provides us with tremendous financial flexibility going forward.
While we are comfortable with our financial position today, our goal is to reduce our leverage over time, specifically
our debt-to-EBITDA ratio. We would also like to reduce our OFFO payout ratio in order to retain even more operating
cash flow, after the payment of dividends, to more efficiently fund our growth. In 2016, our OFFO payout ratio
improved by 400 bps to 78% versus 2015.
In 2016, First Capital shareholders received a total return equal to 17.3%. However, our focus continues to be on
long-term returns and we are proud that we have outperformed the TSX Capped REIT Index and the TSX Composite
Index over each of the last 3, 5, 10 and 16 years (the inception period from which we measure ourselves).
First Capital Realty
S&P/ TSX Capped REIT Index
S&P/TSX Composite
10.1%
7.3% 7.1%
8.4%
6.4%
8.2%
7.4%
6.3%
4.7%
15.4%
10.4%
6.0%
3 Year
5 Year
10 Year
16 Year
(Inception Period)
KING HIGH LINE, TORONTO
MOUNT ROYAL VILLAGE, CALGARY
3080 YONGE STREET, TORONTO
High-Quality Portfolio
Our high-quality property portfolio is clearly one of our competitive advantages, which consisted of interests in
160 retail properties at year-end, totaling 25.3 million square feet of gross leasable area with an IFRS fair value
of $8.7 billion. Our properties are well located in Canada’s large urban growth markets. The population and
household income within five kilometres of our properties average 207,000 and $106,000 respectively, which
have increased significantly from 134,000 and $76,000 just a few years ago. We are a true leader amongst our
Canadian retail peers when it comes to portfolio demographics and we will continue to pay close attention to these
important metrics by investing our capital in markets where the population is expanding at a rate that exceeds the
ability to add new retail space. Over time, this will increase sales per square foot in our properties, which in turn
will increase rents at a pace that exceeds the industry average. We strongly believe over the long term that the
demographic profile of our portfolio will be one of our most significant competitive advantages.
Our shopping centres are occupied by Canada’s leading retailers who provide necessity-based goods and services,
meaning those that consumers generally buy regardless of the economic environment. At December 31, 2016,
our portfolio included 132 grocery stores, 135 pharmacies, 96 liquor stores, 82 fitness facilities, 89 daycare and
learning centres and 965 cafes and restaurants, amongst many other retailers that consumers frequent as part
of their everyday life. Notably, nearly 35% of our total rent is now earned from retailers whose businesses are
e-commerce-proof, including fitness centres, medical service providers, nail and hair salons, restaurants, child-
care centres and numerous others with the balance being largely e-commerce-resistant.
It is the quality of our tenant base, as well as our focus on necessity-based retail in the best urban locations, that
has generated such strong operating performance through both robust and challenging economic times and that
will lead to continued growth and stability in the years ahead.
In 2016, we further improved our already high-quality portfolio of retail assets. In total, we invested $655 million
in development, re-development, acquisitions and intensification initiatives. During the year, we transferred
182,000 square feet of new urban retail space in our key Toronto, Montreal, Edmonton, Calgary and Vancouver
markets from development to our income-producing portfolio at a cost of $189 million.
Development, re-development and asset re-positioning have been core competencies at First Capital since
inception and is now another one of our key competitive advantages. We currently have an active development
program that will continue to add exceptional urban retail assets to our portfolio for years to come, assets that we
simply cannot buy today.
We are well underway with a number of large development projects that will be completed over the next two years,
including Yorkville Village, King High Line and 3080 Yonge Street in downtown or midtown Toronto, as well as
the Brewery District in downtown Edmonton and Mount Royal Village in downtown Calgary. We made significant
advances in all of these projects during 2016 and each will meaningfully contribute to our existing high-quality
portfolio of income-producing urban retail assets. At completion, these five assets will comprise 1.3 million square
feet at a total estimated cost of approximately $1.0 billion at First Capital’s share.
We have also identified some of the next properties we plan to re-develop, which include the former Christie Cookie
Factory we acquired in 2016. Our team is very excited about this specific acquisition and the opportunity to oversee
the development of a 27-acre mixed-use community with a high-quality urban design. The redevelopment of this
important site will integrate a range of uses and densities near Toronto’s waterfront, including a significant retail
component where we can apply the best of what we’ve learned over many years in urban retail development.
YORKVILLE VILLAGE, TORONTO
New Avenue Road façade
The Oval
The Lane (new Yorkville entrance)
One of the unique attributes of First Capital Realty is the depth of our pipeline of development and re-development
opportunities in the portfolio of properties we own. To date, we have identified 3 million square feet of retail density
and 11 million square feet of residential density that can be incrementally added to our existing properties. Even
without any external acquisitions, our current pipeline will keep us busy creating value for many years to come. That
said, I do expect we will periodically add to this pipeline through the selective acquisition of properties with future
development potential when appropriate as we did in 2016.
Outlook
Like many industries, real estate, and retail specifically, is undergoing a great deal of change. One of the things we
are most proud of is our track record of recognizing evolving trends and creating opportunities out of them. There
are dozens of examples I can point to, but a review of our current tenant roster highlights this point. The majority
of our tenants and the retail categories they operate within are performing well while those tenants who are facing
significant challenges in today’s climate, are scarce in our portfolio. As well, it is largely by design, not accident,
that such a high component of our income (and growing) comes from e-commerce-proof businesses (~35%).
The retail landscape will continue to evolve at a rapid pace. The location and quality of our portfolio, including
the demographic profile of our properties and the barriers to entry for new supply, give us a lot of comfort that our
real estate will continue to be in high demand. As we apply the capabilities of our platform to this irreplaceable
portfolio, we are positioned to experience continued escalation in rental rates and portfolio value over the long
term. What’s more, with the stability of our high-quality covenant and necessity-based retail tenants, we should
achieve this with relatively less volatility.
I am personally very optimistic about our future. I believe we have all of the right ingredients for success. It starts
with the right strategy for the road that lies ahead and extends to having the right people, properties, tenant base,
brand and balance sheet.
Real estate is a long-term business and First Capital is best suited for investors with an investment horizon that
extends over many years. In 2016, we continued to build on our solid foundation and made many decisions with
the next decade and beyond in mind.
I will conclude by thanking the First Capital team for their tireless efforts executing our strategy in what was a
very successful year, our Board of Directors for their ongoing guidance and support, our tenants for collaboratively
working with us to mutually achieve our respective objectives, our partners and service providers for their contributions
and confidence in us, the communities in which we operate for supporting our properties and, most important,
our shareholders for the privilege of managing your great Company.
Respectfully,
Adam Paul
President and Chief Executive Officer
MD&A
MANAGEMENT’S DISCUSSION
AND ANALYSIS
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
2016 Acquisitions
2015 Acquisitions
2016 Dispositions
2015 Dispositions
Impact of Acquisitions and Dispositions
Capital Expenditures
Valuation of Investment Properties
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
33
33
34
34
35
38
38
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40
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42
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45
46
46
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48
48
50
51
52
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 Maturity Profile
Mortgages
Credit Facilities
Senior Unsecured Debentures
Convertible Debentures
Shareholders’ Equity
Liquidity
Cash Flows
Contractual Obligations
Contingencies
Dividends
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, 2016 and
2015. It should be read in conjunction with the Company’s audited annual consolidated financial statements for the years
ended December 31, 2016 and 2015. Additional information, including the Company's current Annual Information Form,
is available on the SEDAR website at www.sedar.com and on the Company’s website at www.fcr.ca.
All dollar 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 14, 2017.
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; tenant financial difficulties; defaults and bankruptcies; the relative
illiquidity of real property; increases in operating costs and property taxes; First Capital Realty’s ability to maintain
occupancy and to lease or re-lease space at current or anticipated rents; the availability and cost of equity and debt
capital to finance the Company's business, including the repayment of existing indebtedness as well as development,
intensification and acquisition activities; changes in interest rates and credit spreads; changes to credit ratings; the
availability of a new competitive supply of retail properties which may become available either through construction, lease
or sublease; unexpected costs or liabilities related to acquisitions, development and construction; 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 integration of acquisitions into the Company; uninsured losses and First Capital Realty’s ability to
1
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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 tenants to maintain necessary
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 14, 2017 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, retail-
focused urban properties where people live and shop for everyday life. As at December 31, 2016, the Company owned
interests in 160 properties, totaling approximately 25.3 million square feet of gross leasable area (“GLA”).
First Capital Realty’s primary strategy is the creation of value over the long term by generating sustainable 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 90% of the Company’s revenues
come from tenants who provide these essential products and services, including grocery stores, pharmacies, liquor stores,
banks, restaurants, cafés, fitness centres, medical, childcare facilities and other professional and 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
2
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Shopping for Everyday Life®
3
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
4
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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, and Calgary 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.
5
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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 portfolio
of high quality properties in urban markets in Canada 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 grocery stores,
fitness centres, cafés 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. and international retailers including Walmart, Marshalls, Nordstrom, Saks Fifth Avenue,
Uniqlo and others. Although such repositioning resulted in new opportunities for the Company, it also resulted in an
increasingly competitive retail landscape in Canada. In addition, many retailers have announced store closures and/or
bankruptcies, including Mexx, Future Shop, Aeropostale, Black's, Nine West, Target, Danier Leather, Le Château and HMV.
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, 2016, the Same Property portfolio delivered net operating income growth of 2.0%
compared to the prior year excluding the effect of two significant lease surrender fees earned in the second quarter of
2015 (1.1% including the impact of these fees). The growth in Same Property net operating income was primarily due to
rental rate step-ups and lease renewals at higher rates. Total portfolio occupancy improved to 95.0% as at December 31,
2016, from 94.8% as at December 31, 2015 primarily due to re-leasing a portion of the space vacated by the closure of
two Target stores in the second quarter of 2015 and a Canadian Tire store in the third quarter of 2015.
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
FIRST CAPITAL REALTY ANNUAL REPORT 2016
6
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
portfolio of urban properties, which includes an inventory of adjacent land sites and development land. As at
December 31, 2016, the Company had identified approximately 13.8 million square feet of incremental density available
in the portfolio for future development (including 3.0 million square feet of retail and 10.9 million square feet of
residential space), of which approximately 0.5 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 typically improve the quality of the property, which in turn leads to meaningful growth in 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 transferred 288,000 square feet of new urban retail space from development to income-
producing properties at a cost of $165.3 million. Approximately 264,000 square feet of the new space was occupied at an
average net rental rate of $31.96 per square foot, well above the average rent for the entire portfolio of $19.39, thus
realizing on the growth potential through development and redevelopment activities.
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 nine income-producing properties for $268.5 million in close proximity to the
Company's existing shopping centres, adding a total of 621,400 square feet of gross leasable area to the portfolio. The
Company also acquired four development properties for $51.7 million, including a 50% interest in the former Christie
Cookie site comprising 27 acres of prime land in the southwest part of Toronto. Additionally, the Company invested
$145.9 million in development and redevelopment activities during the year.
In the third quarter of 2016, the Company advanced $189.2 million as a deposit on the acquisition of an investment
property, located at One Bloor Street in Toronto, that is currently under construction. The deposit earns interest of 4.5%
until the purchase closing date which is estimated to be in the fourth quarter of 2017.
The Company continues to evaluate its properties and will occasionally dispose of non-core properties. This allows the
Company to redeploy 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 six properties and
four land parcels for gross proceeds of $137.1 million.
Financing Activity
During the year, the Company repaid $155.6 million of mortgages with a weighted average effective interest rate of 4.0%
and secured $203.4 million of new mortgages with a weighted average effective interest rate of 3.2% and a weighted
average term of 10.1 years.
In April 2016, the Company redeemed its remaining 5.25% Series G and 4.95% Series H convertible debentures at par and
satisfied its principal and accrued interest owing on each series 50% by the issuance of common shares and 50% in cash.
In May 2016, the Company completed the issuance of a $150.0 million principal amount of Series T senior unsecured
debentures. The debentures have an effective interest rate of 3.7%, and mature on May 6, 2026 which represented a term
7
FIRST CAPITAL REALTY ANNUAL REPORT 2016
to maturity of 10.0 years at the time of issuance. Subsequently, in September 2016, the Company completed the issuance
of an additional $150.0 million, which was a re-opening of the series T debentures, with an effective interest rate of 3.4%.
In May 2016, the Company also issued 5.5 million common shares at a price of $21.10 for gross proceeds of $115.0 million.
In August 2016, the Company issued an additional 7.6 million common shares at a price of $22.60 for gross proceeds of
$172.6 million.
The proceeds raised in the debt and equity offerings were primarily used to fund investment activities.
Outlook
Management is focused on the following five areas to achieve its objectives through 2017 and into 2018:
• 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;
• increasing the 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 balance sheet and the defensive nature of its assets
will continue to serve it well in the current environment and into the future.
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 March 2016, the Company was named by Corporate Knights as one of the Future 40 Responsible Corporate Leaders in
Canada. This ranking evaluated all Canadian companies with revenues of under $2.0 billion dollars or maintaining fewer
than 2,000 employees in 2015 for their sustainability and disclosure practices. In June 2016, 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, 2016, 114 projects comprising 3.4 million square feet of GLA were certified to LEED
standards. Another 31 projects comprising 1.3 million square feet of GLA are registered for LEED certification.
Reducing energy and water consumption is also a key part of the sustainability program, 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.fcr.ca.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
8
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
SUMMARY CONSOLIDATED INFORMATION AND HIGHLIGHTS
As at December 31
Operations Information
Number of properties
GLA (square feet) – at 100%
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 – at 100%
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
2016
2015
2014
160
25,278,000
158
24,431,000
158
24,331,000
96.4%
95.0%
96.3%
94.8%
96.8%
96.0%
2,993,000
10,856,000
19.39
288,000
$
3,326,000
10,612,000
18.84
248,000
$
2,421,000
N/A
18.42
289,000
$
0.8%
1.1%
4.1%
3.7%
2.8%
3.2%
$ 8,453,348
$
67,149
$ 9,104,553
997,165
$
$
251,481
$ 2,546,442
$
207,633
$ 4,195,263
$ 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
Shares outstanding (in thousands)
Enterprise value (6)
Net debt to total assets (6) (7) (8)
Weighted average term to maturity on mortgages and senior unsecured debentures
(years)
243,507
$ 9,162,000
225,538
$ 8,031,000
216,374
$ 7,762,000
42.6%
5.3
42.9%
5.5
42.2%
5.9
9
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Year ended December 31
2016
2015
2014
Revenues, Income and Cash Flows
Revenues and other income (9)
Net operating income (“NOI”) (9) (10)
Increase (decrease) 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
Dividends
Dividends per common share
Weighted average number of common shares – diluted (in thousands)
Funds from Operations (“FFO”) (10)
Operating FFO (10)
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)
Operating AFFO per diluted share
Operating AFFO payout ratio
AFFO
AFFO per diluted share
AFFO payout ratio
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
695,925
421,997
218,078
382,714
1.59
256,598
265,304
204,233
0.86
246,428
260,731
1.10
78.2%
262,544
1.11
77.5%
260,977
1.07
80.4%
264,869
1.08
79.6%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
672,494
409,892
37,773
203,865
0.91
244,433
243,922
192,781
0.86
235,870
236,069
1.05
81.9%
221,265
0.99
86.9%
242,808
1.02
84.3%
243,592
1.03
83.5%
661,438
403,548
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%
(1) Same Property – stable NOI and Total Same Property NOI are measures of operating performance not defined by International Financial Reporting Standards ("IFRS"). Refer
to the “Business and Operations Review – Real Estate Investments – Investment Property Categories” section of this MD&A.
(2) At the Company's proportionate interest. Square footage does not include potential development on properties held by 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) 2014 amount has not been disclosed.
(4) Calculated based on the year-to-date NOI.
(5) Includes properties and mortgages 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 –
Total 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" and “Results of Operations – Non-IFRS Supplemental Financial Measures” sections of this MD&A.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
10
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 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 façade, 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 – consists of properties acquired during the period including those in close proximity to
existing shopping centres. 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 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.
11
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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, 2016 December 31, 2015
Consolidated
Balance
Sheet (1)
Adjustments for
Proportionate
Interest
Proportionate
Interest
Proportionate
Interest
$
$
$
8,370,298
67,149
146,422
83,050
437,634
9,104,553
997,165
251,481
3,622,824
4,871,470
4,195,263
37,820
4,233,083
$
$
$
111,087
88,878
(146,422)
—
12,596
66,139
45,373
56,798
1,788
103,959
—
(37,820)
(37,820)
$
$
$
8,481,385
156,027
—
83,050
450,230
9,170,692
1,042,538
308,279
3,624,612
4,975,429
4,195,263
—
4,195,263
$
$
$
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
$
9,104,553
$
66,139
$
9,170,692
$
8,284,306
(1) Certain assets and liabilities have been grouped for purposes of this reconciliation.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
12
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Portfolio Overview
As at December 31, 2016, the Company had interests in 160 investment properties – shopping centres, which were 95.0%
occupied with a total GLA of 25.3 million square feet and a fair value of $8.6 billion. This compares to 158 investment
properties – shopping centres, which were 94.8% occupied with a total GLA of 24.4 million square feet and a fair value of
$8.0 billion as at December 31, 2015. As at December 31, 2016, the average size of the shopping centres is approximately
158,000 square feet, ranging from approximately 9,200 to over 574,000 square feet.
The Same Property portfolio includes shopping centres sub-categorized in Same Property – stable and Same Property with
redevelopment. The Same Property portfolio is comprised of 143 properties with a GLA of 21.3 million square feet and a
fair value of $6.7 billion. These properties represent 89.4% of the Company's property count, 84.4% of its GLA and 78.4%
of its fair value and generated $360.1 million in NOI for the year ended December 31, 2016 or 84.3% 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 2016 or 2015 and properties in
close proximity to them, as well as properties held for sale.
The Company's shopping centre portfolio based on property categorization is summarized as follows:
As at
December 31, 2016
December 31, 2015
(millions of dollars, except other data)
Number
of
Properties
GLA
(000s
sq. ft.)
Fair
Value (1) Occupancy
Number
of
Properties
GLA
(000s
sq. ft.)
Fair
Value (1) Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
96.4% $ 18.84
19.51
95.4%
96.3%
83.4%
96.9%
91.3%
87.1%
88.0%
18.93
23.08
21.93
20.16
36.42
17.59
Weighted
Average
Rate per
Occupied
Square
Foot
96.3% $ 18.61
18.69
93.6%
96.0%
83.6%
93.2%
—%
87.1%
88.2%
18.62
22.95
17.84
—
35.99
17.32
129
14
143
8
3
—
—
2
18,454 $ 5,623
782
2,830
21,284
1,933
601
—
98
293
6,405
930
308
—
129
79
Same Property – stable
Same Property with
redevelopment
Total Same Property
Major redevelopment
Ground-up development
Acquisitions – 2016 (2)
Acquisitions – 2015
Investment properties classified
as held for sale (3)
Dispositions – 2016
129
14
143
8
3
4
—
2
—
18,454 $ 5,857
854
2,890
21,344
1,939
767
835
98
295
6,711
1,004
358
283
125
83
—
—
—%
—
2
222
125
96.4%
6.91
Total
160
25,278 $ 8,564
95.0% $ 19.39
158
24,431 $ 7,976
94.8% $ 18.84
(1) At the Company's proportionate interest.
(2)
(3)
Properties in close proximity to existing properties.
The number of properties and GLA exclude a shopping centre that was 50% held for sale as at December 31, 2015. The GLA and property count for this shopping centre
was included in Same Property with redevelopment. 2015 fair value excludes development land held for sale of $6.5 million.
13
FIRST CAPITAL REALTY ANNUAL REPORT 2016
The Company’s shopping centre portfolio by geographic region is summarized as follows:
As at
(millions of dollars,
except other data)
Central Region
Greater Toronto
Area
Number
of
Properties
GLA
(000s
sq. ft.)
Fair
Value (1) Occupancy
December 31, 2016
Weighted
Average
Rate per
Occupied
Square
Foot
% of
Annual
Minimum
Rent
December 31, 2015
Number
of
Properties
GLA
(000s
sq. ft.)
Fair
Value (1) Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
% of
Annual
Minimum
Rent
46
7,111 $ 3,134
96.2% $ 21.92
33%
44
6,601 $ 2,825
96.4% $ 21.96
33%
Golden Horseshoe
8
1,569
405
95.7%
15.94
6%
8
1,570
383
97.1% 15.64
6%
Area
London Area
Eastern Region
Greater Montreal
Area
Greater Ottawa
Area
Quebec City
Other
Western Region
Greater Calgary
Area
Greater
Vancouver Area
Greater Edmonton
Area
Red Deer
7
61
784
9,464
173
3,712
93.7%
95.9%
15.17
20.39
3%
42%
7
59
777
8,948
163
3,371
96.3% 14.82
96.5% 20.23
3%
42%
32
4,782
1,189
90.8%
16.41
15%
34
4,891
1,199
90.8% 15.33
16%
11
1,994
473
97.1%
17.11
6%
11
1,990
465
95.9% 16.72
6%
5
2
50
1,011
220
8,007
175
44
1,881
93.6%
99.2%
93.0%
11.19
13.78
15.85
2%
1%
24%
5
2
52
1,011
215
8,107
175
37
1,876
95.6% 10.82
100.0% 12.94
92.9% 15.04
3%
—%
25%
16
2,622
1,041
95.4%
22.89
12%
15
2,553
977
97.6% 22.54
13%
20
2,370
1,054
95.6%
22.59
11%
19
2,177
927
94.5% 22.26
10%
12
2,571
794
97.2%
19.82
10%
12
2,402
752
92.1% 18.91
9%
1
49
244
7,807
82
2,971
93.1%
96.0%
20.25
21.70
1%
34%
1
47
244
7,376
73
2,729
95.2% 20.17
94.8% 21.23
1%
33%
Total
160 25,278 $ 8,564
95.0% $ 19.39
100%
158 24,431 $ 7,976
94.8% $ 18.84
100%
(1) At the Company's proportionate interest.
Among the Company's real estate investment portfolio are thirty-four (2015 - twenty-nine) retail assets each with a value
greater than $85 million or size greater than 300,000 square feet. Together, these thirty-four retail assets comprise $4.2
billion (2015 - $3.7 billion) or 49% (2015 - 46%) of the Company's aggregate $8.6 billion value (2015 - $8.0 billion). 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 2016
14
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 year
Acquisitions
Shopping centres and additional adjacent spaces
Shopping centres acquired for redevelopment
Land parcels in close proximity to existing properties
Development activities and property improvements
Reclassifications from development land
Reclassification to residential development inventory
Increase (decrease) in value of investment properties, net
Dispositions
Other changes
Balance at end of year
Investment in joint ventures – shopping centres (1)
Proportionate interest end of year (2)
Year ended December 31
2016
7,871
$
$
269
17
—
216
—
(5)
218
(133)
—
8,453
111
8,564
$
$
$
$
2015
7,474
95
—
1
275
2
—
40
(23)
7
7,871
105
7,976
(1) At the Company's proportionate interest.
(2) Includes investment properties classified as held for sale as at December 31, 2016 and 2015 totaling $83 million and $91 million, respectively.
2016 Acquisitions
Income-producing properties – Shopping Centres and Additional Adjacent Spaces
During the year ended December 31, 2016, the Company acquired nine 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.
Peninsula Village
225 Peel St. (Griffintown)
816-838 11th Ave. (Glenbow)
Yorkville Village adjacent properties
Cliffcrest Plaza
Whitby Mall
Avenue Rd. & Lawrence Ave. assembly
2415-2595 Rue de Salaberry (Galeries Normandie)
338 Wellington Rd. (Wellington Corners)
Total
(1) At the Company's proportionate interest.
City/Province
Surrey, BC
Montreal, QC
Calgary, AB
Toronto, ON
Toronto, ON
Whitby, ON
Toronto, ON
Montreal, QC
London, ON
Quarter
Acquired
Interest
Acquired
GLA
(sq. ft.) (1)
Acquisition Cost
(in millions)
Q1
Q1
Q1
Q1, Q2
Q2
Q2
Q4
Q4
Q4
100%
100%
50%
100%
100%
50%
100%
100%
100%
170,900 $
108,200
23,800
—
72,400
164,700
61,500
17,100
2,800
621,400 $
78.5
56.0
10.5
1.8
31.9
18.6
65.2
5.2
0.8
268.5
15
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Development Properties
During the year ended December 31, 2016, the Company acquired four development properties, as summarized in the table
below:
Count Property Name
City/Province
Quarter
Acquired
Interest
Acquired
Acreage(1)
Acquisition Cost
(in millions)
Shopping centres acquired for redevelopment
101 Yorkville Ave. (Yorkville Village)
2520 Chemin Bates (Wilderton)
Total shopping centres acquired for redevelopment
Toronto, ON
Montreal, QC
Development lands
1071 King Street West (remaining 50% interest)
2150 Lake Shore Blvd. West (former Christie Cookie
Toronto, ON
Toronto, ON
1.
2.
1.
2.
Q3
Q4
Q1
Q2
50%
100%
50%
50%
site)
Total development lands
Total
(1) At the Company's proportionate interest.
2015 Acquisitions
0.5 $
0.3
0.8 $
0.3 $
13.5
13.8 $
14.6 $
15.5
1.7
17.2
7.7
26.8
34.5
51.7
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 Name
City/Province
Quarter
Acquired
Interest
Acquired
GLA
(sq. ft.) (1)
Acquisition Cost
(in millions)
1.
2.
3.
4.
5.
6.
7.
8.
9.
880-16th Ave., 1508-8th Street (Mount Royal Village)
Calgary, AB
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)
Toronto, ON
Toronto, ON
Calgary, AB
Toronto, ON
97 McKenzie Town Blvd. (McKenzie Towne Centre)
Calgary, AB
850-16th Avenue (Mount Royal Village)
Calgary, AB
3270 Rue Langelier (Centre Commercial Domaine)
Montreal, QC
1000 Wellington (Griffintown)
Montreal, QC
10.
3903-3945, 34 St. NW (Meadowbrook II) (remaining
Edmonton, AB
Q1
Q1-Q3
Q2
Q2
Q3
Q3
Q3
Q4
Q4
Q4
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
50% interest)
Total
(1) At the Company's proportionate interest.
42,400 $
—
17,900
9,600
1,200
7,900
10,600
16,600
22,400
14,300
142,900 $
23.4
2.3
25.7
6.0
0.8
7.5
6.2
2.8
14.3
6.3
95.3
Development Properties
During the year ended December 31, 2015, the Company acquired two development properties, as summarized in the table
below:
Count Property Name
City/Province
Quarter
Acquired
Interest
Acquired
Acreage
Acquisition Cost
(in millions)
1.
2.
3009 Blvd. St-Charles (Centre Kirkland-St. Charles)
1200 Block of Marine Drive (Pemberton Plaza)
Kirkland, QC
North Vancouver, BC
Q2
Q2
100%
100%
Total
0.2 $
—
0.2 $
0.9
0.5
1.4
FIRST CAPITAL REALTY ANNUAL REPORT 2016
16
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
2016 Dispositions
During the year ended December 31, 2016, the Company disposed of ten properties, three of which were 50% interests
and four land parcels, as summarized in the table below:
Count Property Name
City/Province
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Les Galeries de Lanaudiere
1706-1712 152nd Street
Place Kirkland du Barry (adjacent land)
Porte de Chateauguay
Place Pierre Boucher
Thickson Place
3033 Sherbrooke (adjacent land)
Carre Normandie
Jericho Centre (land)
Rutherford Marketplace (adjacent land) Vaughan, ON
Total
Lachenaie, QC
Surrey, BC
Kirkland, QC
Chateauguay, QC
Boucherville, QC
Whitby, ON
Montreal, QC
Montreal, QC
Langley, BC
(1) At the Company's proportionate interest.
2015 Dispositions
Quarter
Sold
Interest Sold
GLA
(sq. ft.)(1)
Acreage(1)
Gross Sales Price
(in millions)
Q1
Q2
Q2
Q3
Q3
Q3
Q3
Q3
Q4
Q4
50%
100%
100%
100%
100%
50%
100%
100%
100%
50%
269,500
4,700
—
132,400
78,400
52,400
—
6,000
—
—
543,400
30.5
0.2
0.8
10.5
9.0
5.4
1.5
0.3
4.8
1.3
64.3 $
137.1
During the year ended December 31, 2015, the Company disposed of three properties, as summarized in the table below:
Count Property Name
1.
2.
3.
Plaza Delson
717 Hillsdale Ave.
497-501 Wellington Rd.
Total
City/Province
Delson, QC
Toronto, ON
London, ON
Quarter
Sold
Interest Sold
Q1
Q2
Q3
100%
100%
100%
GLA (square
feet)
136,700
—
—
136,700
Acreage
Gross Sales Price
(in millions)
—
0.1
0.6
0.7 $
23.1
Impact of Acquisitions and Dispositions
The annualized NOI of properties acquired and disposed, at the time of acquisition or disposition, during the years ended
December 31, 2016 and 2015 is summarized in the table below:
For the year ended December 31
Central Region
Eastern Region
Western Region
Total
Capital Expenditures
Acquired
Disposed
2016
6,081
2,693
4,516
13,290
$
$
2015
902
615
2,340
3,857
$
$
2016
1,040
5,181
66
6,287
$
$
2015
—
1,510
—
1,510
$
$
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
17
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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 summarized in the table below:
Year ended December 31
Revenue sustaining
Revenue enhancing
Expenditures recoverable from tenants
Development expenditures
Total
Total Same
Property
Other Property
Categories
13,915 $
33,332
10,048
22,116
79,411 $
— $
10,956
4,009
123,742
138,707 $
$
$
2016
Total
13,915 $
44,288
14,057
145,858
218,118 $
2015
Total
18,394
46,875
10,268
200,439
275,976
During the year ended December 31, 2016, capital expenditures totaled $218.1 million compared to $276.0 million for the
prior year. The $57.9 million decrease was primarily the result of lower development expenditures related to the large
ground-up and major redevelopment projects currently underway including Yorkville Village, King High Line and The
Edmonton Brewery District. In addition, revenue sustaining expenditures decreased by $4.5 million over the prior year
primarily as a result of a major infrastructure project that was undertaken and completed in 2015.
Valuation of Investment Properties
During the year ended December 31, 2016, the weighted average stabilized capitalization rate of the Company’s investment
property portfolio decreased from 5.7% as at December 31, 2015 to 5.5%, primarily due to overall compression in
capitalization rates and the impact of acquisitions during the period. The Company’s proportionate interest in the net
increase in value of investment properties was $222.9 million for the year ended December 31, 2016.
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, 2016 and December 31, 2015:
As at December 31, 2016
(millions of dollars)
Central Region
Eastern Region
Western Region
Total or Weighted Average
Capitalization Rate
Number of
Properties
Weighted
Average
61
50
49
160
5.3%
5.9%
5.3%
5.5%
Median
Range
Fair Value
5.5%
6.0%
5.5%
5.8%
4.1%-7.0% $
5.0%-7.0%
4.3%-6.5%
4.1%-7.0% $
3,712
1,881
2,971
8,564
FIRST CAPITAL REALTY ANNUAL REPORT 2016
18
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
As at December 31, 2015
(millions of dollars)
Central Region
Eastern Region
Western Region
Total or Weighted Average
Properties Under Development
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
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 tenant 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 13.8 million square feet of incremental density available in the portfolio for
future development of which 0.5 million square feet is currently under development.
A breakdown of the active development and incremental density within the portfolio by component and type is as
follows:
As at December 31, 2016
Active Development
Same Property with redevelopment
Major redevelopment
Ground-up development
Future uncommitted incremental density
Medium term
Long term
Total development pipeline
(1) At the Company's proportionate interest.
Square feet (in thousands) (1)
Retail
Residential
42
223
128
393
1,500
1,100
2,600
2,993
—
—
156
156
5,700
5,000
10,700
10,856
Total
42
223
284
549
7,200
6,100
13,300
13,849
The Company determines its course of action with respect to the 10.7 million square feet of uncommitted potential
residential density 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).
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.
19
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Invested Cost of Properties Under Development
As at December 31, 2016, the Company had $541.0 million of properties under development and development land
parcels at invested cost, representing approximately 6.2% of the value of the total portfolio.
A breakdown of invested cost on development activities is as follows:
As at December 31, 2016
Same Property with redevelopment
Major redevelopment
Ground-up development
Total development and redevelopment activities
Total development land and adjacent land parcels
Total
Number of
Projects
Square Feet (1) (2)
(in thousands)
Active
Development
Pre-
Development
Invested Cost (in millions) (3)
3
3
2
8
42 $
10 $
— $
223
568
144
121
833 $
275 $
$
$
100
—
100 $
166 $
266 $
Total
10
244
121
375
166
541
(1) Includes 312,000 square feet of residential rental apartments.
(2) Square footage relates to active development only and represents 100% of the space under development.
(3) At the Company's proportionate interest.
2016 Development and Redevelopment Coming Online and Space Going Offline
Development and redevelopment coming online includes both leased and unleased space transferred from development
to income-producing properties at completion of construction.
During the year ended December 31, 2016, the Company completed the transfer of 288,000 square feet of new urban
retail space from development to the income-producing portfolio at a cost of $165.3 million. Of the space transfered,
264,000 square feet became occupied at an average rental rate of $31.96 per square foot, well above the average rate for
the portfolio of $19.39, thus realizing on the growth potential through development and redevelopment activities. The
remainder of the space transferred is expected to be leased in the next 12 months. In addition, the Company transferred
$24.0 million of space from development to income producing property related to Yorkville Village for which the Company
did not attribute any GLA. The Company expects to earn ancillary revenue from these common areas, through several
initiatives, including kiosks, pop-up shops and events held in this space. Included in this space is "The Lane" (the new
entrance from Yorkville Avenue into the property), the food hall, as well as other common areas.
For the year ended December 31, 2016, the Company had tenant closures for redevelopment of 48,000 square feet at an
average rental rate of $17.54 per square foot. Of the 48,000 square feet, 22,000 square feet was demolished.
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 are higher than current forecasted costs, if final lease terms are lower than
forecasted 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.
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. The following
tables show this split, where applicable, by showing the total invested cost in two categories: under development and
income-producing property. In addition, the following tables reflect square footage at 100% of the space under
development and invested cost at the Company's proportionate share.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
20
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Same Property with Redevelopment
The Company currently has three projects under active development in the Same Property with redevelopment property
category. Of the approximately 42,000 square feet under active redevelopment, 32,600 square feet is subject to
committed leases at a weighted average rate of $30.91 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, 2016 are as follows:
As at December 31, 2016
Count/Project and Major Tenant(s)
Active development
1.
Kingsway Mews, Edmonton, AB
(Freshii)
2.
South Park Centre, Edmonton, AB
(Boardwalk Fries & Burger)
3.
685 Fairway Road, Kitchener, ON
(MEC)
Invested Cost (in millions)
Square Feet
Under
Development (in
thousands)
Target
Completion
Date (1)
Total
Estimated
incl.
Land
Under
Development
Estimated
Cost to
Complete
5
5
32
42
H1 2017 $
3 $
2 $
H1 2017
H1 2018
3
19
—
8
$
25 $
10 $
1
3
11
15
Total Same Property with redevelopment
(1) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively.
Major Redevelopment
The Company has three projects under active development in the major redevelopment property category. Of the
approximately 223,400 square feet under active redevelopment, 93,600 square feet is subject to committed leases at a
weighted average rate of $33.79 per square foot. As construction on redevelopment projects occurs in phases, there
continues to be ongoing negotiations in various stages with certain retailers for the remaining planned retail space.
Highlights of the Company’s major redevelopment projects underway as at December 31, 2016, including costs for
completed phases, are as follows:
As at December 31, 2016
Count / Property and Major Tenant(s)
Active development
1.
Yorkville Village Assets, Toronto, ON
(Whole Foods Market, Equinox Fitness)
2.
3080 Yonge Street, Toronto, ON
(Loblaws)
3. Mount Royal West, Calgary, AB
(Urban Fare, Canadian Tire)
Total Major Redevelopment
Square feet (in thousands)
Invested Cost (in millions)
Planned
Upon
Completion
Completed
or Existing (1)
Under
Development
Target
Completion
Date (2)
Total
Estimated
incl. Land
Under
Development
Income-
producing
property
Estimated
Cost to
Complete
285
245
93
230
170
—
55 H2 2017 (3) $
390 $
70 $
302 $
75
H1 2018
121
93
H2 2018
72
41
33
61
—
18
19
39
623
400
223
$
583 $
144 $
363 $
76
(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 H2 2017; partial redevelopment of street assets is 2018 and beyond.
21
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Ground-up Development
The Company has two projects under active development in the ground-up development property category. These
projects are comprised of approximately 568,000 square feet of space currently under development, of which 256,000
square feet is retail space and 312,000 square feet is residential rental apartments. A total of 60,900 square feet of the
retail space currently under development is subject to committed leases at a weighted average rate of $30.32 per square
foot. 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 ground-up projects underway as at December 31, 2016, including costs for completed
phases, are as follows:
As at December 31, 2016
Count/Project and Major Tenant(s)
Active development
Square feet (in thousands)
Invested Cost (in millions)
Planned Upon
Completion
Completed or
Existing
Under
Development
Target
Completion
Date (3)
Total
Estimated incl.
Land
Under
Development
Income-
producing
property
Estimated
Cost to
Complete
1. The Brewery District, Edmonton, AB (1) (4)
309
210
99
H2 2017 $
92 $
21 $
62 $
(Loblaws City Market, Shoppers Drug Mart, GoodLife Fitness, MEC, Winners)
2. King High Line (Shops at King Liberty),
Toronto, ON (1) (2)
Total Ground-up Development
469
778
—
210
469
H2 2018
159
100
—
568
$
251 $
121 $
62 $
9
59
68
(1) The Company has a 50% ownership interest in the property.
(2) The square feet under development comprises 157,000 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.
(3) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively.
(4) Target completion date relates to buildings currently under construction. Total estimated costs include buildings not yet started.
Other - Current Year Acquisition
In addition to the projects listed above, the Company has also commenced a project at Cliffcrest Plaza, a property acquired
in the second quarter of 2016. The project is for an 8,000 square foot pad to be occupied by an LCBO for a total cost of
approximately $3.4 million. The costs to complete the project are $2.0 million and the project is expected to be completed
in the first half of 2017.
Costs to Complete Active and Redevelopment Activities
Costs to complete the development, redevelopment and expansion activities underway are estimated to be
approximately $161 million. Costs to complete Same Property related developments and Cliffcrest Plaza are planned at
$17 million. Costs to complete major redevelopments and ground-up developments, are both planned at $50 million each
in 2017, and $26 million and $18 million, respectively, thereafter.
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 $120.3 million has been invested as at December 31, 2016). 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
FIRST CAPITAL REALTY ANNUAL REPORT 2016
22
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 nine projects are in the pre-development
planning stage. As at December 31, 2016, the fair value of the Main and Main Urban Realty real estate property portfolio
was approximately $366.2 million.
Main and Main Urban Realty has identified a total of approximately 1.8 million square feet of additional GLA available in
its portfolio, comprised of 0.3 million square feet for future retail and 1.6 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 increased from 96.0% as at December 31, 2015 to 96.3% as at December 31, 2016,
primarily as a result of new tenants taking occupancy across the portfolio. Total portfolio occupancy increased from 94.8%
as at December 31, 2015 to 95.0% as at December 31, 2016, primarily due to re-leasing a portion of the space vacated by
the closure of two Target stores in the second quarter of 2015 and a Canadian Tire store in the third quarter of 2015.
Occupancy of the Company's shopping centre portfolio by property categorization was as follows:
As at
December 31, 2016
December 31, 2015
(square feet in thousands)
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 – 2016
Acquisitions – 2015
Dispositions – 2016
Total
Total Occupied
Square Feet
% Occupied
Weighted
Average Rate
per Occupied
Square Foot
Total
Occupied
Square Feet
Weighted
Average Rate
per Occupied
Square Foot
% Occupied
17,794
2,756
20,550
1,616
744
260
23,170
763
86
—
96.4% $
95.4%
96.3%
83.4%
96.9%
88.0%
95.2%
91.3%
87.1%
—%
24,019
95.0% $
18.84
19.51
18.93
23.08
21.93
17.59
19.30
20.16
36.42
—
19.39
17,777
2,648
20,425
1,615
560
258
22,858
—
85
216
96.3% $
93.6%
96.0%
83.6%
93.2%
88.2%
94.8%
—%
87.1%
96.4%
23,159
94.8% $
18.61
18.69
18.62
22.95
17.84
17.32
18.89
—
35.99
6.91
18.84
23
FIRST CAPITAL REALTY ANNUAL REPORT 2016
During the three months ended December 31, 2016, the Company achieved an 8.0% overall rate increase per occupied
square foot on 635,000 square feet of renewal leases over the expiring lease rates, of which the rate increase for the Same
Property portfolio was 8.7% on 585,000 square feet of renewals.
The average rental rate per occupied square foot for the total portfolio increased from $19.18 as at September 30, 2016
to $19.39 as at December 31, 2016 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 $25.00 to $27.00, if the portfolio were at market.
Changes in the Company’s gross leasable area and occupancy for the total portfolio are set out below:
Three months ended
December 31, 2016
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, 2016 (1)
20,533
96.3% $ 18.84
3,342
87.6% $ 21.27
187
0.7% 1,075
4.3% 25,137
95.0% $ 19.18
Tenant possession
Tenant closures
Tenant closures for
redevelopment
Developments –
tenants coming
online (2)
Demolitions
Reclassification
Total portfolio before
2016 acquisitions
and dispositions
Acquisitions (at date of
acquisition)
Dispositions (at date of
disposition)
162
(150)
(3)
4
—
4
21.68
(17.99)
(38.50)
41.79
—
—
42
(35)
(1)
65
—
(2)
20.28
(27.64)
(18.42)
45.93
—
—
—
—
4
—
(7)
10
(204)
185
—
(1)
—
7
—
—
—
68
(7)
19
21.39
(19.83)
(32.46)
45.67
—
—
20,550
96.3% $ 18.93
3,411
88.0% $ 21.70
194
0.8% 1,062
4.2% 25,217
95.0% $ 19.32
—
—
—
—
58
—
95.1%
46.15
—%
—
—
—
3
—
61
—
95.1%
46.15
—%
—
December 31, 2016
20,550
96.3% $ 18.93
3,469
88.1% $ 22.11
194
0.8% 1,065
4.2% 25,278
95.0% $ 19.39
Renewals
Renewals – expired
585
(585)
Net change per square foot from renewals
% Increase on renewal of expiring rents
$ 16.76
$ (15.42)
$
1.34
8.7%
50
(50)
$ 24.11
$ (23.36)
$
0.75
3.2 %
635
(635)
$ 17.33
$ (16.04)
$
1.29
8.0%
(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 – 2016 Development
and Redevelopment Coming Online and Space Going Offline” section of this MD&A.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
24
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
During the year ended December 31, 2016, the Company achieved a 7.5% overall rate increase per occupied square foot
on 1,637,000 square feet of renewal leases over the expiring lease rates. The rate increase for the Same Property portfolio
was 8.2% on 1,481,000 square feet of renewals.
The average rental rate per occupied square foot for the total portfolio increased from $18.84 as at December 31, 2015 to
$19.39 as at December 31, 2016 primarily due to rent escalations.
Changes in the Company’s gross leasable area and occupancy for the total portfolio are set out below:
Year ended December
31, 2016
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
December 31, 2015 (1)
20,425
96.0% $ 18.62
2,734
86.9% $ 20.52
133
0.5% 1,139
4.7% 24,431
94.8% $ 18.84
Tenant possession
Tenant closures
Tenant closures for
redevelopment
Developments –
tenants coming
online (2)
Redevelopments –
tenant possession
Demolitions
Reclassifications
Total portfolio before
2016 acquisitions
and dispositions
Acquisitions (at date of
acquisition)
Dispositions (at date of
disposition)
518
(460)
(23)
79
—
—
11
20.99
(19.16)
(19.66)
158
(115)
(25)
29.71
185
—
—
—
5
—
(17)
24.36
(27.30)
(15.62)
32.92
5.30
—
—
—
—
48
—
(5)
(22)
30
(676)
575
—
24
—
—
(56)
—
—
—
288
—
(22)
(32)
21.78
(20.79)
(17.54)
31.96
5.30
—
—
20,550
96.3% $ 18.93
2,925
88.0% $ 21.33
184
0.7% 1,006
4.1% 24,665
95.2% $ 19.23
—
—
—
—
759
91.0% 20.64
(215)
97.3%
(6.35)
10
—
65
(6)
834
91.0%
20.64
(221)
97.3%
(6.35)
December 31, 2016
20,550
96.3% $ 18.93
3,469
88.1% $ 22.11
194
0.8% 1,065
4.2% 25,278
95.0% $ 19.39
Renewals
Renewals – expired
1,481
(1,481)
Net change per square foot from renewals
% Increase on renewal of expiring rents
% Increase in rate per square foot – openings
versus all closures
$ 17.35
$ (16.03)
$
1.32
8.2%
9.4%
156
(156)
$ 24.33
$ (23.57)
$ 0.76
3.2 %
(5.5%)
1,637
(1,637)
$ 18.01
$ (16.75)
$
1.26
7.5%
5.5%
(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 – 2016
Development and Redevelopment Coming Online and Space Going Offline” section of this MD&A.
25
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Top Forty Tenants
As at December 31, 2016, 54.7% of the Company’s annualized minimum rent came from its top 40 tenants
(December 31, 2015 – 54.9%). Of these rents, 77.9% came from tenants that have investment grade credit ratings and
who represent many of Canada’s leading grocery stores, pharmacies, national and discount retailers, financial
institutions and other familiar shopping destinations. The weighted average remaining lease term for the Company’s
top 10 tenants was 6.0 years as at December 31, 2016, excluding contractual renewal options.
Rank
Tenant (1) (2)
Number
of Stores
Square Feet
(thousands)
Percent of Total
Annualized
Minimum Rent
10.2%
Loblaw Companies Limited (“Loblaw”)
1.
6.6%
Sobeys
2.
3.4%
Metro
3.
2.8%
Walmart
4.
2.8%
Canadian Tire
5.
2.2%
TD Canada Trust
6.
1.9%
RBC Royal Bank
7.
1.8%
GoodLife Fitness
8.
1.8%
Dollarama
9.
1.5%
10.
CIBC
35.0%
Top 10 Tenants Total
1.2%
LCBO
11.
1.2%
Lowes
12.
1.1%
Rexall
13.
1.1%
BMO
14.
1.0%
London Drugs
15.
1.0%
Restaurant Brands International
16.
0.9%
Scotiabank
17.
0.9%
Staples
18.
0.8%
Save-On-Foods
19.
0.7%
20. Whole Foods Market
0.7%
21.
Longo's
0.7%
22. Winners
0.7%
SAQ
23.
0.7%
Starbucks
24.
0.7%
Jean Coutu
25.
0.6%
26.
Cara
0.6%
27. Michaels
0.6%
28.
0.5%
29. McDonald's
0.5%
Pusateri's
30.
0.5%
The Beer Store
31.
0.4%
Toys "R" Us
32.
0.4%
Yum! Brands
33.
0.4%
34.
The Home Depot
0.3%
35. Williams-Sonoma
0.3%
36.
0.3%
37.
0.3%
38.
0.3%
39.
0.3%
40.
Top 40 Tenants Total
54.7%
(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 include all banners of the respective retailer.
Percent of
Total Gross
Leasable Area
10.4%
8.5%
5.0%
6.2%
3.7%
1.1%
1.0%
2.5%
2.1%
0.9%
41.4%
0.9%
1.8%
0.7%
0.6%
1.1%
0.6%
0.5%
1.2%
1.1%
0.6%
0.7%
1.1%
0.4%
0.3%
0.7%
0.5%
0.5%
0.3%
0.4%
0.1%
0.3%
0.5%
0.2%
0.9%
0.2%
0.2%
0.2%
0.4%
0.3%
0.2%
58.9%
2,487
2,052
1,212
1,486
878
263
250
606
515
207
9,956
215
421
173
145
259
141
126
278
263
133
170
262
104
72
175
112
110
84
94
35
73
127
53
219
38
54
54
101
73
54
14,174
98
57
35
15
26
50
46
26
53
37
443
22
4
19
32
10
53
24
11
6
3
4
9
21
43
13
24
5
71
23
1
12
3
28
2
2
14
19
18
2
11
952
Liquor Stores
Pet Valu
Reitmans
Hudson's Bay Company
Bulk Barn
Subway
DBRS Credit
Rating
S&P Credit
Rating
Moody’s
Credit Rating
BBB
BBB (low)
BBB
AA
BBB (high)
AA
AA
BBB
AA
AA (low)
A (low)
AA
AA
A (high)
BBB
BB+
BBB
AA
BBB+
AA-
AA-
A+
A+
A-
A+
B+
A+
BBB-
Aa2
Aa1
Aa3
Aa3
Aa2
A3
Aa3
B1
Aa3
Baa2
BBB-
Baa3
A+
A+
A
B+
A2
Aa2
A2
B1
BBB+
Baa1
AA (low)
A
A+
B-
BB
A
Aa2
B3
Ba3
A2
B+
B1
FIRST CAPITAL REALTY ANNUAL REPORT 2016
26
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Lease Maturity Profile
The Company’s lease maturity profile for its shopping centre portfolio as at December 31, 2016, excluding any contractual
renewal options, is as follows:
Number of
Stores
Occupied Square
Feet (thousands)
Maturity Date
Month-to-month tenants (1)
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
Thereafter
Total or Weighted Average
177
649
656
665
584
501
299
193
173
184
165
73
92
4,411
Percent of Total
Square Feet
1.4%
10.2%
12.0%
11.4%
11.2%
10.1%
9.0%
6.3%
4.4%
4.0%
3.7%
2.5%
8.8%
$
Annualized
Minimum Rent at
Expiration
(thousands)
6,346
44,411
55,074
58,033
54,889
50,568
49,611
31,637
24,108
25,266
25,720
15,915
49,409
Percent of Total
Annualized
Minimum Rent
1.3%
9.0%
11.2%
11.8%
11.2%
10.3%
10.1%
6.4%
4.9%
5.2%
5.2%
3.2%
10.2%
$
Average Annual
Minimum Rent
per Square Foot
at Expiration
17.73
17.25
18.07
20.20
19.46
19.80
21.89
19.84
21.62
25.07
27.12
25.21
22.18
358
2,575
3,047
2,873
2,820
2,554
2,266
1,595
1,115
1,008
948
631
2,229
24,019
95.0%
$
490,987
100.0%
$
20.44
(1) Includes 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 remaining lease term for the portfolio was 5.3 years as at December 31, 2016, excluding
contractual renewal options, but including month-to-month and other short-term leases with tenants in properties with
pre-development activities underway.
27
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Loans, Mortgages and Other Real Estate Assets
As at
Non-current
Loans and mortgages receivable (a)
Available-for-sale ("AFS") investment in limited partnership
Deposit on investment property (b)
Total non-current
Current
Loans and mortgages receivable (a)
Fair value through profit or loss ("FVTPL") investments in securities (c)
Other receivable
Total current
Total
December 31, 2016 December 31, 2015
$
$
$
$
131,955
3,824
189,200
324,979
15,281
12,969
66
28,316
353,295
$
$
$
$
120,173
4,269
—
124,442
23,499
11,907
70
35,476
159,918
(a) Loans and mortgages receivable are primarily secured by interests in investment properties or shares of entities owning
investment properties.
(b) In the third quarter of 2016, the Company advanced $189.2 million as a deposit on the acquisition of an investment
property, located at One Bloor Street in Toronto, that is currently under construction. The deposit earns interest of
4.5% annually until the purchase closing date which is estimated to be in the fourth quarter of 2017.
(c) The Company has invested 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
Three months ended December 31
Year ended December 31
Net income attributable to common shareholders
Net income per share attributable to common
shareholders (diluted)
2016
57,739
0.24
$
$
2015
38,947
0.17
$
$
$
$
Weighted average number of common shares –
252,602
226,537
diluted (in thousands)
2016
382,714
1.59
246,428
$
$
2015
203,865
0.91
235,870
For the three months ended December 31, 2016, net income attributable to common shareholders was $57.7 million or
$0.24 per diluted share compared to $38.9 million or $0.17 per diluted share for the prior year. The $18.8 million
increase in net income attributable to common shareholders was primarily due to an increase in the fair value of
investment properties of $12.7 million on a proportionate basis compared to a decrease of $9.2 million for the fourth
quarter of 2015.
For the year ended December 31, 2016, net income attributable to common shareholders was $382.7 million or $1.59 per
diluted share compared to $203.9 million or $0.91 per diluted share for the prior year. The $178.8 million increase in net
income attributable to common shareholders was primarily due to an increase in the fair value of investment properties
of $222.9 million on a proportionate basis compared to an increase of $45.0 million in the prior year.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
28
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Reconciliation of Consolidated Statements of Income, as presented, to the Company’s
Proportionate Interest
The following table provides a reconciliation of the Company's consolidated statements of income for the three months
ended December 31, 2016, to its proportionate interest.
Three months ended December 31
2016
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
Consolidated
Statements of
Income
Adjustment to
proportionate
interest
Proportionate
interest
Consolidated
Statements of
Income
Adjustment to
proportionate
interest
Proportionate
interest
$
172,731 $
66,425
106,306
2,185 $
737
1,448
174,916 $
67,162
107,754
164,244 $
60,949
103,295
1,947 $
584
1,363
166,191
61,533
104,658
(123)
(538)
289
—
—
(2,983)
319
651
7,030
(40,944)
(9,762)
(160)
(369)
—
631
12,743
3,697
(41,631)
(8,558)
(71)
(708)
2,012
387
(9,541)
258
(146)
238
—
(15)
(2,012)
(27)
387
3,955
(41,777)
(8,320)
(71)
(723)
—
360
(9,154)
(2,385)
(30,831)
(54,413)
(1,317)
(55,730)
7,153
(40,406)
(10,051)
(160)
(369)
2,983
312
12,092
(28,446)
77,860
19,177
(937)
7
76,923
19,184
48,882
9,981
$
$
$
58,683 $
(944) $
57,739 $
38,901 $
57,739 $
944
58,683 $
— $
(944)
(944) $
57,739 $
—
57,739 $
38,947 $
(46)
38,901 $
46
—
46 $
— $
46
46 $
48,928
9,981
38,947
38,947
—
38,947
Net income per share attributable to common shareholders:
Basic
Diluted
$
$
0.24
0.24
$
$
0.17
0.17
29
FIRST CAPITAL REALTY ANNUAL REPORT 2016
The following table provides a reconciliation of the Company's consolidated statements of income, as presented in the
audited annual consolidated financial statements, to its proportionate interest.
Year ended December 31
2016
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
Consolidated
Statements of
Income
Adjustment for
proportionate
interest
Proportionate
interest
Consolidated
Statements of
Income
Adjustment for
proportionate
interest
Proportionate
interest
$
676,284 $
254,287
421,997
7,938 $
2,632
5,306
684,222 $
256,919
427,303
654,792 $
244,900
409,892
7,401 $
2,277
5,124
662,193
247,177
415,016
19,641
(158,687)
(34,910)
(321)
(1,287)
12,437
(586)
218,078
(223)
(1,985)
1,069
(6)
—
(12,437)
369
4,831
19,418
(160,672)
(33,841)
(327)
(1,287)
—
(217)
222,909
17,702
(163,481)
(35,660)
(786)
(2,892)
12,178
(15,155)
37,773
(62)
(706)
955
—
(26)
(12,178)
(188)
7,226
17,640
(164,187)
(34,705)
(786)
(2,918)
—
(15,343)
44,999
54,365
476,362
90,570
385,792 $
382,714 $
3,078
385,792 $
$
$
$
(8,382)
(3,076)
2
(3,078) $
45,983
473,286
90,572
382,714 $
(150,321)
259,571
55,843
203,728 $
(4,979)
145
8
137 $
(155,300)
259,716
55,851
203,865
— $
382,714 $
(3,078)
(3,078) $
—
382,714 $
203,865 $
(137)
203,728 $
— $
137
137 $
203,865
—
203,865
Net income per share attributable to common shareholders:
1.62
1.59
Basic
Diluted
$
$
$
$
0.91
0.91
FIRST CAPITAL REALTY ANNUAL REPORT 2016
30
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:
Three months ended December 31
2015
2016
% change
% change
Year ended December 31
2015
2016
Property rental revenue
Base rent
Operating cost recoveries
Realty tax recoveries
Lease surrender fees
Percentage rent
Prior year operating cost and tax recovery
adjustments
Temporary tenants, storage, parking and
other
Total Same Property rental revenue
Property operating costs
Recoverable operating expenses
Recoverable realty tax expenses
Other operating costs and adjustments
Total Same Property operating costs
Total Same Property NOI
Major redevelopment
Ground-up development
Acquisitions – 2016
Acquisitions – 2015
Investment properties classified as held for sale
Dispositions – 2016
Dispositions – 2015
Straight-line rent adjustment
Development land
NOI
NOI margin
$
91,066
21,448
27,334
309
1,102
(99)
3,008
$
89,558
19,987
25,000
625
1,079
84
3,081
$ 361,587
80,032
109,196
1,859
2,108
(289)
$ 356,437
78,116
106,166
4,146
2,377
461
10,909
10,603
144,168
139,414
565,402
558,306
2.2% $
23,800
29,554
(241)
53,113
91,055
7,549
2,638
2,964
1,131
1,096
115
(29)
910
325
3.0% $ 107,754
$
22,236
27,413
665
50,314
89,100
8,374
1,999
—
1,152
1,027
1,506
18
1,313
169
104,658
88,265
118,050
(1,019)
205,296
$ 360,106
32,118
9,527
8,105
4,582
4,025
1,929
34
5,861
1,016
$ 427,303
86,684
114,612
970
202,266
$ 356,040
33,107
6,396
—
3,348
4,165
5,885
453
4,927
695
$ 415,016
1.1%
3.0%
61.6%
63.0%
62.5%
62.7%
For the three months and year ended December 31, 2016, Same Property – stable NOI increased 1.1% and 0.8%,
respectively, compared to the prior years.
For the three months ended December 31, 2016, Total Same Property NOI increased by $2.0 million or 2.2% to $91.1 million
from $89.1 million primarily due to rent escalations, increased occupancy driving higher rents and lower other operating
costs. For the year ended December 31, 2016, Total Same Property NOI increased by $4.1 million or 1.1% to $360.1 million
from $356.0 million primarily due to rent escalations, lease renewals at higher rates, and lower other operating costs,
partially offset by lower lease surrender fees compared to the prior year.
31
FIRST CAPITAL REALTY ANNUAL REPORT 2016
For the three months and year ended December 31, 2016, total NOI increased by $3.1 million and $12.3 million,
respectively, compared to prior year periods primarily due to the net contribution from acquisitions and dispositions
completed, Same Property NOI growth as well as the impact of developments coming online in the current year.
NOI by Region
NOI by segment at the Company’s proportionate interest is as follows:
Three months ended December 31, 2016
Property rental revenue
Property operating costs
NOI
Three months ended December 31, 2015
Property rental revenue
Property operating costs
NOI
Year ended December 31, 2016
Property rental revenue
Property operating costs
NOI
Year ended December 31, 2015
Property rental revenue
Property operating costs
NOI
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
Total
73,128 $
45,759 $
56,826 $
175,713 $
(797) $
174,916
29,739
19,466
18,967
68,172
(1,010)
67,162
43,389 $
26,293 $
37,859 $
107,541 $
213 $
107,754
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
Total
69,520 $
45,629 $
51,519 $
166,668 $
(477) $
166,191
27,280
19,171
15,715
62,166
(633)
61,533
42,240 $
26,458 $
35,804 $
104,502 $
156 $
104,658
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
Total
283,923 $
181,886 $
221,480 $
687,289 $
(3,067) $
684,222
109,874
78,353
73,010
261,237
(4,318)
256,919
174,049 $
103,533 $
148,470 $
426,052 $
1,251 $
427,303
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
Total
278,185 $
178,105 $
208,527 $
664,817 $
(2,624) $ 662,193
106,525
76,155
67,224
249,904
(2,727)
247,177
171,660 $
101,950 $
141,303 $
414,913 $
103 $ 415,016
$
$
$
$
$
$
$
$
(1) Other items principally consist of intercompany eliminations.
Interest and Other Income
For the three months and year ended December 31, 2016, the Company's proportionate share of interest and other
income totaled $7.0 million and $19.4 million, compared to $4.0 million and $17.6 million, respectively, for the same prior
year periods. The increase of $1.8 million over the prior year is primarily due to interest earned on the Company's
outstanding loans, deposits and mortgages, offset by lower interest and dividends earned on the Company's marketable
securities.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
32
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Interest Expense
The Company’s proportionate share of interest expense by type is as follows:
Mortgages
Credit facilities
Senior unsecured debentures
Convertible debentures (non-cash)
Interest capitalized
Interest expense
$
$
Three months ended December 31
2015
12,330
1,874
2016
12,130
1,584
$
$
Year ended December 31
2015
51,654
4,410
2016
48,965
7,385
$
29,602
3,192
(5,564)
40,944
26,999
5,177
(4,603)
41,777
$
112,023
14,603
(22,304)
106,844
22,118
(20,839)
$
160,672
$
164,187
For the three months and year ended December 31, 2016, interest expense decreased by $0.8 million and $3.5 million,
respectively, primarily due to the early redemption of higher rate convertible debentures in the current and prior years,
partially offset by the impact of new lower rate senior unsecured debenture issuances.
During the year ended December 31, 2016 and 2015, approximately 12.2% and 11.3% of interest expense was capitalized
to real estate investments for properties undergoing development or redevelopment projects. Amounts capitalized are
dependent on 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 increase in capitalized interest over the prior year is
due to higher cumulative development expenditure.
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
Three months ended December 31
Year ended December 31
$
$
2016
7,391
1,004
3,031
11,426
(1,664)
$
2015
6,645
673
3,057
10,375
(2,055)
2016
26,593
3,469
10,216
40,278
(6,437)
$
2015
28,513
2,941
11,182
42,636
(7,931)
Corporate expenses
$
9,762
$
8,320
$
33,841
$
34,705
For the year ended December 31, 2016, corporate expenses decreased by $0.9 million to $33.8 million compared to the
prior year primarily due to lower employee compensation expense of $1.9 million as a result of the organizational
restructuring completed in 2015. Other corporate costs were also lower by $1.0 million over the prior year as a result of
the restructuring, and certain non-recurring costs incurred in 2015.
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, construction and
so forth, are capitalized in accordance with IFRS to development projects as incurred. During the year ended December
31, 2016 and 2015, approximately 17.5% and 20.0%, 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.
33
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Other Gains (Losses) and (Expenses)
The Company's proportionate share of other gains, losses and expenses is as follows:
Three months ended December 31
2016
2015
Proportionate
Statement of
Income
Included in
FFO
Included in
AFFO
Proportionate
Statement of
Income
Included in
FFO
Included in
AFFO
Unrealized gain (loss) on marketable securities
$
(123) $
(123) $
— $
636 $
636 $
classified as FVTPL
Net gain (loss) on prepayments of debt
Proceeds from Target
Investment properties selling costs
Restructuring costs
Other
Total
(10)
663
46
—
55
631 $
(10)
663
—
—
55
585 $
$
—
663
—
—
—
663 $
2016
(71)
—
(64)
(126)
(15)
360 $
(71)
—
—
(126)
(15)
424 $
—
—
—
—
—
—
—
Year ended December 31
2015
Proportionate
Statement of
Income
Included in
FFO
Included in
AFFO
Proportionate
Statement of
Income
Included in
FFO
Included in
AFFO
Realized gain (loss) on sale of marketable securities
Unrealized gain (loss) on marketable securities
classified as FVTPL
$
79 $
79 $
1,071
1,071
79 $
—
784 $
784 $
(2,022)
(2,022)
Net gain (loss) on prepayments of debt
Proceeds from Target
Investment properties selling costs
Restructuring costs
Other
Total
(1,119)
3,813
(2,030)
(1,988)
(43)
(217) $
(1,119)
3,813
—
(1,988)
(43)
1,813 $
—
3,813
—
—
—
3,892 $
(310)
—
(539)
(13,085)
(171)
(15,343) $
(310)
—
—
(13,085)
(171)
(14,804) $
$
784
—
—
—
—
—
—
784
For the three months ended December 31, 2016, the Company recognized a $0.6 million gain in its proportionate
statement of income compared to a $0.4 million gain in 2015. For the year ended December 31, 2016, the Company
recognized a $0.2 million loss in its proportionate statement of income compared to a $15.3 million loss in the prior year.
The lower loss over prior year was primarily due to lower restructuring costs of $11.1 million, related to the organizational
restructuring undertaken in 2015, as well as the recognition of proceeds totaling $3.8 million under Target Canada's CCAA
plan of arrangement related to the closure of two Target stores in the Company's portfolio.
Income Taxes
For the three months ended December 31, 2016, deferred income tax expense totaled $19.2 million compared to $10.0
million for the prior year. For the year ended December 31, 2016, deferred income tax expense totaled $90.6 million
compared to $55.9 million for the prior year. The increase of $9.2 million and $34.7 million over the same prior year
periods, respectively, is primarily due to the tax impact of a higher increase in fair value of investment properties over
prior periods.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
34
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 metrics 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 in the table below:
Net income attributable to common shareholders
Add (deduct):
(Increase) decrease 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
2016
57,739
$
2015
38,947
$
2016
382,714
$
2015
203,865
$
(12,743)
1,671
(46)
1,019
19,184
9,154
674
64
28
9,981
(222,909)
6,657
2,030
3,480
90,572
(44,999)
3,373
539
2,636
55,851
FFO
$
66,824
$
58,848
$
262,544
$
221,265
Operating FFO
Management considers Operating FFO as its key operating performance measure that, when compared period over
period, reflects the impact of certain factors on its core operations, such as changes in net operating income, interest
expense, corporate expenses and other income. 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.
35
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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
Three months ended December 31
Year ended December 31
% change
2016
2015
% change
2016
2015
$ 107,754
$ 104,658
$ 427,303
$ 415,016
7,030
(39,925)
(8,091)
(160)
(369)
66,239
585
3,955
(41,048)
(8,347)
(71)
(723)
58,424
424
58,848
0.26
0.26
19,418
(157,192)
(27,184)
(327)
(1,287)
10.4%
260,731
1,813
17,640
(161,551)
(31,332)
(786)
(2,918)
236,069
(14,804)
18.7% $ 262,544
$ 221,265
4.7% $
12.6% $
1.10
1.11
$
$
1.05
0.99
Operating FFO
Other gains (losses) and (expenses) (3)
13.4%
FFO
Operating FFO per diluted share
FFO per diluted share
Weighted average number of common
shares – diluted – FFO (in thousands)
13.6% $
66,824
5.0% $
5.0% $
0.27
0.27
$
$
$
8.0%
244,554
226,537
5.4%
236,243
224,069
(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) Refer to the “Results of Operations – Other Gains (Losses) and (Expenses)” section of this MD&A.
For the three months ended December 31, 2016, Operating FFO totaled $66.2 million or $0.27 per diluted share
compared to $58.4 million or $0.26 per diluted share in the same prior year period. The 5.0% or $0.01 per diluted share
increase was primarily due to higher NOI and interest and other income, and lower interest expense. For the three
months ended December 31, 2016, FFO totaled $66.8 million or $0.27 per diluted share compared to $58.8 million or
$0.26 per diluted share in the same prior year period. The 5.0% or $0.01 per diluted share increase in FFO was due to
higher Operating FFO compared to the same prior year period.
For the year ended December 31, 2016, Operating FFO totaled $260.7 million or $1.10 per diluted share compared to
$236.1 million or $1.05 per diluted share for the prior year. The 4.7% or $0.05 per diluted share increase was primarily
due to higher NOI and lower interest and corporate expenses. For the year ended December 31, 2016, FFO totaled $262.5
million or $1.11 per diluted share compared to $221.3 million or $0.99 per diluted share for the prior year. The 12.6% or
$0.12 per diluted share increase in FFO was primarily due to higher Operating FFO of $24.7 million, lower restructuring
costs of $11.1 million and the recognition of the proceeds from Target of $3.8 million compared to the prior year.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
36
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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
Other gains (losses) and (expenses) (3)
AFFO
Operating AFFO per diluted share
AFFO per diluted share
Weighted average number of common shares – diluted
– AFFO (in thousands)
Three months ended December 31
Year ended December 31
% change
2016
2015 % change
2016
2015
$
66,239 $
58,424
$
260,731 $
236,069
3,192
(910)
1,069
(3,381)
1,145
(77)
5,177
(1,313)
730
(4,097)
643
(66)
14,603
(5,861)
3,698
22,118
(4,927)
3,098
(16,838)
(17,574)
5,010
(366)
4,317
(293)
13.1% $
67,277 $
59,498
7.5% $
260,977 $
242,808
663
—
3,892
784
14.2% $
67,940 $
59,498
8.7% $
264,869 $
243,592
7.7% $
8.5% $
0.27 $
0.27 $
0.25
0.25
4.4% $
5.7% $
1.07 $
1.08 $
1.02
1.03
5.3%
253,119
240,409
2.9%
244,623
237,633
(1) Estimated at $0.79 per square foot per annum (2015 – $0.85) 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) Refer to the “Results of Operations – Other Gains (Losses) and (Expenses)” section of this MD&A.
For the three months ended December 31, 2016, Operating AFFO increased by 7.7% or $0.02 per diluted share. For the
year ended December 31, 2016, Operating AFFO increased 4.4% or $0.05 per diluted share. The increase was primarily
due to higher Operating FFO partially offset by a lower adjustment for interest expense payable in shares as a result of the
convertible debenture redemptions in the current and prior years.
For the three months and year ended December 31, 2016, AFFO per share increased primarily due to higher Operating
AFFO and the recognition of the proceeds from Target in the second and fourth quarters.
37
FIRST CAPITAL REALTY ANNUAL REPORT 2016
A reconciliation of cash provided by operating activities to AFFO is presented below:
Cash provided by operating activities
Adjustments for equity accounted joint ventures
Realized gain (loss) on sale of marketable securities
Incremental leasing costs
Net change in non-cash operating items
Adjustments for residential inventory
Amortization expense
Non-cash interest expense
Costs not capitalized during development period
Same Property revenue sustaining capital expenditures
Cash component of restructuring costs
Other adjustments
Three months ended December 31
Year ended December 31
$
$
2016
96,950
2,060
—
1,671
(27,475)
—
(369)
(2,637)
1,145
(3,381)
—
(24)
2015
84,757
801
—
674
(17,554)
—
(708)
(5,023)
643
(4,097)
68
(63)
$
$
2016
256,598
7,034
79
6,657
8,706
18
(1,287)
(2,758)
5,010
(16,838)
1,988
(338)
2015
244,433
5,287
784
3,373
(563)
208
(2,892)
539
4,317
(17,574)
5,972
(292)
AFFO
$
67,940
$
59,498
$
264,869
$
243,592
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)
December 31, 2016
December 31, 2015
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
$
15,914
995,925
251,481
45,612
56,798
2,550,000
212,635
$
26,200
1,020,358
224,635
2,749
30,953
2,250,000
337,271
Equity capitalization (1)
Common shares (based on closing per share price of $20.67; December 31, 2015 – $18.35)
5,033,286
9,161,651
4,138,622
8,030,788
Enterprise value (1)
(1) These measures are not defined by IFRS, do not have a standard definition and, as such, may not be comparable to similar measures disclosed by other issuers. Equity
$
$
capitalization is the market value of the Company's shares outstanding at a point in time. Enterprise value is the sum of the Company's total debt on a proportionate basis and
its equity capitalization.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
38
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Key Metrics
The ratios below include measures not specifically defined by IFRS:
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
Unencumbered aggregate assets to unsecured debt, based on fair value
EBITDA interest coverage (1)
December 31, 2016
December 31, 2015
4.5%
5.3
42.6%
9.1
6,627,091
2.4
2.5
4.7%
5.5
42.9%
8.7
5,783,452
2.3
2.5
(1) Calculated with all joint ventures proportionately consolidated.
Measures used in these ratios are defined below:
• Debt consists of principal amounts outstanding on credit facilities and mortgages, and the par value of senior unsecured
debentures. Convertible debentures are excluded as 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 period;
• 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 bank indebtedness, unsecured credit facilities and 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.
39
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Consolidated Debt and Principal Maturity Profile
The maturity profile of the Company’s proportionate share of its mortgages and credit facilities as well as its senior
unsecured debentures as at December 31, 2016 is summarized in the table below:
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Add (deduct): unamortized deferred financing costs,
premiums and discounts, net
$
Mortgages
111,112 $
151,418
128,380
65,914
91,719
161,270
11,440
72,152
64,166
183,966
1,041,537
996
Credit
Facilities/Bank
Indebtedness
58,160 $
54,793
11,875
153,451
45,914
—
—
—
—
—
324,193
—
Senior
Unsecured
Debentures
250,000
150,000
150,000
175,000
175,000
450,000
300,000
300,000
300,000
300,000
2,550,000
(3,558)
$
Total
419,272
356,211
290,255
394,365
312,633
611,270
311,440
372,152
364,166
483,966
3,915,730
(2,562)
% Due
10.7%
9.1%
7.4%
10.1%
8.0%
15.5%
8.0%
9.5%
9.3%
12.4%
100.0%
Total
$ 1,042,533 $
324,193 $ 2,546,442
$ 3,913,168
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, 2016, including its proportionate share of
mortgages in equity accounted joint ventures, are set out below:
Year ended December 31, 2016
Balance at beginning of year
Mortgage borrowings
Mortgage repayments
Scheduled amortization on mortgages
Amortization of financing costs and net premium
Balance at end of year
Amount
1,026,752
203,400
(155,645)
(29,325)
(2,649)
1,042,533
$
$
Weighted Average
Effective Interest Rate
4.5%
3.2%
4.0%
—
—
4.3%
As at December 31, 2016, 100% (December 31, 2015 – 100%) of the outstanding mortgages bore interest at fixed
interest rates. The average remaining term of mortgages outstanding increased from 4.1 years as at December 31, 2015
on $1.0 billion of mortgages to 4.6 years as at December 31, 2016 on $1.0 billion of mortgages after reflecting
borrowing activity and repayments during the period.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
40
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Mortgage Maturity Profile
The maturity profile of the Company’s proportionate share of mortgages as at December 31, 2016 is summarized in the
table below:
As at December 31, 2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Add: unamortized deferred financing costs and premiums and
discounts, net
Total
Scheduled
Amortization
28,210
24,348
21,666
20,056
18,322
13,316
11,440
10,882
8,271
2,783
159,294
$
$
Payments on
Maturity
$
$
82,902
127,070
106,714
45,858
73,397
147,954
—
61,270
55,895
181,183
882,243
Weighted
Average
Effective
Interest Rate
4.1%
5.4%
6.5%
5.3%
4.4%
3.9%
—
4.0%
3.6%
3.3%
4.3%
$
Total
111,112
151,418
128,380
65,914
91,719
161,270
11,440
72,152
64,166
183,966
$ 1,041,537
996
$ 1,042,533
Credit Facilities
The credit facilities provide liquidity primarily for financing acquisitions, development and redevelopment activities and
for general corporate purposes.
The Company has the flexibility under its unsecured credit facilities to draw funds based on Canadian bank prime rates,
and Canadian bankers’ acceptances (“BA rates”) for Canadian dollar-denominated borrowings, and LIBOR rates or U.S.
prime rates for U.S. dollar-denominated borrowings. As of December 31, 2016, the Company had drawn CAD$30.0 million
and US$114.3 million, as well as CAD$15.9 million in bank indebtedness on its unsecured credit facilities. Concurrently
with the U.S. dollar draws, the Company entered into cross currency swaps to exchange its U.S. dollar borrowings into
Canadian dollar borrowings.
During the first quarter, the Company completed an extension of one of its secured construction facilities from
March 31, 2016 to March 31, 2017 and effective June 30, 2016, the Company extended the maturity of its $800 million
unsecured facility to June 30, 2021 on substantially the same terms.
In September 2016, the Company entered into two secured facilities totaling $19.4 million, at the Company's
proportionate interest, maturing between 2018 and 2019.
In the fourth quarter, the Company entered into a new unsecured facility with a borrowing capacity of CAD$150 million,
key terms of which are presented in the table below.
41
FIRST CAPITAL REALTY ANNUAL REPORT 2016
The Company’s credit facilities, including its proportionate share of facilities under the equity accounted joint ventures,
as at December 31, 2016 are summarized in the table below:
As at December 31, 2016
Unsecured operating facilities
Borrowing
Capacity
Amounts
Drawn
Bank
Indebtedness
and Outstanding
Letters of Credit
Available to be
Drawn
Interest Rates
Maturity Date
Revolving facility maturing
$
800,000 $
(30,000) $
(46,615) $
723,385
150,000
(153,451)
—
—
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
June 30, 2021
October 30, 2020
2021
Non-revolving facility
maturing 2020 (1)
Secured construction facilities
Maturing 2018
115,000
(40,870)
(1,475)
72,655
Maturing 2017
7,953
(7,785)
Credit facilities under equity
accounted joint ventures
69,114
(56,798)
Secured Facilities
Maturing 2019
11,875
(11,875)
Maturing 2018
7,500
(7,500)
—
—
—
—
168
12,316
BA + 1.125% or
Prime + 0.125%
BA + 1.125% or
Prime + 0.125%
February 13, 2018
March 31, 2017
Between
Prime - 0.15% and
Prime + 1.5%
Between January
2017 and March
2018
—
—
BA + 1.125% or
Prime + 0.125%
BA + 1.125% or
Prime + 0.125%
September 27, 2019
September 6, 2018
Total
$
1,161,442 $
(308,279) $
(48,090) $
808,524
(1) The Company had drawn in US dollars the equivalent of CAD$150.0 million which was revalued at CAD$153.5 million as at December 31, 2016, as such the Company is in
compliance with its borrowing capacity.
Senior Unsecured Debentures
As at December 31, 2016
Series Maturity Date
Interest Payment Dates
H
I
J
K
L
M
N
O
P
Q
R
S
T
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
May 6, 2026
Weighted Average or Total
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
November 5, May 5
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%
3.60%
4.57%
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%
3.56%
4.63%
Remaining
Term to
Maturity
(years)
0.1
0.9
1.7
1.9
2.6
3.3
4.2
5.1
5.9
6.8
7.7
8.6
9.4
5.6
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
300,000
2,550,000
FIRST CAPITAL REALTY ANNUAL REPORT 2016
42
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
On May 6, 2016 the Company completed the issuance of $150.0 million principal amount of Series T senior unsecured
debentures due May 6, 2026. These debentures bear interest at a coupon rate of 3.604% per annum and an effective
interest rate of 3.7%, payable semi-annually commencing November 6, 2016.
On September 29, 2016, the Company completed the issuance of an additional $150.0 million principal amount of Series
T senior unsecured debentures, which was a re-opening of this series of debentures, with an effective interest rate of
3.4%.
Convertible Debentures
As at December 31, 2016
Series Maturity Date
January 31, 2019
January 31, 2019
July 31, 2019
E
F
I
J
Interest Payment
Dates
March 31
September 30
March 31
September 30
March 31
September 30
Interest Rate
Coupon
Effective
5.40%
6.90%
5.25%
6.07%
4.75%
6.19%
4.45%
5.34%
February 28, 2020 March 31
September 30
Weighted Average or Total
4.96%
6.12%
Remaining
Term to
Maturity (yrs)
2.1
Principal at
Issue Date
Principal
Liability
$
57,500 $
54,666 $
53,095 $
Equity
2,084
2.1
2.6
3.2
2.5
57,500
51,584
50,773
351
52,500
51,210
49,822
1,403
57,500
55,175
53,943
386
$ 225,000 $ 212,635 $ 207,633 $
4,224
(i) Principal and Interest
During the year ended December 31, 2016, 0.7 million common shares (year ended December 31, 2015 – 1.0 million
common shares) were issued totaling $13.6 million (year ended December 31, 2015 – $18.9 million) to pay interest to
holders of convertible debentures.
(ii) Principal Redemption
On April 1, 2016, the Company redeemed its remaining 5.25% Series G and 4.95% Series H convertible debentures at par.
The full redemption price and any accrued interest owing on each series of convertible debentures was satisfied 50% by
the issuance of common shares and 50% in cash.
On December 22, 2016, the Company provided a notice of redemption to the holders of the remaining 5.40% Series E and
5.25% Series F convertible debentures that the entire principal amount outstanding plus accrued interest would be
redeemed in cash on January 31, 2017.
(iii) Normal Course Issuer Bid ("NCIB")
Effective August 29, 2016, the Company renewed its NCIB for all of its then outstanding series of convertible debentures.
The NCIB will expire on August 28, 2017 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, 2016 and 2015, principal amounts of convertible debentures purchased and amounts
paid for the purchases are summarized in the table below:
Year ended December 31
Total
2016
2015
Principal
Amount
Purchased
4,048
$
Amount Paid
$
4,102
$
Principal
Amount
Purchased
12,289
Amount Paid
$
12,436
43
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Shareholders’ Equity
Shareholders’ equity amounted to $4.2 billion as at December 31, 2016, compared to $3.6 billion as at December 31, 2015.
As at December 31, 2016, the Company had 243.5 million (December 31, 2015 – 225.5 million) issued and outstanding
common shares with a stated capital of $3.1 billion (December 31, 2015 – $2.8 billion). During the year ended December
31, 2016, a total of 18.0 million common shares were issued as follows: 13.1 million from public offerings, 3.1 million
shares from the redemption of the series G and H convertible debentures, 1.1 million shares from the exercise of common
share options and 0.7 million shares for interest payments on convertible debentures.
As at February 13, 2017, there were 243.5 million common shares outstanding.
Share Purchase Options
As at December 31, 2016, the Company had 4.2 million share purchase options outstanding, with an average exercise
price of $18.15, which, if exercised, would result in the Company receiving proceeds of $76.3 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 deemed appropriate.
Sources of liquidity primarily consist of cash flow from operations, cash and cash equivalents, and available capacity 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 aggregate assets
December 31, 2016
December 31, 2015
$
$
$
809
12
6,627
$
$
$
673
9
5,783
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, 2016, and availability on existing credit facilities, address
substantially all of the contractual 2017 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
2016
96,950
(80,571)
(101,475)
$
2015
84,757
3,913
(99,197)
$
2016
256,598
326,958
(570,217)
(85,096)
$
(10,527)
$
13,339
$
$
2015
244,433
63,572
(342,392)
(34,387)
$
$
FIRST CAPITAL REALTY ANNUAL REPORT 2016
44
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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
2015
2016
Cash provided by operating activities
Net change in non-cash operating items
Expenditures on residential development inventory
Adjusted cash flow from operating activities
$
$
96,950
(27,475)
—
69,475
$
$
84,757
(17,554)
—
67,203
$
$
Year ended December 31
2015
2016
244,433
256,598
(563)
8,706
52
—
243,922
265,304
$
$
For the year ended December 31, 2016, adjusted cash flow from operating activities improved by $21.4 million primarily
due to higher NOI of $12.1 million, lower cash restructuring costs of $4.0 million and higher interest and other income of
$1.9 million.
Contractual Obligations
An analysis of the Company’s contractual maturities of its material financial liabilities and other contractual commitments,
at its proportionate share, as at December 31, 2016 is set out below:
Scheduled mortgage principal amortization
Mortgage principal repayments on maturity
Credit facilities and bank indebtedness
Senior unsecured debentures
Convertible 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
2017
2018 to 2019
2020 to 2021
Thereafter
Total
$
28,210 $
82,902
63,510
250,000
108,147
161,771
964
59,802
46,014 $
38,378 $
46,692 $
233,784
61,318
300,000
—
268,151
1,958
5,818
119,255
199,365
350,000
—
199,463
1,968
—
446,302
—
1,650,000
—
206,467
15,219
—
159,294
882,243
324,193
2,550,000
108,147
835,852
20,109
65,620
—
$
755,306 $
15,806
932,849 $
—
15,806
908,429 $ 2,364,680 $ 4,961,264
—
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2016 (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 unless the Company has disclosed its intention to settle in cash.
The Company has $48.2 million of bank overdrafts and outstanding letters of credit issued by financial institutions to
support certain of the Company’s contractual obligations.
The Company’s estimated cost to complete properties currently under development is $167.5 million, of which $65.6
million is contractually committed. The balance of the costs to complete will only be committed once leases are signed
and/or construction is 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 $108.1 million (December 31, 2015 – $78.4 million) to various lenders in connection with
certain obligations, including loans advanced to its partners secured by the partners’ interest in the entity and underlying
assets.
45
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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)
Dividend per common share
Three months ended December 31
Year ended December 31
2016
0.215
$
2015
0.215
$
$
2016
0.86
$
2015
0.86
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.
(millions of dollars)
Year ended December 31
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Property rental revenue
$
NOI
Net income attributable to
common shareholders
(millions of dollars)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
FCR (1)
285 $
178
Guarantors (2)
Non-Guarantors (3)
Consolidation Adjustments (4)
Total Consolidated
267 $
170
407 $
224
403 $
224
9 $
4
8 $
5
(25) $
16
(23) $
11
676 $
422
383
203
324
268
15
16
(339)
(283)
383
655
410
204
FCR (1)
Guarantors (2)
Non-Guarantors (3)
As at December 31, 2016
Consolidation
Adjustments (4)
Total Consolidated
$
355 $
398 $
28 $
(607) $
8,832
841
4,112
5,699
489
1,821
379
4
164
(5,979)
(605)
(1,955)
174
8,931
729
4,142
(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.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
46
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
(millions of dollars)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
FCR (1)
Guarantors (2)
Non-Guarantors (3)
As at December 31, 2015
Consolidation
Adjustments (4)
Total Consolidated
$
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
(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.
RELATED PARTY TRANSACTIONS
Significant Shareholder
Gazit-Globe Ltd. (“Gazit”) is a significant shareholder of the Company, and, as of December 31, 2016, beneficially owned
36.4% (December 31, 2015 – 42.2%) of the common shares of the Company. Norstar Holdings Inc. is the ultimate
controlling party of Gazit.
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.
Effective April 3, 2016, a shareholders’ agreement between Gazit and Alony-Hetz Properties and Investments Ltd.
(‘‘Alony-Hetz’’) was terminated and Mr. Nathan Hetz, the Chief Executive Officer and a director of Alony-Hetz, stepped
down from the Board of Directors of First Capital Realty on April 4, 2016. As of March 31, 2016, the last date that Alony-
Hetz reported its shareholdings to First Capital Realty, it beneficially owned 6.2% of the common shares of the
Company. Pursuant to the terminated shareholders’ agreement, among other terms, (i) Gazit 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 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.
Joint Venture
During the three months and year ended December 31, 2016, a subsidiary of Main and Main Developments earned
property-related and asset management fees from Main and Main Urban Realty, which are included in interest and other
income on a proportionate basis in the amount of $1.2 million and $2.6 million (December 31, 2015 – $0.8 million and
$1.7 million).
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
Redemption of Convertible Debentures
On January 31, 2017, the Company redeemed its remaining 5.40% Series E and 5.25% Series F convertible debentures at par.
The full redemption price and any accrued interest owing on each series of convertible debentures was satisfied in cash.
First Quarter Dividend
The Company announced that it will pay a first quarter dividend of $0.215 per common share on April 11, 2017 to
shareholders of record on March 29, 2017.
47
FIRST CAPITAL REALTY ANNUAL REPORT 2016
QUARTERLY FINANCIAL INFORMATION
(share counts in thousands)
Property rental revenue
Net operating income
Net income attributable to common
shareholders
Net income per share attributable to
common shareholders:
Basic
Diluted
Weighted average number of diluted
common shares outstanding – IFRS
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
Operating AFFO
Operating AFFO per diluted share
AFFO
AFFO per diluted share
Weighted average number of diluted shares
outstanding – AFFO
Dividend
Total assets
2016
2015
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$
172,731
$
167,877
$
167,576
$
168,100
$
164,244
$
160,639
$
166,249
$
163,661
106,306
107,612
105,083
102,996
103,295
102,585
104,233
99,780
57,739
88,464
169,556
66,957
38,947
24,750
94,267
45,901
$
$
$
$
$
$
$
$
$
$
$
$
0.24
0.24
252,602
96,950
66,239
0.27
66,824
0.27
244,554
67,277
0.27
67,940
0.27
$
$
$
$
$
$
$
$
$
$
$
0.37
0.36
250,596
68,607
68,789
0.29
67,451
0.28
240,708
67,756
0.27
67,756
0.27
$
$
$
$
$
$
$
$
$
$
$
0.73
0.71
243,235
42,704
64,200
0.28
66,368
0.29
233,014
63,383
0.28
66,533
0.28
$
$
$
$
$
$
$
$
$
$
$
0.30
0.29
243,467
48,339
61,504
0.27
61,902
0.27
226,692
62,563
0.26
62,642
0.26
$
$
$
$
$
$
$
$
$
$
$
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
63,905
0.27
63,824
0.27
$
$
$
$
$
$
$
$
$
$
$
0.21
0.21
223,652
37,696
55,054
0.25
55,432
0.25
220,861
57,095
0.24
57,960
0.24
253,119
249,282
241,598
240,440
240,409
239,504
237,381
237,315
0.215
$
0.215
$
0.215
$
0.215
$
0.215
$
0.215
$
0.215
$
0.215
$ 9,104,553
$ 9,068,841
$ 8,690,655
$ 8,387,567
$ 8,278,526
$ 8,212,411
$ 8,124,267
$ 8,022,510
Total mortgages and credit facilities
1,248,646
1,277,697
1,272,977
1,322,909
1,248,637
1,201,018
1,094,150
1,093,808
Shareholders’ equity
Other
Number of properties
Gross leasable area (in thousands)
Total portfolio occupancy %
4,195,263
4,171,426
3,961,179
3,666,239
3,639,952
3,645,911
3,660,290
3,566,144
160
159
161
160
158
158
157
157
25,278
25,137
25,238
24,800
24,431
24,256
24,270
24,238
95.0%
95.0%
95.2%
95.0%
94.8%
94.7%
94.7%
95.6%
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
48
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 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. Consequently, the entire portfolio is externally appraised at least
once within a four-year cycle.
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's review of the key assumptions from previous appraisals and
updating the value for changes in the property cash flow, physical condition and changes in market conditions.
Shopping centres are appraised primarily based on an income approach that reflects stabilized cash flows or net operating
income 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 either (i) using the stabilized net operating
income expected upon completion, with a deduction for costs to complete the project, or (ii) using the discounted cash
flow method. Capitalization rates, discount rates and terminal rates, as applicable, 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.
Refer to Note 2(f) of the audited consolidated financial statements for the year ended December 31, 2016 for further
information on the estimates and assumptions made by Management in connection with the fair values of investment
properties.
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 a risk-adjusted spread on discounted
cash flows.
49
FIRST CAPITAL REALTY ANNUAL REPORT 2016
• 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.
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 Company 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 Company’s ordinary activities.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
50
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 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 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.
Investment property
The amendments to IAS 40, "Investment Property", clarify the accounting guidance and evidence required when an entity
transfers to, or from, investment property. The amendments are effective for annual periods beginning on or after
January 1, 2018. The Company does not expect any significant impact on its consolidated financial statements.
CONTROLS AND PROCEDURES
As at December 31, 2016, 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, the Company used the 2013 framework published by the
Committee of Sponsoring Organizations of the Treadway Commission.
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, 2016, and have concluded that such disclosure controls and procedures and internal
controls over financial reporting were operating effectively.
The Company did not make any changes in its internal controls over financial reporting during the quarter ended
December 31, 2016 that have had, or are reasonably likely to have, a material effect on the Company's internal controls
over financial reporting. On an ongoing basis, the Company will continue to analyze its controls and procedures for
potential areas of improvement.
Management does recognize that any controls and procedures, no matter how well designed and operated, can only
provide reasonable assurance and not absolute assurance of achieving the desired control objectives. In the unforeseen
event that lapses in the disclosure controls and procedures or internal controls over financial reporting occur and/or
mistakes happen, the Company intends to take the necessary steps to minimize the consequences thereof.
51
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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, which provides a
detailed description of these and other risks that may affect the Company, can be found on SEDAR at www.sedar.com and
on the Company’s website at www.fcr.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 Ontario, Alberta, Quebec 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.
The Company’s portfolio has more concentration with certain tenants. In the event that one or more tenants that
individually or collectively account for an important amount of the Company’s annual minimum rent experience financial
difficulty and are unable to pay rent or fulfill their lease commitments, the Company’s financial position, results of
operation and the value of its properties concerned would be adversely affected.
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
FIRST CAPITAL REALTY ANNUAL REPORT 2016
52
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
an adverse effect on the financial position and results of operations of the Company. In addition, the terms of any
subsequent lease may be less favourable to the Company than the existing lease.
Financing, Interest Rates, Repayment of Indebtedness and Access to Capital
The Company has outstanding indebtedness in the form of mortgages, loans, credit facilities, senior unsecured
debentures and convertible debentures and, as such, is subject to the risks normally associated with debt financing,
including the risk that the Company’s cash flow will be insufficient to meet required payments of principal and interest.
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 $1,024.0
million principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured
debentures and convertible debentures maturing between January 1, 2017 and December 31, 2019 at a weighted average
coupon interest rate of 5.5%. 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
$10.2 million. In addition, as at December 31, 2016, the Company had $324.2 million principal amount of debt (or 8% 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.
53
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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
The Company 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, the Company 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.
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
FIRST CAPITAL REALTY ANNUAL REPORT 2016
54
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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, the Company 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. In addition, the Company may be exposed to risks resulting from
the actions, omissions or financial situation of a partner, which may result in harm to the Company’s reputation or
adversely affect the value of the Company’s investments.
Significant Shareholders
As of December 31, 2016, Chaim Katzman, a director (formerly the Chairman of the Board 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 36.4% 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 the Company, is also
the Vice Chairman and Chief Executive Officer of each of Gazit-Globe and its controlling shareholder, Norstar Holdings
Inc., a corporation listed on the Tel-Aviv Stock Exchange ("Norstar"). Mr. Katzman as well as Mr. Segal and his spouse,
directly and indirectly, own shares of Norstar and they have entered into a shareholders' agreement with Mr. Katzman
under which they have agreed, among other things, to vote for certain nominees to, and to constitute, the board of
Norstar in an agreed manner.
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 significant 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 significant influence in the
event of a take-over bid for First Capital Realty. This level of ownership may discourage third parties from seeking to
acquire control of the Company, which in turn may adversely affect the market price of the Common Shares.
Moreover, members of the Gazit Group have pledged a substantial portion of their common shares to secure revolving
credit facilities made available to them by commercial banks. The occurrence of an event of default thereunder 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.
55
FIRST CAPITAL REALTY ANNUAL REPORT 2016
FS
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
57
58
59
60
61
62
63
64
64
64
70
72
75
76
76
76
78
79
80
81
82
85
85
85
86
86
86
87
88
89
91
92
93
93
94
95
95
96
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 Loans, Mortgages and Other Real Estate Assets
6 Amounts Receivable
7 Other Assets
8 Capital Management
9 Mortgages and Credit Facilities
10 Senior Unsecured Debentures
11 Convertible Debentures
12 Accounts Payable and Other Liabilities
13 Shareholders' Equity
14 Net Operating Income
15 Interest and Other Income
16 Interest Expense
17 Corporate Expenses
18 Other Gains (Losses) and (Expenses)
19 Income Taxes
20 Per Share Calculations
21 Risk Management
22 Fair Value Measurement
23 Investment in Joint Ventures
24 Subsidiary with Non-controlling Interest
25 Co-ownership Interests
26 Supplemental Other Comprehensive Income (Loss) Information
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 14, 2017.
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 14, 2017
Kay Brekken
Executive Vice President and Chief Financial Officer
57
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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, 2016 and 2015, 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, 2016 and 2015, 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 14, 2017
FIRST CAPITAL REALTY ANNUAL REPORT 2016
58
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
Senior unsecured debentures
Convertible debentures
Accounts payable and other liabilities
Mortgages on investment properties classified as held for sale
Total current liabilities
Total liabilities
EQUITY
Shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
Refer to accompanying notes to the consolidated financial statements.
Approved by the Board of Directors:
Jon Hagan
Director
Adam E. Paul
Director
59
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Note
December 31, 2016
December 31, 2015
4
4
23
5
7
27(d)
5
6
7
4(d)
9
9
10
11
12
19
27(d)
9
9
10
11
12
4(d), 9
13
24
$
$
$
$
8,370,298
67,149
146,422
324,979
8,908,848
21,997
8,930,845
12,217
28,316
5,010
21,175
23,940
90,658
83,050
173,708
9,104,553
878,008
243,696
2,296,551
103,765
27,076
593,293
4,142,389
15,914
109,167
7,785
249,891
103,868
232,466
719,091
9,990
729,081
4,871,470
4,195,263
37,820
4,233,083
9,104,553
$
$
$
$
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
—
447,651
4,610,212
3,639,952
28,362
3,668,314
8,278,526
Consolidated Statements of Income
Year ended December 31
(thousands of dollars, except per share amounts)
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.
Note
2016
$
676,284 $
2015
654,792
244,900
409,892
17,702
(163,481)
(35,660)
(786)
(2,892)
12,178
(15,155)
37,773
(150,321)
259,571
55,843
203,728
254,287
421,997
19,641
(158,687)
(34,910)
(321)
(1,287)
12,437
(586)
218,078
54,365
476,362
90,570
385,792 $
382,714 $
203,865
3,078
(137)
385,792 $
203,728
1.62 $
1.59 $
0.91
0.91
14
15
16
17
18
4
19
24
20
20
$
$
$
$
$
FIRST CAPITAL REALTY ANNUAL REPORT 2016
60
Consolidated Statements of Comprehensive Income
(thousands of dollars)
Net income
Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale marketable securities (1)
Reclassification of gain (loss) on available-for-sale marketable securities to net income
Unrealized gain (loss) on cash flow hedges (1)
Reclassification of net losses on cash flow hedges to net income
Deferred tax expense (recovery)
Other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to:
Common shareholders
Non-controlling interest
(1) Items that may subsequently be reclassified to net income.
Refer to accompanying notes to the consolidated financial statements.
Year ended December 31
Note
2016
2015
$
385,792
$
203,728
26
26
26
26
26
24
—
—
5,790
1,518
7,308
1,944
5,364
$
$
$
391,156
388,078
3,078
391,156
$
$
$
(34)
147
(12,232)
1,101
(11,018)
(3,026)
(7,992)
195,736
195,873
(137)
195,736
61
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Consolidated Statements of Changes in Equity
(thousands of dollars)
December 31, 2015
Changes during the year:
Net income
Issuance of common shares
Issue costs, net of tax
Dividends
Interest on convertible debentures paid in
common shares
Redemption of convertible debentures
Options, deferred share units,
restricted share units, and performance
share units, net
Other comprehensive gain (loss)
Contributions from (distributions to) non-
controlling interest, net
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
(Note 26(a))
(Note 13(a))
(Note 13(b))
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
$
844,382 $
(17,062) $ 2,768,983 $
43,649 $ 3,639,952 $
28,362 $ 3,668,314
382,714
—
—
(204,233)
—
—
—
—
—
—
—
—
—
—
—
—
—
287,589
(9,036)
—
13,645
60,294
20,924
—
—
—
—
—
382,714
287,589
(9,036)
(204,233)
13,645
(1,187)
(763)
59,107
20,161
5,364
—
—
—
—
—
5,364
—
3,078
—
—
—
—
—
—
—
6,380
385,792
287,589
(9,036)
(204,233)
13,645
59,107
20,161
5,364
6,380
December 31, 2016
$ 1,022,863 $
(11,698) $ 3,142,399 $
41,699 $ 4,195,263 $
37,820 $ 4,233,083
(thousands of dollars)
December 31, 2014
Changes during the year:
Net income
Issuance of common shares
Issue costs, net of tax and other
Dividends
Interest on convertible debentures paid in
common shares
Redemption and conversion of convertible
debentures
Options, deferred share units and
restricted share units, net
Other comprehensive gain (loss)
Contributions from (distributions to) 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
$
833,298 $
(9,070) $ 2,600,605 $
45,438 $ 3,470,271 $
27,570 $ 3,497,841
203,865
—
—
(192,781)
—
—
—
—
—
—
—
—
—
—
—
—
—
87,277
(2,749)
—
18,857
—
—
—
—
—
203,865
87,277
(2,749)
(192,781)
18,857
38,614
(891)
37,723
26,379
(898)
25,481
(7,992)
—
—
—
—
—
(7,992)
—
(137)
203,728
—
—
—
—
—
—
—
929
87,277
(2,749)
(192,781)
18,857
37,723
25,481
(7,992)
929
December 31, 2015
$
844,382 $
(17,062) $ 2,768,983 $
43,649 $ 3,639,952 $
28,362 $ 3,668,314
Refer to accompanying notes to the consolidated financial statements.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
62
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
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
Settlement of hedges
Repayment of convertible debentures
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
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
2016
2015
$
385,792
$
203,728
4
16
16
27(a)
27(b)
9
9
10
11(c)
4(c)
4(c)
4(d)
27(c)
(218,078)
158,687
1,287
(12,437)
573
(141,326)
90,806
(8,706)
—
256,598
295,017
(28,685)
(267,879)
—
300,922
(5,664)
(60,294)
(4,102)
291,052
(199,789)
6,380
326,958
(286,220)
(34,728)
130,215
51,948
(24,952)
(218,118)
(4,526)
(183,836)
(570,217)
13,339
(17,036)
(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)
—
22,615
45,098
(56,967)
(275,976)
2,570
16,514
(342,392)
(34,387)
17,351
Cash and cash equivalents (bank indebtedness), end of year
27(d) $
(3,697)
$
(17,036)
Refer to accompanying notes to the consolidated financial statements.
63
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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 14, 2017.
(c) Basis of consolidation
The consolidated financial statements include the financial statements of the Company as well as the entities that are
controlled by the Company (subsidiaries). The Company controls an entity when the Company is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over
the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are
deconsolidated from the date that control ceases. Inter-company transactions, balances and other transactions between
consolidated entities are eliminated.
(d) Business combinations
At the time of acquisition of property, the Company considers whether the acquisition represents the acquisition of a
business. The Company accounts for an acquisition as a business combination where an integrated set of activities is
acquired in addition to the property.
The cost of a business combination is measured as the aggregate of the consideration transferred at acquisition date fair
value. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at fair value at the acquisition date. The Company recognizes any contingent consideration to be
transferred by the Company at its acquisition date fair value. Goodwill is initially measured at cost, being the excess of the
purchase price over the fair value of the net identifiable assets acquired and liabilities assumed. Acquisition-related costs
are expensed in the period incurred.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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. Consequently, the entire portfolio is externally appraised at least
once within a four-year cycle.
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's review of the key assumptions from previous appraisals and
updating the value for changes in the property cash flow, physical condition and changes in market conditions.
65
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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.
Valuation Inputs
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
Company’s own assumptions of how market participants would price investment property, and are developed based on
the best information available, including the Company’s own data. These significant unobservable inputs include:
• Stabilized cash flows or net operating income, which is based on the location, type and quality of the properties and
supported by the terms of any existing lease, other contracts, or external evidence such as current market rents for
similar properties, adjusted for estimated vacancy rates based on current and expected future market conditions after
expiry of any current lease and expected maintenance costs.
• Capitalization rates, discount rates and terminal rates, which are based on location, size and quality of the properties
and taking into account market data at the valuation date. Capitalization rates are used for the direct capitalization
method and discount and terminal rates are used in the discounted cash flow method described below.
• Costs to complete for properties under development.
(i) Shopping centres
Shopping centres are appraised primarily based on an income approach that reflects stabilized cash flows or net operating
income 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.
(ii) Properties under development
Properties undergoing development, redevelopment or expansion are valued either (i) using the stabilized net operating
income expected upon completion, with a deduction for costs to complete the project, or (ii) using the discounted cash
flow method. Capitalization rates, discount rates and terminal rates, as applicable, 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Capitalization of borrowing costs and all other costs commences when the activities necessary to prepare an asset for
development or redevelopment begin, and continue until the date that construction is complete and all necessary
occupancy and related permits have been received, whether or not the space is leased. If the Company is required as a
condition of a lease to construct tenant improvements that enhance the value of the property, then capitalization of costs
continues until such improvements are completed. Capitalization ceases if there are prolonged periods when
development activity is interrupted.
As required by IFRS in determining investment property fair value, the Company makes no adjustments for portfolio
premiums and discounts, nor for any value attributable to the Company's management platform.
(g) Residential development inventory
Residential development inventory which is developed for sale is recorded at the lower of cost and estimated net
realizable value. Residential development inventory is reviewed for impairment at each reporting date. An impairment
loss is recognized in net income when the carrying value of the property exceeds its net realizable value. Net realizable
value is based on projections of future cash flows which take into account the development plans for each project and
management’s best estimate of the most probable set of anticipated economic conditions.
The cost of residential development inventory includes borrowing costs directly attributable to projects under active
development. The amount of borrowing costs capitalized is determined first by reference to borrowings specific to the
project, where relevant, and otherwise by applying a weighted average capitalization rate for the Company’s other
borrowings to eligible expenditures. Borrowing costs are not capitalized on residential development inventory where no
development activity is taking place. Residential development inventory is presented separately on the consolidated
balance sheets as current assets. Residential development inventory is classified as current because the Company intends
to sell this asset in the normal operating cycle.
(h) Taxation
Current income tax assets and liabilities are measured at the amount expected to be received from or paid to tax
authorities based on the tax rates and laws enacted or substantively enacted at the consolidated balance sheet dates.
Deferred tax liabilities are measured by applying the appropriate tax rate to temporary differences between the carrying
amounts of assets and liabilities, and their respective tax basis. The appropriate tax rate is determined by reference to the
rates that are expected to apply to the year and the jurisdiction in which the assets are expected to be realized or the
liabilities settled.
Deferred tax assets are recorded for all deductible temporary differences, carry forward of unused tax credits and unused
tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences, unused tax credits and unused 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 are recognized in correlation to the underlying transaction either in OCI or directly in
equity.
(i) Provisions
A provision is a liability of uncertain timing or amount. The Company records provisions, including asset retirement
obligations, when it has a present legal or constructive obligation as a result of past events, it is probable that an outflow
of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not
recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be
required to settle the obligation using a discount rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. Provisions are remeasured at each consolidated balance sheet date using the
current discount rate. The increase in the provision due to passage of time is recognized as interest expense.
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FIRST CAPITAL REALTY ANNUAL REPORT 2016
(j) Share-based payments
Equity-settled share-based compensation, including stock options, restricted share units, performance 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.
(k) 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.
(l) Financial instruments and derivatives
All financial instruments are required to be measured at fair value on initial recognition. Measurement in subsequent
periods depends on whether the financial instrument has been classified as fair value through profit or loss (“FVTPL”),
available-for-sale (“AFS”), held-to-maturity, loans and receivables or other liabilities.
Derivative instruments are recorded in the consolidated balance sheets at fair value, including those derivatives that are
embedded in financial or non-financial contracts and which are not closely related to the host contract.
The Company enters into forward contracts, interest rate swaps, and cross currency swaps to hedge its risks associated
with movements in interest rates and the movement in the Canadian to US dollar exchange rate. Derivatives are carried as
assets when the fair value is positive and as liabilities when the fair value is negative. Hedge accounting is discontinued
prospectively when the hedging relationship is terminated, when the instrument no longer qualifies as a hedge, or when
the hedged item is sold or terminated. In cash flow hedging relationships, the portion of the change in the fair value of
the hedging derivative that is considered to be effective is recognized in other comprehensive income (“OCI”) while the
portion considered to be ineffective is recognized in net income. Unrealized hedging gains and losses in accumulated
other comprehensive income (“AOCI”) are reclassified to net income in the periods when the hedged item affects net
income. Gains and losses on derivatives are immediately reclassified to net income when the hedged item is sold or
terminated or when it is determined that a hedged forecasted transaction is no longer probable.
Changes in the fair value of derivative instruments, including embedded derivatives, that are not designated as hedges for
accounting purposes, are recognized in other gains (losses) and (expenses).
FIRST CAPITAL REALTY ANNUAL REPORT 2016
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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
Bank indebtedness
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
Other liabilities
FVTPL
Fair value
Fair value
Amortized cost
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Fair value
In determining fair values, the Company evaluates counterparty credit risks and makes adjustments to fair values and
credit spreads based upon changes in these risks.
Fair value measurements recognized in the consolidated balance sheets are categorized using a fair value hierarchy that
reflects the significance of inputs used in determining the fair values:
(i) Level 1 Inputs – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company 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, including the
Company’s own data.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level
input that is significant to the fair value measurement as a whole) at the end of each reporting period.
(m) Cash and cash equivalents
Cash and cash equivalents include cash, bank indebtedness, and short-term investments with original maturities at the
time of acquisition of three months or less.
(n) Critical judgments in applying accounting policies
The following are the critical judgments that have been made in applying the Company’s accounting policies and that
have the most significant effect on the amounts in the consolidated financial statements:
(i) Investment properties
In applying the Company’s policy with respect to investment properties, judgment is applied in determining whether
certain costs are additions to the carrying amount of the property and, for properties under development, identifying the
point at which capitalization of borrowing and other costs ceases. Judgment is also applied in determining the extent and
frequency of external and internal appraisals in order to estimate fair values.
69
FIRST CAPITAL REALTY ANNUAL REPORT 2016
(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 reporting periods for which they were designated.
(iii) Income taxes
The Company exercises judgment in estimating deferred tax assets and liabilities. Income tax laws may be subject to
different interpretations, and the income tax expense recorded by the Company reflects the Company’s interpretation of
the relevant tax laws. The Company is also required to estimate the timing of reversals of temporary differences between
accounting and taxable income in determining the appropriate rate to apply in calculating deferred taxes.
(o) Critical accounting estimates and assumptions
The Company makes estimates and assumptions that affect the carrying amounts of assets and liabilities, disclosure of
contingent assets and liabilities and the reported amount of earnings for the reporting periods. Actual results could differ
from those estimates. The estimates and assumptions that the Company considers critical include those underlying the
valuation of investment properties, as set out above, which describes the process by which investment properties are
valued, and the determination of which properties are externally and internally appraised and how often.
Additional critical accounting estimates and assumptions include those used for determining the values of financial
instruments for disclosure purposes (Note 22), 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 13).
3. ADOPTION OF NEW AND AMENDED IFRS PRONOUNCEMENTS
(a) IFRS Amendments
The Company has adopted the amended International Financial Reporting Standards ("IFRS") pronouncement listed below
as of January 1, 2016, in accordance with its transitional provisions.
Joint Arrangements
The amendments to IFRS 11, "Joint Arrangement" ("IFRS 11") are effective for annual periods beginning on or after
January 1, 2016. The amendments address how a joint operator should account for the acquisition of an interest in a joint
operation in which the activity of the joint operation constitutes a business. IFRS 11, as amended, now requires that such
transactions shall be accounted for using the principles related to business combinations accounting as outlined in IFRS 3,
"Business Combinations". The Company adopted the amendments effective January 1, 2016 which have not had a
material effect on its 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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 Company 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 Company’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 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 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.
Investment property
The amendments to IAS 40, "Investment Property", clarify the accounting guidance and evidence required when an entity
transfers to, or from, investment property. The amendments are effective for annual periods beginning on or after
January 1, 2018. The Company does not expect any significant impact on its consolidated financial statements.
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FIRST CAPITAL REALTY ANNUAL REPORT 2016
4. INVESTMENT PROPERTIES
(a) Activity
The following tables summarize the changes in the Company’s investment properties for the years ended
December 31, 2016 and 2015:
Central
Region
Eastern
Region
Western
Region
Total
Shopping
Centres
Development
Land
Year ended December 31, 2016
Balance at beginning of year
$
3,337,859 $
1,820,967 $
2,748,246 $
7,907,072
$
7,870,719 $
Acquisitions
Capital expenditures
Reclassification to residential
development inventory
Increase (decrease) in value of
investment properties, net
Straight-line rent and other
changes
Dispositions
Revaluation of deferred purchase
price of shopping centre
Balance at end of year
Investment properties
168,885
124,233
(5,010)
63,066
21,659
—
88,997
72,226
—
320,948
218,118
(5,010)
286,220
215,504
(5,010)
110,167
21,096
86,815
218,078
217,574
2,239
1,148
2,461
5,848
5,848
(27,135)
(102,403)
—
—
(10,061)
(4,958)
(139,599)
(4,958)
(132,549)
(4,958)
$
3,711,238 $
1,825,533 $
2,983,726 $
8,520,497
Investment properties classified as held for sale
Total
8,453,348 $
8,370,298 $
83,050
$
$
$
8,453,348 $
67,149
36,353
34,728
2,614
—
504
—
(7,050)
—
67,149
67,149
—
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
Balance at end of year
Investment properties
Investment properties classified as held for sale
Total
Central
Region
Eastern
Region
Western
Region
$
3,207,544 $
29,030
115,596
—
1,744,533 $
18,539
69,091
—
2,557,714 $
50,130
91,289
—
Total
7,509,791
97,699
275,976
—
Year ended December 31, 2015
Shopping
Centres
Development
Land
$
7,474,329 $
97,699
275,133
1,546
35,462
—
843
(1,546)
4,016
—
—
4,016
—
4,016
(20,100)
12,705
45,168
37,773
40,195
(2,422)
3,383
(2,374)
3,945
4,954
4,954
—
(1,610)
3,337,859 $
(21,527)
1,820,967 $
$
—
2,748,246 $
(23,137)
7,907,072
(23,137)
7,870,719 $
7,779,482 $
91,237
7,870,719 $
$
$
$
—
36,353
29,853
6,500
36,353
Investment properties with a fair value of $2.4 billion (December 31, 2015 – $2.4 billion) are pledged as security for
$1.2 billion in mortgages and credit facilities.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(b) Investment property valuation
Capitalization rates by region for investment properties – shopping centres are set out in the table below:
As at
($ millions)
Central Region
Eastern Region
Western Region
Total or Weighted Average
Fair Value
3,663
1,819
2,971
8,453
$
$
December 31, 2016
Weighted Average
Capitalization Rate
5.3% $
6.0%
5.3%
5.5% $
December 31, 2015
Weighted Average
Capitalization Rate
5.5%
6.1%
5.5%
5.7%
Fair Value
3,328
1,814
2,729
7,871
The sensitivity of the fair values of shopping centres to capitalization rates as at December 31, 2016 is set out in the table
below:
As at December 31, 2016
(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
$
$
$
$
$
$
1,251
794
380
(338)
(652)
(941)
Additionally, a 1% increase or decrease in stabilized net operating income ("SNOI") would result in a $83 million increase or
a $74 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 $462 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 $413 million.
(c) Investment properties – Acquisitions
During the year ended December 31, 2016 and 2015, 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
Mortgage assumption on acquisition
Total cash paid
Shopping
Centres
286,220
—
286,220
$
$
2016
Development
Land
$
$
34,728
—
34,728
2015
Shopping
Centres
Development
Land
$
$
97,699
(1,453)
96,246
$
$
—
—
—
73
FIRST CAPITAL REALTY ANNUAL REPORT 2016
(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
Mortgages secured by investment properties classified as held for sale
Weighted average effective interest rate of mortgages secured by investment properties
$
$
classified as held for sale
December 31, 2016
December 31, 2015
83,050
9,990
$
$
4.1%
97,737
—
—%
The decrease of $14.7 million in investment properties classified as held for sale from December 31, 2015, arose primarily
from dispositions completed this year as well as a change in the mix of properties classified as held for sale.
For the year ended December 31, 2016 and 2015, the Company sold shopping centres and development land as follows:
Total selling price
Vendor take-back mortgage on sale
Property selling costs
Total cash proceeds
Year ended December 31
2015
2016
23,137
139,600 $
—
(6,950)
(522)
(2,435)
22,615
130,215 $
$
$
(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, 2016
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
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
(1) Includes investment properties classified as held for sale.
Central
Region
Eastern
Region
Western
Region
Total
$ 3,711,238
$ 1,825,533
$ 2,983,726
$ 8,520,497
12,217
353,295
45,937
21,175
146,422
5,010
9,104,553
$
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
FIRST CAPITAL REALTY ANNUAL REPORT 2016
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
5. LOANS, MORTGAGES AND OTHER REAL ESTATE ASSETS
As at
Non-current
Loans and mortgages receivable (a)
Available-for-sale (“AFS”) investment in limited partnership
Deposit on investment property (b)
Total non-current
Current
Loans and mortgages receivable (a)
Fair value through profit or loss ("FVTPL") investments in securities (c)
Other receivable
Total current
Total
December 31, 2016
December 31, 2015
$
131,955
3,824
189,200
324,979
15,281
12,969
66
28,316
353,295
$
$
$
$
$
$
$
$
$
120,173
4,269
—
124,442
23,499
11,907
70
35,476
159,918
(a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning
investment properties. As at December 31, 2016, these receivables bear interest at weighted average effective interest
rates of 6.9% (December 31, 2015 – 6.3% ) and mature between 2016 and 2023.
(b) In the third quarter of 2016, the Company advanced $189.2 million as a deposit on the acquisition of an investment
property, located at One Bloor Street in Toronto, that is currently under construction. The deposit earns interest of
4.5% until the purchase closing date which is estimated to be the fourth quarter of 2017.
(c) The Company has invested 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, 2016 are as follows:
Scheduled
Receipts
Weighted Average
Effective Interest Rate
$
$
$
$
$
13,646
4,816
73,663
—
4,950
47,303
144,378
2,858
147,236
15,281
131,955
147,236
12.3%
8.4%
6.8%
—%
5.2%
5.5%
6.9%
12.3%
6.3%
6.9%
2017
2018
2019
2020
2021
2022 to 2023
Unamortized deferred financing fees and accrued interest
Current
Non-current
Total
75
FIRST CAPITAL REALTY ANNUAL REPORT 2016
6. AMOUNTS RECEIVABLE
As at
Trade receivables (net of allowances for doubtful accounts of $3.6 million;
December 31, 2015 – $2.8 million)
Corporate and other amounts receivable
Total
December 31, 2016
December 31, 2015
$
$
19,291
1,884
21,175
$
$
16,844
861
17,705
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.
7. OTHER ASSETS
As at
Non-current
Fixtures, equipment and computer hardware and software (net of accumulated
amortization of $5.1 million; December 31, 2015 - $3.9 million)
Deferred financing costs on credit facilities (net of accumulated amortization of
$3.5 million; December 31, 2015 - $3.1 million)
Environmental indemnity and insurance proceeds receivable
Held-to-maturity investment in bond
Derivatives at fair value
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
Note
December 31, 2016
December 31, 2015
$
9,986
$
3,153
12(a)
22
22
2,453
6,875
—
2,683
21,997
2,668
6,719
1,074
3,724
9,755
23,940
45,937
$
$
$
$
2,172
8,274
685
—
14,284
3,824
4,457
1,924
59
—
10,264
24,548
$
$
$
$
8. 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, 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The components of the Company’s capital are set out in the table below:
As at
December 31, 2016
December 31, 2015
Liabilities (principal amounts outstanding)
Bank indebtedness
Mortgages
Credit facilities
Mortgages under equity accounted joint ventures (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 $20.67; December 31, 2015 – $18.35)
Total Capital Employed
$
15,914
995,925
251,481
46,741
80,131
2,550,000
212,635
$
26,200
1,020,358
224,635
3,878
43,669
2,250,000
337,271
5,033,286
4,138,622
$ 9,186,113
$ 8,044,633
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, 2016, 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, 2016
December 31, 2015
$
42.6%
2.0
4.0
12.7%
2.5
2.2
42.9%
2.2
3.6
13.1%
2.5
2.1
$
>$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 are meaningful measures for this reason. Measures used in these ratios are defined below:
• Debt consists of principal amounts outstanding on credit facilities and mortgages, and the par value of senior unsecured
debentures. Convertible debentures are excluded for the net debt to total assets ratio, 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 period;
• Secured indebtedness includes mortgages and any draws under the secured facilities that 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.
• 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.
77
FIRST CAPITAL REALTY ANNUAL REPORT 2016
• 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 bank indebtedness, unsecured credit facilities, senior unsecured
debentures and convertible debentures.
9. MORTGAGES AND CREDIT FACILITIES
As at
Fixed rate mortgages
Unsecured facilities
Secured facilities
Mortgages and credit facilities
Current
Mortgages on investment properties classified as held for sale
Non-current
Total
December 31, 2016
December 31, 2015
$
997,165
183,451
68,030
$ 1,248,646
116,952
$
9,990
1,121,704
$ 1,248,646
$ 1,024,002
195,000
29,635
$ 1,248,637
191,896
$
—
1,056,741
$ 1,248,637
Mortgages and secured facilities are secured by the Company's investment properties. As at December 31, 2016,
approximately $2.4 billion (December 31, 2015 – $2.4 billion) of investment properties out of $8.5 billion
(December 31, 2015 – $7.9 billion) had been pledged as security under the mortgages and the secured facilities (Note 4
(a)).
As at December 31, 2016, mortgages bear coupon interest at a weighted average coupon rate of 4.5%
(December 31, 2015 – 4.8%) and mature in the years ranging from 2017 to 2026. The weighted average effective
interest rate on all mortgages as at December 31, 2016 is 4.4% (December 31, 2015 – 4.5%).
Principal repayments of mortgages outstanding as at December 31, 2016 are as follows:
2017
2018
2019
2020
2021
2022 to 2026
Unamortized deferred financing costs and premiums, net
Total
Scheduled
Amortization
Payments on
Maturity
$
$
27,335 $
23,442
20,730
19,087
17,320
41,643
149,557 $
82,902 $
124,321
106,714
45,858
73,397
413,176
846,368 $
$
Weighted
Average Effective
Interest Rate
4.1%
5.4%
6.5%
5.3%
4.4%
3.6%
4.4%
Total
110,237
147,763
127,444
64,945
90,717
454,819
995,925
1,240
997,165
The Company has the ability under its unsecured credit facilities to draw funds based on Canadian bank prime rates, and
Canadian bankers’ acceptances (“BA rates”) for Canadian dollar-denominated borrowings, and LIBOR rates or U.S. prime
rates for U.S. dollar-denominated borrowings. As of December 31, 2016, the Company had drawn CAD$30.0 million and US
$114.3 million, as well as CAD$15.9 million in bank indebtedness on its unsecured credit facilities. Concurrently with the
U.S. dollar draws, the Company entered into cross currency swaps to exchange its U.S. dollar borrowings into Canadian
dollar borrowings.
Effective June 30, 2016, the Company extended the maturity of its $800 million unsecured facility to June 30, 2021 on
substantially the same terms.
In September 2016, the Company entered into two secured facilities totaling $19.4 million, at the Company's proportionate
interest, maturing between 2018 and 2019.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
In the fourth quarter, the Company entered into a new unsecured facility with a borrowing capacity of CAD$150 million, key
terms of which are presented in the table below.
The Company’s credit facilities as at December 31, 2016 are summarized in the table below:
As at December 31, 2016
Unsecured Operating Facilities
Borrowing
Capacity
Amounts
Drawn
Bank Indebtedness
and Outstanding
Letters of Credit
Available to be
Drawn
Interest Rates
Maturity Date
Revolving facility
maturing 2021
Non-revolving facility
maturing 2020 (1)
$
800,000 $
(30,000) $
(46,615) $
723,385
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
150,000
(153,451)
—
—
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
June 30, 2021
October 30, 2020
Secured Construction Facilities
Maturing 2018
115,000
(40,870)
(1,475)
72,655
Maturing 2017
7,953
(7,785)
Secured Facilities
Maturing 2019
11,875
(11,875)
Maturing 2018
7,500
(7,500)
—
—
—
168
—
—
BA + 1.125% or
Prime + 0.125%
BA + 1.125% or
Prime + 0.125%
BA + 1.125% or
Prime + 0.125%
BA + 1.125% or
Prime + 0.125%
February 13, 2018
March 31, 2017
September 27, 2019
September 6, 2018
Total
$
1,092,328 $
(251,481) $
(48,090) $
796,208
(1) The Company had drawn in US dollars the equivalent of CAD$150.0 million which was revalued at CAD$153.5 million as at December 31, 2016, as such the Company is in
compliance with its borrowing capacity.
10. SENIOR UNSECURED DEBENTURES
As at
December 31, 2016 December 31, 2015
Series Maturity Date
Coupon
Effective
Interest Rate
5.85%
5.70%
5.25%
4.95%
5.48%
5.60%
4.50%
4.43%
3.95%
3.90%
4.79%
4.32%
3.60%
4.57%
5.99%
5.79%
5.66%
5.17%
5.61%
5.60%
4.63%
4.59%
4.18%
3.97%
4.72%
4.24%
3.56%
4.63%
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
T May 6, 2026
Weighted Average or Total
Current
Non-current
Total
79
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Principal
Outstanding
Liability
$
125,000 $
124,985 $
125,000
50,000
100,000
150,000
175,000
175,000
200,000
250,000
300,000
300,000
300,000
300,000
124,906
49,761
99,602
149,542
174,988
174,177
198,567
247,066
298,794
301,323
301,768
300,963
Liability
124,814
124,809
49,678
99,411
149,382
174,985
174,002
198,323
246,637
298,643
301,466
301,941
—
$
$
2,550,000 $
2,546,442 $
2,244,091
250,000
2,300,000
249,891
2,296,551
2,550,000 $
2,546,442 $
—
2,244,091
2,244,091
Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity.
On May 6, 2016 the Company completed the issuance of $150.0 million principal amount of Series T senior unsecured
debentures due May 6, 2026. These debentures bear interest at a coupon rate of 3.6% per annum and an effective
interest rate of 3.7%, payable semi-annually commencing November 6, 2016.
On September 29, 2016, the Company completed the issuance of an additional $150.0 million principal amount of Series
T senior unsecured debentures, which was a re-opening of this series of debentures, with an effective interest rate of
3.4%.
11. CONVERTIBLE DEBENTURES
As at
December 31, 2016
December 31, 2015
Series Maturity Date
Coupon
Effective
Principal
Liability
Equity
Principal
Liability
Equity
Interest Rate
H
G
E
F
I
J
March 31, 2017
March 31, 2018
January 31, 2019
January 31, 2019
July 31, 2019
February 28, 2020
Weighted Average or Total
Current
Non-current
Total
4.95%
5.25%
5.40%
5.25%
4.75%
4.45%
4.96%
6.51%
6.66%
6.90%
6.07%
6.19%
5.34%
6.12%
—
—
54,666
51,584
51,210
55,175
—
—
53,095
50,773
49,822
53,943
—
—
2,084
351
1,403
386
71,006
49,582
55,060
53,720
51,604
56,299
69,697
48,144
52,793
52,506
49,579
54,624
1,415
1,146
2,099
365
1,414
394
$ 212,635 $ 207,633 $
4,224 $ 337,271 $ 327,343 $
6,833
106,250
103,868
106,385
103,765
—
—
337,271
327,343
$ 212,635 $ 207,633 $
4,224 $ 337,271 $ 327,343 $
6,833
(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, 2016, 0.7 million common shares (year ended December 31, 2015 – 1.0 million
common shares) were issued for $13.6 million (year ended December 31, 2015 – $18.9 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
July 31, 2019
February 28, 2020
Coupon
Rate
5.40%
5.25%
4.75%
4.45%
TSX
FCR.DB.E
FCR.DB.F
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
$22.62
$23.77
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(b) Principal redemption
On April 1, 2016, the Company redeemed its remaining 5.25% Series G and 4.95% Series H convertible debentures at par.
The full redemption price and any accrued interest owing on each series of convertible debentures was satisfied 50% by
the issuance of common shares and 50% in cash.
On December 22, 2016, the Company provided a notice of redemption to the holders of the remaining 5.40% Series E and
5.25% Series F convertible debentures that the entire principal amount outstanding plus accrued interest would be
redeemed in cash on January 31, 2017.
(c) Normal course issuer bid
Effective August 29, 2016, 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 28, 2017 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, 2016 and 2015, principal amounts of convertible debentures purchased and amounts
paid for the purchases are represented in the table below:
Year ended December 31
2016
2015
Total
$
4,048
$
4,102
$
12,289
$
12,436
Principal
Amount
Purchased
Amount Paid
Principal
Amount
Purchased
Amount Paid
12. ACCOUNTS PAYABLE AND OTHER LIABILITIES
As at
Note
December 31, 2016 December 31, 2015
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
Deferred purchase price of investment property – shopping centre
Total current
Total
22
22
$
$
$
$
$
7,815
9,423
6,469
1,763
1,606
27,076
66,343
49,204
52,330
38,016
26,573
—
—
232,466
259,542
$
$
$
$
$
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
(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 7).
81
FIRST CAPITAL REALTY ANNUAL REPORT 2016
13. 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 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
2016
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
units
11
11
Issuance of common shares
Share issue costs and other, net of tax effect
225,538 $
673
3,080
1,129
13,087
—
2,768,983
13,645
60,294
20,924
287,589
(9,036)
2015
Stated Capital
2,600,605
18,857
38,614
26,379
216,374 $
1,024
2,152
1,577
4,411
—
87,277
(2,749)
Issued and outstanding at end of year
243,507 $
3,142,399
225,538 $
2,768,983
On May 26, 2016, the Company issued 5.5 million common shares at a price of $21.10 for gross proceeds of $115.0 million.
Additionally, on August 17, 2016, the Company issued 7.6 million common shares at a price of $22.60 for gross proceeds of
$172.6 million.
Dividends declared per common share were $0.86 for the year ended December 31, 2016 (year ended December 31, 2015 –
$0.86).
(b) Contributed surplus and other equity items
Contributed surplus and other equity items comprise the following:
Year ended December 31
2016
Contributed
Surplus
Convertible
Debentures
Equity
Component
Stock-based
Compensation
Plan Awards
Total
Contributed
Surplus
Convertible
Debentures
Equity
Component
Stock-based
Compensation
Plan Awards
2015
Total
Balance at beginning of year
Redemption of convertible
debentures in common shares
Repurchase of convertible
debentures
Options vested
Exercise of options
Deferred share units
Restricted share units
Performance share units
Exercise of restricted and deferred
share units
$
19,532 $
1,386
6,833 $
(2,561)
36
—
—
—
—
—
—
(48)
—
—
—
—
—
—
—
—
17,284 $ 43,649 $
(1,175)
19,292 $
—
7,964 $
(885)
18,182 $ 45,438
(885)
—
(12)
240
(246)
—
(6)
833
(1,540)
820
2,102
547
833
(1,540)
820
2,102
547
(3,525)
(3,525)
—
—
—
—
—
—
—
—
—
—
—
—
652
(1,280)
984
2,617
—
652
(1,280)
984
2,617
—
(3,871)
(3,871)
Balance at end of year
$
20,954 $
4,224 $
16,521 $ 41,699 $
19,532 $
6,833 $
17,284 $ 43,649
FIRST CAPITAL REALTY ANNUAL REPORT 2016
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(c) Stock options
As of December 31, 2016, the Company is authorized to grant up to 15.2 million (December 31, 2015 – 15.2 million)
common share options to the employees, officers and directors of the Company. As of December 31, 2016, 1.7 million
(December 31, 2015 – 2.7 million) common share options are available to be granted to the employees, officers and
directors of the Company. In addition, as at December 31, 2016, 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, 2016 have exercise prices ranging from $9.81 – $20.24 (December 31, 2015 –
$9.81 – $19.96).
As at
December 31, 2016
December 31, 2015
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)
967 $ 15.67
1,203 $ 18.10
817 $ 18.80
1,219 $ 19.74
4,206 $ 18.15
2.3
7.2
6.8
9.0
6.5
967 $ 15.67
461 $ 17.98
400 $ 18.83
42 $ 19.96
1,870 $ 17.01
1,660 $
1,373 $
921 $
245 $
4,199 $
Weighted
Average
Exercise
Price per
Common
Share
16.07
18.07
18.82
19.96
17.55
Weighted
Average
Remaining
Life
(years)
Number of
Common
Shares
Issuable
(in thousands)
Weighted
Average
Exercise
Price per
Common
Share
2.6
8.1
7.8
9.2
5.9
1,546 $ 16.10
307 $ 17.87
293 $ 18.88
—
2,146 $ 16.73
— $
Exercise Price
Range ($)
9.81 – 17.36
17.37 – 18.40
18.41 – 19.31
19.32 – 20.24
9.81 – 20.24
During the year ended December 31, 2016, $0.7 million (year ended December 31, 2015 – $0.4 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)
4,199
1,000
(931)
(60)
(2)
$
4,206
$
2016
Weighted
Average
Exercise Price
17.56
19.69
17.13
18.98
15.47
18.15
Number of
Common Shares
Issuable
(in thousands)
4,956
907
(1,359)
(305)
—
$
4,199
$
2015
Weighted
Average
Exercise Price
16.89
18.93
15.84
18.46
—
17.55
(a) The fair value associated with the options issued was calculated using the Black-Scholes model for option valuation
based on the assumptions in the following table and is recognized as compensation expense over the vesting period.
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)
2016
1,000
10 years
$19.69
15.0%
6 years
4.35%
0.78%
$1,082
2015
907
10 years
$18.93
15.0%
6 years
4.56%
1.20%
$920
(b) The weighted average market share price at which options were exercised for the year ended December 31, 2016 was
$21.14 (year ended December 31, 2015 – $19.17).
83
FIRST CAPITAL REALTY ANNUAL REPORT 2016
(d) Share unit plans
The Company’s share unit plans include a Directors' Deferred Share Unit ("DSU") Plan and a Restricted Share Unit ("RSU")
Plan that provides for the issuance of Restricted Share Units and Performance Share Units ("PSU"). Under the DSU and
RSU 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 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 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. Under the PSU plan, a participant is entitled to receive 0.5 – 1.5 common shares per PSU granted, or equivalent cash
value at the Company' s option, on the third anniversary of the grant date. Holders of units granted under each plan
receive dividends in the form of additional units when the Company declares dividends on its common shares.
Year ended December 31
(in thousands)
2016
DSUs
RSUs / PSUs
DSUs
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 (1)
Expense recorded for the year
(1) Common shares required under the DSU plan or the RSU plan may be issued from treasury or acquired in the secondary market through an intermediary.
374
171
16
(90)
—
471
156
$2,335
349
24
14
(112)
—
275
220
$530
452
29
17
(149)
—
349
258
$670
2015
RSUs
328
121
16
(88)
(3)
374
343
$1,888
(a) The fair value of the DSUs granted during the year ended December 31, 2016 was $0.5 million (year ended December
31, 2015 – $0.5 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, 2016 was $1.3 million (year ended December 31, 2015 –
$1.8 million), measured based on the Company’s share price on the date of grant.
(b) The fair value of the PSUs granted during the year ended December 31, 2016 was $2.2 million. The fair value is
calculated using the Monte-Carlo simulation model based on the assumptions below as well as a market adjustment
factor based on the total shareholder return of the Company's common shares relative to the S&P/TSX Capped REIT
Index.
Year ended December 31
PSUs granted (thousands)
Term to expiry
Weighted average volatility rate
Weighted average correlation
Weighted average total shareholder return
Weighted average risk free interest rate
Fair value (thousands)
2016
106
3 years
13.4%
41.9%
8.8%
0.6%
$2,197
The fair value of awards granted under the above plans is recognized as compensation expense over the respective vesting
periods.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
14. NET OPERATING INCOME
Net operating income is presented by segment as follows:
Year ended December 31, 2016
Property rental revenue
Property operating costs
Net operating income
Year ended December 31, 2015
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
280,569 $
177,304 $
221,480 $
679,353 $
(3,069) $
108,496
76,982
73,010
258,488
(4,201)
Total
676,284
254,287
172,073 $
100,322 $
148,470 $
420,865 $
1,132 $
421,997
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
275,312 $
173,577 $
208,527 $
657,416 $
(2,624) $
105,602
74,802
67,224
247,628
(2,728)
Total
654,792
244,900
169,710 $
98,775 $
141,303 $
409,788 $
104 $
409,892
(1) Other items principally consist of intercompany eliminations.
For the year ended December 31, 2016, property operating costs include $21.6 million (year ended December 31, 2015 –
$21.9 million) related to employee compensation.
15. INTEREST AND OTHER INCOME
Interest, dividend and distribution income from marketable securities and cash
investments
Interest income from loans, deposit and mortgages receivable
Fees and other income
Total
16. INTEREST EXPENSE
Note
5
5
Year ended December 31
2015
2016
$
$
1,129
11,759
6,753
19,641
$
$
1,605
9,366
6,731
17,702
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 less than (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
Cash interest paid associated with operating activities
Note
9
9
10
11
11
$
$
$
85
FIRST CAPITAL REALTY ANNUAL REPORT 2016
$
Year ended December 31
2015
2016
51,327
47,724
4,031
6,641
106,844
112,023
22,118
14,603
184,320
180,991
(20,839)
(22,304)
163,481
158,687
(18,857)
(13,645)
655
521
(788)
(76)
$
2,232
(6,393)
141,326
3,692
(6,283)
141,900
$
17. CORPORATE EXPENSES
Salaries, wages and benefits
Non-cash compensation
Other corporate costs
Total corporate expenses
Amounts capitalized to investment properties under development
Corporate expenses
18. OTHER GAINS (LOSSES) AND (EXPENSES)
Realized gain (loss) on sale of marketable securities
Unrealized gain (loss) on marketable securities classified as FVTPL
Net gain (loss) on prepayments of debt
Proceeds from Target
Investment properties selling costs
Restructuring costs
Other
Total
Year ended December 31
2016
27,251
3,469
10,627
41,347
(6,437)
34,910
2015
29,164
2,941
11,486
43,591
(7,931)
35,660
$
$
Year ended December 31
2016
79
1,071
(1,119)
3,813
(2,435)
(1,988)
(7)
(586)
$
2015
784
(2,022)
(310)
—
(522)
(13,085)
—
$
(15,155)
$
$
$
$
During the second quarter, the Company recognized a $1.2 million loss on prepayment of debt related to the redemption of
series G and H convertible debentures. During the year, the Company recognized $3.8 million in proceeds under Target
Canada's CCAA plan of arrangement related to the closure of two Target stores in the Company's portfolio in 2015.
19. INCOME TAXES
The sources of deferred tax balances and movements are as follows:
December 31, 2015
Net income
Recognized in OCI
Equity and other December 31, 2016
Deferred taxes related to non-capital losses $
(37,994) $
10,922 $
Deferred tax liabilities related to difference
in tax and book basis primarily related to
real estate, net
542,695
79,648
(1,506) $
3,450
(1,671) $
(2,251)
(30,249)
623,542
Net deferred taxes
$
504,701 $
90,570 $
1,944 $
(3,922) $
593,293
As at December 31, 2016, the Company had approximately $114.9 million of non-capital losses which expire between 2027
and 2035.
December 31, 2014
Net income
Recognized in OCI
Equity and other December 31, 2015
Deferred taxes related to non-capital losses $
(21,388) $
(14,157) $
Deferred tax liabilities related to difference
in tax and book basis primarily related to
real estate, net
475,291
70,000
(1,421) $
(1,605)
(1,028) $
(991)
(37,994)
542,695
Net deferred taxes
$
453,903 $
55,843 $
(3,026) $
(2,019) $
504,701
FIRST CAPITAL REALTY ANNUAL REPORT 2016
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
As at December 31, 2015, the Company had approximately $143.8 million of non-capital losses which expire between
2016 and 2035.
The following reconciles the Company’s expected tax expense computed at the statutory tax rate to its actual tax expense
for the year ended December 31, 2016 and 2015:
Year ended December 31
Income tax expense at the Canadian federal and provincial income tax rate of 26.6% (2015 – 26.4%)
$
126,712 $
2016
Increase (decrease) in income taxes due to:
Non-taxable portion of capital gains and other
Impact of change in statutory income tax rate
Other
Deferred income taxes
2015
68,527
(19,574)
7,375
(485)
(38,883)
(1,207)
3,948
$
90,570 $
55,843
The current Canadian federal and provincial tax rate of 26.6% increased from 26.4% primarily due to an increase in the
general corporate income tax rate in the Province of Alberta during the second quarter of 2015.
During the fourth quarter of 2016, the Province of Quebec reduced its general corporate income tax rate, which impacted
the measurement of the Company's deferred taxes.
20. 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
$
$
2016
382,714
9,276
391,990
235,671
572
10,185
246,428
$
$
2015
203,865
10,037
213,902
223,644
424
11,802
235,870
The following securities were not included in the diluted net income per share calculation as the effect would have been
anti-dilutive:
Year ended December 31
(in dollars, number of shares in thousands)
Common share options
Convertible debentures - Series E - 5.40%
Convertible debentures - Series G - 5.25%
Exercise Price
$19.96
$22.62
$23.25
Number of Shares if Exercised
2016
—
—
N/A
2015
246
2,795
2,491
87
FIRST CAPITAL REALTY ANNUAL REPORT 2016
21. 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 $1.0 billion
principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured
debentures and convertible debentures maturing between January 1, 2017 and December 31, 2019 at a weighted average
coupon interest rate of 5.5%. 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 increase or decrease, respectively, by
$10.2 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 would 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, 2016, Loblaw Companies Limited
(“Loblaw”) accounts for 10.2% 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:
As at December 31, 2016
Within 1 year
After 1 year, but not more than 5 years
More than 5 years
$
417,917
1,146,685
763,076
$ 2,327,678
(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.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
An analysis of the Company’s contractual maturities of its material financial liabilities and other contractual commitments
as at December 31, 2016 is set out below:
As at December 31, 2016
Payments Due by Period
Scheduled mortgage principal amortization
Mortgage principal repayments on maturity
Credit facilities and bank indebtedness
Senior unsecured debentures
Convertible 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)
2017
2018 to 2019
2020 to 2021
Thereafter
Total
$
27,335 $
82,902
7,785
250,000
108,147
158,927
964
61,560
44,172 $
36,407 $
41,643 $
231,035
60,245
300,000
—
265,319
1,958
5,818
119,255
199,365
350,000
—
196,824
1,968
—
413,176
—
1,650,000
—
201,044
15,219
—
149,557
846,368
267,395
2,550,000
108,147
822,114
20,109
67,378
—
16,703
—
—
16,703
$
697,620 $
925,250 $
903,819 $ 2,321,082 $ 4,847,771
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2016 (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 unless the Company has disclosed its intention to settle in cash.
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, 2016,
there was $183.5 million (December 31, 2015 – $195.0 million) of cash advances drawn against the Company’s revolving
credit facilities.
In addition, as at December 31, 2016, the Company has $48.2 million (December 31, 2015 – $55.6 million) of bank
overdrafts and outstanding letters of credit issued by financial institutions primarily to support certain of the Company’s
contractual obligations.
22. 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:
As at December 31
Carrying Amount
Fair Value
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
89
FIRST CAPITAL REALTY ANNUAL REPORT 2016
Notes
2016
2015
2016
2015
$
$
6
6
6
8
10
10
11
12
13
12,969 $
3,824
147,236
12,438
11,907 $
4,269
143,672
—
12,969 $
3,824
144,379
12,438
11,907
4,269
141,354
—
997,165 $ 1,024,002 $
251,481
2,546,442
207,633
6,469
224,635
2,244,091
327,343
8,959
996,835 $ 1,048,090
224,635
251,481
2,414,392
2,691,059
341,874
214,423
8,959
6,469
The fair values of the Company’s cash and cash equivalents, amounts receivable, restricted cash and accounts payable and
other liabilities approximate their carrying values as at December 31, 2016 and 2015 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, 2016, the risk-adjusted interest rates ranged from 4.0% to 15.0%
(December 31, 2015 – 4.0% to 10.0%).
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, 2016, these rates ranged from 2.3% to 3.6%
(December 31, 2015 – 2.3% to 3.3%).
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, 2016, these rates ranged
from 1.1% to 3.7% (December 31, 2015 – 1.7% to 3.8%).
The fair values of the convertible debentures are based on the TSX closing bid prices.
The fair value hierarchy of financial instruments on the audited annual consolidated balance sheets is as follows:
As at
December 31, 2016
December 31, 2015
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 limited partnership
Derivatives at fair value – assets
Financial Liabilities
Derivatives at fair value – liabilities
Measured at amortized cost
Financial Assets
Loans and mortgages receivable
Financial Liabilities
Mortgages
Credit facilities
Senior unsecured debentures
Convertible debentures
$
12,969 $
—
—
— $
—
12,438
— $
3,824
—
11,907 $
—
—
— $
—
—
—
4,269
—
—
6,469
—
—
8,959
—
$
— $
— $
144,379 $
— $
— $
141,354
—
996,835
251,481
—
— 2,691,059
—
214,423
—
—
—
—
— 1,048,090
224,635
—
— 2,414,392
—
341,874
—
—
—
—
The Company enters into derivative instruments including bond forward contracts, interest rate swaps and cross currency
swaps as part of its strategy for managing certain interest rate risks as well as currency risk in relation to movements in
the Canadian to U.S. exchange rate. For those derivative instruments to which the Company has applied hedge
accounting, the change in fair value for the effective portion of the derivative is recorded in other comprehensive income
from the date of designation. For those derivative instruments to which the Company does not apply hedge accounting,
the change in fair value is recognized in other gains (losses) and (expenses).
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, 2016, the interest rates ranged from
1.7% to 3.3% (December 31, 2015 – 1.5% to 3.2%).
FIRST CAPITAL REALTY ANNUAL REPORT 2016
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The fair values of the Company's asset (liability) hedging instruments are as follows:
Designated as
Hedging Instrument Maturity as at December 31, 2016
December 31, 2016 December 31, 2015
Derivative assets
Bond forward contracts
Interest rate swaps
Cross currency swaps
Total
Derivative liabilities
Bond forward contracts
Interest rate swaps
Total
Yes
Yes
No
Yes
Yes
February 2017
January 2026 - September 2026
January 2017
February 2017
March 2022 - June 2025
$
$
$
$
6,279
2,683
3,476
12,438
—
6,469
6,469
$
$
$
$
—
—
—
—
788
8,171
8,959
23. INVESTMENT IN JOINT VENTURES
As at December 31, 2016, 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 tax expense (recovery)
Net income and total comprehensive income at 100%
The Company's share of income in equity accounted joint ventures
December 31, 2016 December 31, 2015
$
526,284
220,371
305,913
$
399,759
93,649
306,110
$
146,422
$
160,119
December 31, 2016 December 31, 2015
$
$
$
$
18,407
9,740
9,072
17,739
(11)
17,750
12,437
$
$
$
$
16,940
7,865
9,545
18,620
15
18,605
12,178
As at December 31, 2016, 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, 2016, the Company’s direct and indirect commitment was approximately $167.0 million, of which
$120.3 million had been invested as at December 31, 2016 (December 31, 2015 – $96.7 million).
During 2016, the Company received distributions from its joint ventures of $52.5 million (2015 - $47.6 million) and made
contributions to its joint ventures of $25.0 million (2015 - $57.0 million).
As at December 31, 2016, 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 $17.2 million. There were no
outstanding commitments for College Square as at December 31, 2016. The Company's share of these outstanding
91
FIRST CAPITAL REALTY ANNUAL REPORT 2016
commitments relating to its joint ventures at its interest is $9.1 million. Main and Main Urban Realty and College Square
did not have any contingent liabilities as at December 31, 2016 and 2015.
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:
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 ventures
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
December 31, 2016
December 31, 2015
$
$
$
$
$
$
$
$
$
111,865
3,471
115,336
—
729
729
114,607
37,820
$
$
$
$
84,724
1,746
86,470
—
502
502
85,968
28,362
Year ended December 31
2016
3,341
9,258
3,274
—
9,325
3,078
2015
2,168
602
3,189
—
(419)
(137)
$
$
$
Year ended December 31
2016
310
19,314
(17,883)
1,741
$
$
2015
(940)
2,813
(706)
1,167
FIRST CAPITAL REALTY ANNUAL REPORT 2016
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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
101 Yorkville Avenue
2150 Lake Shore Blvd. West
816-838 11th Ave. (Glenbow)
King High Line
McLaughlin Corners
Midland (land)
Rutherford Marketplace (land)
Hunt Club – Petrocan
Kanata Terry Fox (land)
Hunt Club Marketplace
Lachenaie Properties
South Oakville Properties (1)
Whitby Mall
Thickson Mall
Bow Valley Crossing (land)
Seton Gateway
Sherwood Park
The Edmonton Brewery District
West Oaks Mall
West Springs Village
Location
Toronto, ON
Toronto, ON
Calgary, AB
Toronto, ON
Brampton, ON
Midland, ON
Vaughan, ON
Ottawa, ON
Ottawa, ON
Ottawa, ON
Lachenaie, QC
Oakville, ON
Whitby, ON
Whitby, ON
Calgary, AB
Calgary, AB
Sherwood Park, AB
Edmonton, AB
Abbotsford, BC
Calgary, AB
Ownership Interest
December 31, 2016
50%
50%
50%
50%
50%
50%
50%
50%
50%
33%
50%
50%
50%
50%
75%
50%
50%
50%
50%
50%
December 31, 2015
—%
—%
—%
50%
50%
50%
100%
50%
50%
33%
100%
50%
—%
100%
75%
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
2016
Opening
Balance
January 1
Net Change
During
the Year
Closing
Balance
December 31
Opening
Balance
January 1
Net Change
During
the Year
2015
Closing
Balance
December 31
Unrealized gains (losses) on AFS
investments in equity securities
Unrealized gains (losses) on cash
flow hedges
Accumulated other comprehensive
loss
$
45 $
— $
45 $
(53) $
98 $
45
(17,107)
5,364
(11,743)
(9,017)
(8,090)
(17,107)
$
(17,062) $
5,364 $
(11,698) $
(9,070) $
(7,992) $
(17,062)
93
FIRST CAPITAL REALTY ANNUAL REPORT 2016
(b) Tax effects relating to each component of other comprehensive (loss) income
Year ended December 31
Unrealized gains (losses) on AFS
investments in equity securities
$
Reclassification of losses on AFS
equity securities to net income
Unrealized gains (losses) on cash
flow hedges
Reclassification of losses on cash
flow hedges to net income
Before-Tax
Amount
Tax (Expense)
Recovery
2016
Net of Tax
Amount
Before-Tax
Amount
Tax (Expense)
Recovery
— $
— $
— $
(34) $
5 $
—
—
—
147
(20)
2015
Net of Tax
Amount
(29)
127
5,790
1,518
(1,540)
(404)
4,250
1,114
(12,232)
3,334
(8,898)
1,101
(293)
808
Other comprehensive (loss) income
$
7,308 $
(1,944) $
5,364 $
(11,018) $
3,026 $
(7,992)
27. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Items not affecting cash and other items
Straight-line rent adjustment
Investment properties selling costs
Realized (gain) loss on sale of marketable securities
Unrealized (gain) loss on marketable securities classified as FVTPL
Net (gain) loss on prepayments of debt
Non-cash compensation expense
Deferred income taxes
Other non-cash items
Total
Note
18
18
18
18
19
(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
$
$
$
$
$
Year ended December 31
2015
(4,957)
522
(784)
2,022
310
3,098
55,843
7,113
63,167
2016
(5,848)
2,435
(79)
(1,071)
1,119
3,698
90,570
(18)
90,806
$
$
Year ended December 31
2015
(1,124)
1,237
2,173
1,749
(3,472)
563
2016
(3,470)
(2,307)
(2,396)
3,167
(3,700)
(8,706)
$
FIRST CAPITAL REALTY ANNUAL REPORT 2016
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(c) Changes in loans, mortgages and other real estate assets
Advances of loans and mortgages receivable
Repayments of loans and mortgages receivable
Deposit on investment property
Investment in marketable securities, net
Proceeds from disposition of marketable securities
Total
(d) Cash and cash equivalents (bank indebtedness)
Year ended December 31
2015
(48,349)
43,445
—
(3,154)
24,572
16,514
2016
(54,521) $
59,797
(189,200)
(742)
830
(183,836) $
$
$
As at
Cash (1)
Bank indebtedness
Total
December 31, 2016
12,217
(15,914)
(3,697)
$
$
December 31, 2015
9,164
(26,200)
(17,036)
$
$
(1) Principally consisting of cash related to co-ownerships and properties managed by third parties.
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 $108.1 million
(December 31, 2015 – $78.4 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 $32.3 million (December 31, 2015 –
$29.4 million), issued by financial institutions on the Company's behalf in the ordinary course of business.
(d) The Company has obligations as lessee under long-term leases for land. Annual commitments under these ground
leases are approximately $1.0 million (December 31, 2015 – $0.9 million) with a total obligation of $20.1 million
(December 31, 2015 – $21.1 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.
29. RELATED PARTY TRANSACTIONS
(a) Significant Shareholder
Gazit-Globe Ltd. (“Gazit”) is a significant shareholder of the Company and, as of December 31, 2016, beneficially owns
36.4% (December 31, 2015 – 42.2%) of the common shares of the Company. Norstar Holdings Inc. is the ultimate
controlling party of Gazit.
95
FIRST CAPITAL REALTY ANNUAL REPORT 2016
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
2015
2016
$
189
$
213
As at December 31, 2016, amounts due from Gazit were $0.1 million (December 31, 2015 – $0.1 million).
Effective April 3, 2016, a shareholders’ agreement between Gazit and Alony-Hetz Properties and Investments Ltd. (‘‘Alony-
Hetz’’) was terminated and Mr. Nathan Hetz, the Chief Executive Officer and a director of Alony-Hetz, stepped down from
the Board of Directors of First Capital Realty on April 4, 2016. As of March 31, 2016, the last date that Alony-Hetz reported
its shareholdings to First Capital Realty, it beneficially owned 6.2% of the common shares of the Company. Pursuant to the
terminated shareholders’ agreement, among other terms, (i) Gazit 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 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.
(b) Joint venture
During the year ended December 31, 2016, a subsidiary of Main and Main Developments LP earned property-related and
asset management fees from M+M Urban Realty LP, which are included in the Company’s consolidated fees and other
income in the amount of $2.9 million, (December 31, 2015 – $1.9 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, Chief Financial Officer, and Chief Operating Officer (1)
included in corporate expenses is as follows:
Salaries and short-term employee benefits
Share-based compensation (non-cash compensation expense)
(1) Chief Operating Officer joined FCR effective June 1, 2016.
30. SUBSEQUENT EVENTS
Redemption of Convertible Debentures
Year ended December 31
2016
3,805
2,315
6,120
$
$
2015
3,225
1,661
4,886
$
$
On January 31, 2017, the Company redeemed its remaining 5.40% Series E and 5.25% Series F convertible debentures at
par. The full redemption price and any accrued interest owing on each series of convertible debentures was satisfied in
cash.
First Quarter Dividend
The Company announced that it will pay a first quarter dividend of $0.215 per common share on April 11, 2017 to
shareholders of record on March 29, 2017.
FIRST CAPITAL REALTY ANNUAL REPORT 2016
96
Shareholder Information
TORONTO STOCK EXCHANGE LISTINGS
AUDITORS
4.75% Convertible Debentures:
FCR.DB.I
4.45% Convertible Debentures:
FCR.DB.J
TRANSFER AGENT
Computershare Trust Company of Canada
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Toll-free: 1 800 564 6253
EXECUTIVE LEADERSHIP TEAM
Adam E. Paul
President and Chief Executive Officer
Kay Brekken
Executive Vice President and
Chief Financial Officer
Jordan Robins
Executive Vice President and
Chief Operating Officer
Gareth Burton
Senior Vice President, Construction
Roger J. Chouinard
General Counsel and Corporate Secretary
Carmine Francella
Senior Vice President, Leasing
Sandra Levy
Vice President, People and Corporate Affairs
Maryanne McDougald
Senior Vice President, Operations
Gregory J. Menzies
Project Lead, Yorkville Village
Jodi M. Shpigel
Senior Vice President, Development
Ernst & Young LLP
Toronto, Ontario
DIRECTORS
Dori J. Segal
Chairman,
First Capital Realty Inc.
Toronto, Ontario
Jon Hagan, C.P.A., C.A.
Consultant, JN Hagan Consulting
Barbados
Chaim Katzman
Corporate Director
North Miami Beach, Florida
Allan S. Kimberley
Corporate Director
Toronto, Ontario
Annalisa King
Corporate Director
Vancouver, British Columbia
Susan J. McArthur
Managing Partner,
Greensoil Investments
Toronto, Ontario
Bernard McDonell
Corporate Director
Apple Hill, Ontario
Adam E. Paul, C.P.A., C.A
President and Chief Executive Officer,
First Capital Realty Inc.
Toronto, Ontario
Andrea Stephen, C.P.A., C.A.
Corporate Director
Toronto, Ontario
HEAD OFFICE
Shops at King Liberty
85 Hanna Avenue, Suite 400
Toronto, Ontario M6K 3S3
Tel: 416 504 4114
Fax: 416 941 1655
MONTREAL OFFICE
Place Viau
7600 boulevard Viau, Suite 113
Montréal, Québec H1S 2P3
Tel: 514 332 0031
Fax: 514 332 5135
CALGARY OFFICE
Mount Royal Village, Suite 400
1550 8th Street SW
Calgary, Alberta T2R 1K1
Tel: 403 257 6888
Fax: 403 257 6899
EDMONTON OFFICE
Northgate Centre, Unit 2004
9499-137 Avenue
Edmonton, Alberta T5E 5R8
Tel: 780 475 3695
Fax: 780 478 6716
VANCOUVER OFFICE
Shops at New West
800 Carnarvon Street, Suite 320
New Westminster, BC V3M 0G3
Tel: 604 278 0056
Fax: 604 242 0266
www.fcr.ca
85 Hanna Avenue, Suite 400, Toronto, Ontario M6K 3S3
T 416 504 4114 F 416 941 1655
www.fcr.ca