2017
annual
report
FIRST CAPITAL REALTY INC.
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, 2017, the Company owned interests in 161 properties, totaling approximately
25.4 million square feet of gross leasable area. At December 31, 2017, First Capital Realty had an
enterprise value of $9.5 billion. The common shares of the Company trade on the Toronto Stock Exchange.
BUSINESS STRATEGY
First Capital Realty’s primary strategy is the creation of value over the long term by generating
sustainable growth in cash flow and capital appreciation of its portfolio. To achieve the Company’s
strategic objectives, Management continues to:
• undertake selective development, redevelopment and repositioning activities on its properties,
including land use intensification;
• be focused and disciplined in acquiring well-located properties, primarily where there are
value-creation opportunities, including sites in close proximity to existing properties in the
Company’s target urban markets;
• proactively manage its existing portfolio to drive rent growth;
• increase efficiency and productivity of operations; and
• maintain financial strength and flexibility to support a competitive cost of capital.
OFFO
($ millions)
2 year CAGR 5.1%
OFFO $
OFFO/Share
261
1.10
236
1.05
284
1.16
NAV/SHARE
($)
2 year CAGR 9.4%
21.85
19.53
18.25
15
16
17
15
16
17
TOTAL ASSETS
Total assets ($ billions)
Unencumbered assets ($ billions)
% Debt to total assets
8.3
5.8
42.9
15
9.1
6.6
42.6
16
10.0
7.4
43.4
17
Best in Class Properties
URBAN MARKETS
High-quality portfolio
of Canadian urban
retail assets
PORTFOLIO
DEMOGRAPHICS
Industry-leading
demographic profile
Greater Toronto Area
Greater Montreal Area
Greater Calgary Area
Greater Vancouver Area
Greater Edmonton Area
Greater Ottawa Area
Golden Horseshoe Area
London Area
Quebec City
Red Deer and Other
Total
34%
15%
12%
11%
9%
7%
6%
2%
2%
2%
100%
Annual Minimum Rents as of December 31, 2017
215K
136K
108K
$107K
US$106K
$98K
FCR
US
Peers
CDN
Peers
FCR
US
Peers
CDN
Peers
5 Km Population (2017)
5 Km Household Income (2017)
US Peers: Federal Realty,
Kimco Realty and Regency
Centres
Canadian Peers: Riocan,
SmartCentres REIT, CREIT
(Retail only), Choice Properties,
CT REIT, Crombie REIT
Sources: Sitewise, Environics
Analytics & Company Reports
INDUSTRY-LEADING
PERFORMANCE
6.8%
Track record of above-
industry-average Same
Property NOI growth
3.8%
3.4%
2.5%
2.3%
3.7%
3.7%
3.2%
2.5%
1.1%
5 year average – 2.8%
10 year average – 3.3%
08
09
10
11
12
13
14
15
16
17
Total Same Property NOI Growth
INVESTMENT
Approximately $1 billion
planned investment in
existing properties with
development potential
$1B
Sustainable Cash Flow
HIGHLIGHTS
TENANT PROFILE
144 of 161 properties, or 94% of the portfolio fair
value is supermarket and/or drugstore anchored
Annual minimum rents
Over 90% of revenue comes from necessity-based
retail (~33% from e-commerce proof categories)
30.3%
18.5%
8 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)
24 consecutive years of paying dividends
Focused sustainability program – listed on
Corporate Knights Future 40 Responsible
Corporate Leaders in Canada in 2014–2018
4.8%
3
3
%
13.6%
E
-
C
O
M
M
14.7%
E
R
CE PRO O F T E N A N T
9.5%
8.6%
S
Supermarkets, drugstores and liquor stores
Other Necessity-based Retailers
Medical, Professional & Personal Services
Restaurants & Cafes
Other Tenants
Banks & Credit Unions
Fitness Facilities, Daycare & Learning Centres
Total
30.3%
18.5%
14.7%
13.6%
9.5%
8.6%
4.8%
100%
TOP 10 TENANTS
TOTAL PORTFOLIO OCCUPANCY
5 year average – 95.4%
10 year average – 95.8%
96.4%
96.2%
96.4%
96.2%
96.0%
96.1%
95.5% 95.5%
94.7% 94.9%
08
09
10
11
12
13
14
15
16
17
Financial Highlights
As at December 31
(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
(millions of dollars, except per share amounts)
Property Rental Revenue
Net Operating Income (“NOI”)(1)
Net Income Attributable to Common Shareholders
Funds from Operations (“FFO”)(1)
Operating FFO
Operating FFO per diluted share
OFFO Payout Ratio
FFO
FFO per diluted share
FFO Payout Ratio
Cash Provided by Operating Activities
Adjusted Cash Flow from Operations (“ACFO”)(1)
ACFO
ACFO payout ratio
(1) These measures are not defined by IFRS. Refer to the company’s Management’s Discussion & Analysis for further information.
2017
$ 9,969
$ 5,065
$ 9,480
43.4%
$ 0.86
2016
$ 9,105
$ 5,033
$ 9,162
42.6%
$ 0.86
2017
$ 694
$ 438
$ 633
$ 284
$ 1.16
74.1%
$ 284
$ 1.16
74.2%
$ 270
$ 244
86.0%
2016
$ 676
$ 422
$ 383
$ 261
$ 1.10
77.9%
$ 263
$ 1.11
77.4%
$ 257
$ 232
86.1%
Message from the
President & CEO
Dear Fellow Shareholder,
2017 was one of our best years ever. Our carefully
designed strategy continues to deliver consistent
growth in an evolving retail world.
Growth in both earnings and NAV is required for a
real estate company to be successful. In 2017, your
Board and Management team were pleased with our
progress. Following a strong year in 2016, per share
growth continued with OFFO, FFO and NAV increasing
5.1%, 4.3% and 11.9% respectively. This resulted in
our OFFO payout ratio improving by a further 380 bps
to 74.1% which will accelerate our future growth.
On the leasing front, we had our most active year
ever with a total of 3.1 million square feet of
completed lease transactions. This increased
occupancy by a solid 120 bps which ended the
year at 96.1% representing our highest year end
occupancy since 2011.
A key measure of a real estate portfolio’s year-over-
year performance is same-property NOI. Although
we increased occupancy significantly in 2017, the
majority of the increase occurred towards the end of
the year with average occupancy remaining consistent
with 2016. Therefore, owing to higher rental rates,
same-property NOI rose a healthy 2.5%. Base rental
rates on 1.7 million square feet of lease renewals
increased 6.3% (6.8% on 1.5 million square feet in
our same property portfolio).
We continued to maintain a strong and flexible
financial position with a conservative debt-to-asset
ratio. Our debt maturity profile is well-staggered with
a weighted average term of 5.4 years and a weighted
average interest rate that improved to 4.4%. Our
unencumbered asset pool grew by another $800
million to $7.4 billion representing 74% of total assets.
We finished 2017 with very solid results and are
well positioned with operational and development
momentum heading into 2018.
When I joined First Capital Realty just over three years
ago, I immediately immersed myself understanding
our assets, people and capabilities. The company
was and remains a very busy enterprise. When it
comes to the core of our business, particularly our
strategy, it has by and large remained consistent after
thorough and regular reviews by your Board. But FCR
is at a pivotal point in the sense that our platform and
portfolio have progressed in a notable way over the last
few years, and looking ahead a few more years, we will
be noticeably more advanced than we are today.
I think of FCR in three phases or periods of time.
Phase I
The first phase represents many years that culminated
in 2014. This was a period when our core DNA was
established. During this first phase, we grew our real
estate portfolio very aggressively which gave us critical
mass in Canada’s largest urban growth markets. We
have been a Canadian real estate leader in many areas
including our urban focus, necessity based tenant mix,
CEO succession, sustainability and pursuing unsecured
debentures as a primary source of debt capital. While
this unsecured debt strategy came at a meaningful
initial cost, it has led to a competitive cost of debt
capital and tremendous flexibility from our $7.4 billion
unencumbered asset pool which allows us to capitalize
on and facilitates the value creation and redevelopment
parts of our business. During this formative phase
where the foundation for our future was built, we grew
our NAV significantly, but had work to do on growing
our earnings and building our platform.
Phase II
The next phase took place over the last three years
starting with leadership succession. This was a
natural time to thoroughly review the business.
Following a lot of hard work executing our strategy,
our portfolio was in excellent shape. One of the
things we then focused on was platform building.
We made many improvements to our structure,
people and systems. The platform improvements
we made during that important transition year
(2015), combined with our high quality and well
positioned portfolio, has since led to very strong
results. Compared to two years ago, our OFFO is
10.1% higher, FFO is 17.4% higher and NAV is
19.7% higher, all on a cumulative per share basis.
YORKVILLE VILLAGE, TORONTO
There were a lot of key fundamental aspects of our
platform and culture that we focused on retaining
through our transition such as our entrepreneurial
spirit and our creative and innovative approach to
real estate. I think we are even better at these today.
Our recently designed plans for the redevelopment
of 101 Yorkville incorporates public realm, pedestrian
connectivity, architecture and place making that
demonstrates our approach to urban design and
architecture is at a new level. When it comes to
place making and community building, our Christie
Cookie site affords us the best opportunity of all
to move to yet another new level. We are in the
middle of an international master-plan architect
competition for our 28-acre site which continues to
see exceptional density emerge around the property
and represents one of the best opportunities our
company has ever had.
TORONTO FASHION WEEK, YORKVILLE VILLAGE, TORONTO
Sticking with entrepreneurialism, creativity and
innovation, things that come to mind are our
involvement in purchasing and relocating Toronto
Fashion Week to Yorkville Village where we also
brought the Salvador Dali Art exhibition through
a partnership with the Dali Foundation, as well as
our public arts program which has resulted in 26
substantial pieces of public art (and counting) that
are permanently on display at FCR properties. I think
of the upper level restaurant spaces we are creating
throughout our portfolio with Nanawall glass systems
and retractable glass roofs. As well as projects like
Stackt, which is a transportable retail market made
from shipping containers. Together with our partner,
we are opening the first Stackt Market this summer
on a 2.4-acre site at Bathurst and Front in Toronto.
We have also focused on owning and making our
properties more accessible and walkable to the dense
consumer base that surrounds them, which we
believe will become increasingly more important as
densification continues. Our portfolio has an average
Walk Score that places us in the second highest
category achievable described as “Very walkable
where most errands can be accomplished on foot.”
Sustainability continues to be an increasingly
important part of our success. Our sustainability
strategy started to gain traction in 2006 and has
many accomplishments that have culminated in
FCR being named to Corporate Knights Future 40
Responsible Corporate Leaders in Canada every year
since the awards commenced in 2014. We are proud
to be the only publicly traded real estate company to
hold this distinction.
KING HIGHLINE, TORONTO
We are coming out of this second phase with an
irreplaceable portfolio that has the best demographic
profile amongst our peers. Today, the average
population and household income within a five
kilometre radius of our properties is 215,000
and $107,000 respectively. These exceptional
demographics surrounding our relatively low density
properties makes FCR one of the best covered
land investments available. The incremental
density that can be added to our portfolio is now
nearly 22 million square feet or 90% of our existing
leasable area. The vast majority of our properties
are income producing but the land is often the most
valuable component of the property which presents
tremendous opportunity but also limits our downside
risk significantly.
But it is our next phase that is most important
because it is where we are heading from here.
Phase III
Our real estate strategy continues to be fine-tuned.
For a long time now, the criteria we use to select
assets in which we can best create value by
applying the capabilities of our platform, include
urban locations with strong demographic profiles,
especially significant and growing population density.
Transit is another key factor including planned transit
enhancements.
The areas where we are the most successful
are where we can positively impact already
thriving neighbourhoods by creating retail
focused environments. To maximize our potential
in this regard, we require scale within each target
node. Critical mass allows us to assemble the
right number of retailers so we can create an offering
that is optimal for the trade area. This results in the
assembled group of retailers collectively driving
more traffic and overall sales which leads to higher
rent growth. Large positions also give us flexibility
to redevelop in phases and retain tenants as their
needs change. It allows for public realm and amenity
space which can be easily overlooked but is so
critical when it comes to community building.
As an early developer of mixed use urban retail
properties, we continually fine-tune our retail mix.
Our typical collective offering of grocery, fitness,
pharmacy, healthcare uses, vibrant restaurants,
coffee shops, day cares, liquor stores, ethnic food
offerings and so on, make adjacent residential
properties more desirable and more valuable because
of the convenience and amenity rich lifestyle our
retail offering provides. This is something we will
continue to capitalize on by retaining an economic
interest in additional uses at our properties that
complement the retail and vice versa.
MOUNT ROYAL VILLAGE, CALGARY
BAYSIDE VILLAGE, QUEEN'S QUAY, TORONTO
Our strategy of focusing on larger assets is well
underway. The seven positions we have in Liberty
Village, Yorkville, Yonge / Avenue and Lawrence,
Mount Royal Village, South Oakville, Griffintown
and Brewery District alone represent almost 20%
of our total value today.
Active portfolio management has always been a core
competency for FCR. Over the last 5 years, we sold
nearly $1 billion of real estate and added $3 billion
more through development and acquisitions. That
$4 billion charge transformed the composition and
overall quality of our portfolio which is one of our
competitive advantages today. We still own some great
properties that don’t necessarily fit the larger position
profile I touched on earlier, and therefore, we will
continue to look to this group of properties as a capital
source to help fund our growth.
Another means of expanding our sources of capital
will be through partnerships. Over the last few years,
we have entered into more partnerships by selling a
partial non-managing interest in some of our more
stable properties. We are also seeing some great
opportunities through partners or potential partners,
who value and are seeking our specific retail and
development capabilities. For example, our partners
at Bayside on Queens Quay and 101 Yorkville each
had control of the real estate and selected us as their
urban retail development partner of choice. I believe
we will source an increasingly amount of meaningful
new investment opportunities through similar type
partnerships.
To summarize how our asset strategy is evolving, we
will continue to focus on fewer, but larger positions,
in Canada’s best urban nodes, where we can achieve
a meaningful retail position. We will also continue to
expand our capabilities and get better at what we do.
I don’t expect it to be a sprint, but I do expect we will
be more advanced, more innovative and even better
positioned several years from now.
Closing
2017 was a very successful year for our company.
I’d like to humbly thank and recognize the passionate
and tireless efforts of the First Capital team for their
achievements. This engaged group of professionals
is led by my partners who form the Executive
Leadership Team, an executive group that is deep,
talented and in my opinion, the most capable in
the business. I’d also like to thank our Chairman
and Board of Directors for their ongoing guidance
and the active role they play in shaping our strategy
and supporting the execution of it. As well, I’d like
to express my appreciation to our partners, which is
a growing part of our business, for their confidence
in us, in addition to our service providers, lenders,
advisors and the communities in which we operate.
It is a great responsibility but also an absolute
privilege to lead First Capital Realty so I will conclude
by thanking you, our investors.
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
Non-IFRS Financial Measures
Operating Metrics
Summary Consolidated Information and Highlights
Business and Operations Review
Real Estate Investments
Investment Properties — Shopping Centres
2017 Acquisitions
2016 Acquisitions
2017 Dispositions
2016 Dispositions
Impact of Acquisitions and Dispositions
Capital Expenditures
Valuation of Investment Properties
Properties Under Development
Main and Main Urban Realty
Leasing and Occupancy
Top Forty Tenants
Lease Maturity Profile
Loans, Mortgages and Other Real Estate Assets
Results of Operations
Fourth Quarter Consolidated Results
Net Operating Income
Interest and Other Income
Interest Expense
Corporate Expenses
Other Gains (Losses) and (Expenses)
Income Taxes
37
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41
41
42
42
43
43
44
44
44
45
47
49
49
50
50
51
51
53
55
55
Capital Structure and Liquidity
Total Capital Employed
Credit Ratings
Outstanding Debt and Principal Maturity Profile
Mortgages
Credit Facilities
Senior Unsecured Debentures
Convertible Debentures
Shareholders’ Equity
Liquidity
Cash Flows
Contractual Obligations
Contingencies
Non-IFRS Reconciliations and Financial Measures
Reconciliation of Consolidated Balance Sheets
to the Company’s Proportionate Interest
Reconciliation of Condensed Consolidated
Statements of Income, as presented, to the
Company’s Proportionate Interest
FFO, Operating FFO and ACFO
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 three months and years ended
December 31, 2017 and 2016. It should be read in conjunction with the Company’s audited annual consolidated financial
statements for the years ended December 31, 2017 and 2016. 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 13, 2018.
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, the Company's ability to complete dispositions and the timing, terms and
anticipated benefits of any such dispositions, 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
FIRST CAPITAL REALTY ANNUAL REPORT 2017
1
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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
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 13, 2018 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, 2017, the Company owned
interests in 161 properties, totaling approximately 25.4 million square feet of gross leasable area (“GLA”).
First Capital Realty’s primary strategy is the creation of value over the long term by generating sustainable growth in cash
flow and capital appreciation of its shopping centre portfolio. To achieve the Company’s strategic objectives, Management
continues to:
• undertake selective development, redevelopment and repositioning activities on its properties, including land use
intensification;
• be focused and disciplined in acquiring well-located properties, primarily where there are value creation opportunities,
including sites in close proximity to existing properties in the Company’s target urban markets;
• proactively manage its existing shopping centre portfolio to drive rent growth;
• increase efficiency and productivity of operations; and
• maintain financial strength and flexibility to support 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.
2
FIRST CAPITAL REALTY ANNUAL REPORT 2017
Shopping for Everyday Life®
FIRST CAPITAL REALTY ANNUAL REPORT 2017
3
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Urban Focus
The Company targets specific urban markets in Canada with stable and/or growing populations. Specifically, the Company
intends to continue to operate primarily in and around its target urban markets which include the Greater Toronto Area
(including the Golden Horseshoe Area and London); Greater Calgary Area; Greater Edmonton Area; Greater Vancouver
Area (including Vancouver Island); Greater Montreal Area; Greater Ottawa Area (including Gatineau region); and Quebec
City. Over 95% of the Company’s annual minimum rent is derived from these markets.
The Company has achieved critical mass in its target markets, which helps generate economies of scale and operating
synergies, as well as deep local knowledge of its properties, tenants, neighbourhoods and markets in which it operates.
Within each of these markets, the Company owns and targets well-located properties with strong demographics that
Management expects will continue to get stronger over time, therefore attracting high quality tenants with rent growth
potential.
Urban Markets
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.
4
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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.
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 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
including the addition of public art and enhancing the connectivity to the local neighbourhood. 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
development and redevelopment, leasing, construction and to some degree acquisitions, 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
5
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Cost of Capital
The Company seeks to maintain financial strength and flexibility in order to support 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.
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 growth 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, 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. In addition, the retail market is experiencing a
change in the consumer mindset with a growing emphasis on customer experience driven by recent advances in
technology, allowing for more integration and connection between retailers and consumers through smartphones.
Another trend that Management continues to observe 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. Retailers have
responded to these changes with a renewed focus on improving the overall customer experience both online and in-store
through the use of show rooms and pop-up stores. Management is proactively responding to these consumer changes
through its tenant mix, unit sizes, 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 Marshalls, Top Shop, 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 Sears Canada, Toys "R" Us, Express, Bebe, BCBG Max Azria, HMV, Future Shop, Target and Danier
Leather. Although the Company’s exposure to these retailers is limited, these store closures have, in the short term,
resulted 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.
6
FIRST CAPITAL REALTY ANNUAL REPORT 2017
In Management’s view, well-designed 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
In 2017, total assets grew 9.5% to $10.0 billion while total net operating income grew 3.7% over the prior year. In
addition, the Same Property portfolio delivered net operating income growth of 2.5% compared to the prior year. The
growth in Same Property net operating income was primarily due to rent escalations, lease renewals at higher rates and
redevelopments coming online. As at December 31, 2017, total portfolio occupancy increased 1.2% to 96.1% compared to
94.9% as at December 31, 2016. For the year ended December 31, 2017, the monthly average occupancy for the total
portfolio remained unchanged at 94.9%, while the monthly average Same Property portfolio occupancy was 96.0%
compared to 96.1% for the prior year, respectively.
Urban municipalities where the Company operates continue to focus on increasing density within the existing boundaries
of infrastructure. This provides the Company with multiple development and redevelopment opportunities in its existing
portfolio of urban properties, which includes an inventory of adjacent land sites and development land. As at
December 31, 2017, the Company had identified approximately 21.7 million square feet of incremental density available
in the portfolio for future development (including 2.9 million square feet of commercial and 18.9 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 131,000 square feet of new urban retail space from development to income-
producing properties at a cost of $116.3 million. Approximately 124,000 square feet of the new space was occupied at an
average net rental rate of $37.26 per square foot.
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 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 six income-producing properties and increased its interest in two existing
properties for $287.2 million, adding a total of 364,400 square feet of gross leasable area to the portfolio. Additionally,
the Company invested $157.7 million in development and redevelopment activities during this time period.
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
eight properties, three land parcels, as well as one surplus building for gross proceeds of $90.1 million.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
7
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Financing Activity
During the year, the Company repaid $82.9 million of mortgages with a weighted average effective interest rate of 4.1%
and secured $152.3 million of new mortgages with a weighted average effective interest rate of 3.6% and a weighted
average term of 10.0 years.
The Company also completed the issuance of $300 million principal amount of Series U senior unsecured debentures
maturing July 12, 2027, at a coupon rate of 3.75% with interest payable semi-annually commencing January 12, 2018. On
January 31, 2017 and November 30, 2017, the Company repaid its 5.85% Series H and 5.70% Series I senior unsecured
debentures totaling $250.0 million.
During the year, the Company also redeemed its remaining 5.40% Series E, 5.25% Series F, and 4.75% Series I convertible
debentures, totaling $157.3 million, at par. The full redemption price and any accrued interest owing on the convertible
debentures was satisfied in cash.
On January 25, 2018, the Company provided a notice of redemption to the holders of the remaining 4.45% Series J
convertible debentures that the entire principal amount outstanding plus accrued interest would be redeemed in cash on
February 28, 2018.
Outlook
Management is focused on the following five areas to achieve its objectives through 2018 and into 2019:
• 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 support 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.
8
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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 strong and growing customer base well into the future. Since 2011, the
Company has published annual Corporate Responsibility and Sustainability ("CRS") Reports. These CRS reports are extensive
and 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 CRS report. The Company’s external auditor Ernst & Young LLP provides a statement of assurance on
the CRS report annually.
In April 2017, the Company was named by Corporate Knights as one of the Future 40 Responsible Corporate Leaders in
Canada for the fourth consecutive year. For several years, the Company has responded to the Carbon Disclosure Project
Information Request ("CDP"), disclosing information to the investment community on the Company’s performance results in
greenhouse gas emissions, energy use, and risks and opportunities from climate change. The Company employs a full-time
Director of Sustainability who is responsible for leading sustainability reporting initiatives and driving continuous
environmental improvement.
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 by building new developments to
Leadership in Energy and Environmental Design ("LEED") standards subject to tenant acceptance. As at December 31, 2017,
117 projects comprising 3.7 million square feet of GLA were certified to LEED standards. The Company also has 173
properties or 18.4 million square feet certified to the Building Owners and Managers Association Building Environmental
Standards ("BOMA BEST"), validating our “best” practices for energy and environmental performance. Reducing energy and
greenhouse gas ("GHG") emissions is a key part of the Company’s sustainability program. In 2016, the Company made a
commitment to reduce its 2018 energy consumption by 7.5% from a 2015 base year, weather-corrected, like-to-like
portfolio. The Company is striving to meet this goal by implementing energy conservation measures, such as LED retrofits of
parking lot and exterior lighting fixtures. Between 2012 and 2016, the Company surpassed its goal by decreasing its
Greenhouse Gas emissions by 23%, despite growth in its portfolio size. Lastly, the Company has installed 120 electric car
charging stations across the portfolio. All of these initiatives enhance the properties’ environmental performance and many
of them reduce operating costs, benefiting the Company's tenants and shareholders.
The Company is committed to connecting and contributing to the communities it serves and enhancing the experience in its
shopping centres. For the past 7 years, the Company has embarked on public art projects across the country and through
our collaboration with OCAD University, Emily Carr University of Art and Design, and Concordia University, the Company has
sponsored public art competitions and has successfully completed 26 sculpture installations in prominent locations
throughout our properties.
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.
The Company was pleased to be ranked as the most gender diverse company in Canada included in Canada’s first gender
diversity ETF, launched in 2017 by Evolve Funds. This ETF invests in the most gender diverse companies in North American
as ranked by Equileap’s1 extensive gender scorecard, which includes 19 criteria of gender balance and gender equality.
For more information on the Company’s Corporate Responsibility and Sustainability practices, please refer to the latest
CRS report on the Company's website at www.fcr.ca.
1
Equileap is an organization aiming to accelerate progress towards gender equality in the workplace, using the power of investments, grants and knowledge and is
headquartered in Amsterdam and London.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
9
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
NON-IFRS FINANCIAL MEASURES
In addition to measures determined in accordance with International Financial Reporting Standards ("IFRS"), the Company
uses non-IFRS financial measures to analyze its financial performance. In Management’s view, such non-IFRS financial
measures are commonly accepted and meaningful indicators of financial performance in the real estate industry and
provide useful supplemental information to both Management and investors. These measures do not have a standardized
meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other
corporations or Real Estate Investment Trusts ("REITs"), and should not be construed as an alternative to other financial
measures determined in accordance with IFRS.
The following describe the non-IFRS measures the Company currently uses in evaluating is financial performance.
Proportionate Interest
"Proportionate interest" or "Proportionate share" is defined by Management as the Company’s proportionate share of
revenues, expenses, assets and liabilities in all of its real estate investments. Under IFRS, the Company's four equity
accounted joint ventures are presented on one line item in the consolidated balance sheets and the consolidated
statements of income, in aggregate. In the "Non-IFRS Reconciliations and Financial Measures" section of this MD&A,
Management presents a consolidated balance sheet and income statement as if its joint ventures were proportionately
consolidated. In addition, Management presents certain tables relating to its shopping centre portfolio by geographic
region, enterprise value, and debt metrics on a proportionate basis to enhance the relevance of the information
presented. The presentation of financial information at the Company's proportionate interest provides a useful and more
detailed view of the operation and performance of the Company's business and how Management operates and manages
the business. This presentation also depicts the extent to which the underlying assets are leveraged, which are included in
the Company's debt metrics. In addition, the Company's lenders require Management to calculate its debt metrics on a
proportionate interest basis.
To achieve the proportionate presentation of its four equity accounted joint ventures, Management allocates the
Company's proportionate share of revenues, expenses, assets, and liabilities to each relevant line item which replaces the
one line presentation found in the IFRS consolidated financial statements. In addition, under IFRS, the Company exercises
control over a fifth partially owned venture and consolidates 100% of the revenues, expenses, assets, and liabilities in the
consolidated financial statements. In the reconciliations, the partially owned venture is also presented as if it was
proportionately consolidated. To achieve the proportionate presentation of its partially owned venture, Management
subtracts the non-controlling interest's share (the portion the Company doesn't own) of revenue, expenses, assets, and
liabilities on each relevant line item. The Company does not independently control its joint ventures that are accounted
for using the equity method, and the proportionate presentation of these joint ventures does not necessarily represent
the Company's legal claim to such items.
Where noted, certain sections of this MD&A exclude the Company's proportionate share of Main and Main Urban Realty's
("MMUR") financial information to enhance the relevance of the information presented, as MMUR's business operations
are not focused on operating stable income-producing properties at this time. Additionally, in the third quarter of 2017,
MMUR announced its intention to sell 20 of its 23 properties which are expected to be sold within the next 9 months.
Select financial information for MMUR is presented in the "Main & Main Urban Realty" section of this MD&A.
Net Operating Income
Net Operating Income (“NOI”) is defined by Management as property rental revenue less property operating costs. NOI is
a commonly used metric for analyzing real estate performance in Canada by real estate industry analysts, investors and
Management. Management believes that NOI is useful in analyzing the operating performance of the Company’s
shopping centre portfolio.
10
FIRST CAPITAL REALTY ANNUAL REPORT 2017
Total Same Property NOI
Total Same Property NOI (“SP NOI”) is defined by Management as NOI from properties categorized as “Same Property —
stable” and “Same Property with redevelopment” (see definitions under “Real Estate Investments — Investment Property
Categories” section of this MD&A). NOI from properties that have been (i) acquired, (ii) disposed, (iii) included in major
redevelopment or ground-up development or (iv) held for sale are excluded from the determination of SP NOI. SP NOI is
presented on a cash basis, as it excludes straight-line rent. Management believes that SP NOI is a useful measure in
understanding period over period changes in cash NOI for its Same Property portfolio due to occupancy, rental rates,
operating costs and realty taxes. A reconciliation from SP NOI to total NOI can be found in the "Results of Operations - Net
Operating Income" section of this MD&A.
Same Property — Stable NOI
Same Property — stable NOI is defined by Management as NOI from stable properties where the only significant activities
are leasing and ongoing maintenance (see complete definition under “Real Estate Investments — Investment Property
Categories” section of this MD&A). Management believes that Same Property — stable NOI is a useful measure in
understanding period over period changes in cash NOI for its largest category of properties.
Funds from Operations
Funds from Operations ("FFO") is a recognized measure that is widely used by the real estate industry, particularly by
publicly traded entities that own and operate income-producing properties. The Company calculates FFO in accordance
with the recommendations of the Real Property Association of Canada (“REALPAC”) as published in its “White Paper on
Funds From Operations and Adjusted Funds From Operations for IFRS” in February 2017. Management considers FFO 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 to FFO can
be found in the "Non-IFRS Reconciliations and Financial Measures — FFO, Operating FFO and ACFO" section of this
MD&A.
Operating FFO
In addition to FFO described above, Management also calculates 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.
Adjusted Cash Flow from Operations
Adjusted Cash Flow from Operations (“ACFO”) is a supplementary measure the Company uses to measure operating cash
flow generated from the business. ACFO replaces the Company’s previously reported Adjusted Funds from Operations
(“AFFO”) as its supplementary cash flow metric. The Company calculates ACFO in accordance with the recommendations
of REALPAC as published in its “White Paper on Adjusted Cashflow From Operations (ACFO) for IFRS” in February 2017.
Management considers ACFO a meaningful metric to measure operating cash flows as it represents sustainable cash
available to pay dividends to shareholders. ACFO includes a number of adjustments to cash flow from operations under
IFRS including, eliminating seasonal and non-recurring fluctuations in working capital, adding cash flows associated with
equity accounted joint ventures and deducting actual revenue sustaining capital expenditures and actual capital
expenditures recoverable from tenants. Lastly, ACFO includes an adjustment to exclude the non-controlling interest's
portion of cash flow from operations under IFRS, attributed to the Company's consolidated joint venture. A reconciliation
of cash flow from operations under IFRS to ACFO can be found in the "Non-IFRS Reconciliations and Financial Measures —
FFO, Operating FFO and ACFO" section of this MD&A.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
11
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Weighted average share count for FFO and Operating FFO
For purposes of calculating per share amounts for FFO and Operating FFO, the weighted average number of diluted shares
outstanding is calculated assuming conversion of only those convertible debentures outstanding that would have a
dilutive effect upon conversion, at the holders' contractual conversion price.
Operating FFO, FFO and ACFO Payout Ratios
Operating FFO, FFO and ACFO payout ratios are supplementary non-IFRS measures used by Management to assess the
sustainability of the Company's dividend payments. Operating FFO and FFO payout ratios are calculated using dividends
declared per share divided by the Operating FFO or FFO per share. The ACFO payout ratio is calculated on a rolling four
quarter basis by dividing total cash dividends paid by ACFO over the same period. Management considers a rolling four
quarter ACFO payout ratio more relevant than a payout ratio in any given quarter due to the impact of working capital
fluctuations period over period.
Enterprise Value
Enterprise value is the sum of the carrying value of the Company's total debt on a proportionate basis and the market
value of the Company's shares outstanding at the respective quarter end date. This measure is used by the Company to
assess the total amount of capital employed in generating returns to shareholders.
Net Debt
Net debt is a measure used by Management in the computation of certain debt metrics, providing information with
respect to certain financial ratios used in assessing the Company's debt profile. Net debt is calculated as the sum of
principal amounts outstanding on credit facilities and mortgages, bank indebtedness and the par value of senior
unsecured debentures reduced by the cash balances at the end of the period. 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.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, ("Adjusted EBITDA") is a measure used by
Management in the computation of certain debt metrics. Adjusted EBITDA, is calculated as net income, adding back
income tax expense, interest expense and amortization and excluding the increase or decrease in the fair 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, which is a recognized adjustment to FFO, in accordance with the recommendations
of REALPAC.
Unencumbered Aggregate Assets
Unencumbered aggregate assets represents the value of assets that have not been pledged as security under a credit
agreement or mortgage. The unencumbered aggregate asset value ratio is calculated as unencumbered aggregate assets
divided by the principal amount of unsecured debt, which consists of bank indebtedness, unsecured credit facilities and
senior unsecured debentures. This ratio is used by Management to assess the flexibility of the Company to obtain various
forms of debt financing at a reasonable cost of capital.
12
FIRST CAPITAL REALTY ANNUAL REPORT 2017
OPERATING METRICS
The Company presents certain operating metrics and portfolio statistics in the MD&A, which include property count,
property category, GLA, occupancy, weighted average rate per occupied square foot, top 40 tenants, development pipeline,
and renewal activities. The Company uses these operating metrics to monitor and measure operational performance period
over period. To align the Company's GLA reporting with its ownership interest in its properties, effective January 1, 2017,
unless otherwise noted, all GLA is now presented at the Company's ownership interest (24.0 million square feet at its
ownership interest compared to 25.4 million square feet at 100% as at December 31, 2017). These metrics exclude the
operating metrics related to the Company's interest in MMUR as its business operations are not focused on operating stable
income-producing properties at this time. Additionally, in the third quarter of 2017, MMUR announced its intention to sell
20 of its 23 properties which are expected to be sold within the next 9 months.
Comparative amounts and certain metrics such as occupancy and weighted average rates per occupied square foot have
been restated to conform with the current presentation. These changes had minimal impact on the Company's previously
disclosed metrics.
SUMMARY CONSOLIDATED INFORMATION AND HIGHLIGHTS
As at December 31
Revenues, Income and Cash Flows (1)
Revenues and other income
NOI (2)
Increase (decrease) in value of investment properties, net
Net income attributable to common shareholders
Net income per share attributable to common shareholders (diluted)
Weighted average number of common shares – diluted – IFRS (in thousands)
Cash provided by operating activities
Financial Information (1)
Investment properties – shopping centres (3)
Investment properties – development land (3)
Total assets
Mortgages (3)
Credit facilities
Senior unsecured debentures
Convertible debentures
Shareholders’ equity
Capitalization and Leverage
2017
2016
2015
$
$
$
$
$
$
$
$
$
$
722,860
437,510
458,363
633,089
2.55
249,413
270,159
$
$
$
$
$
695,925
421,997
218,078
382,714
1.59
246,428
256,598
672,494
409,892
37,773
203,865
0.91
235,870
244,433
$ 9,317,306
$
79,053
$ 9,968,552
$ 1,060,339
$
581,627
$ 2,595,966
$
54,293
$ 4,647,071
$ 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
Shares outstanding (in thousands)
Enterprise value (2)
Net debt to total assets (2) (4)
Weighted average term to maturity on mortgages and senior unsecured debentures
(years)
244,431
$ 9,480,000
243,507
$ 9,162,000
225,538
$ 8,031,000
43.4%
5.4
42.6%
5.3
42.9%
5.5
FIRST CAPITAL REALTY ANNUAL REPORT 2017
13
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Year ended December 31
Dividends
Dividends
Dividends per common share
Operational Information
Number of properties
GLA (square feet) – at 100%
GLA (square feet) – at ownership interest
Occupancy – Same Property – stable (2)
Total portfolio occupancy
Development pipeline and adjacent land (GLA) (5) (6)
Commercial pipeline (primarily retail)
Residential pipeline
Average rate per occupied square foot
GLA developed and brought online - at ownership interest
Same Property – stable NOI – increase (decrease) over prior period (2) (7)
Total Same Property NOI – increase (decrease) over prior period (2) (7)
Funds from Operations (2) (4)
Operating FFO
Operating FFO per diluted share
Operating FFO payout ratio
FFO
FFO per diluted share
FFO payout ratio
Weighted average number of common shares – diluted – FFO (in thousands)
Adjusted Cash Flow from Operations (2) (4)
ACFO
ACFO payout ratio on a rolling four quarter basis
2017
2016
2015
$
$
210,433
0.86
$
$
204,233
0.86
$
$
192,781
0.86
161
25,390,000
23,991,000
160
158
25,278,000
24,431,000
23,820,000
23,615,000
97.0%
96.1%
96.3%
94.9%
95.8%
94.7%
2,862,000
2,993,000
3,326,000
18,856,000
10,856,000
10,612,000
19.69
$
19.30
$
131,000
202,000
2.0%
2.5%
0.8%
1.1%
$
$
$
$
284,350
1.16
74.1%
284,110
1.16
74.2%
$
$
$
$
260,731
1.10
77.9%
262,544
1.11
77.4%
18.70
224,000
4.1%
3.7%
236,069
1.05
81.9%
221,265
0.99
86.9%
245,153
236,243
224,069
243,645
$
231,985
86.0%
86.1%
N/A
N/A
$
$
$
$
$
$
(1) As presented in the Company's IFRS consolidated financial statements.
(2) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
(3) Includes properties and mortgages classified as held for sale.
(4) Reflects joint ventures proportionately consolidated. Refer to the "Non-IFRS Financial Measures – Proportionate Interest" section of this MD&A.
(5) At the Company's ownership interest. Square footage does not include potential development on properties held by the Company’s MMUR joint venture. Refer to the
“Business and Operations Review – Main and Main Urban Realty” section of this MD&A.
(6) Beginning in the fourth quarter of 2017, the Company has included very long term projects that have an expected commencement date beyond 15 years.
(7) Calculated based on the year-to-date NOI. Prior period amounts not restated for current period property categories.
14
FIRST CAPITAL REALTY ANNUAL REPORT 2017
BUSINESS AND OPERATIONS REVIEW
Real Estate Investments
Investment Property Categories
The Company categorizes its properties for the purposes of evaluating operating performance including Total 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:
Total 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
15
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Portfolio Overview
As at December 31, 2017, the Company had interests in 161 investment properties – shopping centres, which were 96.1%
occupied with a total GLA of 25.4 million square feet (24.0 million square feet at the Company's ownership interest) and a
fair value of $9.3 billion. This compares to 160 investment properties – shopping centres, which were 94.9% occupied
with a total GLA of 25.3 million square feet (23.8 million square feet at the Company's ownership interest) and a fair value
of $8.5 billion as at December 31, 2016. As at December 31, 2017, the average size of the shopping centres is
approximately 158,000 square feet, ranging from approximately 9,200 to over 573,000 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 146 properties with a GLA of 21.7 million square feet
(20.6 million square feet at the Company's ownership interest) and a fair value of $7.2 billion. These properties
represent 90.7% of the Company's property count, 85.8% of its GLA and 78.4% of its fair value as at December 31, 2017.
The balance of the Company’s real estate assets consists of shopping centres which are in various stages of
redevelopment, shopping centres acquired in 2017 or 2016 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, 2017
December 31, 2016
Number
of
Properties
GLA
(000s
sq. ft.) Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
97.0% $ 18.99
20.42
97.1%
97.0%
89.8%
97.4%
93.7%
93.4%
88.3%
—%
19.21
23.12
29.70
29.99
23.01
13.86
—
Number of
Properties
GLA
(000s
sq. ft.) Occupancy
131
15
146
8
1
—
4
—
1
17,423
3,078
20,501
1,971
105
—
617
415
211
96.3% $
96.1%
96.2%
84.2%
99.4%
—%
93.1%
89.7%
84.5%
Weighted
Average
Rate per
Occupied
Square
Foot
18.76
19.84
18.93
23.33
32.18
—
22.54
13.70
16.62
131
15
146
8
1
2
4
—
—
17,434
3,151
20,585
1,996
112
269
615
414
—
161
23,991
96.1% $ 19.69
160
23,820
94.9% $
19.30
(millions of dollars, except other data)
Same Property – stable
Same Property with redevelopment
Total Same Property
Major redevelopment
Ground-up development
Acquisitions – 2017
Acquisitions – 2016
Investment properties classified as held for sale
Dispositions – 2017
Total
16
FIRST CAPITAL REALTY ANNUAL REPORT 2017
The Company’s shopping centre portfolio by geographic region is summarized as follows:
As at
December 31, 2017
December 31, 2016
Number
of
Properties
GLA
(sq. ft.)
Fair
Value(1)
% of
Total
Fair
Value Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
% of
Annual
Minimum
Rent
Number
of
Properties
GLA
(sq. ft.)
Fair
Value(1)
% of
Total
Fair
Value Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
% of
Annual
Minimum
Rent
47
6,806 $ 3,593
38%
97.2% $
22.97
8
7
1,601
446
733
179
5%
2%
62
9,140
4,218
45%
99.0%
16.21
94.6%
97.3%
15.49
21.18
34%
6%
2%
42%
46
6,757 $ 3,085
36%
96.5% $
22.11
8
7
1,570
405
783
173
5%
2%
61
9,110
3,663
43%
95.7%
15.91
93.7%
96.1%
15.16
20.46
33%
6%
3%
42%
(millions of dollars,
except other data)
Central Region
Greater Toronto
Area
Golden Horseshoe
Area
London Area
Eastern Region
Greater Montreal
32
4,441
1,235
13%
93.0%
16.37
15%
32
4,491
1,189
14%
90.3%
16.43
15%
Area
Greater Ottawa
Area
Quebec City
Other
Western Region
Greater Calgary
Area
12
1,990
569
6%
97.1%
17.17
5
2
994
220
190
44
51
7,645
2,038
2%
—%
21%
93.6%
94.6%
94.2%
11.10
13.93
15.78
16
2,505
1,119
12%
96.9%
22.71
Greater Vancouver
19
2,145
1,111
12%
96.1%
23.44
Area
Greater Edmonton
12
2,312
830
Area
Red Deer
1
48
244
80
7,206
3,140
34%
9%
1%
97.1%
19.39
92.0%
96.6%
20.28
21.78
7%
2%
1%
11
1,728
474
5
2
989
218
175
43
6%
2%
1%
96.9%
16.69
93.5%
100.0%
11.29
13.43
15.71
25%
50
7,426
1,881
23%
92.5%
12%
11%
9%
1%
33%
16
2,500
1,041
12%
95.5%
22.46
20
2,241
1,054
12%
95.5%
22.64
12
2,299
794
1
49
244
82
7,284
2,971
34%
9%
1%
97.0%
19.11
93.1%
95.9%
20.25
21.37
6%
2%
1%
24%
12%
11%
10%
1%
34%
Total
161
23,991 $ 9,396
100%
96.1% $
19.69
100%
160
23,820 $ 8,515
100%
94.9% $
19.30
100%
(1)
At the Company's proportionate interest, excluding the fair value of MMUR's investment properties of $58 million as at December 31, 2017 and $49 million as at
December 31, 2016.
Among the Company's real estate investment portfolio are thirty-three (2016 - thirty-four) retail assets each with a
value greater than $85 million or size greater than 300,000 square feet. Together, these thirty-three retail assets
comprise $4.7 billion (2016 - $4.1 billion) or 50% (2016 - 49%) of the Company's aggregate $9.3 billion shopping
centre portfolio asset value (2016 - $8.5 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 2017
17
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Investment Properties – Shopping Centres
A continuity of the Company’s investments in its shopping centre acquisitions, dispositions, development and portfolio
improvement activities is as follows:
(millions of dollars)
Balance at beginning of period
Acquisitions
Shopping centres and additional adjacent spaces
Shopping centres acquired for redevelopment
Development activities and property improvements
Reclassification to residential development inventory
Increase (decrease) in value of investment properties, net
Dispositions
Reclassification to equity accounted joint ventures (1)
Other changes
Balance at end of period (2)
Year ended December 31
2017
8,453
$
287
—
226
—
452
(90)
(14)
3
9,317
$
$
$
2016
7,871
269
17
216
(5)
218
(133)
—
—
8,453
(1) The Company sold a 50% interest in its Royal Orchard property and now owns its remaining 50% interest through an equity accounted joint venture.
(2) Includes investment properties classified as held for sale as at December 31, 2017 and 2016 totaling $91 million and $83 million, respectively.
2017 Acquisitions
Income-producing properties – Shopping Centres and Additional Adjacent Spaces
During the year ended December 31, 2017, the Company acquired six properties in close proximity to existing shopping
centres as well as increased its interest in two existing properties, as summarized in the table below:
Count Property Name
1.
2.
3.
4.
5.
6.
7.
8.
McKenzie Scotiabank (McKenzie Towne Centre)
Domaine Metro Land (Centre Domaine) (1)
4455-4457 Kingston Rd. (Morningside Crossing)
1507 Avenue Rd. (Avenue & Lawrence)
300 Hunt Club Rd. (Hunt Club Marketplace) (2)
1 Bloor St. East
1642 Merivale Rd. (Merivale Mall)
Yorkville Village adjacent properties
Total
City/Province
Calgary, AB
Montreal, QC
Toronto, ON
Toronto, ON
Ottawa, ON
Toronto, ON
Ottawa, ON
Toronto, ON
Quarter
Acquired
Interest
Acquired
GLA
(sq. ft.)
Acquisition Cost
(in millions)
Q2
Q2
Q2
Q3
Q3
Q4
Q4
Q4
100%
50%
100%
100%
33%
100%
100%
100%
7,300 $
—
7,100
3,000
41,900
85,000
219,200
900
364,400 $
6.5
2.6
1.7
6.7
9.1
200.3
59.4
0.9
287.2
(1) The Company acquired an additional 50% interest in the property, increasing its total ownership interest to 100%.
(2) The Company acquired an additional 33% interest in the property, increasing its total ownership interest to 66%.
18
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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 Name
Peninsula Village
225 Peel St. (Griffintown)
816-838 11th Ave. (Glenbow)
Yorkville Village adjacent properties
Cliffcrest Plaza
Whitby Mall
Avenue Rd. & Lawrence Ave. assembly
1.
2.
3.
4.
5.
6.
7.
8.
9.
City/Province
Surrey, BC
Montreal, QC
Calgary, AB
Toronto, ON
Toronto, ON
Whitby, ON
Toronto, ON
Quarter
Acquired
Interest
Acquired
GLA
(sq. ft.)
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
78.5
56.0
10.5
1.8
31.9
18.6
65.2
5.2
0.8
2415-2595 Rue de Salaberry (Galeries Normandie)
Montreal, QC
338 Wellington Rd. (Wellington Corners)
London, ON
Total
621,400 $
268.5
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
Acquisition Cost
(in millions)
1.
2.
3.
4.
101 Yorkville Ave. (Yorkville Village)
Toronto, ON
2520 Chemin Bates (Wilderton)
Montreal, QC
Toronto, ON
1071 King Street West (remaining 50% interest)
2150 Lake Shore Blvd. West (former Christie Cookie site) Toronto, ON
Q3
Q4
Q1
Q2
50%
100%
50%
50%
Total
0.5 $
0.3
0.3
13.5
14.6 $
15.5
1.7
7.7
27.1
52.0
FIRST CAPITAL REALTY ANNUAL REPORT 2017
19
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
2017 Dispositions
During the year ended December 31, 2017, the Company disposed of interests in eight properties, three land parcels, as
well as a surplus building, as summarized in the table below:
Count Property Name
746 Baseline Rd.
City/Province
London, ON
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
McLaughlin Corners East
Mississauga, ON
Carrefour St. Hubert (adjacent land)
Longueuil, QC
Pemberton II, 1640 Bridgman Ave.
North Vancouver, BC
2525-2529 Danforth Ave.
McKenzie Professional Centre
Victoria Professional Centre
Cook Street Plaza
Royal Orchard (1)
Place Adoncour
9900 No. 3 Road & 8031 Williams Rd.
(adjacent land)
Devenish Land Parcel (Mount Royal West)
(adjacent land)
Total
Toronto, ON
Saanich, BC
Victoria, BC
Victoria, BC
Thornhill, ON
Longueuil, QC
Richmond, BC
Calgary, AB
Quarter
Sold
Interest Sold
GLA
(sq. ft.)
Acreage
Gross Sales
Price
(in millions)
Q1
Q1
Q1
Q2
Q3
Q3
Q3
Q3
Q4
Q4
Q4
Q4
100%
50%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
48,600
7,800
—
4,900
1,000
44,200
39,600
8,200
21,100
58,000
—
—
2.0
1.5
2.2
0.2
0.3
2.0
1.6
0.4
1.9
2.5
0.8
0.4
233,400
15.8 $
90.1
(1) The Company sold a 50% interest in its Royal Orchard property and now owns its remaining 50% interest through an equity accounted joint venture.
2016 Dispositions
During the year ended December 31, 2016, the Company disposed of interests in six properties and four land parcels, as
summarized in the table below:
Count Property Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
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)
City/Province
Lachenaie, QC
Surrey, BC
Kirkland, QC
Chateauguay, QC
Boucherville, QC
Whitby, ON
Montreal, QC
Montreal, QC
Langley, BC
10.
Rutherford Marketplace (adjacent land)
Vaughan, ON
Quarter
Sold
Interest Sold
Q1
Q2
Q2
Q3
Q3
Q3
Q3
Q3
Q4
Q4
50%
100%
100%
100%
100%
50%
100%
100%
100%
50%
GLA
(sq. ft.)
269,500
4,700
—
132,400
78,400
52,400
—
6,000
—
—
Gross Sales
Price
(in millions)
Acreage
30.5
0.2
0.8
10.5
9.0
5.4
1.5
0.3
4.8
1.3
Total
543,400
64.3 $
137.1
20
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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, 2017 and 2016 is summarized in the table below:
For the year ended December 31
Central Region
Eastern Region
Western Region
Total
Acquired
Disposed
2017
10,268
4,412
317
14,997
$
$
2016
6,081
2,693
4,516
13,290
$
$
2017
1,442
1,072
1,199
3,713
$
$
2016
1,040
5,181
66
6,287
$
$
Capital Expenditures
Capital expenditures are incurred by the Company for maintaining and/or renovating its existing shopping centres. In
addition, the Company also incurs expenditures for the purposes of expansion, redevelopment and development
activities.
Revenue sustaining capital expenditures are required for maintaining the Company’s shopping centre infrastructure and
revenues from leasing of existing space. Revenue sustaining capital expenditures are generally not recoverable from
tenants. However, certain leases provide the ability to recover from tenants, over time, a portion of capital expenditures
to maintain the physical aspects of the Company’s shopping centres. Revenue sustaining capital expenditures generally
include tenant improvement costs related to new and renewal leasing, and capital expenditures required to maintain the
physical aspects of the shopping centres, such as roof replacements and resurfacing of parking lots.
Revenue enhancing capital expenditures are those expenditures that increase the revenue generating ability of the
Company’s shopping centres. Revenue enhancing capital expenditures are incurred in conjunction with or in
contemplation of a development or redevelopment strategy, a strategic repositioning after an acquisition, or in advance
of a planned disposition to maximize the potential sale price. The Company owns and actively seeks to acquire older, well-
located shopping centres in urban locations, where expenditures tend to be higher when they are subsequently repaired
or redeveloped to meet the Company’s standards. The Company also considers property age, the potential effects on
occupancy and future rent per square foot, 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, overhead including applicable salaries and 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
21,781 $
23,131
7,749
29,914
82,575 $
— $
19,568
1,952
127,810
149,330 $
$
$
2017
Total
21,781 $
42,699
9,701
157,724
231,905 $
2016
Total
13,915
44,288
14,057
145,858
218,118
During the year ended December 31, 2017, capital expenditures totaled $231.9 million compared to $218.1 million
for the prior year. The $13.8 million increase was primarily due to increased development spend and higher
revenue sustaining capital expenditures as a result of increased leasing activity over the prior year, offset by lower
expenditures recoverable from tenants. Development expenditures increased by $11.9 million over the prior year
primarily related to the Mount Royal West redevelopment project.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
21
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Valuation of Investment Properties
During the year ended December 31, 2017, the weighted average stabilized capitalization rate of the Company’s investment
property portfolio decreased from 5.5% as at December 31, 2016 to 5.3%, primarily due to an overall compression in
stabilized capitalization rates in Toronto and Vancouver. The net increase in the value of investment properties was $458.4
million primarily due to stabilized NOI growth across the portfolio and the overall compression of stabilized capitalization
rates, as discussed above for the year ended December 31, 2017.
The values of the Company’s shopping centres and associated stabilized capitalization rates by region were as follows as at
December 31, 2017 and December 31, 2016:
As at December 31, 2017
(millions of dollars)
Central Region
Eastern Region
Western Region
Total or Weighted Average
As at December 31, 2016
(millions of dollars)
Central Region
Eastern Region
Western Region
Total or Weighted Average
Number of
Properties
Weighted
Average
62
51
48
161
5.1%
5.9%
5.2%
5.3%
Number of
Properties
Weighted
Average
61
50
49
160
5.3%
6.0%
5.3%
5.5%
Capitalization Rate
Median
Range
Fair Value
5.3%
6.0%
5.3%
5.5%
3.8%-7.0% $
5.0%-7.0%
3.8%-6.0%
3.8%-7.0% $
4,204
1,973
3,140
9,317
Capitalization Rate
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% $
3,663
1,819
2,971
8,453
Properties Under Development
Development and redevelopment activities are completed selectively, based on opportunities in the Company’s
properties or in the markets where the Company operates. The Company’s development activities include redevelopment
of 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
As at December 31, 2017, the Company's portfolio is comprised of 24.0 million square feet of GLA at the Company's
ownership interest. Substantially all of this GLA is located in Canada's six largest urban growth markets which are
undergoing significant land use intensification. As such, Management has identified meaningful incremental density
available for future development within its existing portfolio. As at December 31, 2017, Management had identified
approximately 21.7 million square feet of incremental density. This 21.7 million square feet represents a potential
opportunity that is very significant relative to the size of the Company's existing portfolio.
During the fourth quarter of 2017, Management undertook a detailed review of its entire portfolio and updated all of its
future uncommitted incremental density. Additionally, Management has now further stratified the density by adding a very
long term expected project commencement time frame. Medium term includes project commencement expected within
the next 7 years, long term between 8 and 15 years and very long term beyond 15 years. The Company’s incremental
density is classified by type between commercial and residential. Commercial density primarily consists of retail density.
As a substantial part of the portfolio is located in urban markets where significant land use intensification continues to
occur, Management expects future incremental density will continue to grow and provide the Company with increased
opportunity to redevelop its generally low density properties.
22
FIRST CAPITAL REALTY ANNUAL REPORT 2017
A breakdown of the active development and incremental density within the portfolio by component and type is as follows:
As at December 31, 2017
Active Development
Same Property with redevelopment
Major redevelopment
Ground-up development
Future uncommitted incremental density
Medium term
Long term
Very long term
Total development pipeline
Square feet (in thousands)
Commercial
Residential
Total
33
200
129
362
1,100
1,200
200
2,500
2,862
—
—
156
156
2,200
11,800
4,700
18,700
18,856
33
200
285
518
3,300
13,000
4,900
21,200
21,718
The Company determines its course of action with respect to the 18.7 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.
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 Urban Realty" section of this MD&A.
Invested Cost of Properties Under Development
As at December 31, 2017, the Company had $686.0 million of properties under development and development land
parcels at invested cost, representing approximately 7.3% of the value of the total portfolio.
A breakdown of invested cost on development activities is as follows:
As at December 31, 2017
Same Property with redevelopment
Major redevelopment
Ground-up development
Total development and redevelopment activities
Total development land, adjacent land parcels, and other (3)
Total
(1) Includes 156,000 square feet of residential rental apartments.
(2) Square footage relates to active development only.
(3) Includes all other property categories.
Number of
Projects
Square Feet (1) (2)
(in thousands)
Active
Development
Pre-
Development
Invested Cost (in millions)
4
4
2
10
33 $
8 $
— $
200
285
142
148
518 $
298 $
$
$
98
—
98 $
290 $
388 $
Total
8
240
148
396
290
686
2017 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, 2017, the Company completed the transfer of 131,000 square feet of new urban
retail space from development to the income-producing portfolio at a cost of $116.3 million. Of the space transferred,
124,000 square feet became occupied at an average rental rate of $37.26 per square foot, well above the average rate for
the portfolio of $19.69. The remainder of the space transferred is expected to be leased in the next 12 months.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
23
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
For the year ended December 31, 2017, the Company had tenant closures for redevelopment of 34,000 square feet at an
average rental rate of $27.79 per square foot. Of the 34,000 square feet, 25,000 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 5.1% 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 currently 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, materials, architecture,
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 of the space under development and
invested cost at the Company's ownership interest.
Same Property with Redevelopment
The Company currently has four projects under active development in the Same Property with redevelopment property
category. Of the approximately 33,000 square feet under active redevelopment, 30,500 square feet is subject to
committed leases at a weighted average rate of $32.11 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, 2017 are as follows:
As at December 31, 2017
Count/Project and Major Tenant(s)
Active development
1.
3959 Shelbourne, Victoria, BC
(CIBC)
2.
Place Portobello, Brossard, QC
(Chocolato)
3.
Bayview Lane Plaza, Markham, ON
(Starbucks)
4.
Brampton Corners, Brampton, ON
(PetSmart)
Invested Cost (in millions)
Square Feet Under
Development
(in thousands)
Target
Completion
Date (1)
Total
Estimated incl.
Land
Under
Development
Estimated
Cost to
Complete
8
2
2
21
33
H1 2018 $
6 $
4 $
H1 2018
H1 2018
H2 2018
2
3
9
—
1
3
2
2
2
6
$
20 $
8 $
12
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 four projects under active development in the major redevelopment property category. Of the
approximately 200,000 square feet under active redevelopment, 73,800 square feet is subject to committed leases at a
weighted average rate of $41.82 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.
24
FIRST CAPITAL REALTY ANNUAL REPORT 2017
Highlights of the Company’s major redevelopment projects underway as at December 31, 2017, including costs for
completed phases, are as follows:
As at December 31, 2017
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)
4.
102 - 108 Yorkville, Toronto, ON
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
265
245
93
21
227
197
—
—
38 H1 2018 (3) $
407 $
32 $
348 $
48
H1 2018
132
93
H2 2018
21
H2 2018
70
48
33
46
31
89
—
—
27
10
24
17
78
(Jimmy Choo, Brunello Cucinelli, Her Majesty's Pleasure (Salon))
Total Major Redevelopment
624
424
200
$
657 $
142 $
437 $
(1) Includes vacant units held for redevelopment.
(2) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively.
(3) Mall completion is H1 2018; partial redevelopment of street assets is 2018 and beyond. In Q2-2017, redevelopment of the street assets at 102 - 108 Yorkville commenced and
has been reclassified as a separate project.
Ground-up Development
The Company has two projects under active development in the ground-up development property category. These
projects are comprised of approximately 285,000 square feet of space currently under development, of which 129,000
square feet is retail space and 156,000 square feet is residential rental apartments. A total of 48,900 square feet of the
retail space currently under development is subject to committed leases at a weighted average rate of $32.04 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 planned space. Leasing of the residential space is expected to occur in mid-2018.
Highlights of the Company’s ground-up projects underway as at December 31, 2017, including costs for completed
phases, are as follows:
As at December 31, 2017
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 (1)
Total
Estimated incl.
Land
Under
Development
Income-
producing
property
Estimated
Cost to
Complete
1. The Brewery District, Edmonton, AB (2) (3)
159
112
47
H2 2019 $
96 $
18 $
72 $
(Loblaws City Market, Shoppers Drug Mart, GoodLife Fitness, MEC, Winners)
2. King High Line (Shops at King Liberty),
238
—
238
H1 2019
183
130
—
Toronto, ON (2) (4)
(Longo's, Canadian Tire, Shoppers Drug Mart, Kids & Company)
Total Ground-up Development
397
112
285
$
279 $
148 $
72 $
(1) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively.
(2) The Company has a 50% ownership interest in the property.
(3) Target completion date relates to buildings currently under construction. Total estimated square feet and invested cost include buildings not yet started. In Q2-2017,
construction commenced on a new building and therefore target completion date has been revised to H2 2019 from H2 2017.
(4) The square feet under development comprises 81,500 square feet of retail and 156,000 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.
6
53
59
FIRST CAPITAL REALTY ANNUAL REPORT 2017
25
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Costs to Complete Active and Redevelopment Activities
Costs to complete the development, redevelopment and expansion activities underway are estimated to be
approximately $149 million. Costs to complete Same Property related developments are planned at $12 million. Costs to
complete major redevelopments and ground-up developments, respectively, are planned at $71 million and $42 million in
2018, and $7 million and $17 million thereafter.
Main and Main Urban Realty
MMUR, an equity accounted joint venture, is a Toronto and Ottawa urban development partnership between the
Company, Main and Main Developments (itself, a partially owned venture between the Company and a private developer)
and a prominent Canadian institutional investor. Each of MMUR's assembly projects are located on a major street in
Toronto or Ottawa. As at December 31, 2017 the Company's total investment in MMUR is approximately $121.7 million
via its direct and indirect interests which includes a loan to one of its joint venture partners. Main and Main
Developments was retained to provide asset and property management services for the real estate portfolio. The
Company's net economic interest in MMUR is 37.7%.
In the third quarter of 2017, MMUR announced its intention to sell 20 of its 23 properties and reclassified 14
development properties and 6 income-producing properties to held for sale. Expected closing dates are within the next 9
months. MMUR expects to retain three remaining development properties with the intention of completing its
redevelopment plans with their respective joint venture partners.
The following table summarizes key information about MMUR's portfolio.
As at December 31
Number of assemblies
Number of income-producing properties
Projects in active development / pre-development phase
GLA (square feet) (1)
Development expenditures (1)
Other capital expenditures (1)
Development pipeline and adjacent land (GLA) (1)
Retail pipeline (1)
Residential pipeline (1)
Total investment properties - shopping centres (1)
Total investment properties - development (1)
Total investment properties - held for sale (1)
Residential development inventory (1)
Total assets (1)
Mortgages (1)
Credit facilities (1)
Credit facilities secured by investment properties held for sale (1)
Year ended December 31
Revenue (1)
Expenses (1)
Increase (decrease) in value of investment properties (1)
(1) At the Company's 37.7% interest in MMUR.
26
FIRST CAPITAL REALTY ANNUAL REPORT 2017
2017
23
8
2 / 13
156,100
11,132 $
575 $
32,983
244,946
— $
27,240 $
150,107 $
10,219 $
194,249 $
— $
12,195 $
60,635 $
2017
5,109 $
2,939 $
23,435 $
2016
23
8
2 / 13
110,500
10,766
269
113,000
603,000
48,706
89,183
—
5,812
151,279
2,749
56,798
—
2016
3,480
2,581
3,549
$
$
$
$
$
$
$
$
$
$
$
$
$
Leasing and Occupancy
As at December 31, 2017, total portfolio occupancy increased 0.8% to 96.1% while the Same Property portfolio occupancy
was up 0.8% to 97.0% compared to September 30, 2017. The increase was primarily due to new tenants taking possession
of approximately 132,000 square feet of space. Total portfolio occupancy was up 1.2% while the Same Property portfolio
was up 0.8% compared to December 31, 2016.
Monthly average occupancy for the year ended December 31, 2017 was relatively consistent with the prior year for both
the total portfolio and the Same Property portfolio. For the year ended December 31, 2017, the monthly average
occupancy for the total portfolio remained unchanged at 94.9% and Same Property portfolio occupancy was 96.0%
compared to 96.1% for the prior year, respectively.
Occupancy of the Company's shopping centre portfolio by property categorization as at December 31, 2017 and 2016 was
as follows:
As at
December 31, 2017
December 31, 2016
(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 – 2017
Acquisitions – 2016
Dispositions – 2017
Total (1)
(1) At the Company's ownership interest, excluding MMUR.
Total Occupied
Square Feet
% Occupied
Weighted
Average Rate
per Occupied
Square Foot
Total
Occupied
Square Feet
Weighted
Average Rate
per Occupied
Square Foot
% Occupied
16,903
3,060
19,963
1,793
109
366
22,231
252
574
—
97.0% $
97.1%
97.0%
89.8%
97.4%
88.3%
96.2%
93.7%
93.4%
—%
23,057
96.1% $
18.99
20.42
19.21
23.12
29.70
13.86
19.49
29.99
23.01
—
19.69
16,771
2,956
19,727
1,660
104
372
21,863
—
574
179
96.3% $
96.1%
96.2%
84.2%
99.4%
89.7%
95.1%
—%
93.1%
84.5%
22,616
94.9% $
18.76
19.84
18.92
23.33
32.18
13.70
19.23
—
22.54
16.62
19.30
FIRST CAPITAL REALTY ANNUAL REPORT 2017
27
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
During the three months ended December 31, 2017, the Company completed 582,000 square feet of renewals across the
portfolio and achieved a 6.7% overall rate increase per occupied square foot over the expiring lease rates. The Same
Property portfolio achieved a 6.8% rate increase on 551,000 square feet of renewals.
The average rental rate per occupied square foot for the total portfolio increased from $19.48 as at September 30, 2017
to $19.69 as at December 31, 2017 primarily due to acquisitions and 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 for the three months ended
December 31, 2017 are set out below:
Three months ended
December 31, 2017
Total Same Property
Major redevelopment, ground-
up, acquisitions and dispositions
Vacancy
Total Portfolio (1)
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, 2017 (2)
19,771
96.2% $ 19.08
2,866
89.4% $ 22.20
186
0.8%
928
3.9% 23,751
95.3% $ 19.48
Tenant possession
Tenant closures
Tenant closures for
redevelopment
Developments –
tenants coming
online (3)
Redevelopments –
tenant possession
Demolitions
Reclassification
Total portfolio before
Q4 2017 acquisitions
and dispositions
Acquisitions (at date of
acquisition)
Dispositions (at date of
disposition)
248
(133)
—
15
44
—
39
18.03
(14.59)
—
35.99
25.24
—
—
53
(16)
—
—
1
—
(1)
15.82
(17.14)
—
—
17.67
—
—
—
—
—
—
(45)
(4)
14
(301)
149
—
6
—
—
(8)
—
—
—
21
—
(4)
44
17.65
(14.86)
0.00
35.99
25.09
—
—
19,984
97.0% $ 19.21
2,903
90.6% $ 22.14
151
0.6%
774
3.3% 23,812
96.1% $ 19.58
—
—%
—
245
94.6%
29.58
(21)
100%
16.22
(54)
92.2%
18.32
—
—
14
(5)
259
93.6%
29.58
(80)
94.3%
17.73
December 31, 2017
19,963
97.0% $ 19.21
3,094
90.8% $ 22.80
151
0.6%
783
3.3% 23,991
96.1% $ 19.69
Renewals
Renewals – expired
551
(551)
Net change per square foot from renewals
% Increase on renewal of expiring rents
$ 20.26
$ (18.97)
$
1.29
6.8%
31
(31)
$ 18.11
$ (17.33)
$
0.78
4.5%
582
(582)
$ 20.15
$ (18.88)
$
1.27
6.7%
(1) At the Company's ownership interest, excluding MMUR.
(2) Opening balances have been adjusted to reflect the current period presentation.
(3) For further discussion of development and redevelopment coming online and under development vacancy, refer to the “Properties Under Development – 2017 Development
and Redevelopment Coming Online and Space Going Offline” section of this MD&A.
28
FIRST CAPITAL REALTY ANNUAL REPORT 2017
During the year ended December 31, 2017, the Company achieved a 6.3% overall rate increase per occupied square foot
on 1,712,000 square feet of renewal leases over the expiring lease rates. The rate increase for the Same Property portfolio
was 6.8% on 1,479,000 square feet of renewals.
The average rental rate per occupied square foot for the total portfolio increased from $19.30 as at December 31, 2016 to
$19.69 as at December 31, 2017 primarily due to rent escalations and acquisitions.
Changes in the Company’s gross leasable area and occupancy for the total portfolio for the year ended December 31,
2017 are set out below:
Year ended December
31, 2017
Total Same Property
Major redevelopment, ground-
up, acquisitions and dispositions
Vacancy
Total Portfolio (1)
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, 2016 (2)
19,727
96.2% $ 18.93
2,889
87.0% $ 21.84
188
0.8% 1,016
4.3% 23,820
94.9% $ 19.30
Tenant possession
Tenant closures
Tenant closures for
redevelopment
Developments –
tenants coming
online (3)
Redevelopments –
tenant possession
Demolitions
Reclassifications
Total portfolio before
2017 acquisitions
and dispositions
Acquisitions (at date of
acquisition)
Dispositions (at date of
disposition)
800
(675)
(16)
57
44
—
45
15.80
(15.71)
(14.00)
32.65
25.24
—
—
216
(137)
(18)
67
13
—
(8)
13.84
(15.74)
(40.05)
41.22
12.17
—
—
—
—
34
—
(57)
(25)
11
(1,016)
812
—
7
—
—
(26)
—
—
—
131
—
(25)
22
15.38
(15.72)
(27.79)
37.26
22.21
—
—
19,982
97.0% $ 19.21
3,022
90.2% $ 21.82
151
0.6%
793
3.3% 23,948
96.1% $ 19.55
2
27.7%
11.74
252
93.7%
—
(21)
100%
16.22
(180)
84.9% 16.53
—
—
22
(32)
276
92.0%
29.84
(233)
86.3%
16.50
December 31, 2017
19,963
97.0% $ 19.21
3,094
90.8% $ 22.80
151
0.6%
783
3.3% 23,991
96.1% $ 19.69
Renewals
Renewals – expired
1,479
(1,479)
Net change per square foot from renewals
% Increase on renewal of expiring rents
% Increase in rate per square foot – openings
versus all closures
$ 19.98
$ (18.70)
$
1.28
6.8%
3.9%
233
(233)
$ 18.81
$ (18.34)
$ 0.47
2.6 %
(25.8%)
1,712
(1,712)
$ 19.82
$ (18.65)
$
1.17
6.3 %
(2.8%)
(1) At the Company's ownership interest, excluding MMUR.
(2) Opening balances have been adjusted to reflect the current period presentation.
(3) For further discussion of development and redevelopment coming online and under development vacancy, refer to the “Properties Under Development – 2017
Development and Redevelopment Coming Online and Space Going Offline” section of this MD&A.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
29
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Top Forty Tenants
As at December 31, 2017, 55.1% of the Company’s annualized minimum rent came from its top 40 tenants
(December 31, 2016 – 54.9%). Of these rents, 63.3% 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 6.7 years as at December 31, 2017, excluding contractual renewal options.
Rank
Tenant (1) (2)
Number
of Stores
Square Feet
(thousands)
Percent of Total
Annualized
Minimum Rent
10.4%
Loblaw Companies Limited ("Loblaw")
1.
6.3%
Sobeys
2.
3.3%
Metro
3.
2.8%
Walmart
4.
2.7%
Canadian Tire
5.
2.2%
TD Canada Trust
6.
1.9%
RBC Royal Bank
7.
1.8%
GoodLife Fitness
8.
1.7%
Dollarama
9.
1.5%
10.
CIBC
34.6%
Top 10 Tenants Total
1.2%
LCBO
11.
1.2%
Save-On-Foods
12.
1.2%
Lowes
13.
1.1%
Restaurant Brands International
14.
1.1%
Rexall
15.
1.0%
BMO
16.
1.0%
London Drugs
17.
1.0%
Scotiabank
18.
0.9%
Staples
19.
0.9%
20. Winners
0.8%
Nordstrom
21.
0.7%
Longo's
22.
0.7%
Starbucks
23.
0.7%
Jean Coutu
24.
0.6%
Cara
25.
0.6%
26.
SAQ
0.6%
27. Michaels
0.6%
28.
0.5%
29. Whole Foods Market
0.5%
30. McDonald's
0.5%
31.
0.5%
32.
0.4%
33.
0.4%
34.
0.3%
35.
0.3%
36.
0.3%
37.
0.3%
38. Williams-Sonoma
0.3%
Reitmans
39.
0.3%
Bulk Barn
40.
Top 40 Tenants Total
55.1%
(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%
5.1%
6.5%
3.7%
1.1%
1.0%
2.4%
2.2%
0.9%
41.8%
0.9%
1.3%
1.6%
0.7%
0.7%
0.6%
1.0%
0.6%
1.1%
1.2%
0.2%
0.7%
0.3%
0.8%
0.5%
0.4%
0.4%
0.3%
0.4%
0.4%
0.2%
0.3%
0.5%
0.2%
0.7%
0.2%
0.3%
0.2%
0.2%
0.2%
58.9%
2,402
1,959
1,179
1,491
858
255
241
565
504
199
9,653
213
298
361
153
167
131
233
128
252
274
40
162
68
175
105
102
88
81
90
88
35
69
127
50
153
50
58
38
57
54
13,553
99
56
35
15
26
50
45
26
53
37
442
23
8
4
62
17
30
10
25
11
11
1
4
44
13
25
21
5
71
2
23
1
12
3
30
2
14
19
2
15
11
961
Pusateri's
The Beer Store
Toys "R" Us
Yum! Brands
The Home Depot
Liquor Stores
Pet Valu
Subway
30
FIRST CAPITAL REALTY ANNUAL REPORT 2017
DBRS Credit
Rating
S&P Credit
Rating
Moody’s
Credit Rating
BBB
BB (high)
BBB
AA
BBB (high)
AA
AA
BBB
AA
AA (low)
A (low)
AA
AA
A (high)
AA (low)
A
BBB
BB+
BBB
AA
BBB+
AA-
AA-
A+
A+
A-
B+
A+
A+
B+
A+
A-
AA-
BB-
A+
BBB+
A+
D
BB
A
Aa2
Aa2
A1
A1
Aa2
A3
B1
A1
A1
B1
A2
A3
Aa2
Ba2
Baa1
Baa1
Aa2
Ba3
A2
Lease Maturity Profile
The Company’s lease maturity profile for its shopping centre portfolio as at December 31, 2017, excluding any contractual
renewal options, is as follows:
$
Number of
Stores
Occupied Square
Feet (thousands)
Maturity Date
Month-to-month tenants (1)
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Thereafter
Total or Weighted Average (2)
(1) Includes tenants on over hold including renewals and extensions under negotiation, month-to-month tenants and tenants in space at properties with future
Percent of Total
Square Feet
1.2%
10.4%
11.9%
11.2%
10.5%
13.3%
9.2%
4.5%
4.2%
3.9%
4.7%
3.0%
8.1%
Percent of Total
Annualized
Minimum Rent
1.1%
9.3%
11.4%
11.2%
10.8%
14.2%
8.5%
4.9%
5.1%
5.3%
5.7%
3.6%
8.9%
Annualized
Minimum Rent at
Expiration
(thousands)
5,188
44,118
53,918
53,006
50,919
67,344
40,174
23,345
24,218
24,881
26,714
16,922
42,309
147
666
669
612
530
606
307
179
189
163
177
65
90
4,400
281
2,506
2,858
2,681
2,518
3,188
2,216
1,085
998
939
1,139
718
1,930
473,056
100.0%
23,057
96.1%
$
$
$
Average Annual
Minimum Rent
per Square Foot
at Expiration
18.47
17.61
18.87
19.77
20.22
21.12
18.13
21.53
24.26
26.49
23.45
23.57
21.91
20.52
redevelopment.
(2) At the Company's ownership interest, excluding MMUR.
The weighted average remaining lease term for the portfolio was 6.3 years as at December 31, 2017, excluding
contractual renewal options, but including month-to-month and other short-term leases with tenants in properties with
pre-development activities underway.
Loans, Mortgages and Other Real Estate Assets
As at
Non-current
Loans and mortgages receivable (a)
Available-for-sale investment in limited partnership
Deposit on investment property
Total non-current
Current
Loans and mortgages receivable (a)
Fair value through profit or loss ("FVTPL") investments in securities (b)
Total current
Total
December 31, 2017 December 31, 2016
$
$
$
$
130,576
2,587
—
133,163
125,265
21,720
146,985
280,148
$
$
$
$
131,955
3,824
189,200
324,979
15,347
12,969
28,316
353,295
(a) Loans and mortgages receivable are primarily secured by interests in investment properties or shares of entities owning
investment properties.
(b) 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).
FIRST CAPITAL REALTY ANNUAL REPORT 2017
31
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
RESULTS OF OPERATIONS
Fourth Quarter Consolidated Results
Three months ended December 31
Year ended December 31
(thousands of dollars, except per share amounts)
2017
2016
2017
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
$
177,206
$
172,731
$
694,459 $
65,869
111,337
66,425
106,306
256,949
437,510
7,586
(39,851)
(9,287)
(42)
(503)
6,966
1,180
17,010
(16,941)
94,396
17,627
76,769
74,833
1,936
76,769
0.31
0.30
$
$
$
$
$
7,153
(40,406)
(10,051)
(160)
(369)
2,983
312
12,092
(28,446)
77,860
19,177
28,401
(157,411)
(36,442)
(151)
(1,963)
42,860
(1,906)
331,751
769,261
125,101
$
$
$
$
$
58,683
$
644,160 $
57,739
$
633,089 $
944
11,071
58,683
$
644,160 $
0.24
0.24
$
$
2.59 $
2.55 $
2016
676,284
254,287
421,997
19,641
(158,687)
(34,910)
(321)
(1,287)
12,437
(586)
54,365
476,362
90,570
385,792
382,714
3,078
385,792
1.62
1.59
458,363
218,078
For the three months ended December 31, 2017, net income attributable to common shareholders was $74.8 million
or $0.30 per diluted share compared to $57.7 million or $0.24 per diluted share for the prior year. The $17.1 million
increase in net income attributable to common shareholders, was primarily due to a higher NOI of $5.0 million, a
higher increase in the fair value of investment properties of $4.9 million, and a higher share of profit from joint
ventures of $4.0 million compared to the prior year.
For the year ended December 31, 2017, net income attributable to common shareholders was $633.1 million or
$2.55 per diluted share compared to $382.7 million or $1.59 per diluted share for the prior year. The $250.4 million
increase in net income attributable to common shareholders, was primarily due to an increase of $205.8 million in
the fair value of investment properties, net of the $34.5 million increase in deferred income taxes, higher share of
profit from joint ventures of $30.4 million, primarily due to fair value gains recognized in MMUR, and higher NOI of
$15.5 million compared to the prior year.
32
FIRST CAPITAL REALTY ANNUAL REPORT 2017
Net Operating Income
The Company’s net operating income for the shopping centre portfolio is presented below:
Property rental revenue
Base rent
Operating cost recoveries
Realty tax recoveries
Lease surrender fees
Percentage rent
Prior year operating cost and tax recovery
adjustments
Three months ended December 31
Year ended December 31
% change
2017
2016
% change
2017
2016
$
94,280
$
92,465
$ 373,306
$ 367,104
21,635
28,612
170
801
(561)
21,951
28,029
269
1,163
(99)
84,639
115,101
1,535
2,272
(1,698)
82,002
111,882
1,833
2,348
(150)
Temporary tenants, storage, parking and
3,158
2,872
11,313
10,403
other
Total Same Property rental revenue
Property operating costs
Recoverable operating expenses
Recoverable realty tax expense
Prior year realty tax expense
Other operating costs and adjustments
Total Same Property operating costs
Total Same Property NOI (1)
Major redevelopment
Ground-up development
Acquisitions – 2017
Acquisitions – 2016
Investment properties classified as held for sale
Dispositions – 2017
Dispositions – 2016
Straight-line rent adjustment
Development land
NOI (1)
NOI margin
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
148,095
146,650
586,468
575,422
24,471
31,515
(1,544)
(276)
54,166
24,397
30,377
(51)
(6)
54,717
93,659
124,870
(3,334)
(1,980)
90,658
121,273
(628)
10
213,215
211,313
2.2% $
93,929
$
91,933
2.5%
$ 373,253
$ 364,109
9,234
931
816
3,331
1,173
38
41
1,566
278
7,914
478
—
2,964
1,213
772
89
881
62
37,008
2,722
1,132
13,557
4,869
1,666
68
2,684
551
33,508
503
—
8,105
4,902
2,685
1,970
5,848
367
4.7% $ 111,337
106,306
3.7%
$ 437,510
$ 421,997
62.8%
61.5%
63.0%
62.4%
For the three months and year ended December 31, 2017, total NOI increased by $5.0 million and $15.5 million,
respectively, compared to the prior years primarily due to SP NOI growth and contributions from major and ground-up
redevelopment projects. NOI margins have increased by 1.3% and 0.6%, respectively, for the three months and year
ended December 31, 2017 compared to the same prior year periods primarily due to higher base rent, savings related to
prior year realty tax expenses, and lower operating costs.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
33
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Same Property NOI Growth
The components of SP NOI growth and comparisons to prior year are as follows:
Same Property – Stable
Same Property with redevelopment
Total Same Property NOI Growth
Three months ended December 31
2016 (1)
1.1%
10.5%
2017
2.0%
3.4%
Year ended December 31
2016 (1)
0.8%
3.9%
2017
2.0%
5.4%
2.2%
2.2%
2.5%
1.1%
(1) Prior periods as reported; not restated to reflect current period property categories.
For the three months and year ended December 31, 2017, SP NOI increased 2.2% or $2.0 million and 2.5% or $9.1 million,
respectively, primarily due to rent escalations and pad developments coming online, and lower operating costs.
Central
Region
Eastern
Region
Western
Region
Other (1)
Total
74,621 $
45,394 $
57,809 $
(618) $
177,206
29,213
19,317
18,729
(1,390)
65,869
45,408 $
26,077 $
39,080 $
772 $
111,337
Central
Region
Eastern
Region
Western
Region
Other (1)
Total
72,100 $
44,601 $
56,826 $
(796) $
172,731
29,282
19,132
18,967
(956)
66,425
42,818 $
25,469 $
37,859 $
160 $
106,306
Central
Region
Eastern
Region
Western
Region
Other (1)
Total
288,416 $
180,856 $
227,966 $
(2,779) $
694,459
108,493
78,048
75,910
(5,502)
256,949
179,923 $
102,808 $
152,056 $
2,723 $
437,510
Central
Region
Eastern
Region
Western
Region
Other (1)
Total
280,569 $
177,304 $
221,480 $
(3,069) $ 676,284
108,496
76,982
73,010
(4,201)
254,287
172,073 $
100,322 $
148,470 $
1,132 $ 421,997
$
$
$
$
$
$
$
$
NOI by Region
NOI is presented by region as follows:
Three months ended December 31, 2017
Property rental revenue
Property operating costs
NOI
Three months ended December 31, 2016
Property rental revenue
Property operating costs
NOI
Year ended December 31, 2017
Property rental revenue
Property operating costs
NOI
Year ended December 31, 2016
Property rental revenue
Property operating costs
NOI
(1) Other items principally consist of intercompany eliminations.
34
FIRST CAPITAL REALTY ANNUAL REPORT 2017
Interest and Other Income
For the three months and year ended December 31, 2017, the Company's interest and other income totaled $7.6 million
and $28.4 million, compared to $7.2 million and $19.6 million, respectively, for the same prior year periods. The increase
of $8.8 million over prior year was primarily due to higher loans, deposits and mortgages outstanding as well as non-
recurring commitment fees earned on new loans.
Interest Expense
The Company’s interest expense by type is as follows:
Mortgages
Credit facilities
Senior unsecured debentures
Convertible debentures
Interest capitalized
Interest expense
$
$
Three months ended December 31
2016
11,767
1,409
2017
11,525
3,435
$
$
Year ended December 31
2016
47,724
6,641
2017
47,244
10,890
$
30,071
730
(5,910)
39,851
29,602
3,192
(5,564)
40,406
$
115,798
5,150
(21,671)
112,023
14,603
(22,304)
$
157,411
$
158,687
For the three months ended December 31, 2017, interest expense decreased by $0.6 million primarily due to the early
redemption of higher rate convertible debentures completed earlier in the year, partially offset by higher draws on the
Company's credit facilities.
For the year ended December 31, 2017, interest expense decreased by $1.3 million primarily due to the early redemption
of higher rate convertible debentures, partially offset by the impact of new lower rate senior unsecured debenture
issuances and higher draws on the Company's credit facilities.
During the year ended December 31, 2017 and 2016, approximately 12.1% or $21.7 million, and 12.3% or $22.3 million,
respectively, 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.
Corporate Expenses
The Company's corporate expenses is as follows:
Salaries, wages and benefits
Non-cash compensation
Other corporate costs
Total corporate expenses
Amounts capitalized to investment properties under
development
Corporate expenses
Three months ended December 31
Year ended December 31
$
$
2017
6,743
1,128
3,166
11,037
(1,750)
$
2016
7,517
1,004
3,194
11,715
(1,664)
2017
27,756
4,258
11,630
43,644
(7,202)
$
2016
26,485
3,469
11,393
41,347
(6,437)
$
9,287
$
10,051
$
36,442
$
34,910
For the year ended December 31, 2017, corporate expenses increased by $1.5 million to $36.4 million compared to the
prior year primarily due to higher employee compensation expense including non-cash compensation, of $2.1 million
related to new and vacant roles being filled. Other corporate costs were higher by $0.2 million over the prior year
primarily due to higher professional fees.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
35
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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, 2017 and 2016, approximately 16.5% or $7.2 million and 15.6% or $6.4 million, 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 overall development activity.
Other Gains (Losses) and (Expenses)
The Company's other gains, losses and expenses is as follows:
Three months ended December 31
2017
2016
Realized gain (loss) on sale of marketable securities
Unrealized gain (loss) on marketable securities
Net gain (loss) on prepayments of debt
Proceeds from Target
Investment properties selling costs
Other
Total
Year ended December 31
Realized gain (loss) on sale of marketable securities
Unrealized gain (loss) on marketable securities
Net gain (loss) on prepayments of debt
Proceeds from Target
Investment properties selling costs
Restructuring costs
Other
Total
Consolidated
Statement of
Income
Included in
FFO
Consolidated
Statement of
Income
Included in
FFO
$
$
$
(1,165) $
1,408 $
(1,165) $
1,408 $
312
474
(113)
264
1,180 $
312
474
—
263
1,292 $
2017
— $
(123) $
(10)
663
(276)
58
312 $
—
(123)
(10)
663
—
55
585
2016
Consolidated
Statement of
Income
Included in
FFO
Consolidated
Statement of
Income
Included in
FFO
$
(1,165) $
3,313
(3,032)
474
(1,667)
—
171
(1,165) $
3,313
(3,032)
474
—
—
170
79 $
1,071
(1,119)
3,813
(2,435)
(1,988)
(7)
79
1,071
(1,119)
3,813
—
(1,988)
(43)
$
(1,906) $
(240) $
(586) $
1,813
For the three months ended December 31, 2017, the Company recognized $1.2 million in other gains and expenses in its
consolidated statement of income compared to $0.3 million in other gains and expenses in 2016. For the year ended
December 31, 2017, the Company recognized $1.9 million in other losses and expenses in its consolidated statement of
income compared to $0.6 million in other losses and expenses in the prior year. The higher loss for the year ended
December 31, 2017 over the prior year was primarily due to non-cash losses on the early redemptions of the 5.40% Series E,
5.25% Series F, and the 4.75% Series I convertible debentures in 2017, as well as the lower proceeds received under Target
Canada's CCAA plan of arrangement related to the closure of two Target stores in the Company's portfolio.
36
FIRST CAPITAL REALTY ANNUAL REPORT 2017
Income Taxes
For the three months and year ended December 31, 2017, deferred income tax expense totaled $17.6 million and
$125.1 million, compared to $19.2 million and $90.6 million respectively, over the same prior year periods. The increase
of $34.5 million over prior year is primarily due to the tax impact of changes in the fair value of investment properties
over prior year.
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, 2017
December 31, 2016
Bank indebtedness
Mortgages
Credit facilities
Mortgages under equity accounted joint ventures (at the Company's proportionate interest) (1)
Credit facilities under equity accounted joint venture (at the Company's proportionate interest) (1)
Senior unsecured debentures
Convertible debentures
$
3,144
1,060,342
581,627
41,987
72,830
2,600,000
55,093
$
15,914
995,925
251,481
45,612
56,798
2,550,000
212,635
Equity capitalization (2)
Common shares (based on closing per share price of $20.72; December 31, 2016 – $20.67)
5,064,612
9,479,635
5,033,286
9,161,651
Enterprise value (1)
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
(2) Equity capitalization is the market value of the Company's shares outstanding at a point in time. The measures is not defined by IFRS, does not have a standard definition and,
$
$
as such, may not be comparable to similar measures disclosed by other issuers.
Key Metrics
The ratios below include measures not specifically defined in 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 Adjusted EBITDA (1)
Unencumbered aggregate assets (1)
Unencumbered aggregate assets to unsecured debt, based on fair value (1)
Adjusted EBITDA interest coverage (1)
December 31, 2017
December 31, 2016
4.4%
5.4
43.4%
9.7
7,374,086
2.4
2.5
4.5%
5.3
42.6%
9.1
6,627,091
2.4
2.5
(1) Calculated with joint ventures proportionately consolidated in accordance with the Company's debt covenants. Refer to the "Non-IFRS Financial Measures" section of this
MD&A.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
37
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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;
• Adjusted EBITDA, is calculated as net income, adding back income tax expense, interest expense and amortization and
excluding the increase or decrease in the fair 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 which is a recognized
adjustment to FFO, in accordance with the recommendations of REALPAC.
• 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.
Outstanding Debt and Principal Maturity Profile
The maturity profile of the Company’s mortgages and credit facilities as well as its senior unsecured debentures as at
December 31, 2017 is summarized in the table below:
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Add (deduct): unamortized deferred financing costs,
premiums and discounts, net
$
Mortgages
151,529 $
131,333
90,318
94,031
163,665
13,920
74,721
66,826
154,094
81,905
38,000
1,060,342
(3)
Credit
Facilities/Bank
Indebtedness
23,072 $
72,828
147,012
—
341,859
—
—
—
—
—
—
584,771
—
Senior
Unsecured
Debentures
150,000
150,000
175,000
175,000
450,000
300,000
300,000
300,000
300,000
300,000
—
2,600,000
(4,034)
$
Total
324,601
354,161
412,330
269,031
955,524
313,920
374,721
366,826
454,094
381,905
38,000
4,245,113
(4,037)
% Due
7.7%
8.4%
9.7%
6.3%
22.5%
7.4%
8.8%
8.6%
10.7%
9.0%
0.9%
100.0%
Total
$ 1,060,339 $
584,771 $ 2,595,966
$ 4,241,076
38
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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 support 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, 2017 are set out below:
Year ended December 31, 2017
Balance at beginning of period
Mortgage borrowings
Mortgages assumed on acquisition
Mortgage repayments
Scheduled amortization on mortgages
Amortization of financing costs and net premium
Balance at end of period
Amount
997,165
152,273
23,793
(82,926)
(28,723)
(1,243)
1,060,339
$
$
Weighted Average
Effective Interest Rate
4.3%
3.6%
2.8%
4.1%
—
—
4.3%
As at December 31, 2017, 100% (December 31, 2016 – 100%) of the outstanding mortgages bore interest at fixed interest
rates. The average remaining term of mortgages outstanding increased from 4.4 years as at December 31, 2016 on $1.0
billion of mortgages to 4.7 years as at December 31, 2017 on $1.1 billion of mortgages after reflecting borrowing activity
and repayments during the period.
Mortgage Maturity Profile
The maturity profile of the Company’s mortgages as at December 31, 2017 is summarized in the table below:
As at December 31, 2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Add: unamortized deferred financing costs and premiums and
discounts, net
Total
Scheduled
Amortization
27,117
24,619
22,425
20,634
15,711
13,920
13,451
10,931
6,036
2,041
109
156,994
$
$
Payments on
Maturity
$
$
124,412
106,714
67,893
73,397
147,954
—
61,270
55,895
148,058
79,864
37,891
903,348
Weighted
Average
Effective
Interest Rate
5.5%
6.5%
4.4%
4.8%
3.9%
N/A
4.0%
3.5%
3.2%
3.6%
3.6%
4.3%
Total
151,529
131,333
90,318
94,031
163,665
13,920
74,721
66,826
154,094
81,905
38,000
$ 1,060,342
(3)
$ 1,060,339
FIRST CAPITAL REALTY ANNUAL REPORT 2017
39
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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, 2017, the Company had drawn US$387.2 million, as well
as CAD$3.1 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 second quarter, the Company extended the maturity of its $800 million unsecured facility to June 30, 2022 on
substantially the same terms. During the third quarter, the Company completed an extension of one of its secured
construction facilities from September 29, 2017 to March 31, 2018. In the fourth quarter, the Company also extended the
maturity of its $115 million secured facility to February 13, 2019 on substantially the same terms.
The Company’s credit facilities, including its proportionate share of facilities under the equity accounted joint ventures, as
at December 31, 2017 are summarized in the table below:
As at December 31, 2017
Unsecured operating facilities
Revolving facility maturing
2022 (1)
Non-revolving facility
maturing 2020 (2)
Secured construction facilities
Borrowing
Capacity
Amounts
Drawn
Bank
Indebtedness
and Outstanding
Letters of Credit
Available to be
Drawn
Interest Rates
Maturity Date
$
800,000 $
(338,715) $
(22,494) $
438,791
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
150,000
(147,012)
(13,932)
—
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
June 30, 2022
October 31, 2020
Maturing 2019
115,000
(60,953)
(1,475)
52,572
Maturing 2018
15,907
(15,572)
Credit facilities under equity
accounted joint ventures
84,663
(72,830)
Secured Facilities
Maturing 2019
11,875
(11,875)
Maturing 2018
7,500
(7,500)
—
—
—
—
335
11,833
BA + 1.125% or
Prime + 0.125%
BA + 1.125% or
Prime + 0.125%
February 13, 2019
March 31, 2018
Between
Prime - 0.15% and
Prime + 1.5%
Between January
2018 and February
2020
—
—
BA + 1.125% or
Prime + 0.125%
BA + 1.125% or
Prime + 0.125%
September 27, 2019
September 6, 2018
Total
$
1,184,945 $
(654,457) $
(37,901) $
503,531
(1) The Company had drawn in U.S. dollars the equivalent of CAD$346.1 million which was revalued at CAD$338.7 million as at December 31, 2017.
(2) The Company had drawn in U.S. dollars the equivalent of CAD$150.0 million which was revalued at CAD$147.0 million as at December 31, 2017.
40
FIRST CAPITAL REALTY ANNUAL REPORT 2017
Senior Unsecured Debentures
As at December 31, 2017
Series Maturity Date
J
K
L
M
N
O
P
Q
R
S
T
U
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
July 12, 2027
Weighted Average or Total
Interest Payment Dates
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
January 12, July 12
Interest Rate
Coupon
5.25%
4.95%
5.48%
5.60%
4.50%
4.43%
3.95%
3.90%
4.79%
4.32%
3.60%
3.75%
4.36%
Effective
5.66%
5.17%
5.61%
5.60%
4.63%
4.59%
4.18%
3.97%
4.72%
4.24%
3.56%
3.82%
4.42%
Remaining
Term to
Maturity
(years)
0.7
0.9
1.6
2.3
3.2
4.1
4.9
5.8
6.7
7.6
8.4
9.5
5.7
Principal
Outstanding
50,000
100,000
150,000
175,000
175,000
200,000
250,000
300,000
300,000
300,000
300,000
300,000
2,600,000
$
On July 10, 2017, the Company completed the issuance of $300 million principal amount of Series U senior unsecured
debentures due July 12, 2027. These debentures bear interest at a coupon rate of 3.753% per annum, payable semi-
annually commencing January 12, 2018.
Convertible Debentures
As at December 31, 2017
Interest Rate
Series Maturity Date
Interest Payment
Dates
Coupon
Effective
J
February 28, 2020 March 31
4.45%
5.34%
September 30
Remaining
Term to
Maturity (yrs)
2.2
Principal at
Issue Date
57,500
Principal
55,093
Liability
54,293
Equity
386
Weighted Average or Total
4.45%
5.34%
2.2
$
57,500 $
55,093 $
54,293 $
386
Interest
(i)
During the year ended December 31, 2017, 0.1 million common shares (year ended December 31, 2016 – 0.7 million
common shares) were issued totaling $2.4 million (year ended December 31, 2016 – $13.6 million) to pay accrued interest
to holders of convertible debentures.
During the year ended December 31, 2017, the Company also paid $3.9 million (year ended December 31, 2016 –
$0.1 million) in cash to pay accrued interest to holders of convertible debentures.
(ii) Principal Redemption
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.
On August 1, 2017, the Company redeemed its remaining 4.75% Series I convertible debentures at par. The full
redemption price and any accrued interest owing on the convertible debentures was satisfied in cash.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
41
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
(iii) Normal Course Issuer Bid ("NCIB")
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 expired on August 28, 2017 and was not renewed by the Company. All purchases
made under the NCIB were at market prices prevailing at the time of purchase determined by or on behalf of the
Company.
For the year ended December 31, 2017 and 2016, principal amounts of convertible debentures purchased and amounts
paid for the purchases are summarized in the table below:
Year ended December 31
Total
Shareholders’ Equity
2017
2016
Principal
Amount
Purchased
110
$
Amount Paid
$
112
$
Principal
Amount
Purchased
4,048
Amount Paid
$
4,102
Shareholders’ equity amounted to $4.6 billion as at December 31, 2017, compared to $4.2 billion as at December 31, 2016.
During the year ended December 31, 2017, a total of 0.9 million common shares were issued as follows: 0.8 million shares
from the exercise of common share options and settlement of restricted, performance, and deferred share units, and 0.1
million shares for interest payments on convertible debentures.
As at February 12, 2018, there were 244.5 million common shares outstanding.
Share Purchase Options
As at December 31, 2017, the Company had 4.1 million share purchase options outstanding, with an average exercise
price of $18.74, which, if exercised, would result in the Company receiving proceeds of $77.5 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, 2017
December 31, 2016
$
$
$
504
12
7,374
$
$
$
809
12
6,627
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 for 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.
Planned and completed financings subsequent to December 31, 2017, and availability on existing credit facilities, address
substantially all of the contractual 2018 debt maturities and contractually committed costs to complete current
development projects.
42
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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 financing activities
Cash used in investing activities
Net change in cash and cash equivalents
Three months ended December 31
Year ended December 31
2017
107,364
3,516
(101,182)
9,698
$
$
2016
96,950
$
(80,571)
(101,475)
2017
270,159
67,987
(326,086)
(85,096)
$
12,060
$
$
2016
256,598
326,958
(570,217)
13,339
$
$
The following table presents the excess of cash provided by operating activities over dividends declared:
Three months ended December 31
2017
2016
Year ended December 31
2017
2016
Cash provided by operating activities
$
107,364
$
96,950
$
270,159
$
256,598
Dividends declared
(52,700)
(52,474)
(210,433)
(204,233)
Excess of cash provided by operating activities over
dividends declared
54,664
44,476
59,726
52,365
Cash provided by operating activities exceeded dividends declared for all periods reported.
Contractual Obligations
An analysis of the Company’s contractual maturities of its material financial liabilities and other contractual commitments,
as at December 31, 2017 is set out below:
As at December 31, 2017
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)
Contractually committed costs to complete current
development projects
Other committed costs
Total contractual obligations
2018
2019 to 2020
2021 to 2022
Thereafter
Total
$
27,117 $
47,044 $
36,345 $
46,488 $
124,412
23,072
150,000
55,093
167,553
1,188
73,654
174,607
219,840
325,000
—
281,336
2,290
4,398
221,351
341,859
625,000
—
205,049
2,208
—
382,978
—
1,500,000
—
200,174
18,413
—
156,994
903,348
584,771
2,600,000
55,093
854,112
24,099
78,052
6,291
22,005
628,380 $ 1,070,229 $ 1,431,812 $ 2,148,053 $ 5,278,474
15,714
—
—
$
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2017 (assuming balances remain outstanding through to
maturity) and senior unsecured debentures, as well as standby credit facility fees.
The Company has $38.0 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 $149.0 million, of which $78.1 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
43
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Contingencies
The Company is involved in litigation and claims which arise from time to time in the normal course of business. In the
opinion of Management, none of these contingencies, individually or in the aggregate, would result in a liability that
would have a material adverse effect on the financial position of the Company. The Company is contingently liable, jointly
and severally, for approximately $126.9 million (December 31, 2016 – $108.1 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.
NON-IFRS RECONCILIATIONS AND FINANCIAL MEASURES
Reconciliation of Consolidated Balance Sheets to the Company's Proportionate Interest
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
December 31, 2017
December 31, 2016
Consolidated
Balance
Sheet (1)
Adjustments for
Proportionate
Interest
Proportionate
Interest
Consolidated
Balance
Sheet (1)
Adjustments for
Proportionate
Interest
Proportionate
Interest
Investment properties – shopping centres
$
9,226,206
$
78,775
$ 9,304,981 $
8,370,298
$ 111,087
$ 8,481,385
Investment properties – development land
Residential development inventory
Loans, mortgages and other real estate
assets
Cash and cash equivalents
Amounts receivable
Other assets
72,041
5,483
280,148
11,507
25,437
47,387
27,240
10,219
2,849
1,753
376
1,570
99,281
15,702
67,149
5,010
282,997
353,295
13,260
25,813
48,957
12,217
21,175
45,937
88,878
6,117
3,646
2,118
60
655
Investment in joint ventures
202,231
(202,231)
—
146,422
(146,422)
Investment properties classified as held for
sale
98,112
150,107
248,219
83,050
—
156,027
11,127
356,941
14,335
21,235
46,592
—
83,050
Total assets
LIABILITIES
Mortgages
Credit facilities
Bank indebtedness
Senior unsecured debentures
Convertible debentures
Deferred tax liabilities
Debt secured by investment properties held
for sale
Accounts payable and other liabilities
Total liabilities
EQUITY
Shareholders' equity
Non-controlling interest
Total equity
$
$
9,968,552
1,053,260
581,627
3,144
2,595,966
54,293
720,431
7,079
257,068
$
$
70,658
$10,039,210 $
9,104,553
41,772
12,195
—
—
—
—
60,635
4,669
$ 1,095,032 $
593,822
3,144
987,175
251,481
15,914
2,595,966
2,546,442
54,293
720,431
67,714
261,737
207,633
593,293
9,990
259,542
5,272,868
119,271
5,392,139
4,871,470
$
$
66,139
$ 9,170,692
45,373
56,798
—
—
—
—
—
1,788
103,959
$ 1,032,548
308,279
15,914
2,546,442
207,633
593,293
9,990
261,330
4,975,429
4,647,071
48,613
4,695,684
—
4,647,071
4,195,263
—
4,195,263
(48,613)
(48,613)
—
37,820
4,647,071
4,233,083
(37,820)
(37,820)
—
4,195,263
Total liabilities and equity
$
9,968,552
$
70,658
$10,039,210 $
9,104,553
$
66,139
$ 9,170,692
(1) The consolidated balance sheets have been presented on a non-classified basis for purposes of this reconciliation.
44
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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, 2017, to its proportionate interest.
Three months ended December 31
2017
2016
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 (1)
Consolidated
Statements of
Income
Adjustment to
proportionate
interest
Proportionate
interest (1)
$
177,206 $
65,869
111,337
2,360 $ 179,566 $
721
1,639
66,590
112,976
172,731 $
66,425
106,306
2,185 $
737
1,448
174,916
67,162
107,754
7,586
(39,851)
(9,287)
(42)
(503)
6,966
1,180
17,010
(16,941)
94,396
17,627
(33)
(669)
141
1
—
(6,966)
—
3,951
(3,575)
(1,936)
—
7,553
(40,520)
(9,146)
(41)
(503)
—
1,180
20,961
7,153
(40,406)
(10,051)
(160)
(369)
2,983
312
12,092
(123)
(538)
289
—
—
(2,983)
319
651
7,030
(40,944)
(9,762)
(160)
(369)
—
631
12,743
(20,516)
(28,446)
(2,385)
(30,831)
92,460
17,627
77,860
19,177
(937)
7
$
$
$
76,769 $
(1,936) $
74,833 $
58,683 $
(944) $
74,833 $
1,936
76,769 $
— $
(1,936)
(1,936) $
74,833 $
—
74,833 $
57,739 $
944
58,683 $
— $
(944)
(944) $
76,923
19,184
57,739
57,739
—
57,739
Net income per share attributable to common shareholders:
0.31
0.30
Basic
Diluted
$
$
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
$
$
0.24
0.24
FIRST CAPITAL REALTY ANNUAL REPORT 2017
45
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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
2017
2016
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 (1)
Consolidated
Statements of
Income
Adjustment for
proportionate
interest
Proportionate
interest (1)
$
694,459 $
256,949
437,510
9,101 $
3,193
5,908
703,560 $
260,142
443,418
676,284 $
254,287
421,997
7,938 $
2,632
5,306
684,222
256,919
427,303
28,401
(157,411)
(36,442)
(151)
(1,963)
42,860
(1,906)
458,363
331,751
769,261
125,101
644,160 $
633,089 $
11,071
644,160 $
$
$
$
449
(2,466)
990
(10)
—
(42,860)
(8)
26,940
28,850
(159,877)
(35,452)
(161)
(1,963)
—
(1,914)
485,303
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
(16,965)
(11,057)
14
(11,071) $
314,786
758,204
125,115
633,089 $
54,365
476,362
90,570
385,792 $
(8,382)
(3,076)
2
(3,078) $
45,983
473,286
90,572
382,714
— $
633,089 $
(11,071)
(11,071) $
—
633,089 $
382,714 $
3,078
385,792 $
— $
(3,078)
(3,078) $
382,714
—
382,714
Net income per share attributable to common shareholders:
2.59
2.55
Basic
Diluted
$
$
$
$
1.62
1.59
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
46
FIRST CAPITAL REALTY ANNUAL REPORT 2017
FFO, Operating FFO and ACFO
Funds from Operations
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 (1)
Incremental leasing costs (2)
Investment properties selling costs (1)
Adjustment for equity accounted joint ventures (3)
Deferred income taxes (1)
FFO (4)
Three months ended December 31
2017
2016
Year ended December 31
2017
2016
$
74,833
$
57,739
$
633,089
$
382,714
(20,961)
1,049
112
525
17,627
(12,743)
1,671
(46)
1,019
19,184
(485,303)
6,389
1,674
3,146
125,115
(222,909)
6,657
2,030
3,480
90,572
$
73,185
$
66,824
$
284,110
$
262,544
(1) At the Company's proportionate interest.
(2) Adjustment to capitalize incremental leasing costs in accordance with the recommendations of REALPAC.
(3) Adjustment to capitalize interest related to the Company's equity accounted joint ventures in accordance with the recommendations of REALPAC.
(4) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
Operating FFO
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
Operating FFO (3)
Other gains (losses) and (expenses) (4)
FFO (3)
Operating FFO per diluted share
FFO per diluted share
Three months ended December 31
Year ended December 31
% change
2017
2016
% change
2017
2016
$ 112,976
$ 107,754
$ 443,418
$ 427,303
7,553
(39,995)
(8,097)
(41)
(503)
71,893
1,292
8.5%
9.5% $
73,185
8.1% $
9.2% $
0.29
0.30
$
$
$
7,030
(39,925)
(8,091)
(160)
(369)
66,239
585
66,824
0.27
0.27
28,850
(156,731)
(29,063)
(161)
(1,963)
9.1%
284,350
(240)
19,418
(157,192)
(27,184)
(327)
(1,287)
260,731
1,813
8.2% $ 284,110
$ 262,544
5.1% $
4.3% $
1.16
1.16
$
$
1.10
1.11
Weighted average number of common shares
– diluted – FFO (in thousands)
0.4%
245,422
244,554
3.8%
245,153
236,243
(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 "Non-IFRS Financial Measures" section of this MD&A.
(4) Refer to the “Results of Operations – Other Gains (Losses) and (Expenses)” section of this MD&A.
For the three months ended December 31, 2017, Operating FFO totaled $71.9 million or $0.29 per diluted share
compared to $66.2 million or $0.27 per diluted share in the same prior year period. For the year ended December 31,
2017, Operating FFO totaled $284.4 million or $1.16 per diluted share compared to $260.7 million or $1.10 per diluted
share for the prior year. The increase over the prior year periods was primarily due to higher NOI and interest and other
income, offset by higher corporate expenses.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
47
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
For the three months ended December 31, 2017, FFO totaled $73.2 million or $0.30 per diluted share compared to
$66.8 million or $0.27 per diluted share in the same prior year period. The $6.4 million increase in FFO over the prior year
period is primarily due to higher Operating FFO of $5.7 million and higher other gains of $0.4 million due to the
appreciation of the Company's marketable securities.
For the year ended December 31, 2017, FFO totaled $284.1 million or $1.16 per diluted share compared to $262.5 million
or $1.11 per diluted share for the prior year. The $21.6 million increase in FFO over the prior year is due to higher
Operating FFO of $23.6 million, partially offset by the $1.9 million increase in non-cash losses on the early redemptions of
the Company's convertible debentures in 2017.
Adjusted Cash Flow from Operations
A reconciliation of cash provided by operating activities to ACFO is presented below:
Cash provided by operating activities
Add (deduct):
Working capital adjustments (1)
Adjustment for equity accounted joint ventures
Revenue sustaining capital expenditures
Recoverable capital expenditures
Leasing costs on properties under development
Realized gain (loss) on sale of marketable securities
Non-controlling interest
ACFO (2)
$
Three months ended December 31
Year ended December 31
2017
2016
2017
2016
$
107,364
$
96,950
$
270,159
$
256,598
(33,544)
1,907
(6,531)
(5,114)
262
(1,165)
(178)
63,001
$
(35,558)
1,797
(3,793)
(6,156)
418
—
(26)
53,632
$
(1,301)
6,168
(21,781)
(9,701)
1,597
(1,165)
(331)
243,645
$
(4,262)
5,982
(13,915)
(14,057)
1,664
79
(104)
231,985
(1) Working capital adjustments primarily include adjustments for prepaid as well as accrued property taxes as their levels vary considerably over the course of the year as well
as certain other adjustments as specified by the REALPAC whitepaper on ACFO issued in February 2017.
(2) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
For the three months and year ended December 31, 2017, ACFO totaled $63.0 million and $243.6 million compared to
$53.6 million and $232.0 million for the prior year periods, respectively. The increase in ACFO was primarily due to higher
NOI and higher interest and other income, partially offset by higher capital expenditures compared to prior year periods.
ACFO Payout Ratio
The Company's ACFO payout ratio for the year ended December 31, 2017 is calculated as follow:
ACFO (1)
Cash dividends paid
ACFO payout ratio (1)
Year ended December 31, 2017
243,645
209,620
86.0%
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
Q4 2017
63,001
52,452
Q3 2017
72,221
52,443
Q2 2017
58,742
52,395
Q1 2017
49,681
52,330
The Company's ACFO payout ratio for the year ended December 31, 2016 is calculated as follow:
ACFO (1)
Cash dividends paid
ACFO payout ratio (1)
Year ended December 31, 2016
231,985
199,789
86.1%
Q4 2016
53,470
52,214
Q3 2016
67,507
50,554
Q2 2016
63,762
48,530
Q1 2016
47,246
48,491
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
48
FIRST CAPITAL REALTY ANNUAL REPORT 2017
The Company considers a rolling four quarter payout ratio (cash dividends / ACFO) to be more relevant than a payout ratio
in any given quarter. For the four quarters ended December 31, 2017, the ACFO payout ratio was 86.0% (December 31,
2016 – 86.1%).
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
2017
0.215
$
2016
0.215
$
$
2017
0.86
$
2016
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), as issuer; (ii) guarantor subsidiaries; (iii) non-guarantor
subsidiaries; (iv) consolidation adjustments; and (v) the total consolidated amounts.
(millions of dollars)
Year ended December 31
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Property rental revenue
NOI (5)
$
Net income attributable to
common shareholders
FCR (1)
290 $
195
Guarantors (2)
Non-Guarantors (3)
Consolidation Adjustments (4)
Total Consolidated
285 $
178
407 $
244
407 $
224
6 $
3
9 $
4
(9) $
(4)
(25) $
16
694 $
438
633
383
462
324
40
15
(502)
(339)
633
676
422
383
(millions of dollars)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
$
FCR (1)
134 $
9,200
483
4,154
Guarantors (2)
Non-Guarantors (3)
165 $
4,984
86
582
232 $
42
6
103
As at December 31, 2017
Consolidation
Adjustments (4)
Total Consolidated
(228) $
(4,560)
(2)
(139)
303
9,666
573
4,700
FIRST CAPITAL REALTY ANNUAL REPORT 2017
49
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
(millions of dollars)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
$
FCR (1)
355 $
8,832
841
4,112
Guarantors (2)
Non-Guarantors (3)
As at December 31, 2016
Consolidation
Adjustments (4)
Total Consolidated
398 $
28 $
(607) $
5,699
489
1,821
379
4
164
(5,979)
(605)
(1,955)
174
8,931
729
4,142
(1) This column represents FCR and all of its subsidiaries; FCR's subsidiaries are presented under the equity method.
(2) This column represents the aggregate of all Guarantor subsidiaries.
(3) This column represents the aggregate of all Non-Guarantor subsidiaries.
(4) This column includes the necessary amounts to eliminate the inter-company balances between FCR, the Guarantors, and Non-Guarantors to arrive at the information for the
Company on a consolidated basis.
(5) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
RELATED PARTY TRANSACTIONS
Significant Shareholder
Gazit-Globe Ltd. (“Gazit”) is a significant shareholder of the Company, and, as of December 31, 2017, beneficially owned
32.6% (December 31, 2016 – 36.4%) of the common shares of the Company. Norstar Holdings Inc. is the ultimate
controlling party of Gazit. In the first quarter of 2017, Gazit disposed of 9,000,000 common shares of the Company.
Corporate and other amounts receivable include amounts due from Gazit. Gazit reimburses the Company for certain
accounting and administrative services provided to it by the Company.
Joint Ventures
During the three months and year ended December 31, 2017, the Company earned fee income of $0.5 million
(December 31, 2016 – $1.3 million) and $2.4 million (December 31, 2016 – $2.9 million), respectively, from its joint
ventures. Also during the year ended December 31, 2017, the Company advanced $1.2 million (December 31, 2016 –
$nil) to one of its joint ventures.
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
First Quarter Dividend
The Company announced that it will pay a first quarter dividend of $0.215 per common share on April 18, 2018 to
shareholders of record on March 29, 2018.
Redemption of Convertible Debenture
On January 25, 2018, the Company provided a notice of redemption to the holders of the remaining 4.45% Series J
convertible debentures that the entire principal amount outstanding plus accrued interest would be redeemed in cash on
February 28, 2018.
Disposition Activities
Subsequent to December 31, 2017 the Company entered into a definitive agreement to sell a 50.5% non-managing
interest in six properties, or substantially all of its portfolio, in London, Ontario for $66.0 million. In addition, MMUR, in
which the Company has a joint venture interest, has entered into a definitive agreement to sell 13 properties for $241.4
million. These transactions are expected to close before the end of the first quarter, subject to standard closing
conditions.
50
FIRST CAPITAL REALTY ANNUAL REPORT 2017
QUARTERLY FINANCIAL INFORMATION
(share counts in thousands)
Property rental revenue
Net operating income (1)
Net income attributable to common
shareholders
Net income per share attributable to
common shareholders:
Basic
Diluted
Weighted average number of diluted
common shares outstanding – IFRS
Operating FFO (1)
Operating FFO per diluted share (1)
FFO (1)
FFO per diluted share (1)
Weighted average number of diluted
common shares outstanding – FFO
Cash provided by operating activities
ACFO (1)
Dividend per common share
2017
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2016
$ 177,206
$ 170,670
$ 171,729
$ 174,853
$ 172,731
$ 167,877
$ 167,576
$ 168,100
$ 111,337
$ 110,610
$ 108,678
$ 106,884
$ 106,306
$ 107,612
$ 105,083
$ 102,996
$
74,833
$
83,046
$ 271,539
$ 203,671
$
57,739
$
88,464
$ 169,556
$
66,957
$
$
$
$
$
$
0.31
0.30
248,266
71,893
0.29
73,185
0.30
245,422
$ 107,364
$
$
63,001
0.215
$
$
$
$
$
$
$
$
$
0.34
0.34
248,626
73,298
0.30
73,720
0.30
245,137
85,956
72,221
0.215
$
$
$
$
$
$
$
$
$
1.11
1.09
250,516
70,473
0.29
70,580
0.29
245,186
30,867
58,741
0.215
$
$
$
$
$
$
$
$
$
0.83
0.82
250,232
68,686
0.28
66,625
0.27
244,820
45,970
49,680
0.215
$
$
$
$
$
$
$
$
$
0.24
0.24
252,602
66,239
0.27
66,824
0.27
244,554
96,950
53,470
0.215
$
$
$
$
$
$
$
$
$
0.37
0.36
250,596
68,789
0.29
67,451
0.28
240,708
68,607
67,507
0.215
$
$
$
$
$
$
$
$
$
0.73
0.71
243,235
64,200
0.28
66,368
0.29
233,014
42,704
63,762
0.215
$
$
$
$
$
$
$
$
$
0.30
0.29
243,467
61,504
0.27
61,902
0.27
226,692
48,339
47,246
0.215
Total assets
$9,968,552
$9,861,267
$9,688,357
$9,334,216
$9,104,553
$9,068,841
$8,690,655
$8,387,567
Total mortgages and credit facilities
$1,641,966
$1,456,226
$1,609,827
$1,527,179
$1,248,646
$1,277,697
$1,272,977
$1,322,909
Shareholders’ equity
$4,647,071
$4,618,170
$4,577,648
$4,352,882
$4,195,263
$4,171,426
$3,961,179
$3,666,239
Other
Number of properties
GLA - at 100% (in thousands)
GLA - at ownership interest (in thousands)
Monthly average occupancy %
Total portfolio occupancy %
161
25,390
23,991
95.4%
96.1%
159
25,168
23,751
95.0%
95.3%
160
25,217
23,798
94.8%
95.0%
160
25,215
23,791
94.6%
94.5%
160
25,278
23,820
94.9%
94.9%
159
25,137
23,721
95.0%
94.9%
161
25,238
23,911
95.0%
95.1%
160
24,800
23,667
94.7%
95.0%
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
51
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
Effective January 1, 2017, the Company's policy in determining the fair value of its investment properties at the end of
each reporting period, includes the following approaches:
1. Internal valuations - by certified staff appraisers employed by the Company, in accordance with professional appraisal
standards and IFRS. Every investment property has an internal valuation completed at least once a year.
2. Value updates - primarily consisting of management's review of the key assumptions from previous internal valuations
and updating the value for changes in the property cash flow, physical condition and changes in market conditions.
External appraisals are obtained periodically by Management. These appraisals are used as data points, together with
other market information accumulated by Management, in arriving at its conclusions on key assumptions and values.
External appraisals are completed by an independent appraisal firm, in accordance with professional appraisal standards
and IFRS.
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.
Internal valuations 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. Stabilized capitalization rates, discount rates and terminal capitalization 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, 2017 for further
information on the estimates and assumptions made by Management in connection with the fair values of investment
properties.
52
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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.
• 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 FVTPL 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 has assessed the impact of
IFRS 9 to its consolidated financial statements and has concluded that the impact is limited to a change in classification
and measurement of some of its loans and mortgages receivable, and available for sale financial assets to fair value
through profit and loss, as well as additional disclosures required by IFRS 7, "Financial Instruments - Disclosure" upon
initial adoption of IFRS 9. The Company has chosen as its accounting policy to continue to apply the hedge accounting
requirements under IAS 39 instead of the requirements under IFRS 9 - Hedge Accounting.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
53
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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. The Company has assessed the impact of
IFRS 15 to its consolidated financial statements and has concluded that the pattern of revenue recognition will remain
unchanged upon adoption of the standard. The impact will be limited to additional note disclosure on the disaggregation
of its revenue streams, specifically its operating cost recoveries.
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
is currently assessing the impact of IFRS 16 to its consolidated financial statements. Based on a preliminary assessment of
the standard, the Company does not expect this standard to have a significant impact on its consolidated financial
statements as leases with tenants are expected to be accounted for as operating leases in the same manner they are
currently being applied. The Company is expected to complete its evaluation by the third quarter of 2018.
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 has concluded there is no impact to its consolidated financial statements.
Uncertainty over income tax treatments
IFRIC 23, "Uncertainty over Income Tax Treatments", was issued in June 2017 as a clarification to requirements under IAS
12 "Income Taxes". IFRIC 23 clarifies the application of various recognition and measurement requirements when there is
uncertainty over income tax treatments. This interpretation is effective for annual reporting periods beginning on or after
January 1, 2019. The Company is in the process of assessing the impact of IFRIC 23 on its consolidated financial
statements.
54
FIRST CAPITAL REALTY ANNUAL REPORT 2017
CONTROLS AND PROCEDURES
As at December 31, 2017, 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, 2017, 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, 2017 that have had, or are reasonably likely to have, a material effect on the Company's internal controls
over financial reporting. On an ongoing basis, the Company will continue to analyze its controls and procedures for
potential areas of improvement.
Management does recognize that any controls and procedures, no matter how well designed and operated, can only
provide reasonable assurance and not absolute assurance of achieving the desired control objectives. In the unforeseen
event that lapses in the disclosure controls and procedures or internal controls over financial reporting occur and/or
mistakes happen, the Company intends to take the necessary steps to minimize the consequences thereof.
RISKS AND UNCERTAINTIES
First Capital Realty, as an owner of income-producing properties and development properties, is exposed to numerous
business risks in the normal course of its business that can impact both short- and long-term performance. Income-
producing and development properties are affected by general economic conditions and local market conditions such as
oversupply of similar properties or a reduction in tenant demand. It is the responsibility of Management, under the
supervision of the Board of Directors, to identify and, to the extent possible, mitigate or minimize the impact of all such
business risks. The major categories of risk the Company encounters in conducting its business and some of the actions it
takes to mitigate these risks are outlined below. The Company’s most current Annual Information Form, 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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
55
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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
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. 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.
56
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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
$829.0 million principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior
unsecured debentures and convertible debentures maturing between January 1, 2018 and December 31, 2020 at a
weighted average coupon interest rate of 5.4%. If these amounts were refinanced at an average interest rate that was
100 basis points higher or lower than the existing rate, the Company’s annual interest cost would respectively increase
or decrease by $8.3 million. In addition, as at December 31, 2017, the Company had $657.6 million principal amount of
debt (or 15% 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.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
57
MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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
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.
58
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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
Chaim Katzman, a former director and formerly the Chairman of the Board of First Capital Realty, and several of the
Company's shareholders affiliated with Mr. Katzman (the “Gazit Group”), including Gazit-Globe and related entities,
beneficially own approximately 32.6% 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 a director
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, directly and indirectly, own shares of Norstar and they have entered into a
shareholders' agreement under which they have agreed, among other things, to vote for certain nominees to, and to
constitute, the board of Norstar in an agreed manner, and to certain participation rights in the event that either Mr.
Katzman or Mr. Segal wish to sell any of their shares of Norstar. As of December 31, 2017, Mr. Segal and Mr. Katzman,
respectively, own directly 811,800 and 60,000 common shares of Gazit-Globe, representing approximately 0.41% and
0.03%, respectively, of the outstanding common shares of Gazit-Globe.
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 could cause the Company's Common Share price to decline
materially or may have a material adverse effect on the Company. Many of the occurrences that could result in a default
under the Gazit Group credit facilities, including among other things, foreclosure of the pledged Common Shares, are out
of the Company's control and are unrelated to its operations.
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
59
FS
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
61
62
63
64
65
66
67
68
68
68
74
76
79
79
80
80
82
84
84
86
86
89
90
90
90
91
91
92
92
94
96
97
98
98
99
100
100
101
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 13, 2018.
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
Kay Brekken
Executive Vice President and Chief Financial Officer
Toronto, Ontario
February 13, 2018
FIRST CAPITAL REALTY ANNUAL REPORT 2017
61
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, 2017 and 2016, 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, 2017 and 2016, 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, Canada
February 13, 2018
62
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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
Note
December 31, 2017 December 31, 2016
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
$
$
$
$
9,226,206
72,041
202,231
133,163
9,633,641
32,008
9,665,649
11,507
146,985
5,483
25,437
15,379
204,791
98,112
302,903
9,968,552
903,807
558,555
2,446,291
54,293
16,914
720,431
4,700,291
3,144
149,453
23,072
149,675
—
240,154
565,498
7,079
572,577
5,272,868
4,647,071
48,613
4,695,684
9,968,552
$
$
$
$
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
FIRST CAPITAL REALTY ANNUAL REPORT 2017
63
Consolidated Statements of Income
Year ended December 31
Note
2017
$
694,459 $
2016
676,284
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
3,078
385,792
256,949
437,510
28,401
(157,411)
(36,442)
(151)
(1,963)
42,860
(1,906)
458,363
331,751
769,261
125,101
644,160 $
633,089 $
11,071
644,160 $
2.59 $
2.55 $
1.62
1.59
14
15
16
17
23
18
4
19
24
20
20
$
$
$
$
$
(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.
64
FIRST CAPITAL REALTY ANNUAL REPORT 2017
Consolidated Statements of Comprehensive Income
(thousands of dollars)
Net income
Other comprehensive income (loss)
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
2017
2016
$
644,160
$
385,792
26
26
19
24
14,350
1,642
15,992
4,254
11,738
655,898
644,827
11,071
655,898
$
$
$
5,790
1,518
7,308
1,944
5,364
391,156
388,078
3,078
391,156
$
$
$
FIRST CAPITAL REALTY ANNUAL REPORT 2017
65
Consolidated Statements of Changes in Equity
(thousands of dollars)
December 31, 2016
Changes during the period:
Net income
Issue costs, net of tax
Dividends
Interest on convertible debentures paid in
common shares
Conversion 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
633,089
—
(210,433)
—
—
—
—
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
(Note 13(a))
(Note 13(b))
$ 1,022,863 $
(11,698) $ 3,142,399 $
41,699 $ 4,195,263 $
37,820 $ 4,233,083
633,089
11,071
644,160
—
—
—
—
—
—
—
(176)
—
2,442
107
14,770
—
—
—
—
(176)
(210,433)
2,442
(3)
274
104
15,044
—
—
—
—
—
—
(176)
(210,433)
2,442
104
15,044
11,738
(278)
11,738
—
—
11,738
—
(278)
December 31, 2017
$ 1,445,519 $
40 $ 3,159,542 $
41,970 $ 4,647,071 $
48,613 $ 4,695,684
(thousands of dollars)
December 31, 2015
Changes during the period:
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
Income (Loss)
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
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
Refer to accompanying notes to the consolidated financial statements.
66
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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
Cash provided by operating activities
FINANCING ACTIVITIES
Mortgages and credit facilities
Borrowings, net of financing costs
Principal instalment payments
Repayments
Issuance of senior unsecured debentures, net of issue costs
Repayment of senior unsecured debentures
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 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 in cash and cash equivalents (bank indebtedness)
Cash and cash equivalents (bank indebtedness), beginning of year
Year ended December 31
Note
2017
2016
$
644,160
$
385,792
4
16
23
16
27(a)
27(b)
9
9
10
10
11(c)
4(c)
4(c)
4(d)
27(c)
(458,363)
157,411
1,963
(42,860)
—
(152,130)
127,140
(7,162)
270,159
639,815
(28,733)
(235,110)
298,254
(250,000)
1,618
(157,325)
(112)
9,478
(209,620)
(278)
67,987
(65,669)
—
88,407
5,922
(4,870)
(231,905)
(6,184)
(111,787)
(326,086)
12,060
(3,697)
(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)
(3,697)
FIRST CAPITAL REALTY ANNUAL REPORT 2017
67
Cash and cash equivalents (bank indebtedness), end of year
27(d)
$
8,363
$
Refer to accompanying notes to the consolidated financial statements.
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 13, 2018.
(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.
68
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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, if applicable.
(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.
Effective January 1, 2017, the Company's policy in determining the fair value of its investment properties at the end of
each reporting period, includes the following approaches:
1. Internal valuations - by certified staff appraisers employed by the Company, in accordance with professional appraisal
standards and IFRS. Every investment property has an internal valuation completed at least once a year.
2. Value updates - primarily consisting of management's review of the key assumptions from previous internal valuations
and updating the value for changes in the property cash flow, physical condition and changes in market conditions.
External appraisals are obtained periodically by Management. These appraisals are used as data points, together with
other market information accumulated by Management, in arriving at its conclusions on key assumptions and values.
External appraisals are completed by an independent appraisal firm, in accordance with professional appraisal standards
and IFRS.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The selection of the approach for each property is made based upon the following criteria:
• Property type – this includes an evaluation of a property's complexity, stage of development, time since acquisition, and
other specific opportunities or risks associated with the property. Stable properties and recently acquired properties
will generally receive a value update, while properties under development will typically be valued using internal
valuations until completion.
• Market risks – specific risks in a region or a trade area may warrant an internal valuation 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.
• Stabilized capitalization rates, discount rates and terminal capitalization rates, which are based on location, size and
quality of the properties and taking into account market data at the valuation date. Stabilized capitalization rates are
used for the direct capitalization method and discount and terminal capitalization 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.
Internal valuations 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. Stabilized capitalization rates, discount rates and terminal capitalization 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.
70
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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 classified as current as the Company intends to
sell this asset in its normal operating cycle which is longer than twelve months.
(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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(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 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).
72
FIRST CAPITAL REALTY ANNUAL REPORT 2017
The following summarizes the Company’s classification and measurement of financial assets and liabilities:
Classification
Measurement
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
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(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 adopted the amended International Financial Reporting Standards pronouncement listed below as of
January 1, 2017, in accordance with transitional provisions.
Amendments to IAS 7, "Statement of Cash Flows"
The amendments to IAS 7, "Statement of Cash Flows" are effective for annual periods beginning on or after January 1,
2017. The amendments to IAS 7 require that the following changes in liabilities arising from financing activities are
disclosed: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or
other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes.
The Company has adopted these amendments and has concluded that there is no significant impact to its consolidated
financial statements and the relevant disclosure related to the effect of foreign exchange rates on its foreign denominated
credit facilities is included in Note 9.
(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 FVTPL or fair value through
other comprehensive income (“FVTOCI”). No amounts are reclassified out of OCI if the FVTOCI option is elected.
Additionally, embedded derivatives in financial assets would no longer be bifurcated and accounted for separately under
IFRS 9.
74
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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 has assessed the impact of
IFRS 9 to its consolidated financial statements and has concluded that the impact is limited to a change in classification
and measurement of some of its loans and mortgages receivable, and available for sale financial assets to fair value
through profit and loss, as well as additional disclosures required by IFRS 7, "Financial Instruments - Disclosure" upon
initial adoption of IFRS 9. The Company has chosen as its accounting policy to continue to apply the hedge accounting
requirements under IAS 39 instead of the requirements under IFRS 9 - Hedge Accounting.
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. The Company has assessed the impact of
IFRS 15 to its consolidated financial statements and has concluded that the pattern of revenue recognition will remain
unchanged upon adoption of the standard. The impact will be limited to additional note disclosure on the disaggregation
of its revenue streams, specifically its operating cost recoveries.
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
is currently assessing the impact of IFRS 16 to its consolidated financial statements. Based on a preliminary assessment of
the standard, the Company does not expect this standard to have a significant impact on its consolidated financial
statements as leases with tenants are expected to be accounted for as operating leases in the same manner they are
currently being applied. The Company is expected to complete its evaluation by the third quarter of 2018.
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 has concluded there is no impact to its consolidated financial statements.
Uncertainty over income tax treatments
IFRIC 23, "Uncertainty over Income Tax Treatments", was issued in June 2017 as a clarification to requirements under IAS
12 "Income Taxes". IFRIC 23 clarifies the application of various recognition and measurement requirements when there is
uncertainty over income tax treatments. This interpretation is effective for annual reporting periods beginning on or after
January 1, 2019. The Company is in the process of assessing the impact of IFRIC 23 on its consolidated financial
statements.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
4. INVESTMENT PROPERTIES
(a) Activity
The following tables summarize the changes in the Company’s investment properties for the year ended December
31, 2017 and year ended December 31, 2016:
Balance at beginning of year
$
3,711,238 $
1,825,533 $
2,983,726 $
8,520,497
$
8,453,348 $
67,149
Central
Region
Eastern
Region
Western
Region
Total
Shopping
Centres
Development
Land
Year ended December 31, 2017
Acquisitions
Capital expenditures
Increase (decrease) in value of
investment properties, net
Straight-line rent and other
changes
Dispositions
Reclassification to equity
accounted joint ventures (1)
Balance at end of year
Investment properties
209,716
133,135
248,831
71,012
30,736
67,215
6,478
68,034
142,316
287,206
231,905
458,362
287,206
226,242
452,121
627
817
1,019
2,463
2,463
(25,790)
(14,000)
(15,236)
(49,048)
—
—
(90,074)
(14,000)
(90,074)
(14,000)
$
4,263,757 $
1,980,077 $
3,152,525 $
9,396,359
Investment properties classified as held for sale
Total
$
$
$
9,317,306 $
9,226,206 $
91,100
9,317,306 $
(1) The Company sold a 50% interest in its Royal Orchard property and now owns its remaining 50% interest through an equity accounted joint venture.
Balance at beginning of year
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
Investment properties classified as held for sale
Total
Central
Region
Eastern
Region
Western
Region
$
3,337,859 $
168,885
124,233
(5,010)
1,820,967 $
63,066
21,659
—
2,748,246 $
88,997
72,226
—
Total
7,907,072
320,948
218,118
(5,010)
$
7,870,719 $
286,220
215,504
(5,010)
Year ended December 31, 2016
Shopping
Centres
Development
Land
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
8,453,348 $
8,370,298 $
83,050
$
$
$
8,453,348 $
67,149
Investment properties with a fair value of $2.6 billion (December 31, 2016 – $2.4 billion) are pledged as security for
$1.6 billion in mortgages and credit facilities.
76
FIRST CAPITAL REALTY ANNUAL REPORT 2017
—
5,663
6,241
—
—
—
79,053
72,041
7,012
79,053
36,353
34,728
2,614
—
504
—
(7,050)
—
67,149
67,149
—
(b) Investment property valuation
Stabilized capitalization rates by region for investment properties – shopping centres are set out in the table below:
As at
($ millions)
Central Region
Eastern Region
Western Region
Total or Weighted Average
Fair Value
4,204
1,973
3,140
9,317
$
$
December 31, 2017
Weighted Average
Capitalization Rate
5.1% $
5.9%
5.2%
5.3% $
December 31, 2016
Weighted Average
Capitalization Rate
5.3%
6.0%
5.3%
5.5%
Fair Value
3,663
1,819
2,971
8,453
The sensitivity of the fair values of shopping centres to stabilized capitalization rates as at December 31, 2017 is set out in
the table below:
As at December 31, 2017
(Decrease) Increase in capitalization rate
(millions of dollars)
Resulting increase (decrease) in fair
value of shopping centres
(0.75%)
(0.50%)
(0.25%)
0.25%
0.50%
0.75%
$
$
$
$
$
$
1,406
891
426
(376)
(725)
(1,046)
Additionally, a 1% increase or decrease in stabilized net operating income ("SNOI") would result in an $91 million increase or
a $79 million decrease, respectively, in the fair value of shopping centres. SNOI is not a measure defined by IFRS. SNOI
reflects 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 the stabilized capitalization rate would result
in an increase in the fair value of shopping centres of $515 million, and a 1% decrease in SNOI coupled with a 0.25%
increase in the stabilized capitalization rate would result in a decrease in the fair value of shopping centres of $457 million.
(c) Investment properties – Acquisitions
During the year ended December 31, 2017 and 2016, 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
Debt assumption on acquisition
Deposit on investment property applied
Total cash paid
Shopping
Centres
287,206
(32,337)
(189,200)
65,669
$
$
2017
Development
Land
$
$
—
—
—
—
Shopping
Centres
286,220
—
—
286,220
$
$
2016
Development
Land
$
$
34,728
—
—
34,728
FIRST CAPITAL REALTY ANNUAL REPORT 2017
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(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, 2017
December 31, 2016
$
$
98,112
7,079
$
$
83,050
9,990
6.7%
4.1%
The increase of $15.1 million in investment properties classified as held for sale from December 31, 2016, primarily arose
from new investment properties classified as held for sale, offset by dispositions completed in the year and changes in fair
value.
For the year ended December 31, 2017 and 2016, 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
2016
2017
139,600
90,074 $
(6,950)
—
(2,435)
(1,667)
130,215
88,407 $
$
$
(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, 2017
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, 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
(1) Includes investment properties classified as held for sale.
78
FIRST CAPITAL REALTY ANNUAL REPORT 2017
Central
Region
Eastern
Region
Western
Region
Total
$ 4,263,757
$ 1,980,077
$ 3,152,525
$ 9,396,359
11,507
280,148
47,387
25,437
202,231
5,483
9,968,552
$
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
5. LOANS, MORTGAGES AND OTHER REAL ESTATE ASSETS
As at
Non-current
Loans and mortgages receivable (a)
AFS investment in limited partnership
Deposit on investment property
Total non-current
Current
Loans and mortgages receivable (a)
FVTPL investments in securities (b)
Total current
Total
December 31, 2017
December 31, 2016
$
130,576
2,587
—
133,163
125,265
21,720
146,985
280,148
$
$
$
$
$
$
$
$
$
131,955
3,824
189,200
324,979
15,347
12,969
28,316
353,295
(a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning
investment properties. As at December 31, 2017, these receivables bear interest at weighted average effective interest
rates of 7.9% (December 31, 2016 – 6.9%) and mature between 2018 and 2023.
(b) 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, 2017 are as follows:
2018
2019
2020
2021
2022
2023 to 2024
Unamortized deferred financing fees and accrued interest
Current
Non-current
Total
6. AMOUNTS RECEIVABLE
As at
Trade receivables (net of allowances for doubtful accounts of $2.6 million;
December 31, 2016 – $3.6 million)
Corporate and other amounts receivable
Total
Scheduled
Receipts
Weighted Average
Effective Interest Rate
$
$
$
$
$
123,082
76,125
75
4,650
—
47,255
251,187
4,654
255,841
125,265
130,576
255,841
9.7%
6.8%
0.0%
4.8%
N/A
5.5%
7.9%
9.7%
6.2%
7.9%
December 31, 2017
December 31, 2016
$
$
23,698
1,739
25,437
$
$
19,291
1,884
21,175
The Company determines its allowance for doubtful accounts on a tenant-by-tenant basis considering lease terms,
industry conditions, and the status of the tenant’s account, among other factors.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
7. OTHER ASSETS
As at
Non-current
Fixtures, equipment and computer hardware and software (net of accumulated
amortization of $7.2 million; December 31, 2016 - $5.1 million)
Deferred financing costs on credit facilities (net of accumulated amortization of $3.9
million; December 31, 2016 - $3.5 million)
Environmental indemnity and insurance proceeds receivable
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, 2017
December 31, 2016
$
12,686
$
9,986
12(a)
22
22
2,379
6,247
10,696
32,008
1,587
7,654
349
50
5,739
15,379
47,387
$
$
$
$
2,453
6,875
2,683
21,997
2,668
6,719
1,074
3,724
9,755
23,940
45,937
$
$
$
$
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.
Components of the Company’s capital are set out in the table below:
As at
December 31, 2017
December 31, 2016
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 $20.72; December 31, 2016 – $20.67)
Total capital employed
$
3,144
1,060,342
581,627
41,987
102,748
2,600,000
55,093
$
15,914
995,925
251,481
46,741
80,131
2,550,000
212,635
5,064,612
5,033,286
$ 9,509,553
$ 9,186,113
80
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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, 2017, 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 (Adjusted EBITDA to interest expense) (1)
Fixed charge coverage (Adjusted EBITDA to debt service) (1)
Measure/
Covenant
December 31, 2017
December 31, 2016
$
43.4%
2.1
4.5
12.7%
2.5
2.1
42.6%
2.0
4.0
12.7%
2.5
2.2
$
>$1.6B
<35%
>1.65
>1.50
(1) Calculations required under the Company's credit facility agreements or indentures 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.
• Adjusted EBITDA, is calculated as net income, adding back income tax expense, interest expense and amortization and
excluding the increase or decrease in the fair 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, which is a recognized
adjustment to Funds from Operations, in accordance with the recommendations of the Real Property Association of
Canada.
• Fixed charges include regular principal and interest payments and capitalized interest in the calculation of interest
expense and do not include non-cash interest on convertible debentures.
• Unencumbered assets include the value of assets that have not been pledged as security under any credit agreement or
mortgage. The unencumbered asset value ratio is calculated as unencumbered assets divided by the principal amount
of the unsecured debt, which consists of the bank indebtedness, unsecured credit facilities, senior unsecured
debentures and convertible debentures.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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, 2017
December 31, 2016
$ 1,060,339
485,727
95,900
$ 1,641,966
172,525
$
7,079
1,462,362
$ 1,641,966
$
997,165
183,451
68,030
$ 1,248,646
116,952
$
9,990
1,121,704
$ 1,248,646
Mortgages and secured facilities are secured by the Company's investment properties. As at December 31, 2017,
approximately $2.6 billion (December 31, 2016 – $2.4 billion) of investment properties out of $9.4 billion
(December 31, 2016 – $8.5 billion) (Note 4(a)) had been pledged as security under the mortgages and the secured
facilities.
As at December 31, 2017, mortgages bear coupon interest at a weighted average coupon rate of 4.3% (December 31, 2016 –
4.5%) and mature in the years ranging from 2018 to 2028. The weighted average effective interest rate on all mortgages as
at December 31, 2017 is 4.3% (December 31, 2016 – 4.4%).
Principal repayments of mortgages outstanding as at December 31, 2017 are as follows:
2018
2019
2020
2021
2022
2023 to 2028
Unamortized deferred financing costs and premiums, net
Total
Scheduled
Amortization
Payments on
Maturity
$
$
27,117 $
24,619
22,425
20,634
15,711
46,488
156,994 $
124,412 $
106,714
67,893
73,397
147,954
382,978
903,348 $
$
Weighted
Average Effective
Interest Rate
5.5%
6.5%
4.4%
4.8%
3.9%
3.5%
4.3%
Total
151,529
131,333
90,318
94,031
163,665
429,466
1,060,342
(3)
1,060,339
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, 2017, the Company had drawn US$387.2 million, as well
as CAD$3.1 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 second quarter, the Company extended the maturity of its $800 million unsecured facility to June 30, 2022 on
substantially the same terms.
In the fourth quarter, the Company also extended the maturity of its $115 million secured facility to February 13, 2019 on
substantially the same terms.
82
FIRST CAPITAL REALTY ANNUAL REPORT 2017
The Company’s credit facilities as at December 31, 2017 are summarized in the table below:
As at December 31, 2017
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 2022 (1)
Non-revolving facility
maturing 2020 (2)
$
800,000 $
(338,715) $
(22,494) $
438,791
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
150,000
(147,012)
(13,932)
—
BA + 1.20% or
Prime + 0.20% or
US$ LIBOR + 1.20%
June 30, 2022
October 31, 2020
Secured Construction Facilities
Maturing 2019
115,000
(60,953)
(1,475)
52,572
Maturing 2018
15,907
(15,572)
Secured Facilities
Maturing 2019
11,875
(11,875)
Maturing 2018
7,500
(7,500)
—
—
—
335
—
—
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, 2019
March 31, 2018
September 27, 2019
September 6, 2018
Total
$
1,100,282 $
(581,627) $
(37,901) $
491,698
(1) The Company had drawn in U.S. dollars the equivalent of CAD$346.1 million which was revalued at CAD$338.7 million as at December 31, 2017.
(2) The Company had drawn in U.S. dollars the equivalent of CAD$150.0 million which was revalued at CAD$147.0 million as at December 31, 2017.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
10. SENIOR UNSECURED DEBENTURES
As at
December 31, 2017 December 31, 2016
Series Maturity Date
Coupon
Effective
Interest Rate
H
I
J
K
L
January 31, 2017
November 30, 2017
August 30, 2018
November 30, 2018
July 30, 2019
M April 30, 2020
N March 1, 2021
O
P
Q
R
S
January 31, 2022
December 5, 2022
October 30, 2023
August 30, 2024
July 31, 2025
T May 6, 2026
U
July 12, 2027
Weighted Average or Total
Current
Non-current
Total
5.85%
5.70%
5.25%
4.95%
5.48%
5.60%
4.50%
4.43%
3.95%
3.90%
4.79%
4.32%
3.60%
3.75%
4.36%
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%
3.82%
4.42%
$
$
$
$
Principal
Outstanding
— $
—
Liability
— $
—
50,000
100,000
150,000
175,000
175,000
200,000
250,000
300,000
300,000
300,000
300,000
300,000
49,868
99,807
149,712
174,991
174,361
198,824
247,512
298,951
301,172
301,587
300,865
298,316
Liability
124,985
124,906
49,761
99,602
149,542
174,988
174,177
198,567
247,066
298,794
301,323
301,768
300,963
—
2,600,000 $
2,595,966 $
150,000
2,450,000
149,675
2,446,291
2,600,000 $
2,595,966 $
2,546,442
249,891
2,296,551
2,546,442
Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity.
On July 10, 2017, the Company completed the issuance of $300 million principal amount of Series U senior unsecured
debentures due July 12, 2027. These debentures bear interest at a coupon rate of 3.753% per annum, payable semi-
annually commencing January 12, 2018.
11. CONVERTIBLE DEBENTURES
As at
December 31, 2017
December 31, 2016
Series Maturity Date
Coupon
Effective
Principal
Liability
Equity
Principal
Liability
Interest Rate
—
—
—
—
—
—
—
—
—
55,093
54,293
386
54,666
51,584
51,210
55,175
53,095
50,773
49,822
53,943
Equity
2,084
351
1,403
386
$ 55,093 $ 54,293 $
386 $ 212,635 $ 207,633 $
4,224
—
—
55,093
54,293
106,250
103,868
106,385
103,765
$ 55,093 $ 54,293 $
386 $ 212,635 $ 207,633 $
4,224
E
F
I
J
January 31, 2019
January 31, 2019
July 31, 2019
February 28, 2020
Weighted Average or Total
Current
Non-current
Total
5.40%
5.25%
4.75%
4.45%
4.45%
6.90%
6.07%
6.19%
5.34%
5.34%
84
FIRST CAPITAL REALTY ANNUAL REPORT 2017
(a) Principal and interest
The Company has the option of repaying the convertible debentures on maturity in cash or 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 in cash or 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, 2017, 0.1 million common shares (year ended December 31, 2016 – 0.7 million
common shares) were issued for $2.4 million (year ended December 31, 2016 – $13.6 million) to pay accrued interest to
holders of the convertible debentures.
During the year ended December 31, 2017, the Company also paid $3.9 million (year ended December 31, 2016 – $0.1
million) in cash to pay accrued interest to holders of convertible debentures.
Each series of the Company’s convertible debentures pays interest semi-annually and is convertible at the option of the
holders in the conversion periods into common shares of the Company at the conversion prices indicated below.
Maturity Date
Coupon
Rate
TSX
Holder Option to
Convert at the
Conversion Price
Company Option to Redeem at
Principal Amount (conditional (1))
Company Option to Redeem
at Principal Amount (2)
Conversion Price
February 28, 2020
4.45%
FCR.DB.J
2013-2020
Feb 28, 2016 - Feb 27, 2018
Feb 28, 2018 - Feb 28, 2020
$26.75; $27.75
(3)
(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
February 28, 2018 and $27.75 per common share thereafter.
(b) Principal redemption
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.
On August 1, 2017, the Company redeemed its remaining 4.75% Series I convertible debentures at par. The full redemption
price and any accrued interest owing on the convertible debentures was satisfied in cash.
(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 expired on August 28, 2017 and was not renewed by the Company. All purchases
made under the NCIB were at market prices prevailing at the time of purchase determined by or on behalf of the
Company.
For the year ended December 31, 2017 and 2016, principal amounts of convertible debentures purchased and amounts
paid for the purchases are represented in the table below:
Year ended December 31
2017
2016
Total
$
110
$
112
$
4,048
$
4,102
Principal
Amount
Purchased
Amount Paid
Principal
Amount
Purchased
Amount Paid
FIRST CAPITAL REALTY ANNUAL REPORT 2017
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
12. ACCOUNTS PAYABLE AND OTHER LIABILITIES
As at
Note
December 31, 2017 December 31, 2016
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
Total current
Total
22
22
$
$
$
$
$
5,179
9,010
844
1,783
98
16,914
61,538
47,603
52,553
37,145
30,816
10,499
240,154
257,068
$
$
$
$
$
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
(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 totaling $6.2 million in other
assets (Note 7).
13. SHAREHOLDERS’ EQUITY
(a) Share capital
The authorized share capital of the Company consists of an unlimited number of authorized common shares and
preference shares. 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 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 following table sets forth the particulars of the issued and outstanding common shares of the Company:
Year ended December 31
2017
Note
Number of
Common Shares
Stated Capital
Number of
Common Shares
Issued and outstanding at beginning of year
Payment of interest on convertible debentures
Conversion of convertible debentures
Exercise of options, and settlement of any restricted,
performance and deferred share units
Issuance of common shares
Share issue costs and other, net of tax effect
11
11
243,507 $
124
4
796
3,142,399
2,442
107
14,770
225,538 $
673
3,080
1,129
—
—
—
(176)
13,087
—
287,589
(9,036)
Issued and outstanding at end of year
244,431 $
3,159,542
243,507 $
3,142,399
Quarterly dividends declared per common share were $0.86 for the year ended December 31, 2017 (year ended December
31, 2016 – $0.86).
86
FIRST CAPITAL REALTY ANNUAL REPORT 2017
2016
Stated Capital
2,768,983
13,645
60,294
20,924
(b) Contributed surplus and other equity items
Contributed surplus and other equity items comprise the following:
Year ended December 31
2017
Contributed
Surplus
Convertible
Debentures
Equity
Component
Stock-based
Compensation
Plan Awards
Total
Contributed
Surplus
Convertible
Debentures
Equity
Component
Stock-based
Compensation
Plan Awards
2016
Total
Balance at beginning of year
Redemption of convertible
debentures
Repurchase of convertible
debentures
Options vested
Exercise of options
Deferred share units
Restricted share units
Performance share units
Settlement of any restricted,
performance and deferred share
units
$
20,954 $
3,834
4,224 $
(3,837)
1
—
(272)
—
—
—
—
(1)
—
—
—
—
—
—
16,521 $ 41,699 $
—
—
896
(1,235)
749
2,234
1,447
(3)
—
896
(1,507)
749
2,234
1,447
(3,545)
(3,545)
19,532 $
1,386
6,833 $
(2,561)
17,284 $ 43,649
(1,175)
—
36
—
—
—
—
—
—
(48)
—
(12)
—
—
—
—
—
—
833
(1,540)
820
2,102
547
833
(1,540)
820
2,102
547
(3,525)
(3,525)
Balance at end of year
$
24,517 $
386 $
17,067 $ 41,970 $
20,954 $
4,224 $
16,521 $ 41,699
(c) Stock options
As of December 31, 2017, the Company is authorized to grant up to 19.7 million (December 31, 2016 – 15.2 million)
common share options to the employees, officers and directors of the Company. As of December 31, 2017, 5.5 million
(December 31, 2016 – 1.7 million) common share options are available to be granted to the employees, officers and
directors of the Company. In addition, as at December 31, 2017, 4.1 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, 2017 have exercise prices ranging from $9.81 – $20.24
(December 31, 2016 – $9.81 – $20.24).
As at
December 31, 2017
December 31, 2016
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)
933 $ 16.49
1,171 $ 18.60
1,015 $ 19.63
1,014 $ 20.09
4,133 $ 18.74
3.6
6.0
7.9
9.1
6.7
833 $ 16.33
688 $ 18.67
242 $ 19.62
29 $ 20.24
1,792 $ 17.74
1,601 $
1,336 $
1,124 $
145 $
4,206 $
Weighted
Average
Exercise
Price per
Common
Share
16.53
18.62
19.64
20.24
18.15
Weighted
Average
Remaining
Life
(years)
Number of
Common
Shares
Issuable
(in thousands)
Weighted
Average
Exercise
Price per
Common
Share
3.4
6.7
8.6
9.3
6.0
1,335 $ 16.28
531 $ 18.71
95 $ 19.64
—
— $
1,961 $ 17.10
Exercise Price
Range ($)
9.81 – 18.15
18.16 – 18.99
19.00 – 20.02
20.03 – 20.24
9.81 – 20.24
During the year ended December 31, 2017, $0.8 million (year ended December 31, 2016 – $0.7 million) was recorded as
an expense related to stock options.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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)
4,206
869
(827)
(114)
(1)
$
4,133
$
2017
Weighted
Average
Exercise Price
18.15
20.07
17.12
18.91
17.67
18.74
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
(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)
2017
869
10 years
$20.07
15.0%
6 years
4.26%
1.31%
$1,125
2016
1,000
10 years
$19.69
15.0%
6 years
4.35%
0.78%
$1,082
(b) The weighted average market share price at which options were exercised for the year ended December 31,
2017 was $20.42 (year ended December 31, 2016 – $21.14).
(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)
Outstanding at beginning of year
Granted (a) (b)
Dividends declared
Exercised
Forfeited
Outstanding at end of year
Expense recorded for the year
88
FIRST CAPITAL REALTY ANNUAL REPORT 2017
DSUs
275
28
12
(14)
—
301
$502
2017
RSUs / PSUs
471
191
28
(182)
(20)
488
$3,339
DSUs
349
24
14
(112)
—
275
$530
2016
RSUs / PSUs
374
171
16
(90)
—
471
$2,335
(a) The fair value of the DSUs granted during the year ended December 31, 2017 was $0.5 million (year ended December
31, 2016 – $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, 2017 was $1.6 million (year ended December 31, 2016 –
$1.3 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, 2017 was $2.2 million (year ended December
31, 2016 – $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)
2017
112
3 years
14.3%
40.4%
0.5%
0.95%
$2,238
2016
106
3 years
13.4%
41.9%
8.8%
0.55%
$2,197
The fair value of awards granted under the above plans is recognized as compensation expense over the respective vesting
periods.
14. NET OPERATING INCOME
Net operating income is presented by segment as follows:
Year ended December 31, 2017
Property rental revenue
Property operating costs
Net operating income
Year ended December 31, 2016
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
288,416 $
180,856 $
227,966 $
697,238 $
(2,779) $
108,493
78,048
75,910
262,451
(5,502)
Total
694,459
256,949
179,923 $
102,808 $
152,056 $
434,787 $
2,723 $
437,510
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
(1) Other items principally consist of intercompany eliminations.
For the year ended December 31, 2017, property operating costs include $20.2 million (year ended December 31, 2016 –
$21.6 million) related to employee compensation.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
15. INTEREST AND OTHER INCOME
Interest, dividend and distribution income from marketable securities
Interest income from loans, deposit and mortgages receivable
Fees and other income
Total
16. INTEREST EXPENSE
Mortgages
Credit facilities
Senior unsecured debentures
Convertible debentures
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
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
Note
5
5
Note
9
9
10
11
11
$
$
$
Year ended December 31
2017
936
19,070
8,395
28,401
2016
1,129
11,759
6,753
19,641
$
$
Year ended December 31
2017
47,244
10,890
115,798
5,150
179,082
(21,671)
$
2016
47,724
6,641
112,023
14,603
180,991
(22,304)
$
157,411
$
158,687
(2,442)
(13,645)
870
911
1,332
(5,952)
521
(76)
2,232
(6,393)
$
152,130
$
141,326
Year ended December 31
2017
27,756
4,258
11,630
43,644
(7,202)
36,442
$
$
2016
26,485
3,469
11,393
41,347
(6,437)
34,910
$
$
90
FIRST CAPITAL REALTY ANNUAL REPORT 2017
18. OTHER GAINS (LOSSES) AND (EXPENSES)
Realized gain (loss) on sale of marketable securities
Unrealized gain (loss) on marketable securities
Net gain (loss) on prepayments of debt
Proceeds from Target
Investment properties selling costs
Restructuring costs
Other
Total
Year ended December 31
$
$
2017
(1,165)
3,313
(3,032)
474
(1,667)
—
171
$
(1,906)
$
2016
79
1,071
(1,119)
3,813
(2,435)
(1,988)
(7)
(586)
During the year, the Company recognized a $3.0 million net loss on prepayment of debt primarily due to non-cash losses on
early redemptions of the Series E, F, and I convertible debentures, as well as $2.1 million net gains on marketable securities.
19. INCOME TAXES
The sources of deferred tax balances and movements are as follows:
December 31, 2016
Net income
Recognized in OCI
Equity and other December 31, 2017
Deferred taxes related to non-capital losses
Deferred tax liabilities related to difference
in tax and book basis primarily related to
real estate, net
Net deferred taxes
$
$
(30,249) $
623,542
1,493 $
123,608
431 $
3,823
(1,058) $
(1,159)
(29,383)
749,814
593,293 $
125,101 $
4,254 $
(2,217) $
720,431
As at December 31, 2017, the Company had approximately $111.3 million of non-capital losses which expire between 2026
and 2037.
December 31, 2015
Net income
Recognized in OCI
Equity and other December 31, 2016
Deferred taxes related to non-capital losses $
Deferred tax liabilities related to difference
in tax and book basis primarily related to
real estate, net
Net deferred taxes
$
(37,994) $
542,695
10,922 $
79,648
(1,506) $
3,450
(1,671) $
(2,251)
(30,249)
623,542
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.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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, 2017 and 2016:
Income tax expense at the Canadian federal and provincial income tax rate of 26.6%
Increase (decrease) in income taxes due to:
Non-taxable portion of capital gains and other
Impact of change in statutory income tax rate
Non-controlling interests in income of flow-through entity
Other
Deferred income taxes
Year ended December 31
2016
2017
$
204,623 $
126,712
(76,413)
1,792
(2,945)
(1,956)
$
125,101 $
(38,883)
(1,207)
—
3,948
90,570
During the fourth quarter of 2017, the Province of British Columbia increased its general corporate income tax rate while
the Province of Quebec reduced its general corporate income tax rate, both of 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
$
$
2017
633,089
3,427
636,516
244,754
399
4,260
249,413
$
$
2016
382,714
9,276
391,990
235,671
572
10,185
246,428
There were no options or convertible debentures that were determined to be anti-dilutive.
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 $0.8 billion
principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured
debentures and convertible debentures maturing between January 1, 2018 and December 31, 2020 at a weighted average
coupon interest rate of 5.4%. If these amounts were refinanced at an average interest rate that was 100 basis points
92
FIRST CAPITAL REALTY ANNUAL REPORT 2017
higher or lower than the existing rate, the Company’s annual interest cost would increase or decrease, respectively, by
$8.3 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 $2.5 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, 2017, Loblaw Companies Limited
(“Loblaw”) accounts for 10.4% of the Company’s annualized minimum rent and has an investment grade credit rating.
Other than Loblaw, no other tenant accounts for more than 10% of the annualized minimum rent. A tenant’s success over
the term of its lease and its ability to fulfill its lease obligations is subject to many factors. There can be no assurance that
a tenant will be able to fulfill all of its existing commitments and leases up to the expiry date. The Company typically
mitigates the risk of credit loss from debtors by obtaining registered mortgage charges on real estate properties.
The Company’s leases typically have lease terms between 5 and 20 years and may include clauses to enable periodic
upward revision of the rental rates, and lease contract extension at the option of the lessee.
Future minimum rentals receivable under non-cancellable operating leases as at December 31 are as follows:
(thousands of Canadian dollars)
Within 1 year
After 1 year, but not more than 5 years
More than 5 years
$
2017
423,989
1,146,350
767,724
$ 2,338,063
(c) Liquidity risk
Real estate investments are relatively illiquid. This tends to limit the Company’s ability to sell components of its portfolio
promptly in response to changing economic or investment conditions. If the Company were required to quickly liquidate
its assets, there is a risk that it would realize sale proceeds of less than the current value of its real estate investments.
An analysis of the Company’s contractual maturities of its material financial liabilities and other contractual commitments
as at December 31, 2017 is set out below:
As at December 31, 2017
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
2018
2019 to 2020
2021 to 2022
Thereafter
Total
$
27,117 $
47,044 $
36,345 $
46,488 $
124,412
23,072
150,000
55,093
167,553
1,188
73,654
174,607
219,840
325,000
—
281,336
2,290
4,398
221,351
341,859
625,000
—
205,049
2,208
—
382,978
—
1,500,000
—
200,174
18,413
—
156,994
903,348
584,771
2,600,000
55,093
854,112
24,099
78,052
6,291
15,714
—
—
22,005
$
628,380 $ 1,070,229 $ 1,431,812 $ 2,148,053 $ 5,278,474
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2017 (assuming balances remain outstanding through to
maturity), and senior unsecured debentures, as well as standby credit facility fees.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The Company manages its liquidity risk by staggering debt maturities; renegotiating expiring credit arrangements
proactively; using unsecured credit facilities; and issuing equity when considered appropriate. As at December 31, 2017,
there was $485.7 million (December 31, 2016 – $183.5 million) of cash advances drawn against the Company’s unsecured
credit facilities.
In addition, as at December 31, 2017, the Company has $38.0 million (December 31, 2016 – $48.2 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
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:
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
Carrying Amount
Fair Value
Notes
2017
2016
2017
2016
6
6
6
8
10
10
11
12
13
$
21,720 $
2,587
255,841
16,435
12,969 $
3,824
147,302
12,438
21,720 $
2,587
255,447
16,435
12,969
3,824
144,379
12,438
$ 1,060,339 $
581,627
2,595,966
54,293
11,343
997,165 $ 1,072,212 $
251,481
2,546,442
207,633
6,469
581,627
2,696,511
55,644
11,343
996,835
251,481
2,691,059
214,423
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, 2017 and 2016 due to their short term nature.
The fair values of the Company’s investments in FVTPL 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, 2017, the risk-adjusted interest rates ranged from 3.9% to 15.0%
(December 31, 2016 – 4.0% to 15.0%).
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, 2017, these rates ranged from 2.4% to 3.6%
(December 31, 2016 – 2.3% to 3.6%).
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, 2017, these rates ranged
from 1.8% to 3.8% (December 31, 2016 – 1.1% to 3.7%).
The fair values of the convertible debentures are based on the TSX closing bid prices.
94
FIRST CAPITAL REALTY ANNUAL REPORT 2017
The fair value hierarchy of financial instruments on the audited annual consolidated balance sheets is as follows:
As at
December 31, 2017
December 31, 2016
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Measured at fair value
Financial Assets
FVTPL investments in 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
$
21,720 $
—
—
— $
—
16,435
— $
2,587
—
12,969 $
—
—
— $
—
12,438
—
3,824
—
—
11,343
—
—
6,469
—
$
— $
— $
255,447 $
— $
— $
144,379
— 1,072,212
—
581,627
— 2,696,511
—
55,644
—
—
—
—
996,835
—
—
251,481
— 2,691,059
—
214,423
—
—
—
—
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, 2017, the interest rates ranged from
2.0% to 4.7% (December 31, 2016 – 1.7% to 3.3%). The fair values of the Company's asset (liability) hedging instruments
are as follows:
Designated as
Hedging Instrument Maturity as at December 31, 2017
December 31, 2017 December 31, 2016
Derivative assets
Bond forward contracts
Interest rate swaps
Cross currency swaps
Total
Derivative liabilities
Bond forward contracts
Interest rate swaps
Cross currency swaps
Total
Yes
Yes
No
Yes
Yes
No
January 2018
June 2025 - March 2027
N/A
January 2018
March 2022 - July 2024
January 2018
$
$
$
$
5,739
10,696
—
16,435
365
844
10,134
11,343
$
$
$
$
6,279
2,683
3,476
12,438
—
6,469
—
6,469
FIRST CAPITAL REALTY ANNUAL REPORT 2017
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
23. INVESTMENT IN JOINT VENTURES
As at December 31, 2017, the Company had interests in four 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
two joint ventures that operate shopping centres known as "College Square" and "Royal Orchard", located in Ottawa and
Markham, Ontario, respectively. Lastly, the Company owns a 50% interest in a fourth joint venture, Fashion Media Group
GP Ltd., that organizes and presents "Toronto Fashion Week" events at the Company's Yorkville Village property.
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
Property revenue
Property expenses
Increase in value of investment properties, net
Other income and expenses
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 (1)
December 31, 2017 December 31, 2016
$
674,476
(262,397)
412,079
$
526,284
(220,371)
305,913
$
202,231
$
146,422
December 31, 2017 December 31, 2016
$
$
$
21,223
(7,727)
66,610
(3,387)
76,719
36
76,683
42,860
$
$
$
18,075
(6,571)
9,072
(2,837)
17,739
(11)
17,750
12,437
(1) On December 14, 2017, the Company sold a 50% interest in its Royal Orchard property and now owns its remaining 50% interest through an equity accounted joint
venture.
As at December 31, 2017, the Company’s equity investment in MMUR is approximately $121.7 million (December 31,
2016 – $120.3 million) via its direct and indirect interests which includes a loan to one of its joint venture partners. In
the third quarter of 2017, MMUR announced its intention to sell 20 of its 23 properties which are expected to be sold
within the next 9 months.
During 2017, the Company received distributions from its joint ventures of $5.9 million (2016 - $52.5 million) and made
contributions to its joint ventures of $4.9 million (2016 - $25.0 million).
As at December 31, 2017, 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 $26.6 million (December 31,
2016 – $17.2 million). There were no outstanding commitments for College Square, Royal Orchard or Fashion Media
Group GP Ltd. as at December 31, 2017. The Company's share of these outstanding commitments relating to its joint
ventures at its interest is $14.1 million. Main and Main Urban Realty, College Square, Royal Orchard, and Fashion Media
Group GP Ltd. did not have any contingent liabilities as at December 31, 2017 and 2016.
96
FIRST CAPITAL REALTY ANNUAL REPORT 2017
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
Current liabilities
Total liabilities
Net assets
Non-controlling interests
Revenue
Share of profit from joint ventures
Expenses
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, 2017
December 31, 2016
$
$
$
$
$
$
$
$
$
145,894
1,907
147,801
488
488
147,313
48,613
$
$
$
$
111,865
3,471
115,336
729
729
114,607
37,820
Year ended December 31
2017
2,967
34,267
(3,684)
33,550
11,071
2016
3,341
9,258
(3,274)
9,325
3,078
$
$
$
Year ended December 31
2017
1,391
(844)
(2,156)
(1,609)
2016
310
19,314
(17,883)
1,741
$
$
FIRST CAPITAL REALTY ANNUAL REPORT 2017
97
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, 2017
50%
50%
50%
50%
50%
50%
50%
50%
50%
67%
50%
50%
50%
50%
75%
50%
50%
50%
50%
50%
December 31, 2016
50%
50%
50%
50%
50%
50%
50%
50%
50%
33%
50%
50%
50%
50%
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 income (loss)
Year ended December 31
2017
Opening
Balance
January 1
Net Change
During
the Year
Closing
Balance
December 31
Opening
Balance
January 1
Net Change
During
the Year
2016
Closing
Balance
December 31
Unrealized gains (losses) on AFS
investments in equity securities
Unrealized gains (losses) on cash
flow hedges
Accumulated other comprehensive
income (loss)
$
45 $
— $
45 $
45 $
— $
45
(11,743)
11,738
(5)
(17,107)
5,364
(11,743)
$
(11,698) $
11,738 $
40 $
(17,062) $
5,364 $
(11,698)
98
FIRST CAPITAL REALTY ANNUAL REPORT 2017
(b) Tax effects relating to each component of other comprehensive (loss) income
Year ended December 31
Unrealized gains (losses) on cash
flow hedges
Reclassification of losses on cash
flow hedges to net income
Before-Tax
Amount
Tax (Expense)
Recovery
2017
Net of Tax
Amount
14,350
(3,817)
10,533
1,642
(437)
1,205
Before-Tax
Amount
Tax (Expense)
Recovery
5,790
1,518
(1,540)
(404)
Other comprehensive income (loss)
$
15,992 $
(4,254) $
11,738 $
7,308 $
(1,944) $
2016
Net of Tax
Amount
4,250
1,114
5,364
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
Year ended December 31
Note
$
18
18
18
18
19
$
2017
(2,684)
1,667
1,165
(3,313)
3,032
4,534
122,948
(209)
$
127,140
$
2016
(5,848)
2,435
(79)
(1,071)
1,119
3,698
90,570
(18)
90,806
(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
$
$
(c) Changes in loans, mortgages and other real estate assets
Advances of loans and mortgages receivable
Repayments of loans and mortgages receivable and deposits
Deposit on investment property
Investment in marketable securities, net
Proceeds from disposition of marketable securities
Total
$
Year ended December 31
2016
(3,470)
(2,307)
(2,396)
3,167
(3,700)
(8,706)
2017
(4,262)
(935)
(2,855)
4,214
(3,324)
(7,162)
$
Year ended December 31
2016
(54,521)
59,797
(189,200)
(742)
830
(183,836)
2017
(115,902) $
10,718
—
(17,910)
11,307
(111,787) $
$
$
FIRST CAPITAL REALTY ANNUAL REPORT 2017
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(d) Cash and cash equivalents (bank indebtedness)
As at
Cash and cash equivalents (1)
Bank indebtedness
Total
December 31, 2017
11,507
(3,144)
8,363
$
$
December 31, 2016
12,217
(15,914)
(3,697)
$
$
(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 $126.9 million
(December 31, 2016 – $108.1 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 $34.9 million (December 31, 2016 –
$32.3 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 $1.2 million (December 31, 2016 – $1.0 million) with a total obligation of $24.1 million
(December 31, 2016 – $20.1 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, 2017, beneficially owns
32.6% (December 31, 2016 – 36.4%) of the common shares of the Company. Norstar Holdings Inc. is the ultimate
controlling party of Gazit. In the first quarter of 2017, Gazit disposed of 9,000,000 common shares of the Company.
Corporate and other amounts receivable include amounts due from Gazit. Gazit reimburses the Company for certain
accounting and administrative services provided to it by the Company. Such amounts consist of the following:
Reimbursements for professional services
Year ended December 31
2016
2017
$
228
$
221
As at December 31, 2017, amounts due from Gazit was $nil (December 31, 2016 – $0.1 million).
100
FIRST CAPITAL REALTY ANNUAL REPORT 2017
(b) Joint ventures
During the year ended December 31, 2017, the Company earned fee income of $2.4 million (December 31, 2016 – $2.9
million) from its joint ventures. Also during the year ended December 31, 2017, the Company advanced $1.2 million
(December 31, 2016 – $nil) to one of its joint ventures.
(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
included in corporate expenses is as follows:
Salaries and short-term employee benefits
Share-based compensation (non-cash compensation expense)
30. SUBSEQUENT EVENTS
First Quarter Dividend
Year ended December 31
2017
4,268
3,162
7,430
$
$
2016
3,805
2,315
6,120
$
$
The Company announced that it will pay a first quarter dividend of $0.215 per common share on April 18, 2018 to
shareholders of record on March 29, 2018.
Redemption of Convertible Debenture
On January 25, 2018, the Company provided a notice of redemption to the holders of the remaining 4.45% Series J
convertible debentures that the entire principal amount outstanding plus accrued interest would be redeemed in cash on
February 28, 2018.
Disposition Activities
Subsequent to December 31, 2017 the Company entered into a definitive agreement to sell a 50.5% non-managing
interest in six properties, or substantially all of its portfolio, in London, Ontario for $66.0 million. In addition, MMUR, in
which the Company has a joint venture interest, has entered into a definitive agreement to sell 13 properties for $241.4
million. These transactions are expected to close before the end of the first quarter, subject to standard closing
conditions.
FIRST CAPITAL REALTY ANNUAL REPORT 2017
101
Shareholder Information
TRANSFER AGENT
Computershare Trust Company of Canada
100 University Avenue, 11th Floor
AUDITORS
Ernst & Young LLP
Toronto, Ontario
Toronto, Ontario M5J 2Y1
Toll-free: 1 800 564 6253
EXECUTIVE LEADERSHIP TEAM
Adam E. Paul
President and Chief Executive Officer
Kay Brekken
DIRECTORS
Dori J. Segal
Chairman, First Capital Realty Inc.
Toronto, Ontario
Jon Hagan, C.P.A., C.A.
Consultant, JN Hagan Consulting
Executive Vice President and
Barbados
Chief Financial Officer
Jordan Robins
Executive Vice President and
Chief Operating Officer
Gareth Burton
Allan S. Kimberley
Corporate Director
Toronto, Ontario
Annalisa King
Corporate Director
Senior Vice President, Construction
Vancouver, British Columbia
Carmine Francella
Senior Vice President, Leasing
Alison Harnick
Bernard McDonell
Corporate Director
Apple Hill, Ontario
General Counsel and Corporate Secretary
Adam E. Paul, C.P.A., C.A
Vice President, People and Corporate Affairs
Maryanne McDougald
Senior Vice President, Operations
Gregory J. Menzies
Project Lead, Yorkville Village
President and Chief Executive Officer,
First Capital Realty Inc.
Toronto, Ontario
Mia Stark
Chief Executive Officer of Gazit Brasil,
Sao Paulo, Brazil
Andrea Stephen, C.P.A., C.A.
Jodi M. Shpigel
Senior Vice President, Development
Corporate Director
Toronto, Ontario
Edmonton, Alberta T5E 5R8
Sandra Levy
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 Block
815–17th Avenue SW, Suite 200
Calgary, Alberta T2T 0A1
Tel: 403 257 6888
Fax: 403 257 6899
EDMONTON OFFICE
Northgate Centre, Unit 2004
9499-137 Avenue
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
First Capital Realty Inc.
Corporate Head Office
Shops at King Liberty
85 Hanna Ave, Suite 400
Toronto, Ontario M6K 3S3
T 416.504.4114
F 416.941.1655
www.fcr.ca