2019 Annual Report85 HANNA AVENUE, SUITE 400, TORONTO, ONTARIO M6K 3S3 Unitholder Information
HEAD OFFICE
TRANSFER AGENT
Shops at King Liberty
85 Hanna Avenue, Suite 400
Toronto, Ontario M6K 3S3
Tel: 416 504 4114
Fax: 416 941 1655
Computershare Trust Company
of Canada
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Toll-free: 1 800 564 6253
MONTREAL OFFICE
EXECUTIVE LEADERSHIP TEAM
TRUSTEES
Bernard McDonell
Chair of the Board
Leonard Abramsky
Trustee
Paul Douglas
Trustee
Jon Hagan
Trustee
Annalisa King
Trustee
Al Mawani
Trustee
Adam Paul
Trustee
Dori Segal
Trustee
Adam Paul
President and Chief Executive Officer
Kay Brekken
Executive Vice President and
Chief Financial Officer
Jordan Robins
Executive Vice President and
Chief Operating Officer
Carmine Francella
Senior Vice President, Leasing
Alison Harnick
Senior Vice President, General Counsel
Andrea Stephen
Trustee
Maryanne McDougald
Senior Vice President, Operations
Jodi Shpigel
Senior Vice President, Development
Michele Walkau
Senior Vice President, Brand & Culture
AUDITORS
Ernst & Young LLP
Toronto, Ontario
Place Viau
7600 boulevard Viau, Suite 113
Montréal, Québec H1S 2P3
Tel: 514 332 0031
Fax: 514 332 5135
CALGARY OFFICE
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815 – 17th Avenue SW, Suite 200
Calgary, Alberta T2T 0A1
Tel: 403 257 6888
Fax: 403 257 6899
EDMONTON OFFICE
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Edmonton, Alberta T5K 0K2
Tel: 780 475 3695
VANCOUVER OFFICE
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New Westminster, BC V3M 0G3
Tel: 604 278 0056
Fax: 604 242 0266
FCR.CA
CORPORATE PROFILEFirst Capital is a leading developer, owner and manager of mixed-use real estate located in Canada’s most densely populated cities. First Capital’s focus is on creating thriving urban neighbourhoods to generate value for businesses, residents, communities and our investors.FORWARD-LOOKING STATEMENT ADVISORYCertain statements contained in this MD&A constitute forward-looking statements. Other statements concerning First Capital’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 First Capital’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, the ability of the Trust to make loans at the same rate or in the same amount as repaid loans, amount of development costs, capital expenditures, operating costs and corporate expenses, level and timing of acquisitions of income-producing properties, the Trust’s ability to complete dispositions and the timing, terms and anticipated benefits of any such dispositions, the Trust’s ability to redevelop, sell or enter into partnerships with respect to the future incremental density it has identified in its portfolio, number of units outstanding, the Trust’s ability to qualify as a real estate investment trust under the Tax Act and numerous other factors. Moreover, the assumptions underlying the Trust’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 First Capital’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, property taxes and income taxes; First Capital’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 Trust’s business, including the repayment of existing indebtedness as well as development, intensification and acquisition activities; changes in interest rates and credit spreads; organizational structure; changes to credit ratings; the availability of a new competitive supply of retail properties which may become available either through construction, lease or sublease; the Trust’s ability to: execute on its Urban Investment Strategy, including with respect to dispositions, capitalize on competitive advantages, optimize portfolio assets and accelerate value delivered to its investors and stakeholders, remain ahead of changing market conditions, surface unrecognized value, reach its demographic targets and ensure the Trust retains its best in class position; unexpected costs or liabilities related to acquisitions, development and construction; geographic and tenant concentration; residential development, sales and leasing; compliance with financial covenants; changes in governmental regulation; environmental liability and compliance costs; unexpected costs or liabilities related to dispositions; challenges associated with the integration of acquisitions into the Trust; uninsured losses and First Capital’s ability to obtain insurance coverage at a reasonable cost; market risk; loss of key personnel; the ability of tenants to maintain necessary licenses, certifications and accreditations and risks and uncertainties related to the effects of COVID-19 on First Capital, including the length, spread and severity of the pandemic, the nature and extent of the measures taken by all levels of government to mitigate against the severity and spread of the virus, the impact of the virus and government authorities’ and public health officials’ responses thereto on: our tenants’ ability to pay rent in full or at all, domestic and global credit and capital markets, our ability to access capital on favourable terms or at all, the health and safety of our employees and our tenants’ personnel and domestic and global supply chains, among other risks related to COVID-19. Given the evolving circumstances surrounding COVID-19, it is difficult to predict how significant the adverse impact will be on the global and domestic economy, the business, operations and financial position of the REIT’s tenants, and the business operations and financial position of the REIT. 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 undertakes no obligation to publicly update any such statement or to reflect new information or the occurrence of future events or circumstances, except as required by applicable securities law. All forward-looking statements in this MD&A are made as of February 11, 2020 and the accompanying letter to unitholders as of August 14, 2020 and are qualified by these cautionary statements. < - hinge
Message from the
President & CEO
Dear fellow unitholders
In 2019, we made monumental advances across many
areas of our business. Launching our super urban
strategy, converting to a REIT, evolving into a widely
held company and the significant advances made to
our culture and values are all things that come to mind.
Instead of reviewing the year as I normally would, I refer
you to our Annual Report and Investor Presentation
this year so that I can address more timely items
as so much has changed since 2019 came to a close.
As I write this letter, five months have passed since
COVID-19 was declared a global pandemic and the
government imposed lockdowns. We have all become
accustomed to working remotely, physically distanc-
ing and wearing masks to protect each other from
the spread of the virus.
Going back to the start of the pandemic, we immedi-
ately prioritized the health and well being of our
employees, tenants and the communities in which
we operate.
Businesses that were deemed non-essential by
governments were obligated to close. Notwithstand-
ing that well over 90% of our retail tenants provide
necessity-based goods and services, only half were
permitted to be fully operational with the remaining
tenants forced to close or to operate in a significantly
reduced capacity. We quickly responded by launching
First Capital’s Small Business Support Program (SBSP)
as many of our small business tenants were expressing
a high degree of anxiety around their impending April
rent payments. This program provided immediate
rent relief to our small business tenants. As a reminder,
there was no government rent support program
at the time.
Since then, the government’s Canada Emergency
Commercial Rent Assistance (CECRA) program has
largely replaced our SBSP. First Capital has fully
participated in CECRA for all qualifying tenants. This
had a negative impact on our second quarter results,
but this investment in our tenant base is very import-
ant. The vast majority of our qualifying tenants have
thriving profitable businesses that were turned upside
down from the pandemic induced closures. They
simply need a bridge to the other side. Besides being
the right thing to do socially, it is also in our best
long-term interest as this group is important to our
tenant mix and with the assistance of this program
they will emerge from the pandemic in a stronger
position to adapt, reinvest in their stores and grow
their business. Our relationship with these tenants
has also strengthened.
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(MSCI) for our environmental, social and governance
(ESG) standards and disclosures. We aspire to uphold
our position as an industry leader in ESG practices.
The world is witnessing many new challenges and
while the pandemic health crisis supersedes all other
topics in this letter, the subject of equity, diversity and
inclusion is an increasingly important one. First
Capital has and always will be an organization com-
mitted to a culture of respect and inclusion, where
employees have equal access to opportunities and
advancement in the workplace. We have signed the
BlackNorth Initiative’s CEO pledge to end anti-black
and systemic racism in Canada and we are committed
to doing our part to enhance our culture and develop
the diverse talent in our organization.
I want to conclude my remarks by acknowledging the
incredible efforts of the First Capital team. Our team
has never been stronger. This is a testament to the
culture we have built and although we have been
working apart, we remain very much together.
I would like to thank our Board for their guidance, our
executive team for the exceptional leadership they
have demonstrated through a very unusual period,
and our investors for your continued confidence in us.
Respectfully,
Adam Paul
President & Chief Executive Officer
While we are still in the recovery phase, we have
grown increasingly optimistic.
Today, virtually all our tenants are now open across
the country and are doing increasingly higher sales
volumes. Our development properties have all
resumed construction activities with no material
impact to project returns. Our density pipeline
continues to be advanced through the entitlement
process, including the submission of our rezoning
application for our exciting Christie Cookie property
in Toronto. Our disposition program has resumed with
discussions currently underway with various prospec-
tive purchasers – this will be beneficial to our delever-
aging objective which we continue to prioritize. We
have an enviable liquidity position relative to our
obligations that gives us significant financial flexibility.
Our occupancy continues to hold in exceptionally well
as we have received only a minimal amount of space
back as a result of COVID-19. Perhaps most impor-
tantly, we have done a fair amount of leasing since the
pandemic started, including over 400,000 square feet
of lease renewals in Q2 alone when the lockdowns
were most pronounced. The average rent increase on
those renewals was over 10% which exceeds our
long-term average. This is the result of a talented team
and great real estate fundamentals for the types of
properties we own. As the crisis eventually subsides
and the focus of many capital market participants
shifts from short term metrics, like monthly rent
collection, to real estate fundamentals, First Capital
will be served increasingly well.
We have a long history of sustainability, social respon-
sibility, and strong governance. It is simply how we do
business. We are proud of our recent accomplish-
ments in this area such as a 10% reduction in absolute
greenhouse gas emissions over a 4 year period ending
2019, being named by the Globe and Mail as one of
Greater Toronto’s Top 100 employers for 2020 and
once again achieving “AAA” rating – the highest
possible from Morgan Stanley Capital International
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Business and
Strategy Overview
Our business
First Capital Real Estate Investment Trust, with $10.2 billion
in assets, is one of Canada’s leading developers, owners and
operators of mixed-use urban real estate in Canada’s most
densely populated neighbourhoods.
Our purpose
Creating thriving urban neighbourhoods that generate long-term value for businesses,
residents, communities and our investors.
Our mixed-use developments and retail offerings are designed to become vibrant places that
meet the needs of everyday urban life – bringing together people, public spaces, retail shops and
services, public art, and access to public transportation.
Our operations
YYZ
TORONTO
HEADQUARTERS
FCR.UN
LISTED ON TSX
158
PROPERTIES
23.5M
SQ. FT. OF GLA
4,206
TENANTS
373
EMPLOYEES
Visit us at www.fcr.ca
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Our values and our
corporate responsibility
and sustainability
program guide our actions
Read more about our approach
to corporate responsibility
and sustainability in our 2018
Corporate Responsibility
and Sustainability Report
Collaboration
One Team,
One Purpose
Innovation
Freedom to challenge
the status quo
Excellence
Be the best
at what you do
Accountability
Deliver what
you promised
Passion
Love what you do
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Our super urban strategy
Creating thriving super urban neighbourhoods that drive
sustainable growth in cash flow and capital appreciation of
our best in class portfolio.
We achieve this by:
Investing in high-quality,
mixed-use properties to
build large positions in
targeted high growth
neighbourhoods
Fully integrating retail
with other uses to
create thriving urban
neighbourhoods
Optimizing the portfolio
through active asset
management
Surfacing substantial
unrecognized value in
our incremental density
pipeline through the
development process
Completing strategic
dispositions to fund our
investment program and
to reduce leverage post
the April 2019 share
repurchase transaction
Actively managing our balance
sheet to maintain financial
strength and flexibility and a
competitive cost of capital
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Our target markets
We target specific super urban
neighbourhoods within Canada’s
largest and fastest growing cities.
These neighbourhoods are located in Toronto,
Montreal, Calgary, Vancouver, Edmonton and Ottawa.
We have achieved critical mass in each of our target
markets, which helps generate economies of scale
and operating synergies, as well as deep local
knowledge of our properties, tenants, neighbourhoods
and markets in which we operate.
Within each of these markets, we own some of the
best located properties in neighbourhoods with
strong demographics that we expect will continue to
get stronger over time, thereby attracting the most
desirable tenants with the highest rent growth
potential and the most compelling opportunities for
value creation.
Urban Markets
% of Annual Minimum Rent*
% of Portfolio Value*
Greater Toronto Area
37%
Greater Montreal Area
14%
Greater Calgary Area
14%
Greater Vancouver Area
Greater Edmonton Area
Greater Ottawa Area
Kitchener/Waterloo/Guelph Area
Other
10%
10%
6%
5%
4%
47%
12%
12%
11%
8%
4%
3%
3%
Total
*As at December 31, 2019
100%
100%
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Creating neighbourhoods
for everyday urban lifeTM
Currently, over 90% of our revenues come from retail tenants
who provide the essential products and services consumers
need everyday, including grocery stores, pharmacies, liquor
stores, banks, restaurants, cafés, fitness centres, medical
services, childcare facilities and other professional and personal
services. In each of our properties, we strive to assemble the
right mix of complementary uses to best serve the local
community and contribute to thriving urban neighbourhoods.
Strategic and Diversified Retail Tenant Mix
# of Stores % of Rent
Grocery Stores
124
17.0
Medical, Professional
& Personal Services
1,416
15.4
Restaurants and Cafes
975
14.4
Pharmacies
125
9.1
Banks & Credit
Unions
Fitness Facilities
Liquor Stores
Daycare &
Learning Centres
Other Necessity-
Based Retailers
201
8.3
82
95
3.6
3.3
102
1.4
529
18.4
Other Tenants
557
9.1
As at December 31, 2019
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Growing our portfolio
Urban municipalities
where we operate
continue to focus on
increasing density within
the existing boundaries
of infrastructure.
This provides us with multiple development and redevelopment
opportunities within our existing portfolio of urban properties.
These opportunities are primarily comprised of redevelopments and
expansions of existing properties that add density to the site and improve
the quality of the property, which in turn leads to meaningful growth in
property value and rental income. We will continue to optimize our
development activity by concentrating our investment capital in higher
growth, densely populated super urban neighbourhoods.
The property acquisition environment remains extremely competitive
for assets of similar quality and location to those we currently own.
Asset valuations reflect strong demand for these properties, particularly
given their mix of stable cash flow with meaningful residential
intensification potential. As a result, our property acquisitions typically
do not provide accretion to our results in the immediate term. However,
we 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 funds from operations and net asset value
over time. Therefore, we expect to continue to focus on development and
redevelopment of existing assets as the primary means to grow the
portfolio, while continuing to make highly selective acquisitions that
complement the existing portfolio, when and if opportunities arise.
25 million square
feet of incremental
density within our
existing portfolio
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27 public art installations
across our portfolio
Actively managing
our assets
We view proactive
management of our
portfolio as a core
competency and an
important part of our
strategy.
Proactive management means we continually invest in our properties
to ensure they retain their market leading position. We strive to maintain
the highest standards in design, appearance and customer amenities
in our properties including the addition of public art installations and
enhancing connectivity to transit and the local community. We are
highly focused on maximizing the value and competitive position of our
properties, by proactively evolving our tenant mix to attract the right
tenants with the highest rent growth potential.
Our executive leadership team is centralized at our head office in
Toronto, which ensures that best practices, procedures and standards are
applied consistently across our operating markets through local teams.
Our lending activities
We provide co-owner financing,
priority mortgages and
mezzanine loans to third parties
in connection with certain
transactions and partnerships.
These loans and mortgages receivable are secured
and often provide us with the opportunity to acquire
full or partial interests in the underlying assets that
are consistent with our investment strategy through
rights, options or negotiated transactions. Therefore,
in addition to generating interest income and fees,
these lending activities provide an alternative means
to obtaining purchase options and/or participation
in projects which may otherwise have not been
accessible. Additionally, from time to time, we partner
with experienced real estate lenders and investment
companies whose primary business is lending which
helps to mitigate our risk.
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Managing our balance sheet
We seek to maintain financial strength and flexibility to
support a competitive cost of debt and equity capital over
the long term. Our capital structure is key to financing
growth and providing sustainable distributions to our
unitholders.
BBB -
S&P CREDIT RATING
BBB
DBRS CREDIT RATING
46.7%
DEBT TO ASSETS
4.0%
WEIGHTED AVERAGE COST
OF FIXED RATE DEBT
5.1 YEARS
WEIGHTED AVERAGE TERM TO
MATURITY OF FIXED RATE DEBT
$7.0 BILLION
UNENCUMBERED ASSET POOL
69.3%
OF ASSETS ARE UNENCUMBERED
We believe our capital structure, comprised of senior unsecured
debt, mortgage debt, revolving credit facilities, bank debt, and equity
provides financing flexibility and reduces risk, while generating
an attractive risk-adjusted return on investment. We recycle capital
through selective dispositions of full or partial interests of our
properties and, if deemed appropriate, we will issue equity to finance
our growth and strengthen our financial position.
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Share repurchase transaction
On April 16, 2019 we completed the repurchase of
36,000,000 common shares from Gazit Globe Ltd.
(“Gazit”), at a price of $20.60 per share for gross
proceeds to Gazit of approximately $742 million.
The share repurchase was contingent on Gazit
completing a secondary offering of 22,000,000 of
its FCR common shares at a price of $20.60 per
share to a syndicate of underwriters for gross
proceeds to Gazit of approximately $453 million.
Combined, these transactions reduced Gazit’s
ownership in FCR from 33.3% to 9.9%. During the
fourth quarter, Gazit sold a portion of its remaining
interest in FCR, reducing its ownership to 6.7%.
Subsequent to year-end, Gazit further reduced
its ownership interest in FCR from 6.7% to 4.4%.
The share repurchase transaction was funded
primarily through unsecured bank term loans.
We intend to de-lever by disposing of assets that
are inconsistent with our Super Urban Strategy.
REIT Conversion
We completed the plan of arrangement to convert
our company from a corporation to a real estate
investment trust on December 30, 2019. We began
trading as a REIT on the Toronto Stock Exchange
on December 30, 2019 under the symbol “FCR.UN”.
Further details on the reorganization were set
forth in an information circular that was mailed
to our shareholders on November 1, 2019 and is
available on SEDAR.
Inclusion in the S&P/TSX
Capped REIT Index in 2020
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Measuring our progress
As we continue to advance our Super Urban
Strategy, we measure our progress through a
number of key metrics.
Super Urban Portfolio Metrics
We define a super urban property based on its proximity to transit, its “Walkability
Score”, and most importantly its population density and expect to continue to improve
these metrics over time through our investment and disposition activity. We are targeting
further growth in population density and aim to reach an average population density
of 300,000 by 2021.
99%
78
Currently, over 99% of our
properties are located
within a 5-minute walk to
public transit.
Our portfolio has a “Walkability
Score” of 78 which is considered
“Very Walkable” where most errands
can be accomplished on foot.
290,000
Average population density within a five-kilometre radius
of each of our properties, up 85,000 or 40% from December
2016 making us a leader in North America on this metric.
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Disposition Program
We have an objective to sell 100% interests in
properties that are deemed to be inconsistent with
our Super Urban Strategy. We also have an objective
to sell 50% non-managing interests to institutional
partners in certain stable but growing properties,
to ultimately expand our position in these markets
without increasing our investment capital. Combined,
these properties represented approximately 15%
of our total portfolio or $1.5 billion in value when
we set this target in April of 2019, following the
share repurchase transaction. We expect to complete
the disposition program in 2021. We anticipate the
outcome of this activity to be a reduction in our
leverage to similar levels as of year-end 2018, an
increase in the weighting of large strategic
neighbourhood positions in our portfolio,
a meaningful improvement in the quality of our
portfolio and an incremental density pipeline that
exceeds the leasable area of our portfolio at the
beginning of this program, which was approximately
23 million square feet.
• During 2019, we completed $835 million in property
dispositions that were deemed inconsistent with our
super urban strategy, including exiting entire
markets such as Red Deer and Quebec City
• Our Debt to Assets and Debt to EBITDA declined
from 48.9% and 10.9x respectively, following the
share repurchase in the second quarter of 2019 to
46.7% and 10.0x at year end 2019
Surfacing value in and growing our
incremental density pipeline
Currently, 7.1 million square feet or 28.4%
of our incremental density pipeline of 25.0
million square feet is included in the fair value
of our investment properties. We expect to
increase this percentage, primarily by seeking
entitlements for a meaningful portion of this
density, which will lead to an increase in our
net asset value.
• Completed 9.0 million square feet of
entitlement submissions in 2019
• Grew our incremental density pipeline from
22.5 million square feet at December 31, 2018
to 25.0 million square feet at December 31,
2019
• Targeting an additional 4.0 million square feet
of entitlement submissions in 2020
Growth in average rental rate
We expect, as a result of our Super Urban Strategy,
that the annual growth in our average rental rate will
continue to accelerate above its five year historical
average of 2.4% (2014-2018)
IN 2019, OUR AVERAGE RENTAL RATE GREW
5.0%
WHICH WAS WELL ABOVE ITS FIVE YEAR
HISTORICAL AVERAGE
OUR AVERAGE RENTAL RATE OF
$21.25 PER SQUARE FOOT IS
30% HIGHER
THAN THE AVERAGE RENTAL RATE OF OUR
CANADIAN RETAIL PEER GROUP
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Corporate Responsibility
And Sustainability
Corporate Responsibility and Sustainability
(“sustainability’) at First Capital encompasses
all aspects of our environmental, social and
governance (ESG) practices.
Sustainability has always been integral to the
responsible management of every aspect of our
business and the mitigation of various risks. By taking
a holistic approach to ESG, we are focused on reducing
our environmental impact while creating thriving
and dynamic urban neighbourhoods and at the same
time, delivering long-term value for our stakeholders.
Simply put, it makes good business sense.
To support our commitment to sustainability
leadership, we have in place robust capabilities to
measure and report on our progress and to continually
assess and improve our environmental programs each
year. We recognize that our leadership in sustainability
practices is important to our tenants and investors, as
well as our employees and the communities in which
we operate. We are committed to transparency and
ensuring that our sustainability reporting is accurate,
meaningful and accessible to all stakeholder groups.
We employ a full-time Director of Sustainability
who is responsible for leading sustainability reporting
initiatives and driving continuous ESG engagement
and improvement across our organization, including
through co-chairing our ESG Taskforce with our Chief
Operating Officer.
First Capital published its first corporate responsibility
and sustainability report (“CRS”) in 2009. Since 2010,
we have had a third-party conduct assurance on
selected sustainability performance indicators,
including greenhouse gas emissions and energy use.
We have used the Global Reporting Initiative (GRI)
framework for corporate responsibility reporting since
2011. In addition to GRI, we continue to monitor
international reporting trends, including the work of
the Sustainability Accounting Standards Board (SASB).
Our 2018 CRS report included a number of disclosures
recommended by the SASB. We also respond annually
to the Global Real Estate Sustainability Benchmark
(GRESB) survey and the Carbon Disclosure Project’s
(CDP) Climate Change questionnaire.
We recognize that our employees are at the core of
our success and have well-developed programs
promoting career development and supporting
continuing education, including through tuition
subsidies. First Capital encourages employee
engagement and innovation through a value awards
program, among other initiatives and also encourages
employees to become unitholders through a unit
purchase plan. First Capital is committed to the
highest ethical standards, upholding a strict Anti-
Corruption Compliance Policy and Code of Conduct
and Ethics. As an entity with a social conscience, we
are also committed to giving back by encouraging our
employees to volunteer in the communities in which
we operate, through participation in charitable
initiatives that support vulnerable parts of the
population, and to promote environmental
improvements that help neighbourhoods thrive.
We believe that sound and effective corporate
governance is essential to our performance and have
adopted a governance framework that reflects our
values, ensures that effective corporate governance
practices are followed and that the board of trustees
(the “Board”) functions independently of management.
First Capital endorses the principle that the Board
should have a balance of skills, experience and
diversity. We believe that diverse Boards have
enhanced decision-making abilities that lead to
improved oversight and promote better overall
corporate governance.
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Our strength in ESG standards and disclosure
is validated through numerous ratings,
including achieving:
AAA
‘AAA’ rating, the highest possible, in the Morgan Stanley Capital
International (MSCI) ESG Ratings assessment for the past three years
4/40
4th place ranking out of 40 in Corporate Knights ‘2018 Future 40
Responsible Corporate Leaders in Canada’ and included on this
ranking list for five consecutive years
ESG
SCORES
Awarded high ESG Quality Scores across all three categories by
Institutional Shareholder Services in 2019; on a scale of 1–10 with
1 being the highest: ENVIRONMENTAL : 2 / SOCIAL : 2 / GOVERNANCE : 1
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Our ESG Priorities and Progress
ENVIRONMENTAL
Reduce our carbon
emissions and energy
use
• 13% reduction in absolute greenhouse gas (GHG) emissions,
despite an 8% increase in gross leasable area (2014–2018)
• Current target: 9% reduction in carbon emissions by 2021,
2018 baseline
• Upgrade all parking lot and exterior lighting to energy efficient
light emitting diode (LED) lamps by December 2020
Promote sustainable
transportation
• > 99% of our portfolio within a 5-minute walk of public transit
• Average Walk Score for our portfolio is 78 (very walkable)
• Over 160 electric vehicle charging stations; goal to have electric
charging stations installed at all our properties by 2024
Achieve green building
certifications
• Achieve Building Owners and Managers Association’s
Building Environmental Standards (BOMA BEST) certification at
all applicable properties by 2021; 76% of our portfolio is certified,
as of December 31, 2019
• Certify all new construction projects to Leadership in Energy and
Environmental Design (LEED) standards (subject to tenant acceptance);
16% of our portfolio (119 projects) is certified to LEED as of
December 31, 2019
• Actively working to better understand the risks of climate change,
incorporating this into our business continuity planning and in turn,
increasing the resiliency of our properties and communities
Effectively manage
climate change risk
and resilience
• Reviewing the recommendations and guidance put forth by the
Task Force on Climate-related Financial Disclosures (TCFD) and
are committed to defining how best to apply them to our business
and across our portfolio.
• Actively managing and reducing our carbon footprint
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SOCIAL
• Ranked as the most gender diverse company in Canada by Evolve
Funds in 2017
Foster an engaged and
diverse workforce
• Strong gender diversity metrics achieved through all levels of the
organization; over 50% of management positions are held by females
including the executive leadership team
Be one of the best
places to work
• Recognized by the Globe and Mail as one of the Greater Toronto
Area’s top employers in 2019
• Best in class employee engagement score in most recent employee survey
Be a good corporate
citizen in the
communities we
operate
• Long-standing support of public arts, now with 27 installations
across our portfolio
• Launching the FCR Foundation in 2020; employee-led charitable
giving and volunteer program focused on community support
• Participation in numerous local neighbourhood and community
volunteer events
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GOVERNANCE
Have a strong
governance
framework in
place that:
Strive to be a
governance leader
by making it a
priority to:
• Reflects our values
• Ensures effective corporate governance practices are followed
• Ensures the Board functions independently of management
• Ensures diversity is considered in determining optimal
board composition
• Continuously adopt new and improved governance practices
• Follow recommendations as governance standards evolve
Monitor our
progress:
• Reviewing our annual governance scores from ISS, the Globe and
Mail Board Games and other similar rankings with our Board
• Providing opportunities for our unitholders to communicate
directly with our Board
We know that progressive ESG accountability results
in improved risk management and leads to increased
property values, greater tenant satisfaction, more
engaged employees, improved operational efficiencies
and real cost savings. For more information on the
Company’s ESG practices, please refer to the latest
Corporate Responsibility and Sustainability report on
the Company’s website at www.fcr.ca/sustainability.
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MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
Table of Contents
1
1
4
4
6
6
8
9
10
11
12
12
12
13
14
21
24
25
25
26
27
27
29
30
30
31
32
32
Introduction
Non-IFRS Financial Measures
Operating Metrics
Summary Consolidated Information and Highlights
Business and Operations Review
Real Estate Investments
Investment Properties
2019 Acquisitions
2018 Acquisitions
2019 Dispositions
2018 Dispositions
Impact of Acquisitions and Dispositions
Capital Expenditures
Valuation of Investment Properties
Properties Under Development
Leasing and Occupancy
Top Forty Tenants
Lease Maturity Profile
Investment in Joint Ventures
Loans, Mortgages and Other Assets
Results of Operations
Net Operating Income
Interest and Other Income
Interest Expense
Corporate Expenses
Other Gains (Losses) and (Expenses)
Income Taxes
Net Income Attributable to Unitholders /
Shareholders
32
32
33
34
34
35
37
37
38
38
39
39
40
40
41
43
45
45
46
47
47
48
49
50
51
51
Capital Structure and Liquidity
Total Capital Employed
Credit Ratings
Outstanding Debt and Principal Maturity Profile
Mortgages
Credit Facilities
Senior Unsecured Debentures
Unitholders' / Shareholders’ Equity
Liquidity
Cash Flows
Contractual Obligations
Contingencies
Non-IFRS Reconciliations and Financial Measures
Reconciliation of Consolidated Balance Sheets
to First Capital’s Proportionate Interest
Reconciliation of Consolidated Statements
of Income to First Capital's Proportionate Interest
FFO and ACFO
NAV per unit
Distributions / Dividends
Summary of Financial Results of Long-term Debt
Guarantors
Related Party Transactions
Subsequent Events
Quarterly Financial Information
Critical Accounting Estimates
Accounting Policy Changes
Controls and Procedures
Risks and Uncertainties
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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
Real Estate Investment Trust (“First Capital”, “FCR” or the “Trust”) 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, 2019 and 2018. It should be read in conjunction with the Trust’s audited annual consolidated financial
statements for the years ended December 31, 2019 and 2018. Additional information, including First Capital's current
Annual Information Form, is available on the SEDAR website at www.sedar.com and on the FCR website at www.fcr.ca.
All dollar amounts are in thousands of Canadian dollars, unless otherwise noted. Historical results and percentage
relationships contained in First Capital’s unaudited interim and audited annual consolidated financial statements and
MD&A, including trends which might appear, should not be taken as indicative of its future operations. The information
contained in this MD&A is based on information available to Management and is dated as of February 11, 2020.
Effective December 30, 2019, First Capital Realty Inc. (the "Company") completed its Plan of Arrangement (the
"Arrangement") to convert into a real estate investment trust ("REIT"). Under the Arrangement, Shareholders of the
Company received one trust unit ("Trust Unit") or one Class B Limited Partnership Unit ("Exchangeable Unit") of a
controlled limited partnership of the Trust, for each common share of the Company held. Consequently, any references to
common shares, Shareholders and per share amounts relate to periods prior to the conversion on December 30, 2019 and
any references to Trust Units, Unitholders and per unit amounts relate to periods subsequent to December 30, 2019.
Since the Trust is a continuation of First Capital Realty Inc., the prior year comparatives contained in First Capital’s
unaudited interim and audited annual consolidated financial statements and MD&A are those of the Company.
NON-IFRS FINANCIAL MEASURES
In addition to measures determined in accordance with International Financial Reporting Standards ("IFRS"), First Capital
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 real estate
entities, and should not be construed as an alternative to other financial measures determined in accordance with IFRS.
The following describe the non-IFRS measures First Capital currently uses in evaluating is financial performance.
Proportionate Interest
"Proportionate interest" or "Proportionate share" is defined by Management as First Capital’s proportionate share of
revenues, expenses, assets and liabilities in all of its real estate investments. Under IFRS, FCR's six 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 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
FCR's proportionate interest provides a useful and more detailed view of the operation and performance of First Capital'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 First Capital's debt metrics. In addition, FCR's lenders require
Management to calculate its debt metrics on a proportionate interest basis.
To achieve the proportionate presentation of its six equity accounted joint ventures, Management allocates FCR'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, FCR exercises control over two
partially owned ventures and consolidates 100% of the revenues, expenses, assets, and liabilities in the consolidated
financial statements. In the reconciliations, the partially owned ventures are also presented as if they were
proportionately consolidated. To achieve the proportionate presentation of its partially owned ventures, Management
1
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subtracts the non-controlling interest's share (the portion FCR doesn't own) of revenue, expenses, assets, and liabilities on
each relevant line item. FCR 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 FCR's legal claim to
such items.
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 First Capital’s portfolio.
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. First Capital calculates FFO in accordance
with the recommendations of the Real Property Association of Canada (“REALPAC”) as published in its most recent “White
Paper on Funds from Operations and Adjusted Funds From Operations for IFRS” dated February 2019. 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 FCR's net income that may not be the most
appropriate determinants of the long-term operating performance of FCR, such as investment property selling costs; tax
on gains or losses on disposals of properties; deferred income taxes; distributions on Exchangeable Units; fair value gains
or losses on Exchangeable Units; fair value gains or losses on unit-based compensation; and any gains, losses or
transaction costs recognized in business combinations. FFO provides a perspective on the financial performance of FCR
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 and ACFO" section of this MD&A.
Adjusted Cash Flow from Operations
Adjusted Cash Flow from Operations (“ACFO”) is a supplementary measure First Capital began using in 2017 to measure
operating cash flow generated from the business. ACFO replaced FCR’s previously reported Adjusted Funds from
Operations (“AFFO”) as its supplementary cash flow metric. FCR calculates ACFO in accordance with the recommendations
of REALPAC as published in its most recent “White Paper on Adjusted Cashflow From Operations (ACFO) for IFRS” dated
February 2019.
Management considers ACFO a meaningful metric to measure operating cash flows as it represents sustainable cash
available to pay distributions to Unitholders. 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 FCR's consolidated joint venture. A reconciliation of cash
FIRST CAPITAL REIT ANNUAL REPORT 2019
2
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
flow from operations under IFRS to ACFO can be found in the "Non-IFRS Reconciliations and Financial Measures — FFO
and ACFO" section of this MD&A.
Weighted average units or shares outstanding for FFO
For purposes of calculating per unit or per share amounts for FFO, the weighted average number of diluted units or shares
outstanding includes the weighted average outstanding Trust Units or common shares and Exchangeable Units as at the
end of the period; and assumes conversion of all outstanding Deferred Units, Restricted Units, Performance Units and any
dilutive Options as at the end of the period.
FFO and ACFO Payout Ratios
FFO and ACFO payout ratios are supplementary non-IFRS measures used by Management to assess the sustainability of
First Capital's distribution payments. The FFO payout ratio is calculated using distributions declared per unit divided by
FFO per unit. The ACFO payout ratio is calculated on a rolling four quarter basis by dividing total cash distributions 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 seasonal fluctuations in ACFO period over period.
Enterprise Value
Enterprise value is the sum of the carrying value of First Capital's total debt on a proportionate basis and the market value
of FCR's Trust Units and Exchangeable Units outstanding at the respective quarter end date. This measure is used by FCR
to assess the total amount of capital employed in generating returns to Unitholders.
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 First Capital'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.
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, fair value gains or losses on Exchangeable Units, fair value gains or losses on unit-based
compensation and other non-cash or non-recurring items. FCR 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 First Capital to obtain various
forms of debt financing at a reasonable cost of capital.
Net Asset Value
Net Asset Value ("NAV") represents the proportionate share of First Capital's total assets less the proportionate share of
its total liabilities excluding deferred tax liabilities and Exchangeable Units.
NAV per unit represents NAV, as calculated above, divided by the number of diluted units outstanding as at the end of the
period. For purposes of calculating per unit amounts for NAV, the number of diluted units outstanding is calculated as
follows:
• Includes all outstanding Trust Units as at the end of the period;
• Includes all outstanding Exchangeable Units as at the end of the period; and
• Assumes conversion of all outstanding Deferred Units, Restricted Units, Performance Units and any dilutive
Options as at the end of the period.
3
FIRST CAPITAL REIT ANNUAL REPORT 2019
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OPERATING METRICS
First Capital 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. FCR uses these operating metrics to monitor and measure operational performance
period over period. To align FCR's GLA reporting with its ownership interest in its properties, unless otherwise noted, all
GLA is presented at FCR's ownership interest (20.9 million square feet at its ownership interest compared to 23.5 million
square feet at 100% as at December 31, 2019). First Capital's operating metrics and GLA excludes residential GLA totaling
296,000 square feet and hotel GLA of 30,000 square feet as amounts are not significant at this time. In addition, these
metrics exclude the operating metrics related to First Capital's interest in M+M Urban Realty LP ("MMUR") as its business
operations are focused on developing future income-producing properties.
SUMMARY CONSOLIDATED INFORMATION AND HIGHLIGHTS
For the years ended 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 Unitholders / Shareholders
Net income per unit / share attributable to Unitholders / Shareholders (diluted)
Weighted average number of units / shares - diluted - IFRS
(in thousands)
Cash provided by operating activities
Distributions / Dividends
Distributions / Dividends declared
Distributions declared per unit
Dividends declared per common share
Cash dividends paid
Cash dividends paid per share
As at December 31
Financial Information (1)
Investment properties (3)
Hotel property
Total assets
Mortgages (3)
Credit facilities
Senior unsecured debentures
Exchangeable Units
Convertible debentures
Unitholders' / Shareholders’ equity
Net Asset Value per unit / share (2)
Capitalization and Leverage
2019
2018
2017
$
$
$
$
$
$
$
$
$
$
$
779,822
460,397
61,037
401,345
1.74
230,810
269,147
165,224
0.072
0.645
203,830
0.860
$
$
$
$
$
$
$
$
$
$
$
756,024
454,773
102,389
343,606
1.37
$
$
$
$
$
722,860
437,510
458,363
633,089
2.55
250,802
249,413
283,012
$
270,159
215,537
$
— $
$
$
$
0.860
212,651
0.860
210,433
—
0.860
209,620
0.860
2019
2018
2017
$ 9,752,130
62,199
$
$ 10,161,360
$ 1,327,021
$
899,165
$ 2,497,213
$
25,010
$
$ 4,426,592
23.39
$
$ 9,768,275
58,604
$
$ 10,453,055
$ 1,285,908
$
626,172
$ 2,447,278
$
— $
$ 4,978,242
22.59
$
$ 9,396,359
—
$
$ 9,968,552
$ 1,060,339
$
581,627
$ 2,595,966
—
54,293
$ 4,647,071
21.85
$
— $
— $
Trust Units / Shares outstanding (in thousands)
Exchangeable Units
Enterprise value (2)
Net debt to total assets (2) (4)
Weighted average term to maturity on mortgages, fixed rate unsecured term loans and
senior unsecured debentures (years)
217,954
1,210
$ 9,301,000
254,828
N/A
$ 9,239,000
244,431
N/A
$ 9,480,000
46.7%
5.1
42.1%
5.5
43.4%
5.4
FIRST CAPITAL REIT ANNUAL REPORT 2019
4
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
As at December 31
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)
Commercial pipeline (primarily retail)
Residential pipeline
Average rate per occupied square foot
2019
158
2018
2017
166
161
23,528,000
20,927,000
25,456,000
25,390,000
23,854,000
23,991,000
97.6%
96.9%
97.4%
96.7%
96.9%
96.1%
2,258,000
2,287,000
2,862,000
22,778,000
20,262,000
18,856,000
$
21.25
$
20.24
$
Commercial GLA developed and transferred online - at ownership interest
201,000
283,000
Residential units developed and transferred online
Same Property - stable NOI - increase (decrease) over prior period (2) (6)
Total Same Property NOI - increase (decrease) over prior period (2) (6)
247
2.7%
3.3%
N/A
2.7%
3.1%
19.69
131,000
N/A
2.0%
2.5%
Funds from Operations (2) (4)
FFO
FFO per diluted unit / share
FFO payout ratio (7)
Weighted average number of units / shares - diluted - FFO (in thousands)
Adjusted Cash Flow from Operations (2) (4)
ACFO
ACFO payout ratio on a rolling four quarter basis
$
$
$
$
$
284,920
1.23
69.7%
$
$
302,971
1.21
71.1%
284,110
1.16
74.2%
230,810
250,474
245,153
252,416
$
267,168
$
243,645
80.8%
79.6%
86.0%
(1) As presented in First Capital'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 First Capital's ownership interest. Square footage does not include potential development on properties held by FCR’s MMUR joint venture.
(6) Calculated based on the year-to-date NOI. Prior period amounts not restated for current period property categories.
(7) For 2019 only, FFO payout ratio was calculated using cash dividends.
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BUSINESS AND OPERATIONS REVIEW
Real Estate Investments
Investment Property Categories
First Capital categorizes its properties for the purposes of evaluating operating performance including Total Same Property
NOI. This enables FCR 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, FCR 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 properties. 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.
First Capital has applied the above property categorization to the fair value, capital expenditures as well as leasing and
occupancy activity on its portfolio, and to its Same Property NOI analysis to further assist in understanding FCR’s real
estate activities and its operating and financial performance.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Portfolio Overview
As at December 31, 2019, First Capital had interests in 158 properties, which were 96.9% occupied with a total GLA of
20.9 million square feet at FCR's ownership interest (23.5 million square feet at 100%) and a fair value of $9.7 billion as
well as development land with a fair value of $92.0 million. This compares to 166 properties, which were 96.7% occupied
with a total GLA of 23.9 million square feet at FCR's ownership interest (25.5 million square feet at 100%) and a fair value
of $9.8 billion and $78.1 million, respectively, as at December 31, 2018.
The Same Property portfolio includes properties sub-categorized in Same Property – stable and Same Property with
redevelopment. The Same Property portfolio is comprised of 125 properties with a total GLA of 16.7 million square feet at
FCR's ownership interest (19.1 million square feet at 100%) and a fair value of $6.6 billion. These properties represent
79.1% of FCR's property count, 80.0% of its GLA at FCR's ownership interest and 68.1% of its fair value as at December 31,
2019.
The balance of FCR’s real estate assets consists of properties which are in various stages of redevelopment, properties
acquired in 2019 or 2018 and properties in close proximity to them, as well as properties held for sale.
First Capital's portfolio based on property categorization is summarized as follows:
As at
December 31, 2019
December 31, 2018
Number of
Properties
GLA
(000s
sq. ft.) Occupancy
Number of
Properties
GLA
(000s
sq. ft.) Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
97.6% $ 21.06
17.78
96.6%
97.5%
94.4%
99.2%
94.7%
93.0%
—%
20.61
25.87
32.36
24.99
13.57
—
115
10
125
14
1
9
9
—
14,435
2,298
16,733
2,851
279
228
836
—
Weighted
Average
Rate per
Occupied
Square
Foot
20.81
17.46
20.35
24.53
29.93
24.91
13.26
16.47
97.4% $
97.8%
97.4%
94.6%
98.8%
93.9%
92.5%
96.0%
115
10
125
14
1
6
9
11
166
14,452
2,275
16,727
2,965
147
202
836
2,977
23,854
158
20,927
96.9% $ 21.25
96.7% $
20.24
Same Property – stable
Same Property with redevelopment
Total Same Property
Major redevelopment
Ground-up development
Acquisitions
Investment properties classified as held for sale
Dispositions
Total
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First Capital’s portfolio by major market is summarized as follows:
As at
December 31, 2019
December 31, 2018
Number
of
Properties
GLA
(000s
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
(000s
sq. ft.)
Fair
Value(1)(2)
% of
Total
Fair
Value Occupancy
Weighted
Average
Rate per
Occupied
Square
Foot
% of
Annual
Minimum
Rent
51
6,840 $ 4,487
47%
96.6% $
24.43
32
3,860
1,187
12%
96.5%
16.46
17
17
2,723
1,785
1,200
1,059
12%
11%
97.1%
97.3%
23.24
25.16
13
1,304
399
4%
97.1%
18.85
5
11
1,042
1,094
334
254
3%
3%
99.3%
96.4%
18.83
15.80
37%
14%
14%
10%
10%
6%
5%
4%
50
6,880 $ 3,904
40%
97.0% $
23.79
32
4,384
1,278
14%
95.3%
16.73
17
19
2,694
2,033
1,181
1,108
12%
11%
97.2%
97.3%
22.61
24.18
12
2,323
863
9%
98.1%
19.27
13
1,902
588
6%
96.6%
18.24
5
18
1,042
2,596
339
569
3%
5%
98.4%
95.9%
18.40
14.14
34%
15%
13%
10%
9%
7%
4%
8%
158 20,927 $ 9,731
100%
96.9% $
21.25
100%
166 23,854 $ 9,830
100%
96.7% $
20.24
100%
(millions of dollars,
except other data)
Greater Toronto
Area
Greater Montreal
Area
Greater Calgary
Area
Greater Vancouver
Area
Area
Greater Ottawa
Area
Kitchener/
Waterloo/
Guelph Area
Other
Total
Greater Edmonton
12
2,279
811
8%
96.7%
19.44
(1) At FCR's proportionate interest, excluding development land. Includes hotel property at net book value as at December 31, 2019 and December 31, 2018, respectively.
(2) Excludes fair value of MMUR's properties of $88 million as at December 31, 2018.
Among First Capital's real estate investment portfolio are forty-three (2018 - forty) assets each with a value greater than
$85 million or size greater than 300,000 square feet. Together, these forty-three assets comprise $6.0 billion (2018 - $5.5
billion) or 62% (2018 - 56%) of FCR's aggregate $9.8 billion investment portfolio asset value (2018 - $9.8 billion). These
assets, as a percentage of FCR's aggregate value, reflect FCR's focus on larger, but fewer strategic assets in its target urban
markets.
Investment Properties
A continuity of First Capital’s investment in its property acquisitions, dispositions, development and portfolio
improvement activities is as follows:
(millions of dollars)
Balance at beginning of year
Acquisitions
Investment properties and additional adjacent spaces
Properties acquired for redevelopment
Development activities and property improvements
Consolidation of equity accounted joint venture
Increase (decrease) in value of investment properties, net
Dispositions
Other changes
Balance at end of year (1)
(1) Includes investment properties classified as held for sale as at December 31, 2019 totaling $159 million of investment properties.
Year ended December 31, 2019
Investment
Properties
9,690
$
Development
Land
78
$
188
173
220
131
60
(810)
8
9,660
$
$
31
—
8
—
1
(25)
(1)
92
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
(millions of dollars)
Balance at beginning of year
Acquisitions
Investment properties and additional adjacent spaces
Development activities and property improvements
Reclassifications from development land
Increase (decrease) in value of investment properties, net
Dispositions
Other changes
Balance at end of year (1)
Year ended December 31, 2018
Investment
Properties
9,317
$
Development
Land
79
$
130
259
11
88
(123)
8
9,690
$
$
2
8
(11)
11
(9)
(2)
78
(1) Includes investment properties classified as held for sale as at December 31, 2018 totaling $66 million of investment properties and $19 million of development land.
2019 Acquisitions
Income-producing properties and Additional Adjacent Spaces
During the year ended December 31, 2019, First Capital acquired four properties and increased its interest in the King
High Line project, as summarized in the table below:
Count Property Name
1.
2.
3.
4.
5.
1626 Martin Drive (Semiahmoo)
738-11th Avenue SW (Glenbow)
1100 King St. W. (Liberty Village)(1)
134 Atlantic Avenue (Liberty Village)
Yorkville Village adjacent properties
Total
City/Province
Surrey, BC
Calgary, AB
Toronto, ON
Toronto, ON
Toronto, ON
Quarter
Acquired
Interest
Acquired
GLA
(sq. ft.)
Acquisition Cost
(in millions)
Q1
Q2
Q3
Q3
Q4
100%
50%
50%/30%
100%
100%
9,200 $
15,700
175,800
3,150
—
203,850 $
7.0
6.1
166.2
3.2
3.0
185.5
(1) FCR acquired an incremental interest of 50% and 30% of the Retail and Residential components, respectively.
Development Properties
During the year ended December 31, 2019, First Capital acquired three land parcels, one property slated for mixed use
development in Yorkville as well as the remaining 46.9% interest in four properties held through Main & Main Urban
Realty LP, as summarized in the table below:
Count Property Name
1.
1.
2.
3.
4.
Adjacent properties acquired for redevelopment
140 Yorkville Avenue (Yorkville Village)
Total properties acquired for redevelopment
Development lands
1855 Leslie Street (Leslie and York Mills assembly)
Bow Valley Crossing (1)
Main & Main Urban Realty LP
- Yonge & Roselawn assembly
- Dundas & Aukland
- 400 King St. W.
- 1092 Kingston Rd. (retail at base of condo)
30-60 Montgomery Avenue (Yonge & Roselawn)
Total development lands
City/Province
Quarter
Acquired
Interest
Acquired
Acreage
Acquisition Cost
(in millions)
Toronto, ON
Q3
33%
Toronto, ON
Calgary, AB
Toronto, ON
Q1
Q1
Q3
100%
20%
46.9%
0.6 $
0.6 $
0.6 $
9.7
2.0
59.7
59.7
11.3
2.3
116.0 (2)
Toronto, ON
Q4
100%
0.5
12.8 $
17.3
146.9
(1) In the second quarter, FCR disposed of its entire interest in this property.
(2) FCR acquired the remaining 46.9% interest with its partner in Main and Main Developments LP. FCR's acquisition cost was $98.0 million.
9
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2018 Acquisitions
Income-producing Properties and Additional Adjacent Spaces
During the year ended December 31, 2018, First Capital acquired sixteen properties, as summarized in the table below:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Count Property Name
121 Scollard St. (Yorkville Village)
731, 739 - 10th Avenue SW (GM Glenbow)
812 - 11th Avenue SW (GM Glenbow)
Molson Building
Hazelton Hotel (Yorkville Village) (1)
775 King Street West (Liberty Village)
City/Province
Toronto, ON
Calgary, AB
Calgary, AB
Calgary, AB
Toronto, ON
Toronto, ON
6555 West Boulevard (Kerrisdale Village)
Vancouver, BC
1525 Avenue Road
221 - 227 Sterling Road (Bloor & Sterling)
216 Elgin Street
Yorkville Village adjacent property
290 Lawrence Avenue West (Avenue & Lawrence)
19683 Seton Crescent SE (Seton Gateway)
332 Bloor Street West (Bloor & Spadina)
4509 Kingston Road (Morningside Crossing)
816-838 11th Avenue SW (GM Glenbow)
Total
Toronto, ON
Toronto, ON
Ottawa, ON
Toronto, ON
Toronto, ON
Calgary, AB
Toronto, ON
Toronto, ON
Calgary, AB
Quarter
Acquired
Interest
Acquired
GLA
(sq. ft.)
Acquisition Cost
(in millions)
Q1
Q1
Q1
Q2
Q3
Q3
Q3
Q3
Q3
Q3
Q3
Q4
Q4
Q4
Q4
Q4
100%
4,500 $
50%
50%
75%
60%
100%
100%
100%
35%
50%
100%
100%
100%
100%
100%
50%
10,400
5,500
12,800
6,700
18,000
30,400
3,200
29,400
6,200
3,100
5,800
62,100
7,700
3,900 $
3,700
8.4
6.0
1.8
5.4
45.0
23.7
19.4
12.0
6.8
5.7
2.2
12.2
11.0
10.6
2.6
2.4
213,400 $
175.2
(1) The acquisition of the hotel property was accounted for as a business combination under IFRS 3 "Business Combinations". Refer to Note 7 of the audited consolidated
financial statements for further details. GLA represents retail space only.
Development Properties
During the year ended December 31, 2018, First Capital acquired one adjacent land parcel, as summarized in the table
below:
Count Property Name
City/Province
Quarter
Acquired
Interest
Acquired
Acreage
Acquisition Cost
(in millions)
Development lands
2194 Lake Shore Blvd. West (former Christie Cookie site) Toronto, ON
1.
Q1
50%
Total development lands
0.2 $
0.2 $
1.8
1.8
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
2019 Dispositions
During the year ended December 31, 2019, First Capital completed $835.0 million in dispositions, primarily in non-super
urban markets including its entire portfolio in Quebec City, Red Deer and Trois-Rivieres. In addition, FCR disposed of
partial interests in residential density to strategic residential partners. These dispositions are summarized in the table
below:
Count Property Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Westminster Centre
Carrefour du Plateau - Residential Land
Terry Fox Lands (1)
Bow Valley Crossing - Land (1)
Gloucester City Centre
Carrefour du Plateau
Merivale Mall
Galeries de Repentigny
Galeries Brien Ouest/Est
Centre Maxi Trois Rivieres
Atrium Du Sanctuaire
Centre Commercial Wilderton - Phase 1
Residential Air Rights
Nanaimo Portfolio
Langford Portfolio
Gateway Village
1100 King St. W. - Residential (2)
St. Hubert/Ottawa/West Island Portfolios
Quebec City Portfolio
Red Deer Village
20.
Halton Hills Village
21. McLaughlin Corners West (1)
22.
1100 King St. W. - Residential (2)
756-760 Baseline Rd. E. (Land)
23.
City/Province
London, ON
Gatineau, QC
Kanata, ON
Calgary, AB
Ottawa, ON
Gatineau, QC
Ottawa, ON
Repentigny, QC
Repentigny, QC
Trois-Rivieres, QC
Montreal, QC
Montreal, QC
Nanaimo, BC
Victoria, BC
St. Albert, AB
Toronto, ON
Montreal, QC /
Ottawa, ON
Quebec City, QC
Red Deer, AB
Georgetown, ON
Brampton, ON
Toronto, ON
London, ON
Quarter
Sold
Interest Sold
Q1
Q1
Q1
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q3
Q3
Q3
Q3
Q4
Q4
Q4
Q4
Q4
Q4
Q4
100%
100%
50%
95%
50%
50%
50%
50%
50%
100%
100%
100%
100%
100%
50%
10%
50%
100%
100%
100%
50%
3%
100%
GLA
(sq. ft.)
52,100
—
—
—
184,300
115,300
109,500
65,400
30,600
121,300
36,500
—
149,800
141,500
52,700
—
515,400
994,500
243,700
111,700
53,000
—
—
Gross Sales
Price
(in millions)
Acreage
8.4
4.9
13.5
46.0
14.3
12.3
8.2
6.3
2.2
11.9
4.7
—
10.9
8.6
6.0
—
47.5
82.9
20.1
12.2
5.6
—
0.4
Total
2,977,300
326.9 $
835.0
(1) FCR disposed of its entire interest in these properties.
(2) FCR's former partner also sold their 20% interest in the residential component of the property to the same purchaser.
11
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2018 Dispositions
During the year ended December 31, 2018, First Capital disposed of a 50.5% non-managing interest in a portfolio of six
properties in London, Ontario as well as three land parcels, a partial interest in the Vancouver property planned for
redevelopment and its interest in West Oaks Shopping Centre for $132.0 million, as summarized in the table below:
Count Property Name
Eagleson Cope Drive (land)
Wellington Corners
Sunningdale Village
Byron Village
Hyde Park Plaza
Stoneybrook Plaza
Adelaide Shoppers
1.
2.
3.
4.
5.
6.
7.
8.
9.
200 West Esplanade
10. West Oaks Shopping Centre
11.
1071 King Street W. (land)
Total
City/Province
Ottawa, ON
London, ON
London, ON
London, ON
London, ON
London, ON
London, ON
Vancouver, BC
Abbotsford, BC
Toronto, ON
Quarter
Sold
Interest Sold
GLA
(sq. ft.)
Acreage
Gross Sales
Price
(in millions)
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q3
Q4
Q4
100%
50.5%
50.5%
50.5%
50.5%
50.5%
50.5%
100%
50%
50%
33%
102,900
11.2
40,800
36,600
44,000
26,100
27,900
9,700
—
19,200
132,500
—
7.0
6.0
6.0
5.0
4.9
1.7
1.4
0.2
9.3
0.2
439,700
52.9 $
132.0
130 Michael Cowpland Drive (land)
Ottawa, ON
During the year ended December 31, 2018, First Capital also completed the sale of 19 properties that it owned through its
investment in Main and Main Urban Realty, for approximately $116.8 million at FCR's interest.
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, 2019 and 2018 is summarized in the table below:
For the year ended December 31
Central Region
Eastern Region
Western Region
Total
Capital Expenditures
Acquired
Disposed
2019
8,140
—
484
8,624
$
$
2018
4,672
241
2,947
7,860
$
$
2019
3,648
31,657
11,463
46,768
$
$
2018
3,656
570
2,722
6,948
$
$
Capital expenditures are incurred by First Capital for maintaining and/or renovating its existing properties. In addition, FCR
also incurs expenditures for the purposes of expansion, redevelopment and development activities.
Revenue sustaining capital expenditures are required for maintaining First Capital’s property 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 FCR’s properties. 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 properties, such as roof replacements and resurfacing of parking lots.
Revenue enhancing capital expenditures are those expenditures that increase the revenue generating ability of FCR’s
properties. 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. First Capital owns and actively seeks to acquire older, well-located
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
properties in urban locations, where expenditures tend to be higher when they are subsequently repaired or redeveloped
to meet FCR’s standards.
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
17,328 $
18,958
3,962
17,493
57,741 $
— $
20,189
2,853
148,321
171,363 $
$
$
2019
Total
17,328 $
39,147
6,815
165,814
229,104 $
2018
Total
15,523
32,476
7,945
214,314
270,258
During the year ended December 31, 2019, capital expenditures totaled $229.1 million compared to $270.3 million for the
prior year. The $41.2 million decrease was primarily due to lower development spend of $48.5 million related to the
Yorkville Village and Mount Royal West projects that were completed in 2018, partially offset by higher spend on revenue
enhancing expenditures.
Valuation of Investment Properties
The approach selected for valuing investment properties depends on the type of property and other factors such as stage of
development. The components of First Capital's investment properties for the purposes of calculating fair values were as
follows as at December 31, 2019 and December 31, 2018:
As at (millions of dollars)
Property Type (1)
Same Properties
Properties under development / in transition
Investment properties recently acquired or held for sale (2)
Development land
Total investment property fair value
(1) Prior periods restated to reflect current period property categories.
(2) Comparative fair value includes properties that were disposed of in 2019.
Valuation Method
Discounted cash flow ("DCF")
Cost or DCF less costs to
complete
Purchase price or DCF
Cost or comparable land sales
December 31, 2019
December 31, 2018
Fair Value
6,627
Fair Value
6,553
$
2,372
661
92
9,752
$
2,051
1,086
78
9,768
$
$
During the year ended December 31, 2019, the weighted average stabilized capitalization rate used in valuing those
investment properties under the DCF method decreased from 5.3% as at December 31, 2018 to 5.0%, primarily due to the
impact of dispositions during the year. The net increase in the fair value of investment properties of $61.0 million was
primarily due to entitlements being obtained on a downtown Toronto property, increased land value on a Montreal
redevelopment property and stabilized NOI growth across the portfolio for the year ended December 31, 2019.
13
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The associated stabilized capitalization rates by region for FCR's investment properties valued under the discounted cash
flow method were as follows as at December 31, 2019 and December 31, 2018:
As at December 31, 2019
Central Region
Eastern Region
Western Region
Weighted Average
As at December 31, 2018
Central Region
Eastern Region
Western Region
Weighted Average
Stabilized Capitalization Rate
Weighted
Average
4.7%
5.8%
5.1%
5.0%
Median
Range
5.3%
6.0%
5.3%
5.5%
3.0%-7.0%
4.4%-7.5%
3.8%-6.3%
3.0%-7.5%
Stabilized Capitalization Rate
Weighted
Average
5.0%
5.9%
5.2%
5.3%
Median
Range
5.3%
6.0%
5.3%
5.5%
3.0%-7.0%
4.4%-7.8%
3.8%-6.3%
3.0%-7.8%
Properties Under Development
Development and redevelopment activities are completed selectively, based on opportunities in First Capital’s properties
or in the markets where FCR operates. First Capital’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 commercial development activities are strategically managed to reduce risk, and properties
are generally developed after obtaining anchor tenant lease commitments. Individual commercial buildings within a
development are generally constructed only after obtaining lease commitments on a substantial portion of the space.
Development Pipeline
As at December 31, 2019, First Capital's portfolio is comprised of 20.9 million square feet of GLA at FCR'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, 2019, Management had identified approximately
25.0 million square feet of incremental density. This incremental density represents an opportunity that exceeds FCR's
existing portfolio.
Management undertakes a quarterly review of its entire portfolio and updates all of its future incremental density.
Management stratifies the density by 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. First Capital’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 First Capital with increased
opportunity to redevelop its generally low density properties.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
A breakdown of the active development and incremental density within the portfolio by component and type is as follows:
As at December 31, 2019
Active Development
Same Property with redevelopment
Major redevelopment
Ground-up development
Future incremental density
Medium term
Long term
Very long term
Total development pipeline
Square feet (in thousands)
Commercial
Residential
Total
12
173
73
258
1,800
100
100
2,000
2,258
—
—
378
378
11,500
6,700
4,200
22,400
22,778
12
173
451
636
13,300
6,800
4,300
24,400
25,036
First Capital determines its course of action with respect to the 22.4 million square feet of potential residential density on
a case by case basis given the specifics of each property. First Capital’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. Approximately 7.1 million of FCR's 25.0 million
square feet of identified incremental density has been included as part of the fair value of investment properties on the
consolidated balance sheet. The 7.1 million square feet is comprised of 0.6 million square feet in active development
which is valued as part of the overall property and 6.5 million of incremental density carried at approximately $506
million. The value of the incremental density included as part of FCR's fair value of investment properties increased $349
million over prior year primarily due to acquisitions of development properties with incremental density potential as well
as entitlements received on a downtown Toronto property. The remaining 17.9 million square feet of identified
incremental density is expected to be included in the value of the property in the future, based on certain factors
including the expiry or removal of tenant encumbrances and zoning approvals. The majority of the incremental residential
density is located above income producing shopping centres or their parking areas.
Development Pipeline by Urban Market
A breakdown of FCR's active development and incremental density by urban market is as follows:
Incremental Density Pipeline
Total
13,203
6,548
2,814
1,301
780
390
25,036
% of Total
52.7%
26.2%
11.2%
5.2%
3.1%
1.6%
100.0%
As at December 31, 2019
(in thousands of square feet)
Greater Toronto Area
Greater Montreal Area
Greater Vancouver Area
Greater Calgary Area
Greater Ottawa Area
Greater Edmonton Area
Total development pipeline
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Entitlements Program
First Capital has a program in place to seek entitlements for the incremental density within its portfolio. Entitlement
applications are submitted based on gross floor area (“GFA”). Prior to 2019, FCR submitted entitlement applications for
GFA of approximately 3.7 million square feet (incremental density of 3.5 million square feet) as outlined in the table
below. The majority of this density had been zoned by December 31, 2019 and the IFRS value for these properties reflects
this density.
Pre - 2019 Entitlement Applications
'000s of square feet submitted/zoned for
(at FCR's share):
Property
Neighbourhood
City, Province
Ownership
Interest % Residential Commercial
Total
Existing
Incremental
Panama (All Phases)
Panama Ave. /
Taschereau Blvd.
Montreal, QC
100%
1,555
403
1,958
—
1,958
Humbertown (All Phases)
Appleby Village (1)
The Kingsway
Toronto, ON
Appleby
Burlington, ON
400 King St. W.
Entertainment District
Toronto, ON
5. Wilderton Phase II
Outremont
Montreal, QC
6.
7.
8.
Longstreet Phase I
Rutherford Marketplace (1)
Adjacent to ICE District
Edmonton, AB
Thornhill Woods
Vaughan, ON
200 West Esplanade
Lower Lonsdale North Vancouver, BC
(1) Residential phases only.
100%
100%
35%
100%
100%
50%
50%
551
348
147
173
120
64
28
235
7
13
22
23
—
4
786
355
160
195
143
64
32
105
—
—
42
7
—
21
681
355
160
153
136
64
11
Totals
2,986
707
3,693
175
3,518
During 2019, FCR submitted entitlement applications for GFA of approximately 9.0 million square feet (incremental
density of 8.5 million square feet) as outlined in the table below, surpassing its goal of 7.5 million square feet of
entitlement submissions in 2019. The current IFRS value of these properties in aggregate is approximately $571 million.
Based on current market conditions, FCR expects to recognize a meaningful increase to the current IFRS values once
approvals for these submissions are received.
2019 Entitlement Applications
Property
Christie Cookie (1)
Dufferin Corners
Royal Orchard
Semiahmoo Phase I
801 York Mills &
1855 Leslie Street
Staples Lougheed
Yonge & Roselawn
Olde Oakville Phase I
Plaza Baie D'Urfe (2)
11. Gloucester Phase I
12. Merivale Mall
(Residential Phase)
13.
1071 King St. W.
'000s of square feet submitted for
(at FCR's share):
Ownership
Interest % Residential Commercial
Total
Existing
Incremental
2,948
576
3,524
Neighbourhood
City, Province
Humber Bay Shores
Toronto, ON
Bathurst Manor
Toronto, ON
Thornhill Markham, ON
South Surrey
Surrey, BC
Leslie & York Mills
Toronto, ON
Brentwood
Burnaby, BC
Yonge & Eglinton
Toronto, ON
South Oakville
Oakville, ON
Hwy. 20 / Morgan St.
Montreal, QC
Gloucester
Ottawa, ON
Nepean
Ottawa, ON
50%
100%
50%
100%
100%
100%
100%
85%
100%
100%
50%
50%
990
697
490
535
475
559
453
217
218
157
135
Liberty Village
Toronto, ON
67%
Totals
132
8,006
37
22
32
22
49
80
55
44
9
17
9
4
1,027
719
522
557
524
639
508
261
227
174
144
136
956
8,962
—
81
22
20
62
32
158
57
28
42
3
1
—
506
3,524
946
697
502
495
492
481
451
233
185
171
143
136
8,456
Centre Commercial Cote St-Luc
Cote Saint-Luc
Montreal, QC
1.
2.
3.
4.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
(1) Approximately 300,000 square feet is currently reflected in the property's IFRS value which is based on current zoning in place. The property's IFRS value approximates its cost.
(2) Square feet submitted represents square footage for a partial redevelopment.
FIRST CAPITAL REIT ANNUAL REPORT 2019
16
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
During 2020, FCR plans to submit entitlement applications for GFA of approximately 4.3 million square feet (incremental
density of 4.0 million square feet) for the properties outlined below. This would bring the total entitlement submissions to
approximately 16.0 million square feet of incremental density representing 64% of FCR's 25.0 million square feet of
incremental density pipeline. The current IFRS value of these properties in aggregate is approximately $432 million. Based
on current market conditions, FCR expects to recognize a meaningful increase to the current IFRS values once approvals for
these submissions are received.
2020 Planned Entitlement Applications
Property
140 Yorkville
101 Yorkville
Liberty Village (portion of shopping centre)
Avenue Rd. & Lawrence
5500 Dundas
221 - 227 Sterling Rd.
Cliffcrest Plaza
1.
2.
3.
4.
5.
6.
7.
8. Midland Lawrence Plaza
Hillcrest Plaza
9.
10. 895 Lawrence
11. Portobello (excess land)
12. Place Viau (excess land)
Neighbourhood
Bloor - Yorkville
Bloor - Yorkville
Liberty Village
Bedford Park
Islington - City Centre West
The Junction
Cliffcrest
Midland Park
Yonge & Sheppard
Don Mills
Hwy. 10 / Taschereau Blvd.
Saint - Leonard
City, Province
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Montreal, QC
Montreal, QC
Ownership
Interest %
33%
50%
100%
100%
100%
35%
100%
100%
100%
100%
100%
100%
17
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In addition to the properties listed in the entitlements section above, First Capital has 9.0 million square feet of additional
incremental density which includes 8.4 million square feet primarily related to the properties listed below, where
entitlements have yet to be submitted, and 0.6 million feet currently under active development (see active projects table).
Additional Incremental Density
Property
Neighbourhood
City, Province
Ownership
Interest %
332 Bloor St. W.
1.
Cedarbrae Mall
2.
Danforth Sobeys
3.
Olde Oakville (future phases)
4.
Lakeshore & Kerr
5.
Bayview Lane Plaza
6.
Yonge-Davis Centre
7.
Appleby Square
8.
9.
Harwood Plaza
10. 1000 Wellington St.
11. Centre Commercial Domaine
12. Centre Commercial Van Horne
13. Galeries Normandie
14. Place Provencher
15.
16. Place Michelet
17.
18. Scott 72 Shopping Centre
19. Semiahmoo (future phases)
20. GM Glenbow
21. Newport Village
22. Mount Royal Village East
23. Gloucester City Centre (future phases)
Le Campanile & Place du Commerce
Langley Mall
The Annex
Lawrence Ave. E. / Markham Rd.
Danforth Village
South Oakville
Kerr Village
Thornhill
Yonge St./Davis Dr. W.
Appleby
Harwood Ave. S. / Bayly St. W.
Griffintown
Longue-Pointe
Cote-Des-Neiges
Hwy. 15/Rue de Salaberry
Saint - Leonard
Nun's Island
Saint - Leonard
Downtown Langley
120 St./72 Ave.
South Surrey
Beltline
Macleod Trail SE/Southland Dr. SE
Beltline
Gloucester
Toronto, ON
Toronto, ON
Toronto, ON
Oakville, ON
Oakville, ON
Markham, ON
Newmarket, ON
Burlington, ON
Ajax, ON
Montreal, QC
Montreal, QC
Montreal, QC
Montreal, QC
Montreal, QC
Montreal, QC
Montreal, QC
Langley, BC
Delta, BC
Surrey, BC
Calgary, AB
Calgary, AB
Calgary, AB
Ottawa, ON
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
50%
FCR continues to review each of its properties and has identified meaningful incremental density in properties that have not
progressed to the point of inclusion in First Capital's incremental density pipeline, that we expect may be included in the
future. A sample of such properties include Macleod Plaza, Meadowvale Town Centre, Old Strathcona Shopping Centre,
Pemberton Plaza and future phases of Longstreet Shopping Centre, among others.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Invested Cost of Properties Under Development
As at December 31, 2019, First Capital had $708.0 million of properties under development and development land parcels
at invested cost, representing approximately 7.3% of the value of the total investment property portfolio.
A breakdown of invested cost on development activities is as follows:
As at December 31, 2019
Total development and redevelopment activities
Total development land, adjacent land parcels, and other (3)
Total
(1) Includes 378,000 square feet of residential rental apartments.
(2) Square footage relates to active development only.
(3) Includes all other property categories.
Number of
Active Projects
10
Invested Cost (in millions)
Square Feet (1) (2)
(in thousands)
Active
Development
Pre-
Development
636 $
235 $
$
$
81 $
392 $
473 $
Total
316
392
708
2019 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. Costs transferred to income-producing properties often
involves judgment in cost allocations related to the space transferred in the period relative to the total project. Therefore,
the cost per square foot transferred in any one period may not be indicative of the total project cost per square foot.
During the year ended December 31, 2019, First Capital completed the transfer of 201,000 square feet of new retail space
in addition to 247 residential units to the income-producing portfolio at a total cost of $282.0 million. Of the urban retail
space transferred, primarily in super urban neighbourhoods, 196,000 square feet became occupied at an average rental
rate of $35.89 per square foot, well above the average rate for the portfolio of $21.25.
For the year ended December 31, 2019, First Capital had tenant closures for redevelopment of 218,000 square feet at an
average rental rate of $10.51 per square foot. As of December 31, 2019 the 218,000 square feet was either demolished or
slated for demolition.
Active Development and Redevelopment Activities
First Capital’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 costs, land
cost incremental to the development, 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 or lower than currently
forecasted costs, if final lease terms are higher or lower than forecasted base rent recoveries, or if there are other
unforeseen events that cause actual results to differ from assumptions. The quality of First Capital’s construction is
consistent with its strategy of long-term ownership and value creation, and factors in FCR's high standards in construction,
materials, architecture, lighting, parking, access, pedestrian amenities, accessibility, as well as development to Leadership
in Energy and Environmental Design ("LEED") standards.
Committed Leases
First Capital has ten projects comprised of approximately 636,000 square feet of space currently under development, of
which 258,000 square feet is retail space and 378,000 square feet is residential rental apartments. A total of 143,000
square feet of the retail space currently under development is subject to committed leases at a weighted average rate of
$31.53 per square foot. As construction on large projects occurs in phases, there continues to be ongoing negotiations in
various stages with retailers for the planned space. Leasing of residential apartments begins as the project is nearing
completion.
19
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Highlights of First Capital’s active projects as at December 31, 2019 are as follows:
As at December 31, 2019
Count/Project
1.
2.
4.
5.
6.
7.
8.
9.
Semiahmoo Shopping Centre, Surrey, BC
Major Tenants
(Crunch Fitness, Winners,
Rothewood Academy)
Chartwell Shopping Centre, Toronto, ON (Mabu Station)
3. Westmount Shopping Centre, Edmonton,
(Church's Chicken)
AB
Victoria Terrace, Toronto, ON
(Starbucks, Sunset Grill)
King High Line (Shops at King Liberty),
Toronto, ON (2)(3)
3080 Yonge Street, Toronto, ON
The Brewery District, Edmonton, AB (4)
Dundas & Aukland, Toronto, ON (5)
19 & 25 Industrial Street (Leaside
Village), Toronto, ON
(Longo's, Canadian Tire,
Shoppers Drug Mart,
Winners, Kids & Company,
WeWork, McDonald's)
(Loblaws, Tim Hortons,
Anatomy Fitness)
(MEC, Loblaws City
Market, GoodLife Fitness,
Winners)
(Farm Boy)
(Pharmacy, Pet Store,
Medical Office,
Restaurant)
(Metro, Pharmaprix, Tim
Hortons, SAQ)
Invested Cost (in millions)
Square Feet
Under
Development
(in thousands)
Target
Completion
Date (1)
Total Estimated
(incl. Land)
Under
Development
Ownership
Interest %
100.0%
100.0%
100.0%
100.0%
100%/
67%
6 H1 2020
$125 - $140
5 H1 2020
5 H1 2020
$5.0 - $6.0
$3.5 - $4.0
2 H1 2020
$2.5 - $3.0
110 H2 2020
$350 - $390
100.0%
16 H2 2020
$135 - $150
50.0%
26 H2 2020
$100 - $110
100.0%
100.0%
315 H1 2021
$150 - $170
72 H1 2021
$45 - $50
Income-
producing
property
$119
N/A
N/A
N/A
$239
$116
$83
—
—
$5
$3
$2
$1
$86
$18
$16
$71
$21
10. Wilderton, Montreal, QC (6)
100.0%
79 H2 2022
$57 - $62
$12
$13
Total development and redevelopment activities
636
$973 - $1,085
$235
$570
(1) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively.
(2) FCR's ownership interest in the retail and residential components are 100% and 67%, respectively.
(3) The square feet under development is comprised of 110,000 square feet of residential space (67% at FCR's interest).
(4) Target completion date relates to buildings currently under construction.
(5) Subject to non-controlling interest of 29.12%. The area under development comprises 47,000 square feet of retail and 268,000 square feet of residential.
(6) Target completion date reflects future phases.
Costs to Complete Active and Redevelopment Activities
Costs to complete the development, redevelopment and expansion activities underway are estimated to be
approximately $194.8 million.
Residential Inventory
First Capital has commenced a residential development project to build and sell fifty townhomes on land adjacent to FCR's
Rutherford Marketplace property. The development is being managed by FCR's 50% residential partner, who purchased 50%
of the land in the fourth quarter of 2016. Total invested cost in the project at FCR's share is approximately $10.2 million at
December 31, 2019. Total invested cost at completion is estimated to be $22.5 million with a target completion date in the
first half of 2021. To date, 32 of the 50 townhomes have been sold and construction is slated to begin in Q2 2020.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Leasing and Occupancy
As at December 31, 2019, total portfolio occupancy increased 0.2% to 96.9% while Same Property portfolio occupancy
was up 0.1% compared to September 30, 2019. The increase was primarily due to the impact of dispositions in the
quarter. Total portfolio occupancy increased 0.2% to 96.9% while Same Property portfolio occupancy was up 0.1%
compared to December 31, 2018.
For the year ended December 31, 2019, the monthly average occupancy for the total portfolio was 96.6% compared to
96.3%, and the Same Property portfolio occupancy was 97.3% compared to 97.2% for the prior year, respectively.
Occupancy of First Capital's portfolio by property categorization was as follows
As at
December 31, 2019
December 31, 2018
(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
Dispositions
Total (1)
(1) At FCR's ownership interest, excluding MMUR.
14,091
2,220
16,311
2,692
277
777
20,057
215
—
20,272
Total
Occupied
Square Feet
% Occupied
Weighted
Average Rate
per Occupied
Square Foot
21.06
17.78
20.61
25.87
32.36
13.57
21.21
97.6% $
96.6%
97.5%
94.4%
99.2%
93.0%
96.9%
94.7%
—%
96.9% $
24.99
—
21.25
Total
Occupied
Square Feet
% Occupied
14,070
2,225
16,295
2,804
145
773
20,017
190
2,857
23,064
97.4% $
97.8%
97.4%
94.6%
98.8%
92.5%
96.8%
93.9%
96.0%
96.7% $
Weighted
Average Rate
per Occupied
Square Foot
20.81
17.46
20.35
24.53
29.93
13.26
20.73
24.91
16.47
20.24
21
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During the three months ended December 31, 2019, First Capital completed 706,000 square feet of lease renewals across
the portfolio. First Capital achieved a 10.1% lease renewal rate increase when comparing the per square foot net rental
rate in the last year of the expiring term to the per square foot net rental rate in the first year of the renewal term. For the
three months ended December 31, 2019, First Capital achieved a 11.6% lease renewal rate increase when comparing the
net rental rate in the last year of the expiring term to the average net rental rate over the renewal term.
The average rental rate per occupied square foot for the total portfolio increased 2.9% from $20.65 as at September 30,
2019 to $21.25 as at December 31, 2019 primarily due to dispositions, renewal lifts and rent escalations.
Changes in First Capital’s gross leasable area and occupancy for the total portfolio for the three months ended
December 31, 2019 are set out below:
Three months ended
December 31, 2019
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, 2019 (2)
16,298
97.4% $ 20.52
5,873
94.7% $ 20.98
8 —%
757
3.3% 22,936
96.7% $ 20.65
Tenant possession
Tenant closures
Tenant closures for
redevelopment
Developments –
tenants coming
online (3)
Redevelopments –
tenant possession
Demolitions
Reclassification
Total portfolio before
Q4 2019 acquisitions
and dispositions
Acquisitions (at date of
acquisition)
Dispositions (at date of
disposition)
127
(118)
—
5
—
—
(1)
21.68
(20.59)
48
(31)
—
(118)
30.43
—
—
—
16
—
—
3
21.94
(22.46)
(8.06)
89.44
—
—
—
—
—
118
—
—
(110)
(3)
(175)
149
—
2
—
—
(2)
—
—
—
23
—
(110)
(3)
21.76
(20.98)
(8.06)
76.10
—
—
—
16,311
97.5% $ 20.61
5,791
94.8% $ 21.37
13
0.1%
731
3.2% 22,846
96.7% $ 20.81
—
—
—%
—%
—
—
—%
—
— —%
—
—
—%
—
— (1,830)
95.4%
15.97
— —%
(89)
(1,919)
95.4%
15.97
December 31, 2019
16,311
97.5% $ 20.61
3,961
94.5% $ 23.86
13
0.1%
642
3.1% 20,927
96.9% $ 21.25
Renewals
Renewals – expired
571
(571)
Net change per square foot from renewals
% Increase on renewal of expiring rents
(first year of renewal term)
% increase on renewal of expiring rents
(average rate in renewal term)
135
(135)
$ 22.13
$ (19.96)
$
2.17
10.9%
$ 19.52
$ (18.27)
$
1.25
6.8%
706
(706)
$ 21.63
$ (19.64)
$
1.99
10.1%
11.6%
(1) At FCR'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 – 2019 Development
and Redevelopment Coming Online and Space Going Offline” section of this MD&A.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
During the year ended December 31, 2019, First Capital completed 2,454,000 square feet of lease renewals across the
portfolio. First Capital achieved a 10.7% lease renewal rate increase when comparing the per square foot net rental rate in
the last year of the expiring term to the per square foot net rental rate in the first year of the renewal term. For the year
ended December 31, 2019, First Capital achieved a 12.4% lease renewal rate increase when comparing the net rental rate
in the last year of the expiring term to the average net rental rate over the renewal term.
The average rental rate per occupied square foot for the total portfolio increased 5.0% from $20.24 as at December 31,
2018 to $21.25 as at December 31, 2019 primarily due to dispositions, renewal lifts and rent escalations.
Changes in First Capital’s gross leasable area and occupancy for the total portfolio for the year ended December 31, 2019
are set out below:
Year ended December
31, 2019
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)
December 31, 2018 (2)
16,295
97.4% $ 20.35
6,769
95.0% $ 19.97
522
(528)
(3)
21
—
—
4
17.21
(17.97)
(25.00)
197
(211)
(215)
31.16
175
—
—
—
2
—
12
20.40
(28.68)
(10.34)
36.47
5.92
—
—
Vacant
Square Feet
(thousands)
%
Total
Square Feet
(thousands)
Occupied
Square
Feet %
%
Weighted
Average Rate
per Occupied
Square Foot
0.1%
756
3.2% 23,854
96.7% $ 20.24
(719)
739
—
5
—
—
(18)
—
—
—
201
—
(233)
(6)
18.09
(21.02)
(10.51)
35.89
5.92
—
—
34
—
—
218
—
(2)
(233)
(4)
16,311
97.5% $ 20.61
6,729
95.0% $ 20.68
13
0.1%
763
3.2% 23,816
96.7% $ 20.62
—
—
—%
—%
—
—
88
100.0%
32.06
— —%
—
88
100.0%
32.06
(2,856)
95.9%
16.61
— —%
(121)
(2,977)
95.9%
16.54
Tenant possession
Tenant closures
Tenant closures for
redevelopment
Developments –
tenants coming
online (3)
Redevelopments –
tenant possession
Demolitions
Reclassification
Total portfolio before
2019 acquisitions
and dispositions
Acquisitions (at date of
acquisition)
Dispositions (at date of
disposition)
December 31, 2019
16,311
97.5% $ 20.61
3,961
94.5% $ 23.86
13
0.1%
642
3.1% 20,927
96.9% $ 21.25
449
(449)
Renewals
Renewals – expired
2,005
(2,005)
Net change per square foot from renewals
% Increase on renewal of expiring rents
(first year of renewal term)
% increase on renewal of expiring rents
(average rate in renewal term)
% Increase in rate per square foot –
openings versus all closures
$ 21.14
$ (18.99)
$
2.15
11.3%
(4.4%)
$ 21.33
$ (19.70)
$
1.63
8.3%
4.3%
2,454
(2,454)
$ 21.17
$ (19.12)
$
2.05
10.7%
12.4%
(3.1%)
(1) At FCR'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 – 2019 Development
and Redevelopment Coming Online and Space Going Offline” section of this MD&A.
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Top Forty Tenants
As at December 31, 2019, 54.6% of First Capital's annualized minimum rent came from its top 40 tenants (December 31,
2018 – 55.1%). Of these rents, 76.9% (December 31, 2018 – 67.7%) 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 retailers. The weighted average remaining lease term for First Capital’s top 10
tenants was 5.5 years as at December 31, 2019, excluding contractual renewal options.
Rank
Tenant (1) (2)
Number
of Stores
Square Feet
(thousands)
Loblaw Companies Limited ("Loblaw")
Sobeys
Metro
Canadian Tire
Walmart
TD Canada Trust
RBC Royal Bank
GoodLife Fitness
Dollarama
Save-On-Foods
Percent of Total
Annualized
Minimum Rent
10.2%
1.
5.8%
2.
3.0%
3.
2.7%
4.
2.5%
5.
2.0%
6.
1.9%
7.
1.8%
8.
1.7%
9.
1.7%
10.
33.3%
Top 10 Tenants Total
1.4%
CIBC
11.
1.3%
LCBO
12.
1.3%
Lowe's
13.
1.2%
14. McKesson
1.1%
Scotiabank
15.
1.1%
Restaurant Brands International
16.
1.1%
Longo's
17.
1.0%
BMO
18.
1.0%
19.
London Drugs
0.9%
20. Winners
0.8%
Nordstrom
21.
0.8%
Recipe Unlimited
22.
0.8%
Staples
23.
0.7%
24.
Starbucks
0.6%
25. Michaels
0.5%
26. Whole Foods Market
0.5%
27.
0.5%
28.
0.5%
29.
0.5%
30. McDonald's
0.5%
Toys "R" Us
31.
0.4%
Yum! Brands
32.
0.4%
The Home Depot
33.
0.4%
SAQ
34.
0.4%
35. Williams-Sonoma
0.4%
Petsmart
36.
0.3%
Pet Valu
37.
0.3%
Equinox
38.
0.3%
Bulk Barn
39.
0.3%
40.
Hudson's Bay Company
Top 40 Tenants Total
54.6%
(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
9.6%
7.7%
4.5%
3.6%
6.0%
1.0%
1.0%
2.5%
2.2%
1.5%
39.6%
0.9%
1.0%
1.7%
0.9%
0.6%
0.6%
0.9%
0.5%
0.9%
1.3%
0.2%
0.6%
0.9%
0.3%
0.4%
0.4%
0.3%
0.2%
0.3%
0.3%
0.6%
0.2%
0.7%
0.3%
0.2%
0.3%
0.3%
0.2%
0.3%
0.3%
56.2%
2,016
1,610
945
759
1,246
205
218
518
453
324
8,294
179
202
361
191
131
134
196
105
192
271
40
117
194
57
77
90
67
35
66
68
127
45
153
64
38
57
55
38
56
73
11,773
97
51
37
23
13
45
43
26
50
9
394
36
23
4
24
26
57
5
26
8
12
1
30
9
41
4
2
65
1
12
20
3
28
2
17
2
4
20
2
12
2
892
Subway
Pusateri's
The Beer Store
DBRS Credit
Rating
S&P Credit
Rating
Moody’s
Credit Rating
BBB
BBB (low)
BBB
BBB (high)
AA
AA (high)
AA (high)
BBB
AA
AA (low)
BBB (high)
AA
AA
BBB (high)
AA (low)
A
AA (low)
BBB
BB+
BBB
BBB+
AA
AA-
AA-
A+
A+
BBB+
BBB+
A+
BB
A+
A+
BBB
B+
BBB+
B+
A+
A+
BBB+
BB
A
AA-
B-
B-
Aa2
Aa1
Aa2
Aa2
Aa3
Baa1
Baa2
Aa2
Ba3
Aa2
A2
Baa2
B1
Baa1
Ba2
A3
Aa3
Baa1
Ba2
A2
Aa2
B3
B2
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Lease Maturity Profile
First Capital’s lease maturity profile for its portfolio as at December 31, 2019, excluding any contractual renewal options,
is as follows:
Number of
Stores
Occupied Square
Feet (thousands)
Maturity Date
Month-to-month tenants (1)
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Thereafter
Total or Weighted Average (2)
156
539
543
626
605
548
343
165
166
163
178
92
82
4,206
Percent of Total
Square Feet
1.1%
9.0%
10.0%
13.3%
14.9%
11.7%
7.7%
4.0%
5.0%
4.9%
4.6%
2.1%
8.6%
$
Annualized
Minimum Rent at
Expiration
(thousands)
5,128
36,556
42,974
63,611
62,351
53,572
40,695
23,298
24,728
29,090
25,475
13,544
45,460
Percent of Total
Annualized
Minimum Rent
1.1%
7.8%
9.2%
13.6%
13.4%
11.5%
8.7%
5.0%
5.3%
6.2%
5.5%
2.9%
9.8%
$
Average Annual
Minimum Rent
per Square Foot
at Expiration
22.65
19.50
20.49
22.84
19.96
21.87
25.09
27.78
23.83
28.48
26.42
30.59
25.42
226
1,875
2,098
2,785
3,124
2,450
1,622
839
1,038
1,022
964
443
1,786
20,272
96.9%
$
466,482
100.0%
$
23.01
(1) Includes tenants on over hold including renewals and extensions under negotiation, month-to-month tenants and tenants in space at properties with future redevelopment.
(2) At FCR's ownership interest, excluding MMUR.
The weighted average remaining lease term for the portfolio was 5.4 years as at December 31, 2019, excluding contractual
renewal options, but including month-to-month and other short-term leases.
Investment in Joint Ventures
As at December 31, 2019, First Capital had interests in six joint ventures that it accounts for using the equity method. First
Capital's joint ventures are as follows:
Name of Entity
M+M Urban Realty LP ("MMUR") (1)
College Square General Partnership
Name of Property/Business Activity
Commercial/residential properties (2)
College Square
Location
Toronto, ON
Ottawa, ON
Green Capital Limited Partnership
Royal Orchard
Stackt Properties LP
Shipping Container marketplace
Fashion Media Group GP Ltd.
Toronto Fashion Week events
Markham, ON
Toronto, ON
Toronto, ON
FC Access LP
Whitby Mall (self storage operation) Whitby, ON
Edenbridge Kingsway (Humbertown) Humbertown Condos (Phase 1)
Toronto, ON
Effective Ownership
December 31, 2019
N/A
December 31, 2018
53.1%
50.0%
50.0%
94.0%
78.0%
25.0%
50.0%
50.0%
50.0%
94.0%
72.0%
N/A
N/A
(1) MMUR was an equity accounted joint venture between the Trust, Main and Main Developments LP and an institutional investor. On July 22, 2019 FCR and its partner
acquired the remaining 46.9% interest in MMUR from the institutional investor.
(2) As at December 31, 2019 and December 31, 2018, MMUR owned 4 properties.
First Capital has determined that these investments are joint ventures as all decisions regarding their activities are made
unanimously between First Capital and its partners.
During the third quarter, First Capital, together with its partner in Main and Main Developments LP acquired the remaining
46.9% interest in four remaining MMUR assets for approximately $116.0 million. As a result, FCR now controls MMUR
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through its direct and indirect interests, requiring the consolidation of the assets, liabilities, revenues and expenses of
MMUR from the date of acquisition.
The following table reconciles the changes in First Capital's interests in its equity accounted joint ventures:
Balance at beginning of year
Contributions to equity accounted joint ventures
Distributions from equity accounted joint ventures
Consolidation of equity accounted joint venture (MMUR)
Share of income from equity accounted joint ventures
Balance at end of year
Loans, Mortgages and Other Assets
As at
Non-current
Loans and mortgages receivable classified as FVTPL (a)
Loans and mortgages receivable classified as amortized cost (a)(b)
Other investments
Total non-current
Current
Loans and mortgages receivable classified as FVTPL (a)
Loans and mortgages receivable classified as amortized cost (a)(b)
FVTPL investments in securities (c)
Total current
Total
$
Year ended December
31, 2019
144,375
17,481
(25,648)
(78,409)
1,699
59,498
$
December 31, 2019 December 31, 2018
$
$
$
$
$
20,726
58,940
16,302
95,968
132
65,984
3,949
70,065
166,033
$
$
$
$
$
20,511
57,003
15,834
93,348
87,106
160,043
23,562
270,711
364,059
(a) Loans and mortgages receivable are primarily secured by interests in investment properties or shares of entities
owning investment properties. As at December 31, 2019, these receivables bear interest at weighted average
effective interest rates of 6.6% (December 31, 2018 – 9.7%) and mature between 2020 and 2028.
(b) During the third quarter, approximately $131.3 million of mortgages receivable were fully repaid related to First
Capital's priority ranking mortgages on a development project at the southwest corner of Yonge Street and Bloor
Street in Toronto, Ontario.
(c) From time to time, First Capital invests 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 REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
RESULTS OF OPERATIONS
Net Operating Income
First Capital’s net operating income for its portfolio is presented below:
Property rental revenue
Base rent
Operating cost recoveries
Realty tax recoveries
Lease surrender fees
Percentage rent
Straight-line rent adjustment
Prior year operating cost and tax recovery
adjustments
Temporary tenants, storage, parking and
other
Total Property rental revenue
Property operating costs
Recoverable operating expenses
Recoverable realty tax expense
Prior year realty tax expense
Other operating costs and adjustments
Total Property operating costs
Three months ended December 31
Year ended December 31
% change
2019
2018
% change
2019
2018
$ 112,513
$ 115,156
$ 457,200
$ 452,445
26,806
32,042
168
1,980
1,849
(475)
6,741
27,571
33,547
51
1,331
1,323
(553)
6,164
110,284
137,388
5,265
4,798
5,824
(933)
107,604
137,909
1,983
4,351
7,062
(2,320)
26,947
20,561
(1.6)%
181,624
184,590
2.4%
746,773
729,595
29,483
34,856
(331)
3,667
67,675
31,395
38,334
(802)
1,148
70,075
124,080
155,010
(1,215)
8,501
122,300
156,084
(3,100)
(462)
286,376
274,822
Total NOI
NOI margin
(0.5)% $ 113,949
$ 114,515
1.2% $ 460,397
$ 454,773
62.7%
62.0%
61.7%
62.3%
For the three months ended December 31, 2019, total NOI decreased by $0.6 million compared to the same prior year
period primarily due to lower base rent due to increased dispositions, partially offset by lower property tax shortfall. For the
year ended December 31, 2019, total NOI increased by $5.6 million primarily due to higher base rent from the same
property portfolio and new developments coming on-line and higher lease surrender fees, partially offset by lower NOI due
to increased disposition activity.
For the three months ended December 31, 2019, NOI margins have increased by 0.7% compared to the same prior year
period primarily due to lower property tax shortfall related to development properties. For the year ended December 31,
2019, NOI margins have decreased by 0.6% compared to the same prior year period primarily due to lower margins on NOI
related to the hotel property, higher residential operating costs on the recently completed King High Line project and lower
straight-line rent.
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Same Property NOI Growth
First Capital’s net operating income for its portfolio by property category 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
2019
2018
% change
2019
2018
$
83,897
$
81,840
$ 332,690
$ 323,621
19,772
24,228
162
955
(219)
18,884
24,295
33
756
(186)
77,542
99,547
5,190
2,543
(852)
74,605
97,431
1,928
2,295
(1,444)
Temporary tenants, storage, parking and
2,954
2,694
11,288
10,960
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 – 2019
Acquisitions – 2018
Investment properties classified as held for sale
Dispositions – 2019
Dispositions – 2018
Straight-line rent adjustment
Development land
NOI (1)
NOI margin
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
131,749
128,316
527,948
509,396
20,498
26,140
(126)
199
20,381
26,407
(576)
(444)
82,991
106,940
(159)
442
80,871
105,184
(2,069)
(1,407)
46,711
45,768
190,214
182,579
3.0% $
85,038
$
82,548
3.3% $ 337,734
$ 326,817
17,237
14,350
1,009
155
1,559
2,592
4,490
14
1,849
6
668
—
1,489
2,281
11,352
498
1,323
6
62,697
2,915
960
6,802
9,656
33,618
95
5,824
96
57,262
2,769
—
3,065
9,488
44,962
3,323
7,062
25
(0.5%) $ 113,949
$ 114,515
1.2% $ 460,397
$ 454,773
62.7%
62.0%
61.7%
62.3%
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
The components of SP NOI growth and comparisons to the same prior year period are as follows:
Same Property – Stable
Same Property with redevelopment
Total Same Property NOI Growth
Three months ended December 31
2018 (1)
2.1%
9.7%
2019
2.6%
6.4%
Year ended December 31
2018 (1)
2.7%
6.0%
2019
2.7%
8.4%
3.0%
3.1%
3.3%
3.1%
(1) Prior periods as reported; not restated to reflect current period property categories.
For the three months and year ended December 31, 2019, SP NOI increased by $2.5 million and $10.9 million, or 3.0% and
3.3%, respectively, primarily due to rent escalations, increased occupancy and lease surrender fees. Excluding lease
surrender fees, SP NOI increased $2.4 million and $7.7 million or 2.9% and 2.4% respectively.
NOI by Region
NOI is presented by region as follows:
Three months ended December 31, 2019
Property rental revenue
Property operating costs
NOI
Three months ended December 31, 2018
Property rental revenue
Property operating costs
NOI
Year ended December 31, 2019
Property rental revenue
Property operating costs
NOI
Year ended December 31, 2018
Property rental revenue
Property operating costs
NOI
(1) Other items principally consist of inter-company eliminations.
Interest and Other Income
Central
Region
Eastern
Region
Western
Region
Other (1)
Total
82,724 $
40,363 $
59,021 $
(484) $
181,624
32,378
17,012
19,640
(1,355)
67,675
50,346 $
23,351 $
39,381 $
871 $
113,949
Central
Region
Eastern
Region
Western
Region
Other (1)
Total
78,282 $
46,192 $
60,596 $
(480) $
184,590
31,089
20,236
20,315
(1,565)
70,075
47,193 $
25,956 $
40,281 $
1,085 $
114,515
Central
Region
Eastern
Region
Western
Region
Other (1)
Total
326,491 $
180,194 $
242,390 $
(2,302) $
746,773
129,947
80,248
81,578
(5,397)
286,376
196,544 $
99,946 $
160,812 $
3,095 $
460,397
Central
Region
Eastern
Region
Western
Region
Other (1)
Total
304,426 $
190,384 $
237,095 $
(2,310) $
729,595
118,559
82,401
79,755
(5,893)
274,822
185,867 $
107,983 $
157,340 $
3,583 $
454,773
$
$
$
$
$
$
$
$
For the three months and year ended December 31, 2019, First Capital's interest and other income totaled $3.9 million
and $33.0 million, compared to $6.2 million and $26.4 million, respectively, for the same prior year periods. The increase
of $6.6 million over prior year was primarily due to higher distribution income from other investments and higher fee
income.
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Interest Expense
First Capital’s interest expense by type is as follows:
Mortgages
Credit facilities
Senior unsecured debentures
Distributions on Exchangeable Units (1)
Convertible debentures
Interest capitalized
Interest expense
$
$
Three months ended December 31
2018
12,227
5,100
2019
13,353
9,648
$
$
Year ended December 31
2018
46,212
18,652
2019
53,920
34,163
$
26,565
86
—
(6,659)
42,993
27,756
—
—
(5,929)
39,154
$
106,326
86
—
(22,661)
113,284
—
446
(25,354)
$
171,834
$
153,240
(1) Effective December 30, 2019, 1.2 million Exchangeable Units were issued upon REIT conversion. The distributions declared on the Exchangeable Units are accounted for as
interest expense.
For the three months and year ended December 31, 2019, interest expense increased by $3.8 million and $18.6 million,
respectively, primarily due to an increase in credit facility borrowings related to the $850 million of new senior unsecured
term loans which primarily funded the Gazit share repurchase and a greater amount of mortgages outstanding over the
same prior year periods.
During the years ended December 31, 2019 and 2018, approximately 11.7% or $22.7 million, and 14.2% or $25.4 million,
respectively, of interest expense was capitalized to real estate investments for properties undergoing development or
redevelopment projects. The decrease in capitalized interest of $2.7 million is due to the completion of major
development projects over the last 12 months. 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
First Capital's corporate expenses are 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
$
$
2019
7,164
1,369
2,815
11,348
(1,924)
$
2018
6,523
1,155
3,048
10,726
(1,814)
2019
28,825
5,658
12,304
46,787
(8,309)
$
2018
27,418
4,805
12,408
44,631
(7,537)
$
9,424
$
8,912
$
38,478
$
37,094
For the three months and year ended December 31, 2019, corporate expenses increased by $0.5 million and $1.4
million, respectively, compared to the same prior year periods primarily due to annual merit increases in 2019.
First Capital 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 years ended
December 31, 2019 and 2018, approximately 17.8% or $8.3 million and 16.9% or $7.5 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 First Capital’s current level of pre-development and early
redevelopment activity.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Other Gains (Losses) and (Expenses)
First Capital's other gains, losses and expenses are as follows:
Three months ended December 31
Realized gain (loss) on sale of marketable securities
Unrealized gain (loss) on marketable securities
Investment properties selling costs
REIT conversion costs
Other
Total per consolidated statement of income
Other gains (losses) and (expenses) under equity accounted joint ventures
Total at First Capital's proportionate interest (6)
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 (non-cash)
Gain on below market purchase (1)
Hotel transaction costs (2)
Gain on Investment (3)
Proceeds from Target (4)
Investment properties selling costs
REIT conversion costs
Transaction costs (5)
Other
Total per consolidated statement of income
Other gains (losses) and (expenses) under equity accounted joint ventures
Total at First Capital's proportionate interest (6)
2019
2018
Consolidated
Statement of
Income
Included in
FFO
Consolidated
Statement of
Income
Included in
FFO
$
$
$
— $
176
(3,275)
(3,009)
(204)
(6,312) $
(62)
(6,374) $
— $
176
—
(3,009)
(204)
(3,037) $
(26)
(3,063) $
2019
43 $
(876)
(660)
(942)
179
(2,256) $
(29)
(2,285) $
43
(876)
—
(942)
179
(1,596)
—
(1,596)
2018
Consolidated
Statement of
Income
Included in
FFO
Consolidated
Statement of
Income
Included in
FFO
$
$
$
1,164 $
474
—
—
—
4,022
692
(6,381)
(5,013)
(3,414)
(303)
(8,759) $
(135)
(8,894) $
1,164 $
474
—
—
—
4,022
692
—
(5,013)
(3,414)
(303)
(2,378) $
(16)
(2,394) $
4,232 $
(623)
(726)
13,975
(2,052)
—
—
(2,556)
(1,540)
—
23
10,733 $
(1,259)
9,474 $
4,232
(623)
(726)
—
—
—
—
—
(1,540)
—
23
1,366
(697)
669
(1) Adjustment to exclude gain on below market purchase of hotel property in accordance with the recommendations of REALPAC.
(2) Adjustment to transaction costs incurred as part of hotel property acquisition in accordance with the recommendations of REALPAC.
(3) During the third quarter, one of FCR's other investments was acquired for cash and share consideration resulting in the recognition of a $4.0 million gain on investment.
(4) In connection with proceeds recognized under Target Canada's CCAA plan of arrangement related to the closure of two Target stores in FCR's portfolio in 2015.
(5) As part of the secondary offering by Gazit of 22 million of FCR's shares, FCR paid $9.0 million or 50% of the underwriters’ commission. Given the cross-conditional nature of
the secondary offering and the previously announced share repurchase transaction, the $9.0 million was allocated to both the share repurchase ($5.6 million) and the
secondary offering ($3.4 million). The amount allocated to the secondary offering was recorded in other gains (losses) and (expenses) during the first quarter.
(6) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
For the three months ended December 31, 2019, First Capital recognized $6.3 million in other losses and expenses in its
consolidated statement of income compared to $2.3 million in 2018. The other losses and expenses in the quarter were
primarily due to investment property selling costs of $3.3 million due to FCR's increased disposition activity and REIT
conversion costs of $3.0 million. For the year ended December 31, 2019, FCR recognized $8.8 million in other losses and
expenses in its consolidated statement of income compared to $10.7 million in other gains in the prior year. The other losses
and expenses for the year ended December 31, 2019 were primarily due to investment property selling costs of $6.4 million
and REIT conversion costs of $5.0 million, partially offset by gain on investment of $4.0 million.
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Income Taxes
For the three months and year ended December 31, 2019, deferred income tax recovery totaled $115.6 million and
$82.2 million, compared to deferred income expense of $16.4 million and $79.2 million, respectively, over the same
prior year periods. The decrease in deferred tax expense over the prior year was primarily due to a reduction in the
deferred tax liability as a result of the REIT conversion which converted the Company into a publicly traded REIT on
December 30, 2019. The deferred tax liability was reduced by $160.9 million to reflect the re-measurement of the
underlying temporary differences associated with the Trust's corporate subsidiaries.
Net Income Attributable to Unitholders / Shareholders
For the three months ended December 31, 2019, net income attributable to Unitholders / Shareholders was $192.5
million or $0.87 per diluted unit compared to $64.3 million or $0.25 per diluted share for the prior year. For the year
ended December 31, 2019, net income attributable to Unitholders / Shareholders was $401.3 million or $1.74 per
diluted unit compared to $343.6 million or $1.37 per diluted share for the prior year. The 62 cent and 37 cent
increase per diluted unit, respectively, was primarily due to a $160.9 million recovery of deferred tax resulting from
the completion of the REIT conversion as discussed above.
CAPITAL STRUCTURE AND LIQUIDITY
Total Capital Employed
The real estate business is capital intensive by nature. First Capital’s capital structure is key to financing growth and
providing sustainable cash distributions to Unitholders. 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 FCR's capital structure
provides stability and reduces risk, while generating an acceptable return on investment, taking into account the long-term
business strategy of First Capital.
As at
Liabilities (principal amounts outstanding)
Bank indebtedness
Mortgages
Credit facilities
Mortgages under equity accounted joint venture (at the Trust's interest) (1)
Credit facilities under equity accounted joint venture (at the Trust's interest) (1)
Exchangeable Units (based on a closing per unit price of $20.67 at December 31, 2019)
Senior unsecured debentures
Equity capitalization (2)
Common Shares (based on closing per share price of $18.85 at December 31, 2018)
Trust Units (based on closing per unit price of $20.67 at December 31, 2019)
Enterprise value (1)
December 31, 2019
December 31, 2018
$
60
1,331,219
899,165
40,144
—
25,010
2,500,000
$
7,226
1,287,247
626,172
41,081
24,195
—
2,450,000
N/A
4,803,505
4,505,107
N/A
$
9,300,705
$
9,239,426
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
(2) Equity capitalization is the market value of FCR's units 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.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Key Metrics
The ratios below include measures not specifically defined in IFRS.
As at
Weighted average effective interest rate on mortgages, fixed rate unsecured term loans and
senior unsecured debentures
Weighted average maturity on mortgages, fixed rate unsecured term loans and senior
December 31, 2019
December 31, 2018
4.0%
5.1
4.2%
5.5
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)
46.7%
10.0
$ 7,037,334
2.2
2.4
$
42.1%
9.6
7,270,358
2.5
2.5
(1) Calculated with joint ventures proportionately consolidated in accordance with FCR's debt covenants. Refer to the "Non-IFRS Financial Measures" section of this MD&A.
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;
• 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, Exchangeable Units and unit-based
compensation; other gains (losses) and (expenses); and other non-cash or non-recurring items. The Trust also adjusts
for incremental leasing costs, which is a recognized adjustment to Funds from Operations, in accordance with the
recommendations of the 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 bank term loans, unsecured credit facilities
and senior unsecured debentures.
Credit Ratings
From November 2012 to March 2019, DBRS and Moody's rated FCR's unsecured debentures as BBB (high) and Baa2,
respectively. On April 16, 2019, the Company completed the share repurchase of 36,000,000 common shares from Gazit
for gross proceeds of $741.6 million. The repurchase was funded with senior unsecured bank term loans. As a result of
the debt-financed share repurchase transaction, both DBRS and Moody's downgraded the ratings of FCR's unsecured
debentures by one notch to BBB (DBRS) and Baa3 with a stable outlook (Moody's).
On November 6, 2019, S&P began rating FCR's senior unsecured debentures and assigned a public rating of BBB- with a
stable outlook, as a result, FCR discontinued its Moody's rating services.
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.
As defined by S&P, a credit rating in the BBB category denotes that these debentures exhibit adequate protection
parameters and an acceptable capacity to meet its financial commitments. S&P indicates that BBB rated obligations are
more likely to weaken FCR's capacity to meet its financial commitments if adverse economic conditions or changing
circumstances were to take place. A rating outlook provided by S&P, expressed as positive, stable, negative or developing,
is an opinion regarding the potential direction of a credit rating over the intermediate term (typically six months to two
years).
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Outstanding Debt and Principal Maturity Profile
The maturity profile including scheduled amortization of First Capital’s mortgages and credit facilities as well as its senior
unsecured debentures as at December 31, 2019 is summarized in the table below:
As at December 31, 2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Thereafter
Add (deduct): unamortized deferred financing costs,
premiums and discounts, net
Mortgages
$
85,274 $
101,861
125,222
29,791
137,540
82,575
117,202
100,816
163,761
247,956
83,896
55,325
1,331,219
(4,198)
Credit
Facilities/Bank
Indebtedness
29,909 $
33,333
88,636
197,347
300,000
75,000
175,000
—
—
—
—
—
899,225
—
Senior
Unsecured
Debentures
175,000
175,000
450,000
300,000
300,000
300,000
300,000
500,000
—
—
—
—
2,500,000
(2,787)
$
Total
290,183
310,194
663,858
527,138
737,540
457,575
592,202
600,816
163,761
247,956
83,896
55,325
4,730,444
(6,985)
% Due
6.1%
6.6%
14.0%
11.1%
15.6%
9.7%
12.5%
12.7%
3.5%
5.2%
1.8%
1.2%
100.0%
Total
$ 1,327,021 $
899,225 $ 2,497,213
$ 4,723,459
First Capital’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. First Capital also intends to maintain financial flexibility to support a
reasonable cost of debt and equity capital over the long term.
Mortgages
The changes in First Capital’s mortgages during the year ended December 31, 2019 are set out below:
Year ended December 31, 2019
Balance at beginning of year
Mortgage borrowings
Mortgage repayments
Scheduled amortization on mortgages
Mortgages disposed on sale of investment properties
Amortization of financing costs and net premium
Balance at end of year
Amount
1,285,908
392,850
(222,740)
(27,117)
(99,021)
(2,859)
1,327,021
$
$
Weighted Average
Effective Interest Rate
4.0%
3.4%
4.9%
—%
3.4%
—%
3.7%
As at December 31, 2019, 100% (December 31, 2018 – 100%) of the outstanding mortgages bore interest at fixed interest
rates. The average remaining term of mortgages outstanding increased from 6.2 years as at December 31, 2018 on $1.3
billion of mortgages to 6.4 years as at December 31, 2019 on $1.3 billion of mortgages after reflecting borrowing activity
and repayments during the period.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Mortgage Maturity Profile
The maturity profile including scheduled amortization of First Capital’s mortgages as at December 31, 2019 is summarized in
the table below:
As at December 31, 2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Thereafter
Add: unamortized deferred financing costs and premiums and
discounts, net
Total
Credit Facilities
Scheduled
Amortization
28,399
28,424
29,700
29,791
29,062
26,680
22,842
20,952
18,038
11,076
4,855
370
250,189
$
$
Payments on
Maturity
$
56,875
73,437
95,522
—
108,478
55,895
94,360
79,864
145,723
236,880
79,041
54,955
$ 1,081,030
Weighted
Average
Effective
Interest Rate
4.8%
4.8%
4.0%
N/A
3.7%
3.5%
3.2%
3.6%
3.8%
3.5%
3.8%
3.5%
3.7%
$
Total
85,274
101,861
125,222
29,791
137,540
82,575
117,202
100,816
163,761
247,956
83,896
55,325
$ 1,331,219
(4,198)
$ 1,327,021
First Capital 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. Concurrently with the U.S. dollar draws, the Trust enters into cross currency
swaps to exchange its U.S. dollar borrowings into Canadian dollar borrowings.
On April 16, 2019, the Company completed the share repurchase of 36,000,000 common shares from a subsidiary of Gazit-
Globe Ltd. ("Gazit") at a price of $20.60 per share for gross proceeds to Gazit of $741.6 million. To fund the share repurchase
and other operational needs, FCR entered into $850 million of senior unsecured bank term loans with maturities ranging
from 4 - 7 years. Concurrent with funding, the majority of the unsecured bank term loans were swapped to fixed rates
bearing a weighted average interest rate of 3.3% with a weighted average term to maturity of 5.8 years. The remaining debt
bears interest at a floating rate and can be repaid with no prepayment penalty. As a result of the debt-financed share
repurchase transaction, both Moody's and DBRS downgraded the ratings of First Capital's senior unsecured debentures by
one notch to Baa3 (Moody's) and BBB (DBRS). On November 6, 2019, S&P began rating FCR's senior unsecured debentures
and assigned a public rating of BBB- with a stable outlook, as a result, FCR discontinued its Moody's rating services.
During the third quarter, First Capital entered into a new revolving credit facility with a borrowing capacity of CAD$250.0
million as well as a new secured construction facility with a borrowing capacity of CAD$33.3 million, key terms of which are
presented in the table below. Concurrent with obtaining the new revolving facility, First Capital reduced the borrowing
capacity of its existing revolving facility from $800 million to $550 million.
During the fourth quarter, First Capital extended the maturity of its $20.7 million secured facility to June 30, 2020. In
addition, First Capital repaid $100.0 million of floating rate unsecured bank term loans and $23.4 million of secured credit
facilities.
In addition, First Capital extended the maturity of its $11.9 million secured facility to January 27, 2020. Subsequent to year-
end, First Capital further extended the maturity date by one month.
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First Capital’s credit facilities as at December 31, 2019 are summarized in the table below:
As at December 31, 2019
Unsecured operating facilities
Revolving facility maturing
2023
Borrowing
Capacity
Amounts
Drawn
Bank
Indebtedness
and
Outstanding
Letters of Credit
Available to be
Drawn
$
550,000 $
— $
(11,428) $
538,572
Revolving facility maturing
2022 (1)
250,000
(24,743)
Floating rate unsecured term
loan maturing 2023 (2)
Fixed rate unsecured term
loans maturing 2024 - 2026
Secured construction facilities
Maturing 2020 (3)
200,000
(197,287)
550,000
(550,000)
15,000
(14,984)
Maturing 2021
33,333
(33,333)
—
—
—
—
—
225,257
—
16
—
Maturing 2022 (3)
Secured Facilities
Maturing 2020
Maturing 2020
Maturing 2022
Maturing 2022
138,000
(52,825)
(1,592)
83,583
20,734
(3,050)
(818)
16,866
11,875
(11,875)
4,313
6,755
(4,313)
(6,755)
—
—
—
—
—
—
Interest Rates
Maturity Date
BA + 1.45% or
Prime + 0.45% or
US$ LIBOR + 1.45%
BA + 1.10% or
Prime + 0.25% or
US$ LIBOR + 1.10%
June 30, 2023
September 29, 2022
2,713
BA + 1.20%
April 15, 2023
3.29%
March 28, 2024
- April 14, 2026
BA + 2.50% or
Prime + 1.00%
2.79%
January 31, 2020
August 26, 2021
BA + 1.350% or
Prime + 0.350%
October 26, 2022
BA + 1.20% or
Prime + 0.20%
BA + 1.20% or
Prime + 0.20%
BA + 1.20% or
Prime + 0.20%
BA + 1.20% or
Prime + 0.20%
June 30, 2020
January 27, 2020
September 28, 2022
December 19, 2022
Total
$
1,780,010 $
(899,165) $
(13,838) $
867,007
(1) The Trust had drawn in U.S. dollars the equivalent of CAD$25.0 million which was revalued at CAD$24.7 million as at December 31, 2019.
(2) The Trust had drawn in U.S. dollars the equivalent of CAD$200.0 million which was revalued at CAD$197.3 million as at December 31, 2019.
(3) The Trust now consolidates the assets, liabilities, revenues and expenses of MMUR which was previously equity accounted.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Senior Unsecured Debentures
As at December 31, 2019
Interest Rate
Series Maturity Date
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
January 22, 2027
Weighted Average or Total
M
N
O
P
Q
R
S
T
U
V
Interest Payment Dates
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 6, May 6
January 12, July 12
January 22, July 22
Coupon
5.60%
4.50%
4.43%
3.95%
3.90%
4.79%
4.32%
3.60%
3.75%
3.46%
4.18%
Effective
5.60%
4.63%
4.59%
4.18%
3.97%
4.72%
4.24%
3.56%
3.82%
3.54%
4.22%
Remaining
Term to
Maturity
(years)
0.3
1.2
2.1
2.9
3.8
4.7
5.6
6.4
7.5
7.1
4.5
Principal
Outstanding
$
$
175,000
175,000
200,000
250,000
300,000
300,000
300,000
300,000
300,000
200,000
2,500,000
On July 22, 2019, First Capital completed the issuance of $200 million principal amount of Series V senior unsecured
debentures due January 22, 2027. These debentures bear interest at a coupon rate of 3.456% per annum, payable semi-
annually commencing January 22, 2020. The net proceeds of the offering were used to pay existing debt.
Unitholders' / Shareholders’ Equity
Unitholders’ equity amounted to $4.4 billion as at December 31, 2019, compared to Shareholders' equity of $5.0 billion as
at December 31, 2018. The decrease is primarily attributed to the repurchase and cancellation of 36 million common shares
for $741.6 million to complete the Gazit share repurchase transaction.
REIT conversion
On December 30, 2019, the Plan of Arrangement to convert the Company into a publicly traded real estate investment trust
was completed. Under the terms of the Arrangement, each outstanding common share of the Company was exchanged for
one Trust Unit, unless a qualifying Shareholder elected to receive an Exchangeable Unit. Effective December 30, 2019, the
following transactions took place:
• 1.2 million Exchangeable Units, which are economically equivalent to Trust Units, were issued and approximately
$16.0 million was reclassified from share capital to Exchangeable Units. As the Exchangeable Units are accounted for
as financial liabilities, $9.3 million was charged to retained earnings to adjust them to their fair value at conversion.
• 218.0 million Trust Units were issued under the Arrangement and approximately $2.9 billion was reclassified from
share capital to Trust Unit capital within unitholders' equity.
• All grants outstanding under the stock option plan and share unit plans were transferred on a one-to-one basis to
unit-based compensation plans. Upon conversion the unit-based compensation plans are now accounted for as
liabilities and approximately $21.7 million was reclassified from equity to liabilities at conversion.
As at February 10, 2020, there were 218.0 million Trust Units and 1.2 million Exchangeable Units outstanding.
Unit Options
As at December 31, 2019, First Capital had 5.6 million unit options outstanding, with an average exercise price of $19.70,
which, if exercised, would result in First Capital receiving proceeds of $110.0 million.
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Liquidity
Liquidity risk exists due to the possibility of First Capital 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. First Capital 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
First Capital’s existing revolving credit facilities. If necessary, FCR is also able to obtain financing on its unencumbered
assets. The following table summarizes First Capital's liquidity position:
As at (millions of dollars)
Total available under credit facilities
Cash and cash equivalents
Unencumbered aggregate assets
December 31, 2019
December 31, 2018
$
$
$
867
26
7,037
$
$
$
532
16
7,270
First Capital 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, 2019, and availability on existing credit facilities, address
substantially all of the contractual 2020 debt maturities and contractually committed costs to complete current
development projects.
Cash Flows
Cash flow from operating activities represents First Capital's primary source of liquidity for servicing debt and funding
planned revenue sustaining expenditures, corporate expenses and distributions to Unitholders. Interest and other income
and cash on hand are other sources of liquidity.
Cash provided by (used in) operating activities
Cash provided by (used in) financing activities
Cash provided by (used in) investing activities
Net change in cash and cash equivalents
Three months ended December 31
Year ended December 31
2019
106,905
(436,190)
335,343
6,058
$
$
2018
114,128
43,411
(157,536)
3
$
$
2019
269,147
(591,797)
332,619
9,969
$
$
2018
283,012
12,315
(291,300)
4,027
$
$
The following table presents the excess (shortfall) of cash provided by operating activities over distributions / dividends
declared:
Cash provided by operating activities
Distributions / dividends declared (1)
Excess (shortfall) of cash provided by operating
activities over distributions / dividends declared
$
$
Three months ended December 31
Year ended December 31
2019
106,905
(15,620)
91,285
$
$
2018
114,128
(54,973)
59,155
$
$
2019
269,147
(165,224)
103,923
$
$
2018
283,012
(215,537)
67,475
(1) FCR paid cash dividends of $0.860 per share for both years ended December 31, 2019 and 2018.
Cash provided by operating activities exceeded distributions / dividends declared for the three months and years ended
December 31, 2019 and 2018.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Contractual Obligations
An analysis of First Capital’s contractual maturities of its material financial liabilities and other contractual commitments,
as at December 31, 2019 is set out below:
As at December 31, 2019
Payments due by period
Scheduled mortgage principal amortization
Mortgage principal repayments on maturity
Credit facilities and bank indebtedness
Senior unsecured debentures
Interest obligations (1)
Land leases (expiring between 2023 and 2061)
Contractually committed costs to complete current
development projects
Other committed costs
Total contractual obligations
$
$
2020
2021 to 2022
2023 to 2024
Thereafter
Total
28,399 $
56,875
29,909
175,000
174,759
1,199
73,745
58,124 $
58,853 $
168,959
121,969
625,000
301,620
2,413
—
108,478
497,347
600,000
216,082
1,489
—
104,813 $
746,718
250,000
1,100,000
174,881
16,808
—
250,189
1,081,030
899,225
2,500,000
867,342
21,909
73,745
7,028
7,028
546,914 $ 1,278,085 $ 1,482,249 $ 2,393,220 $ 5,700,468
—
—
—
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2019 (assuming balances remain outstanding through to
maturity) and senior unsecured debentures, as well as standby credit facility fees.
First Capital has $33.3 million of outstanding letters of credit issued by financial institutions to support certain of FCR’s
contractual obligations and $0.1 million of bank overdrafts.
First Capital’s estimated cost to complete properties currently under development is $194.8 million, of which $73.7 million is
contractually committed. The balance of the costs to complete will only be committed once leases are signed and/or
construction is underway. These contractual and potential obligations primarily consist of construction contracts and
additional planned development expenditures and are expected to be funded in the normal course as the work is
completed.
Contingencies
First Capital 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 FCR. First Capital is contingently liable, jointly and
severally, for approximately $77.5 million (December 31, 2018 – $152.2 million) to various lenders in connection with
certain obligations, including loans advanced to its partners secured by the partners’ interest in the entity and underlying
assets.
39
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NON-IFRS RECONCILIATIONS AND FINANCIAL MEASURES
Reconciliation of Consolidated Balance Sheets to First Capital's Proportionate Interest
The following table provides a reconciliation of First Capital’s consolidated balance sheets, as presented in its audited
annual consolidated financial statements, to its proportionate interest.
As at
ASSETS
December 31, 2019
December 31, 2018
Consolidated
Balance
Sheet (1)
Adjustments for
Proportionate
Interest
Proportionate
Interest (2)
Consolidated
Balance
Sheet (1)
Adjustments for
Proportionate
Interest
Proportionate
Interest (2)
$ 9,602,789 $
9,682,614
$ 125,432
$ 9,808,046
Investment properties
$
9,593,530
$
Residential development inventory
Hotel property
Loans, mortgages and other assets
Cash and cash equivalents
Amounts receivable
Other assets
Investment in joint ventures
Investment properties classified as held for
sale
10,205
62,199
166,033
25,503
31,521
54,271
59,498
158,600
9,259
5,742
—
2,651
2,279
307
16,978
(59,498)
15,947
62,199
168,684
27,782
31,828
71,249
9,510
58,604
364,059
15,534
36,391
56,307
—
—
2,880
9,141
(1,097)
5,822
—
144,375
(144,375)
9,510
58,604
366,939
24,675
35,294
62,129
—
128,966
$10,494,163
Total assets
LIABILITIES
Mortgages
Credit facilities
Bank indebtedness
Senior unsecured debentures
Exchangeable Units
Deferred tax liabilities
Debt secured by investment properties held
for sale
Accounts payable and other liabilities
Total liabilities
EQUITY
Unitholders' / Shareholders' equity
Non-controlling interest
Total equity
—
158,600
85,661
$
10,161,360
$
(22,282)
$10,139,078 $
10,453,055
$
1,327,021
$
40,036
$ 1,367,057 $
1,285,908
$
$
899,165
(19,749)
879,416
43,305
41,108
626,172
7,226
60
2,497,213
2,447,278
25,010
701,549
—
793,300
—
—
—
—
—
—
—
6,345
26,632
242,181
285,099
5,712,486
5,444,983
40,957
$ 1,326,865
5,643
—
—
—
—
18,553
5,785
70,938
631,815
7,226
2,447,278
—
793,300
18,553
290,884
5,515,921
—
4,426,592
4,978,242
—
4,978,242
(48,914)
(48,914)
—
29,830
4,426,592
5,008,072
(29,830)
(29,830)
—
4,978,242
60
2,497,213
25,010
701,549
—
235,836
5,685,854
4,426,592
48,914
4,475,506
Total liabilities and equity
$
10,161,360
$
(22,282)
$10,139,078 $
10,453,055
$
41,108
$10,494,163
(1) The consolidated balance sheets have been presented on a non-classified basis for purposes of this reconciliation.
(2) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
FIRST CAPITAL REIT ANNUAL REPORT 2019
40
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
Reconciliation of Consolidated Statements of Income to First Capital’s Proportionate Interest
The following table provides a reconciliation of First Capital's consolidated statements of income for the three months
ended December 31, 2019, to its proportionate interest.
Three months ended December 31
2019
2018
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 Exchangeable
Units
Consolidated
Statements of
Income
Adjustment to
proportionate
interest
Proportionate
interest (1)
Consolidated
Statements of
Income
Adjustment to
proportionate
interest
Proportionate
interest (1)
$
181,624 $
67,675
113,949
2,295 $ 183,919 $
1,976
319
69,651
114,268
184,590 $
70,075
114,515
2,089 $
550
1,539
186,679
70,625
116,054
3,870
(42,993)
(9,424)
(24)
(1,231)
(563)
(6,312)
230
388
(342)
226
—
(666)
563
(62)
—
4,258
(43,335)
(9,198)
(24)
(1,897)
—
(6,374)
230
6,150
(39,154)
(8,912)
(53)
(1,020)
268
(2,256)
—
11
(515)
292
—
—
(268)
(29)
—
6,161
(39,669)
(8,620)
(53)
(1,020)
—
(2,285)
—
Increase (decrease) in value of investment
19,003
(90)
18,913
10,972
(840)
10,132
properties, net
Income before income taxes
Deferred income taxes
Net income
Net income attributable to:
Unitholders / Shareholders
Non-controlling interest
Net income per unit / share attributable to
Unitholders / Shareholders:
Basic
Diluted
$
$
$
$
$
(37,444)
76,505
(115,618)
17
336
—
(37,427)
(34,005)
(1,349)
(35,354)
76,841
(115,618)
80,510
16,394
190
—
192,123 $
336 $ 192,459 $
64,116 $
190 $
192,459 $
(336)
192,123 $
— $ 192,459 $
336
336 $ 192,459 $
—
64,306 $
(190)
64,116 $
— $
190
190 $
0.88
0.87
$
$
0.25
0.25
80,700
16,394
64,306
64,306
—
64,306
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
41
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The following table provides a reconciliation of First Capital's consolidated statements of income, as presented in its
audited annual consolidated financial statements, to its proportionate interest.
Year ended December 31
2019
2018
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 Exchangeable
Units
Consolidated
Statements of
Income
Adjustment for
proportionate
interest
Proportionate
interest (1)
Consolidated
Statements of
Income
Adjustment for
proportionate
interest
Proportionate
interest (1)
$
746,773 $
286,376
460,397
9,126 $
5,758
3,368
755,899 $
292,134
463,765
729,595 $
274,822
454,773
8,312 $
2,752
5,560
737,907
277,574
460,333
33,049
(171,834)
(38,478)
(677)
(4,511)
1,699
(8,759)
230
(822)
(1,740)
629
—
(1,502)
(1,699)
(135)
—
32,227
(173,574)
(37,849)
(677)
(6,013)
—
(8,894)
230
26,429
(153,240)
(37,094)
(177)
(3,235)
30,411
10,733
—
1,930
(2,209)
1,171
(1)
—
(30,411)
(1,259)
—
28,359
(155,449)
(35,923)
(178)
(3,235)
—
9,474
—
Increase (decrease) in value of investment
61,037
(11,097)
49,940
102,389
16,985
119,374
properties, net
Income before income taxes
Deferred income taxes
Net income
Net income attributable to:
Unitholders / Shareholders
Non-controlling interest
Net income per unit / share attributable to
Unitholders / Shareholders:
Basic
Diluted
$
$
$
$
$
(128,244)
332,153
(82,187)
414,340 $
(16,366)
(12,998)
(3)
(12,995) $
(144,610)
319,155
(82,190)
401,345 $
(23,784)
430,989
79,151
351,838 $
(13,794)
(8,234)
(2)
(8,232) $
(37,578)
422,755
79,149
343,606
401,345 $
12,995
414,340 $
— $
401,345 $
(12,995)
(12,995) $
—
401,345 $
343,606 $
8,232
351,838 $
— $
(8,232)
(8,232) $
343,606
—
343,606
1.75
1.74
$
$
1.38
1.37
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
FIRST CAPITAL REIT ANNUAL REPORT 2019
42
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
FFO and ACFO
Funds from Operations
A reconciliation from net income attributable to Unitholders / Shareholders to FFO can be found in the table below:
Net income attributable to Unitholders / Shareholders
Add (deduct):
(Increase) decrease in value of investment properties (1)
Adjustment for equity accounted joint ventures (2)
Incremental leasing costs (3)
Amortization expense (4)
Gain on below market purchase (5)
Transaction costs (6)
Distributions on Exchangeable Units (7)
Increase (decrease) in value of Exchangeable Units (7)
Increase (decrease) in value of unit-based
compensation plans (8)
Investment properties selling costs (1)
Deferred income taxes (1)
FFO (9)
Three months ended December 31
2019
2018
Year ended December 31
2019
2018
$
192,459
$
64,306
$
401,345
$
343,606
(18,913)
666
1,565
198
—
—
86
(230)
(81)
3,311
(115,618)
63,443
$
$
(10,132)
346
1,616
161
—
—
—
—
—
689
16,394
73,380
(49,940)
2,057
6,680
693
—
—
86
(230)
(81)
6,500
(82,190)
284,920
$
(119,374)
1,544
6,438
413
(13,975)
2,052
—
—
—
3,118
79,149
302,971
$
(1) At FCR's proportionate interest.
(2) Adjustment related to FCR's equity accounted joint ventures in accordance with the recommendations of REALPAC.
(3) Adjustment to capitalize incremental leasing costs in accordance with the recommendations of REALPAC.
(4) Adjustment to exclude hotel property amortization in accordance with the recommendations of REALPAC.
(5) Adjustment to exclude gain on below market purchase of hotel property in accordance with the recommendations of REALPAC.
(6) Adjustment to transaction costs incurred as part of hotel property acquisition in accordance with the recommendations of REALPAC.
(7) Adjustment to exclude distributions and fair value adjustments on Exchangeable Units in accordance with the recommendations of REALPAC.
(8) Adjustment to exclude fair value adjustments on unit-based compensation plans in accordance with the recommendations of REALPAC.
(9) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
The components of 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 (3)
Other gains (losses) and (expenses) (4)
FFO (5)
FFO per diluted unit / share
Weighted average number of units / shares –
diluted – FFO (in thousands)
Three months ended December 31
Year ended December 31
% change
2019
2018
% change
2019
2018
$ 114,268
4,258
(43,249)
(7,714)
(24)
(1,033)
(3,063)
63,443
0.29
(13.5)% $
0.3 % $
$ 116,054
6,161
(39,323)
(7,004)
(53)
(859)
(1,596)
73,380
0.29
$
$
$ 463,765
32,227
(172,933)
(31,250)
(677)
(3,818)
(2,394)
(6.0)% $ 284,920
1.23
2.0 % $
$ 460,333
28,359
(153,905)
(29,485)
(178)
(2,822)
669
$ 302,971
1.21
$
(13.8)%
220,545
255,821
(7.9)%
230,810
250,474
(1) Includes an adjustment to capitalize interest related to FCR'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) Excludes certain amortization expense in accordance with the recommendations of REALPAC.
(4) At FCR's proportionate interest, adjusted to exclude investment properties selling costs in accordance with the recommendations of REALPAC.
(5) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
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For the three months ended December 31, 2019, FFO totaled $63.4 million or $0.29 per diluted unit compared to
$73.4 million or $0.29 per diluted share in the same prior year period. FFO decreased $9.9 million over the prior year
period primarily due to higher interest expense following the share repurchase transaction, lower NOI driven by increased
dispositions and higher REIT conversion costs. FFO per diluted unit increased 0.3% to $0.29 primarily due to the decrease
in the weighted average diluted units outstanding for the quarter following the share repurchase transaction.
For the year ended December 31, 2019, FFO totaled $284.9 million or $1.23 per diluted unit compared to $303.0 million
or $1.21 per diluted share for the prior year. The decrease of $18.1 million over the prior year period was primarily due to
higher interest expense of $19.0 million related to the senior unsecured bank term loans First Capital entered into to fund
the share repurchase. FFO per diluted unit increased 2.0% primarily due to the impact of the decrease in the weighted
average diluted units outstanding for the year following the share repurchase transaction.
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
2019
2018
2019
2018
$
106,905 $
114,128 $
269,147 $
283,012
(35,076)
449
(2,307)
(1,612)
391
—
(192)
68,558 $
(34,157)
1,130
(5,456)
(4,780)
405
43
59
71,372 $
4,411
2,647
(17,328)
(6,815)
1,670
1,164
(2,480)
252,416 $
(1,181)
3,546
(15,523)
(7,945)
1,610
4,232
(583)
267,168
(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 in the most recent REALPAC whitepaper on ACFO issued in February 2019.
(2) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
For the three months and year ended December 31, 2019, ACFO totaled $68.6 million and $252.4 million compared to
$71.4 million and $267.2 million for the prior year periods, respectively. The $14.8 million decrease in ACFO for the year
ended December 31, 2019 was primarily due to lower cash generated from operating activities, as a result of higher
interest expense following the share repurchase, higher REIT conversion costs and a lower realized gain on sale of
marketable securities.
ACFO Payout Ratio
First Capital's ACFO payout ratio for the four quarters ended December 31, 2019 is calculated as follow:
Year ended December 31, 2019
Q4 2019
Q3 2019
Q2 2019
ACFO (1)
Cash dividends paid (2)
ACFO payout ratio (1)
$
252,416
203,830
$
80.8%
68,558 $
47,106
60,533 $
47,104
70,855 $
54,832
Q1 2019
52,470
54,788
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
(2) FCR was a corporation and paid dividends in 2019 until it converted to a REIT on December 30, 2019.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
First Capital's ACFO payout ratio for the four quarters ended December 31, 2018 is calculated as follow:
Year ended December 31, 2018
Q4 2018
Q3 2018
Q2 2018
ACFO (1)
Cash dividends paid
ACFO payout ratio (1)
$
267,168
212,651
$
79.6%
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
71,372 $
54,782
71,464 $
52,680
74,030 $
52,636
Q1 2018
50,302
52,553
First Capital considers a rolling four quarter payout ratio (cash dividends / ACFO) to be more relevant than a payout ratio
in any given quarter due to seasonal fluctuations in ACFO. For the four quarters ended December 31, 2019, the ACFO
payout was 80.8% (December 31, 2018 - 79.6%).
Net Asset Value
The following table provides FCR's calculation of NAV for the years ended December 31, 2019 and 2018:
As at
Unitholders' / Shareholders' equity
Exchangeable Units
Deferred tax liabilities
Net Asset Value (NAV) (1)
Units outstanding - diluted (1)
NAV per unit (1)
December 31, 2019
December 31, 2018
4,426,592 $
4,978,242
25,010
701,549
5,153,151 $
220,343
23.39 $
—
793,300
5,771,542
255,515
22.59
$
$
$
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
The increase in NAV per unit from $22.59 to $23.39 is primarily due to fair value increases on investment properties and
the impact of the share repurchase.
DIVIDENDS / DISTRIBUTIONS
First Capital has paid regular quarterly dividends to common Shareholders since it commenced operations as a public
company in 1994. Upon conversion to a REIT, First Capital adopted a distribution policy, as permitted under the Declaration
of Trust, to make monthly cash distributions to Unitholders initially equal to, on an annual basis, $0.860 per Trust Unit. The
initial monthly distribution of $0.0716 per unit was declared to unitholders of record on December 31,2019, and will be paid
by First Capital on January 15, 2020. Distributions on the Trust Units are declared at the discretion of the Board of Trustees
and are set from time to time after taking into consideration FCR’s capital requirements, its alternative sources of capital
and common industry cash distribution practices. The following chart specifies dividends / distributions declared by First
Capital:
(in dollars)
Distributions declared per unit
Dividends declared per common share (1)
Three months ended December 31
Year ended December 31
$
2019
0.072
N/A
2018
N/A
0.215
2019
0.072
0.645
$
$
$
2018
N/A
0.860
$
(1) FCR paid cash dividends of $0.860 per share for both years ended December 31, 2019 and 2018.
45
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SUMMARY OF FINANCIAL RESULTS OF LONG-TERM DEBT GUARANTORS
First Capital's senior unsecured debentures are guaranteed by the wholly owned subsidiaries of the Trust, 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, 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. These guarantees are intended to
eliminate structural subordination, which arises as a consequence of a significant portion of First Capital’s assets being
held primarily in two significant subsidiaries.
The following tables present select consolidating summary information for First Capital for the periods identified below
presented separately for (i) First Capital (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
Property rental revenue
NOI (5)
$
Net income attributable to
Unitholders /
Shareholders
(millions of dollars)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
(millions of dollars)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
FCR (1)
328 $
217
Guarantors (2)
Non-Guarantors (3)
Consolidation Adjustments (4)
Total Consolidated
309 $
204
422 $
245
423 $
252
3 $
3
1 $
2
(6) $
(5)
(3) $
(3)
747 $
460
730
455
401
344
288
172
12
25
(300)
(197)
401
344
$
$
FCR (1)
Guarantors (2)
Non-Guarantors (3)
125 $
122
411
4,425
FCR (1)
162 $
9,409
467
4,096
188 $
1 $
10,206
90
736
161
2
40
Guarantors (2)
Non-Guarantors (3)
308 $
5,159
184
730
68 $
67
6
34
As at December 31, 2019
Consolidation
Adjustments (4)
Total Consolidated
— $
(642)
(2)
(16)
314
9,847
501
5,185
As at December 31, 2018
Consolidation
Adjustments (4)
(94) $
(4,626)
(2)
(70)
Total Consolidated
444
10,009
655
4,790
(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
FCR on a consolidated basis.
(5) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
RELATED PARTY TRANSACTIONS
Gazit-Globe
Effective April 16, 2019, Gazit's ownership of First Capital was reduced to approximately 9.9% following the completion of
the secondary offering and share repurchase transactions. In the fourth quarter, Gazit sold a portion of its remaining
interest in FCR, reducing its ownership as at December 31, 2019 to 6.7% (December 31, 2018 - 31.3%). Subsequent to
year-end, Gazit further reduced its ownership interest in FCR from 6.7% to 4.4%.
Corporate and other amounts receivable include amounts due from Gazit. Gazit reimburses First Capital for certain
accounting and administrative services provided to it by FCR. Such amounts consist of the following:
Reimbursements for professional services
Year ended December 31
2019
$
157
$
2018
186
As at December 31, 2019, amounts due from Gazit were $27 thousand (December 31, 2018 – $40 thousand).
Joint Ventures
For the three months and year ended December 31, 2019, First Capital earned fee income of Nil (December 31, 2018
- $0.2 million) and $1.9 million (December 31, 2018 – $4.5 million), respectively, from its joint ventures.
During the year ended December 31, 2019, First Capital also advanced $1.2 million (December 31, 2018 – $2.1 million) to
one of its joint ventures.
Subsidiaries of the Trust
The audited annual consolidated financial statements include the financial statements of First Capital Real Estate
Investment Trust and all of its subsidiaries, including First Capital Realty Inc., First Capital REIT Limited Partnership and
First Capital Holdings Trust. First Capital Realty Inc. and First Capital Holdings Trust are the significant subsidiaries of the
Trust and are wholly owned.
SUBSEQUENT EVENTS
Monthly Distribution
On January 15, 2020, First Capital announced that it will pay a distribution, for the month of January, of $0.072 per Trust
Unit on February 14, 2020 to Unitholders of record on January 31, 2020.
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QUARTERLY FINANCIAL INFORMATION
2019
2018
(unit / share counts in thousands)
Property rental revenue
Net operating income (1)
Net income attributable to
Unitholders / Shareholders
Net income per unit / share
attributable to Unitholders /
Shareholders:
Basic
Diluted
Weighted average number of
diluted units / shares
outstanding – IFRS
FFO (1)
FFO per diluted unit / share (1)
Weighted average number of
diluted units / shares
outstanding – FFO
Cash provided by operating
activities
ACFO (1)
Distribution declared per unit /
dividend per share (2)
$
$
$
$
$
$
$
$
$
$
Q4
181,624
113,949
192,459
0.88
0.87
220,545
63,443
0.29
220,545
106,905
68,558
0.072
$
$
$
$
$
$
$
$
$
$
Q3
183,650
115,023
65,490
0.30
0.30
220,664
75,595
0.34
220,664
70,254
60,533
0.215
$
$
$
$
$
$
$
$
$
$
Q2
186,825
115,994
81,244
0.36
0.36
226,417
70,229
0.31
226,417
43,106
70,855
0.215
$
$
$
$
$
$
$
$
$
$
Q1
194,674
115,431
62,152
0.24
0.24
256,178
75,653
0.30
256,178
48,882
52,470
0.215
$
$
$
$
$
$
$
$
$
$
Q4
184,590
114,515
64,306
0.25
0.25
255,821
73,380
0.29
255,821
114,128
71,372
0.215
$
$
$
$
$
$
$
$
$
$
Q3
182,368
114,800
131,427
0.52
0.52
254,100
76,510
0.30
254,100
72,049
71,464
0.215
$
$
$
$
$
$
$
$
$
$
Q2
Q1
181,852
$ 180,785
113,816
$ 111,642
81,929
$
65,944
0.33
0.33
246,196
79,148
0.32
$
$
$
$
0.27
0.27
247,044
73,933
0.30
246,196
245,717
51,356
74,030
0.215
$
$
$
45,479
50,302
0.215
Total assets
$10,161,360
$10,585,127
$10,375,405
$10,465,288
$10,453,055
$10,317,034
$10,070,477
$9,980,267
Total mortgages and credit
facilities
Unitholders' / Shareholders’
equity
Other
Number of properties
GLA - at 100% (in thousands)
GLA - at ownership interest (in
thousands)
Monthly average occupancy %
Total portfolio occupancy %
$ 2,226,186
$ 2,655,151
$ 2,551,058
$ 1,891,884
$ 1,912,080
$ 1,678,862
$ 1,691,387
$1,694,732
$ 4,426,592
$ 4,272,781
$ 4,252,318
$ 4,979,080
$ 4,978,242
$ 4,981,511
$ 4,703,593
$4,669,877
158
23,528
166
25,092
165
25,294
166
25,334
166
25,456
166
25,519
162
161
25,327
25,267
20,927
22,936
23,136
23,731
23,854
23,797
23,700
23,648
96.6%
96.9%
96.4%
96.7%
96.7%
96.8%
96.6%
96.8%
96.6%
96.7%
96.4%
96.5%
96.2%
96.3%
96.0%
96.2%
(1) Refer to the "Non-IFRS Financial Measures" section of this MD&A.
(2) FCR moved from quarterly dividends to monthly distributions following its conversion to a REIT. FCR paid cash dividends of $0.860 per share for both years ended December
31, 2019 and 2018.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
CRITICAL ACCOUNTING ESTIMATES
First Capital 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 Trust’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.
Hedge accounting
Where First Capital 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
First Capital retains its REIT status if it meets the prescribed conditions under the Income Tax Act (Canada) (the "Tax Act").
Management uses judgment in its interpretation and application of these conditions. First Capital determined that it
qualifies as a REIT for the current period and expects to meet the prescribed conditions going forward. However, should
the Trust no longer meet the REIT conditions, substantial adverse tax consequences may result.
With respect to its corporate subsidiaries, the Trust 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 Trust reflects
the Trust's interpretation of the relevant tax laws. The Trust is also required to estimate the timing of reversals of
temporary differences between accounting and taxable income in determining the appropriate rate to apply in calculating
deferred taxes.
For the determination of deferred tax assets and liabilities where investment property is measured using the fair value
model, the presumption is that the carrying amount of an investment property is recovered through sale, as opposed to
presuming that the economic benefits of the investment property will be substantially consumed through use over time.
Estimates and Assumptions
Valuation of Investment properties
First Capital'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 a certified staff appraiser employed by FCR, 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.
Income producing properties 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
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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).
Properties undergoing development, redevelopment or expansion are valued either (i) using the discounted cash flow
method, with a deduction for costs to complete the project, or (ii) at cost, when cost approximates fair value. 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 First Capital's properties after adjusting for factors specific to the
site, including its location, zoning, servicing and configuration.
Refer to Note 2(h) of the audited consolidated financial statements for the year ended December 31, 2019 for further
information on the estimates and assumptions made by Management in connection with the fair values of investment
properties.
Valuation of Financial Instruments
First Capital is required to determine the fair value of its loans, mortgages and credit facilities, senior unsecured
debentures, Exchangeable Units, unit-based compensation plans, loans and mortgages receivable, other equity
investments, marketable securities and derivatives. The fair values of the 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.
• Exchangeable Units are based on the closing price of FCR's Trust Units at each period end.
• The fair value of the unit-based compensation plans are based on the following:
Unit Options: Fair value of each tranche is valued separately using a Black-Scholes option pricing model;
Deferred Units/Restricted Units: Fair value is based on the closing price of FCR's Trust Units at each period end; and
Performance Units: Fair value is calculated using a Monte-Carlo simulation model.
• 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.
• Equity investments in certain funds are based on the fair value of the properties held in the funds. The fair value of the
equity investment in a private entity approximates its cost.
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.
ACCOUNTING POLICY CHANGES
Refer to Note 3 of the audited annual consolidated financial statements for the years ended December 31, 2019 and 2018
for details on the impact of accounting policy changes related to the adoption of new and amended IFRS
pronouncements.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
CONTROLS AND PROCEDURES
As at December 31, 2019, the Chief Executive Officer and the Chief Financial Officer of First Capital, with the assistance of
other staff and Management of FCR to the extent deemed necessary, have designed FCR’s disclosure controls and
procedures to provide reasonable assurance that information required to be disclosed in the various reports filed or
submitted by FCR under securities legislation is recorded, processed, summarized and reported accurately and have
designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with IFRS.
In the design of its internal controls over financial reporting, First Capital 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 First Capital have evaluated, or caused the evaluation of,
under their supervision, the effectiveness of FCR’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, 2019, and have concluded that such disclosure controls and procedures and internal
controls over financial reporting were operating effectively.
First Capital did not make any changes in its internal controls over financial reporting during the quarter ended
December 31, 2019 that have had, or are reasonably likely to have, a material effect on FCR's internal controls over
financial reporting. On an ongoing basis, FCR 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, First Capital intends to take the necessary steps to minimize the consequences thereof.
RISKS AND UNCERTAINTIES
First Capital, 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 Trustees, to identify and, to the extent possible, mitigate or minimize the impact of all such business risks. The
major categories of risk First Capital encounters in conducting its business and some of the actions it takes to mitigate
these risks are outlined below. First Capital’s most current Annual Information Form, which provides a detailed description
of these and other risks that may affect FCR, can be found on SEDAR at www.sedar.com and on FCR’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 and unsecured debenture 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 First Capital operates can also have a significant impact on FCR’s
tenants and, in turn, FCR’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 FCR, and may also limit FCR’s ability
to attract new or replacement tenants.
First Capital’s portfolio has major concentrations in Ontario, Alberta, Quebec and British Columbia. Moreover, within each
of these provinces, FCR’s portfolio is concentrated predominantly in selected urban markets. As a result, economic and
real estate conditions in these regions will significantly affect FCR’s revenues and the value of its properties.
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Revenue from First Capital’s properties depends primarily on the ability of FCR’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 FCR’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 FCR, FCR’s financial position and results of operations would be adversely affected.
In the event of default by a tenant, FCR may experience delays and unexpected costs in enforcing its rights as landlord
under lease terms, which may also adversely affect FCR’s financial position and results of operations. FCR may also incur
significant costs in making improvements or repairs to a property required in order to re-lease vacated premises to a new
tenant.
First Capital’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 First Capital's annual minimum rent experience financial
difficulty and are unable to pay rent or fulfill their lease commitments, FCR’s financial position, results of operation and
the value of its properties concerned would be adversely affected.
First Capital’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 First Capital. In addition, the terms of any
subsequent lease may be less favourable to FCR than the existing lease.
Financing, Interest Rates, Repayment of Indebtedness and Access to Capital
First Capital has outstanding indebtedness in the form of mortgages, credit facilities, senior unsecured debentures and
bank indebtedness and, as such, is subject to the risks normally associated with debt financing, including the risk that
FCR’s cash flow will be insufficient to meet required payments of principal and interest.
The amount of indebtedness outstanding could require FCR 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. FCR’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 FCR,
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 FCR than the existing financing. FCR may elect to repay certain indebtedness through the
issuance of equity securities or the sale of assets, where appropriate.
Interest rates have a significant effect on the profitability of commercial properties as interest represents a significant
cost in the ownership of real property where debt financing is used as a source of capital. FCR has a total of $1,145.7
million principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured
debentures and secured credit facilities maturing between January 1, 2020 and December 31, 2022 at a weighted
average coupon interest rate of 4.5%. If these amounts were refinanced at an average interest rate that was 100 basis
points higher or lower than the existing rate, FCR’s annual interest cost would respectively increase or decrease by
$11.5 million. In addition, as at December 31, 2019, FCR had $296.1 million principal amount of debt (or 6% of FCR’s
aggregate debt as of such date) at floating interest rates.
First Capital 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, FCR may enter
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
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 First Capital,
may adversely affect a securityholder’s ability to sell its senior unsecured debentures or other securities of FCR and may
adversely affect FCR’s access to financial markets and its cost of borrowing.
Acquisition, Expansion, Development, Redevelopment and Strategic Dispositions
First Capital’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 FCR’s financial position and results of operations and its ability
to meet its obligations: (i) FCR may not be able to identify suitable properties to acquire or may be unable to complete the
acquisition of the properties identified; (ii) FCR 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) FCR’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 FCR’s total acquisition costs; (v) FCR’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, FCR’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 FCR’s development commitments relate to properties intended for sale, such as the residential portion of certain
projects, FCR is also subject to the risk that purchasers of such properties may become unable or unwilling to meet their
obligations to FCR or that FCR may not be able to close the sale of a significant number of units in a development project
on economically favourable terms.
In addition, FCR undertakes strategic property dispositions in order to recycle its capital and maintain an optimal portfolio
composition. FCR may be subject to unexpected costs or liabilities related to such dispositions, which could adversely
affect FCR's financial position and results of operations and its ability to meet its obligations.
Competition
The real estate business is competitive. Numerous other developers, managers and owners of retail properties compete
with First Capital in seeking tenants. Some of the properties located in the same markets as FCR’s properties may be
newer, better located and/or have stronger anchor tenants than FCR’s properties. The existence of developers, managers
and owners in the markets in which FCR operates, or any increase in supply of available space in such markets (due to
new construction, tenant insolvencies or other vacancy) and competition for FCR’s tenants could adversely affect FCR’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 FCR that is not easily assessed. Any of the aforementioned factors could
have an adverse effect on FCR’s financial position and results of operations.
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Residential Development Sales and Leasing
First Capital 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 FCR'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, FCR 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 FCR'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
First Capital 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 FCR’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, FCR, 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 FCR
knows of, or is responsible for, the environmental contamination and whether the contamination occurred before or after
FCR 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 FCR’s results of operations or financial position. The presence of
contamination or the failure to remediate such substances, if any, may adversely affect FCR’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 FCR may become subject
to more stringent environmental laws in the future, and compliance with more stringent environmental laws, or increased
enforcement of the same, could have a material adverse effect on its business, financial position or results of operations.
Partnerships
First Capital has investments in properties with non-affiliated partners through partnership, co-ownership and limited
liability corporate venture arrangements (collectively, “partnerships”). As a result, FCR 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 FCR’s sole best interests. Accordingly, FCR may not be able to favourably resolve any issues that arise with respect to
such decisions, or FCR may have to take legal action or provide financial or other inducements to partners to obtain such
resolution. In addition, FCR may be exposed to risks resulting from the actions, omissions or financial situation of a
partner, which may result in harm to FCR’s reputation or adversely affect the value of FCR’s investments.
Investments Subject to Credit and Market Risk
First Capital provides co-owner financing, priority mortgages and mezzanine loans to third parties in connection with certain
transactions and partnerships (“Loans and Mortgages Receivable”). First Capital also invests in marketable and other
securities. FCR is exposed to customary risks in the event that the values of its Loans and Mortgages Receivable and/or its
investments, in marketable and other securities, decrease due to overall market conditions, business failure, and/or other
non-performance/defaults by the counterparties or investees. Not all lending activities will translate into acquisitions or
equity participation in a project and the value of the assets securing FCR’s Loans and Mortgages Receivable is dependent on
real estate market conditions and in the event of a large market correction, their value may be unable to support the
investments. There can also be no assurance FCR will advance new Loans and Mortgages Receivable at the same rate or in
FIRST CAPITAL REIT ANNUAL REPORT 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS – continued
the same amount repaid, which could negatively impact future earnings. Additionally, repayment of one or more of the
current loans outstanding would result in an immediate decrease of FCR’s Loans and Mortgages Receivable unless and until
such time that FCR advances new loans.
Climate Change
Changing weather patterns and other effects of climate change have created uncertainty as to future trends and weather
conditions and could have an impact on FCR's properties, adversely impacting its results. First Capital's properties, tenants,
and communities may become impacted by more severe weather events and natural disasters, including increases in storm
intensity and rising water levels resulting in floods. Over time, these conditions could result in a decreased demand for
space in FCR’s impacted properties or, in extreme cases, it may impact FCR’s ability to operate the properties at all. Climate
change may also have indirect effects on First Capital’s business by increasing the cost of (or making unavailable) property
insurance on favourable terms, resulting in additional costs to repair or replace damaged properties or protect its properties
against such risks, which could negatively impact FCR’s earnings, liquidity or capital resources. The occurrence of natural
disasters or severe weather conditions can also delay new development projects. In addition, compliance with new laws or
regulations related to climate change may require First Capital to make improvements to its existing properties or increase
taxes and fee assessments, which could result in declining demand for FCR’s properties and increased expenses and may
adversely affect operating and financial results.
Cybersecurity
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of FCR’s
information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include
gaining unauthorized access to information systems to disrupt operations, corrupt data or steal confidential information. As
FCR’s reliance on technology has increased, so have the risks posed to its systems. First Capital's primary risks that could
directly result from the occurrence of a cyber incident include operational interruption, damage to its reputation, damage to
its business relationships with tenants as well as the disclosure of confidential information. Events such as these could
adversely affect First Capital’s financial position and results of operations.
Cash Distributions Are Not Guaranteed
Distributions on the Trust Units are established by the Board of Trustees and are subject to change at the discretion of the
Board of Trustees. While First Capital’s distribution policy has been established pursuant to the Declaration of Trust and may
only be changed with the approval of a majority of Unitholders, the actual amount of distributions paid in respect of the
Trust Units will depend upon numerous factors, all of which are susceptible to a number of risks and other factors beyond
the control of First Capital. The market value of the Trust Units will deteriorate if First Capital is unable to meet its
distribution targets in the future, and that deterioration could be significant. In addition, the composition of the cash
distributions for tax purposes may change over time and could affect the after-tax return for Unitholders.
Unpredictability and Volatility of Trust Unit Price
A publicly-traded real estate investment trust will not necessarily trade at values determined by reference to the underlying
value of its business. The prices at which the Trust Units will trade cannot be predicted. The market price of the Trust Units
could be subject to significant fluctuations in response to variations in quarterly operating results, distributions and other
factors. The annual yield on the Trust Units as compared to the annual yield on other financial instruments may also
influence the price of the Trust Units in the public trading markets. In addition, the securities markets have experienced
significant price and volume fluctuations from time to time in recent years that often have been unrelated or
disproportionate to the operating performance of particular issuers. These broad fluctuations may adversely affect the
market price of the Trust Units.
55
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Mutual Fund Trust / Mutual Fund Corporation Status
The Trust or its subsidiary First Capital Realty Inc. ("FCR Inc.") may not qualify as a “mutual fund trust” or a "mutual fund
corporation" (as applicable) for purposes of the Tax Act, or it may cease to so qualify. If the Trust or FCR Inc. did not so
qualify for such purposes continuously throughout a taxation year, it would be subject to adverse tax consequences which
likely may materially reduce its ability to make distributions on the Trust Units. Furthermore, if the Trust or FCR Inc. was
considered to have been established primarily for the benefit of non-resident persons, it would be permanently disqualified
from qualifying as a “mutual fund trust” or a "mutual fund corporation" (as applicable) for such purposes.
REIT Status
There is a risk (for example, as a result of an unanticipated event) that the Trust will not qualify (under the exception for real
estate investment trusts from the rules applicable to SIFT trusts or SIFT partnerships in the Tax Act) as a “real estate investment
trust” under the Tax Act for one or more of its taxation years. Were this to occur, the level of monthly cash distributions made
on the Trust Units may be materially reduced. Furthermore, there is no assurance that the provisions of the Tax Act regarding
the exemption afforded to REITs from the SIFT rules will not change in a manner that adversely impacts the Unitholders.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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FS
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
58
59
61
62
63
64
65
66
66
66
75
76
77
80
81
81
82
83
83
84
87
87
88
88
89
90
93
94
94
94
95
95
96
99
101
102
103
104
105
105
106
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 Trust
2 Significant Accounting Policies
3 Adoption of New and Amended IFRS Pronouncements
4 REIT Conversion
5 Investment Properties
6 Investment in Joint Ventures
7 Hotel Property
8 Loans, Mortgages and Other Assets
9 Amounts Receivable
10 Other Assets
11 Capital Management
12 Mortgages and Credit Facilities
13 Senior Unsecured Debentures
14 Convertible Debentures
15 Accounts Payable and Other Liabilities
16 Exchangeable Units
17 Unitholders' / Shareholders' Equity
18 Unit-based Compensation Plans
19 Net Operating Income
20 Interest and Other Income
21 Interest Expense
22 Corporate Expenses
23 Other Gains (Losses) and (Expenses)
24 Income Taxes
25 Risk Management
26 Fair Value Measurement
27 Subsidiaries with Non-controlling Interest
28 Co-ownership Interests
29 Supplemental Other Comprehensive Income (Loss) Information
30 Supplemental Cash Flow Information
31 Commitments and Contingencies
32 Related Party Transactions
33 Subsequent Events
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Management’s Responsibility
First Capital Real Estate Investment Trust’s consolidated financial statements and Management’s Discussion and Analysis
(“MD&A”) are the responsibility of Management and have been prepared in accordance with International Financial
Reporting Standards (“IFRS”).
The preparation of consolidated financial statements and the MD&A necessarily involves the use of estimates based on
Management’s judgment, particularly when transactions affecting the current accounting period cannot be finalized with
certainty until future periods. In addition, in preparing this financial information, Management must make determinations
as to the relevancy of information to be included, and estimates and assumptions that affect the reported information. The
MD&A also includes information regarding the impact of current transactions and events, sources of liquidity and capital
resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from the present
assessment of this information because future events and circumstances may not occur as expected. The consolidated
financial statements have been properly prepared within reasonable limits of materiality and in light of information
available up to February 11, 2020.
Management is also responsible for the maintenance of financial and operating systems, which include effective controls to
provide reasonable assurance that First Capital's assets are safeguarded, transactions are properly authorized and recorded,
and that reliable financial information is produced.
The Board of Trustees 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 Trustees who are not
involved in the day-to-day operations of First Capital. Each quarter, the Audit Committee meets with Management and, as
necessary, with the independent auditor, Ernst & Young LLP, to satisfy itself that Management’s responsibilities are properly
discharged and to review and report to the Board of Trustees on the consolidated financial statements.
In accordance with generally accepted auditing standards, the independent auditor conducts 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 11, 2020
FIRST CAPITAL REIT ANNUAL REPORT 2019
58
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Independent Auditor’s Report
To the Unitholders of
First Capital Real Estate Investment Trust
Opinion
We have audited the consolidated financial statements of First Capital Real Estate Investment Trust and its subsidiaries
("the Trust"), which comprise the consolidated balance sheets as at December 31, 2019 and 2018, and the consolidated
statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity
and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects the consolidated
financial position of the Trust as at December 31, 2019 and 2018, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRSs").
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
section of our report. We are independent of the Trust in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Other information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis; and
•
The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual
Report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form
of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is
to read the other information, and in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact
in this auditor's report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will
perform on this other information, we conclude that there is a material misstatement of other information, we are required
to report that fact to those charged with governance.
Responsibilities of Management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRSs, 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.
In preparing the consolidated financial statements, Management is responsible for assessing the Trust’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless Management either intends to liquidate the Trust or to cease operations, or has no realistic alternative
but to do so.
Those charged with governance are responsible for overseeing the Trust’s financial reporting process.
59
FIRST CAPITAL REIT ANNUAL REPORT 2019
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Independent Auditor’s Report
Auditor's responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 Trust’s
internal control.
•
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by Management.
Conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Trust’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or,
if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Trust to cease to continue as a
going concern.
•
Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Kim Tang.
Toronto, Canada
February 11, 2020
FIRST CAPITAL REIT ANNUAL REPORT 2019
60
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Note
December 31, 2019
December 31, 2018
5
6
7
8
10
30(d)
8
9
10
5(d)
12
12
13
16
15
24
12
12
12
13
15
17
27
$
$
$
$
$
$
9,593,530
59,498
62,199
95,968
9,811,195
36,105
9,847,300
25,503
70,065
10,205
31,521
18,166
155,460
158,600
314,060
10,161,360
1,242,055
869,256
2,322,214
25,010
24,844
701,549
5,184,928
60
84,966
29,909
174,999
210,992
500,926
5,685,854
9,682,614
144,375
58,604
93,348
9,978,941
30,369
10,009,310
15,534
270,711
9,510
36,391
25,938
358,084
85,661
443,745
10,453,055
1,164,804
514,073
2,297,387
—
20,838
793,300
4,790,402
7,226
121,104
112,099
149,891
264,261
654,581
5,444,983
4,426,592
48,914
4,475,506
10,161,360
$
4,978,242
29,830
5,008,072
10,453,055
$
Consolidated Balance Sheets
As at
(thousands of dollars)
ASSETS
Non-current Assets
Real Estate Investments
Investment properties
Investment in joint ventures
Hotel property
Loans, mortgages and other assets
Total real estate investments
Other non-current assets
Total non-current assets
Current Assets
Cash and cash equivalents
Loans, mortgages and other 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
Exchangeable Units
Other liabilities
Deferred tax liabilities
Total non-current liabilities
Current Liabilities
Bank indebtedness
Mortgages
Credit facilities
Senior unsecured debentures
Accounts payable and other liabilities
Total current liabilities
Total liabilities
EQUITY
Unitholders' / 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 Trustees:
Al Mawani
Trustee
Adam E. Paul
Trustee
61
FIRST CAPITAL REIT ANNUAL REPORT 2019
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Consolidated Statements of Income
(thousands of dollars)
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 Exchangeable Units
Increase (decrease) in value of investment properties, net
Income before income taxes
Deferred income tax expense (recovery)
Net income
Net income attributable to:
Unitholders / Shareholders
Non-controlling interest
Refer to accompanying notes to the consolidated financial statements.
Year ended December 31
Note
2019
$
746,773
$
19
20
21
22
6
23
16
5
24
17
27
$
$
$
286,376
460,397
33,049
(171,834)
(38,478)
(677)
(4,511)
1,699
(8,759)
230
61,037
(128,244)
332,153
(82,187)
414,340
$
401,345
$
12,995
414,340
$
2018
729,595
274,822
454,773
26,429
(153,240)
(37,094)
(177)
(3,235)
30,411
10,733
—
102,389
(23,784)
430,989
79,151
351,838
343,606
8,232
351,838
FIRST CAPITAL REIT ANNUAL REPORT 2019
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Consolidated Statements of Comprehensive Income
(thousands of dollars)
Net income
Other comprehensive income (loss)
Unrealized gain (loss) on revaluation of hotel property (1)
Unrealized gain (loss) on cash flow hedges (2)
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:
Unitholders / Shareholders
Non-controlling interest
(1) Item that will not be reclassified to net income.
(2) Items that may subsequently be reclassified to net income.
Refer to accompanying notes to the consolidated financial statements.
Year ended December 31
Note
2019
2018
$
414,340
$
351,838
7
29
29
24
17
27
$
$
$
2,910
(12,967)
1,687
(8,370)
(5,056)
(3,314)
411,026
398,031
12,995
411,026
—
(7,638)
1,468
(6,170)
(1,642)
(4,528)
347,310
339,078
8,232
347,310
$
$
$
63
FIRST CAPITAL REIT ANNUAL REPORT 2019
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Consolidated Statements of Changes in Equity
(thousands of dollars)
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Share Capital
Trust Units
Contributed
Surplus and
Other Equity
Items
Total
Unitholders' /
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
(Note 17(a))
(Note 17(a))
(Note 17(c))
December 31, 2018
$ 1,573,588 $
(4,488) $ 3,364,948 $
— $
44,194 $ 4,978,242 $
29,830 $ 5,008,072
Changes during the year:
Net income
Dividends
Repurchase of common shares
Share repurchase costs, net of
tax
Options, deferred share units,
restricted share units, and
performance share units, net
Other comprehensive income
(loss)
Contributions from
(distributions to) non-
controlling interest, net
REIT conversion (Note 4)
Distributions (Note 17)
401,345
12,995
414,340
401,345
(149,604)
(241,137)
—
—
—
—
—
—
—
—
—
—
—
(475,560)
(8,850)
6,553
(3,314)
—
—
—
—
—
—
—
—
—
—
(149,604)
(24,903)
(741,600)
—
2,450
(8,850)
9,003
—
—
—
—
(149,604)
(741,600)
(8,850)
9,003
—
—
—
—
—
(3,314)
—
6,089
(3,314)
6,089
(7,085)
(15,620)
— (2,887,091)
2,872,907
(21,741)
(43,010)
—
—
—
—
(15,620)
—
—
(43,010)
(15,620)
December 31, 2019
$ 1,561,487 $
(7,802) $
— $ 2,872,907 $
— $ 4,426,592 $
48,914 $ 4,475,506
(thousands of dollars)
December 31, 2017
Changes during the year:
Net income
Issuance of common shares
Issue costs, net of tax
Dividends
Options, deferred share units,
restricted share units, and performance
share units, net
Other comprehensive income (loss)
Contributions from (distributions to) non-
controlling interest, net
343,606
—
—
(215,537)
—
—
—
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Share Capital
Contributed
Surplus and
Other Equity
Items
Total
Shareholders’
Equity
Non-
Controlling
Interest
Total
Equity
$ 1,445,519 $
40 $ 3,159,542 $
41,970 $ 4,647,071 $
48,613 $ 4,695,684
—
—
—
—
—
—
200,019
(6,169)
—
11,556
—
—
—
—
343,606
200,019
(6,169)
(215,537)
2,224
13,780
(4,528)
—
—
—
—
—
(4,528)
—
(27,015)
8,232
—
—
—
—
—
351,838
200,019
(6,169)
(215,537)
13,780
(4,528)
(27,015)
December 31, 2018
$ 1,573,588 $
(4,488) $ 3,364,948 $
44,194 $ 4,978,242 $
29,830 $ 5,008,072
Refer to accompanying notes to the consolidated financial statements.
FIRST CAPITAL REIT ANNUAL REPORT 2019
64
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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
Cash interest paid associated with operating activities
Items not affecting cash and other items
Net change in non-cash operating items
Cash provided by (used in) operating activities
FINANCING ACTIVITIES
Mortgage borrowings, net of financing costs
Mortgage principal instalment payments
Mortgage repayments
Credit facilities, net advances (repayments)
Unsecured term loans, net advances (repayments)
Issuance of senior unsecured debentures, net of issue costs
Repayment of senior unsecured debentures
Settlement of hedges
Repayment of convertible debentures
Repurchase of common shares
Transaction costs related to share repurchase
Issuance of common shares, net of issue costs
Payment of dividends
Net contributions from (distributions to) non-controlling interest
Cash provided by (used in) financing activities
INVESTING ACTIVITIES
Acquisition of investment properties
Acquisition of development land
Acquisition of Hotel property (net settled with loan repayment)
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 assets
Cash provided by (used in) investing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Refer to accompanying notes to the consolidated financial statements.
65
FIRST CAPITAL REIT ANNUAL REPORT 2019
Year ended December 31
Note
2019
2018
$
414,340
$
351,838
5
21
6
21
30(a)
30(b)
12
12
12
12
12
13
13
14(a)
27
5(c)
5(c)
7
5(d)
6
6
30(c)
30(d) $
(61,037)
171,834
4,511
(1,699)
(168,078)
(78,153)
(12,571)
269,147
390,533
(27,117)
(222,740)
(572,585)
747,287
198,921
(150,000)
(7,269)
—
(741,600)
(13,727)
4,241
(203,830)
6,089
(591,797)
(220,733)
(30,909)
—
700,437
25,648
(17,481)
(228,190)
(41,607)
145,454
332,619
9,969
15,534
25,503
$
(102,389)
153,240
3,235
(30,411)
(151,169)
65,042
(6,374)
283,012
387,875
(26,993)
(134,971)
29,562
—
—
(150,000)
(149)
(55,092)
—
—
201,749
(212,651)
(27,015)
12,315
(130,153)
(1,794)
(2,052)
99,923
110,924
(25,067)
(266,355)
13,790
(90,516)
(291,300)
4,027
11,507
15,534
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Notes to the Consolidated Financial Statements
1. DESCRIPTION OF THE TRUST
First Capital Real Estate Investment Trust ("First Capital", "FCR", or the “Trust”) is an unincorporated, open-ended mutual
fund trust governed by the laws of Ontario, Canada, and established pursuant to a declaration of trust dated October 16,
2019, as may be amended from time to time (the "Declaration of Trust"). First Capital engages in the business of
acquiring, developing, redeveloping, owning and managing well-located, mixed-use urban real estate in Canada's most
densely populated neighbourhoods. The Trust is listed on the Toronto Stock Exchange (“TSX”) under the symbol “FCR.UN”,
and its head office is located at 85 Hanna Avenue, Suite 400, Toronto, Ontario, M6K 3S3.
Effective December 30, 2019, First Capital Realty Inc. (the "Company") completed its Plan of Arrangement (the
"Arrangement") to convert into a real estate investment trust ("REIT"). Under the Arrangement, Shareholders of the
Company received one trust unit ("Trust Unit") or one Class B Limited Partnership Unit ("Exchangeable Unit") of a
controlled limited partnership of the Trust, for each common share of the Company held. Consequently, any references to
common shares, Shareholders and per share amounts relate to periods prior to the conversion on December 30, 2019 and
any references to Trust Units, Unitholders and per unit amounts relate to periods subsequent to December 30, 2019.
Since the Trust is a continuation of First Capital Realty Inc., the prior year comparatives included in these audited annual
consolidated financial statements are those of the Company.
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”.
Additionally, Management, in measuring the Trust's performance or making operating decisions, distinguishes its
operations on a geographical basis. First Capital operates in Canada and has three operating segments: Eastern, which
includes operations primarily in Quebec and Ottawa; Central, which includes the Trust’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 Trustees and authorized for issue
on February 11, 2020.
(c) Basis of consolidation
The consolidated financial statements include the financial statements of the Trust as well as the entities that are
controlled by the Trust (subsidiaries). The Trust controls an entity when the Trust 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 Trust. They are deconsolidated
from the date that control ceases. Inter-company transactions, balances and other transactions between consolidated
entities are eliminated.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(d) Trust Units
First Capital's Trust Units are redeemable at the option of the holder, and, therefore, are considered puttable instruments
in accordance with IAS 32, "Financial Instruments – Presentation" ("IAS 32"). Puttable instruments are required to be
accounted for as financial liabilities, except where certain conditions are met in accordance with IAS 32, in which case, the
puttable instruments may be presented as equity.
To be presented as equity, a puttable instrument must meet all of the following conditions: (i) it must entitle the holder to
a pro-rata share of the entity's net assets in the event of the entity's dissolution; (ii) it must be in the class of instruments
that is subordinate to all other instruments; (iii) all instruments in the class in (ii) above must have identical features; (iv)
other than the redemption feature, there can be no other contractual obligations that meet the definition of a liability;
and (v) the expected cash flows for the instrument must be based substantially on the profit or loss of the entity or
change in the fair value of the instrument.
The Trust Units meet the conditions of IAS 32 and, accordingly, are presented as equity in the consolidated financial
statements.
Earnings per Unit
As First Capital's Trust Units are puttable instruments and, therefore, financial liabilities, they may not be considered as
equity for the purposes of calculating net income on a per unit basis under IAS 33, "Earnings per Share". Consequently,
the Trust has not reported earnings per unit.
(e) Exchangeable Units
The Class B Limited Partnership Units of First Capital REIT Limited Partnership are exchangeable, at the option of the
holder, into Trust Units. The Exchangeable Units are considered a financial liability as there is a contractual obligation for
First Capital to deliver Trust Units (which as noted in Note 2(d) are puttable instruments) upon exchange. Exchangeable
Units are required to be classified as financial liabilities at fair value through profit or loss ("FVTPL"). The distributions
declared on the Exchangeable Units are accounted for as interest expense.
(f) Business combinations
At the time of acquisition of property, First Capital considers whether the acquisition represents the acquisition of a
business. The Trust 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 Trust recognizes any contingent consideration to be transferred
by the Trust at its acquisition date fair value. Goodwill is initially measured at cost, being the excess of the purchase price
over the fair value of the net identifiable assets acquired and liabilities assumed. Acquisition-related costs are expensed in
the period incurred.
When the acquisition of property does not represent a business, it is accounted for as an acquisition of a group of assets
and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair
values, and no goodwill is recognized. Acquisition-related costs are capitalized to investment property at the time the
acquisition is completed.
(g) Investments in joint arrangements
First Capital accounts for its investment in joint ventures using the equity method and accounts for investments in joint
operations by recognizing the Trust’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
Trust’s share of the net assets of the joint ventures, less distributions received and less any impairment in the value of
individual investments. First Capital's income statement reflects its share of the results of operations of the joint ventures
after tax, if applicable.
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(h) Investment properties
Investment properties consist of income-producing properties 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 Trust is the lessee. The Trust classifies its investment properties on its
consolidated balance sheets as follows:
(i) Investment properties
Investment properties:
Investment properties include First Capital's income producing portfolio, properties currently under development
or redevelopment, and any adjacent land parcels available for expansion but not currently under development.
Development land:
Development land includes land parcels which are not part of one of First Capital’s existing investment properties
and which are at various stages of development planning, primarily for future retail or mixed-use occupancy.
(ii) 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.
First Capital'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 a certified staff appraiser employed by the Trust, 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.
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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Valuation Inputs
First Capital's investment property is measured using Level 3 inputs (in accordance with the IFRS fair value hierarchy), as
not all significant inputs are based on observable market data (unobservable inputs). These unobservable inputs reflect
the Trust’s own assumptions of how market participants would price investment property, and are developed based on
the best information available, including the Trust’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) Investment properties
Investment properties that are income producing 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).
(ii) Properties under development
Properties undergoing development, redevelopment or expansion are valued either (i) using the discounted cash flow
method, with a deduction for costs to complete the project, or (ii) at cost, when cost approximates fair value. 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 First Capital’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.
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 Trust 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 Trust makes no adjustments for portfolio premiums
and discounts, nor for any value attributable to the Trust's management platform.
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(i) Hotel property
First Capital accounts for its hotel property as property, plant and equipment under the revaluation model. Hotel property is
recognized initially at fair value if acquired in a business combination and is subsequently carried at fair value at the
revaluation date less any accumulated impairment and subsequent accumulated amortization. The Trust amortizes these
assets on a straight-line basis over their relevant estimated useful lives. The estimated useful lives of the assets range from 3
to 40 years. The fair value of the hotel property is based on an income approach and determined using a discounted cash
flow model.
Revaluation of the hotel property is performed annually at December 31, the end of the fiscal year. Where the carrying
amount of an asset is increased as a result of a revaluation, the increase is recognized in other comprehensive income (loss)
("OCI") and accumulated in equity within revaluation surplus, unless the increase reverses a previously recognized
revaluation loss recorded through prior period net income, in which case that portion of the increase is recognized in net
income. Where the carrying amount of an asset is decreased, the decrease is recognized in OCI to the extent of any balance
existing in revaluation surplus in respect of the asset, with the remainder recognized in net income. Revaluation gains are
recognized in OCI, and are not subsequently recycled into profit or loss. The cumulative revaluation surplus is transferred
directly to retained earnings when the asset is derecognized.
The revenue and operating expenses of the hotel property are included within net operating income in First Capital's
consolidated statements of income.
(j) 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 Trust’s other borrowings
to eligible expenditures. Borrowing costs are not capitalized on residential development inventory where no development
activity is taking place.
Transfers into residential inventory are based on a change in use, evidenced by the commencement of
development activities with a view to sell, at which point an investment property would be transferred to
inventory. Transfers from residential inventory to investment property are based on a change in used evidenced
by Management's commitment to use the property for rental income purposes and the establishment of an
operating lease.
(k) Taxation
First Capital qualifies as a mutual fund trust under the Income Tax Act (Canada)(the "Act"). The Trust qualifies for the REIT
Exemption and, as such, the Trust itself will not be subject to income taxes provided it continues to qualify as a REIT for
purposes of the Act. A REIT is not taxable and not considered to be a Specified Investment Flow-Through Trust provided it
complies with certain tests and distributes all of its taxable income in a taxation year to its unitholders. The Trust is a flow-
through vehicle and accounts only for income taxes pertaining to its corporate subsidiaries. The Trust's most significant
corporate subsidiary, First Capital Realty Inc., is a mutual fund corporation ("MFC").
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
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
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.
(l) Provisions
A provision is a liability of uncertain timing or amount. First Capital 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.
(m) Unit-based Compensation Plans
Unit Options, Restricted Units (“RUs”), Performance Units (“PUs”), and Trustee Deferred Units (“DUs”) are issued by First
Capital from time to time as non-cash compensation. These unit-based compensation plans are measured at fair value at
the grant date and compensation expense is recognized in the consolidated statements of income consistent with the
vesting features of each plan. The unit-based compensation plans are accounted for as cash-settled awards as the Trust is
an open-ended trust making its units redeemable, and thus requiring outstanding Unit Options, RUs, PUs and DUs to be
recognized as a liability and carried at fair value. The liability is adjusted for changes in fair value with such adjustments
being recognized as compensation expense in the consolidated statements of income in the period in which they occur.
The liability balance is reduced as Unit Options are exercised or RUs, PUs and DUs are settled for Trust Units and recorded
in equity.
(n) Share-based payments
Prior to Conversion to a REIT, equity-settled share-based compensation, including stock options, restricted share units,
performance share units and deferred share units, was measured at the fair value of the grants on the grant date. The
cost of equity-settled share-based compensation was recognized in the consolidated statements of income consistent
with the vesting features of each grant.
(o) Revenue recognition
First Capital 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 Trust 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.
First Capital's revenues are earned from lease contracts with tenants and include both a lease component and a non-lease
component.
Base rent, straight-line rent, realty tax recoveries, lease surrender fees and percentage rent are considered lease
components and are in the scope of IFRS 16, "Leases" ("IFRS 16").
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The total amount of contractual base 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.
Realty tax recoveries are variable recoveries relating to the leased property and do not transfer a good or service to the
lessee and as a result are recognized as costs are incurred and chargeable to tenants.
Lease surrender fees are earned from tenants in connection with the cancellation or early termination of their remaining
lease obligations, and is recognized when a lease termination agreement is signed and collection is reasonably assured.
Percentage rents are recognized when the sales thresholds set out in the leases have been met.
Operating cost recoveries relate to the property management services provided to maintain the property and are
considered non-lease components subject to the guidance in IFRS 15, "Revenue from Contracts with Customers" ("IFRS
15"). The property management services are considered a performance obligation, meeting the criteria for over time
recognition and are recognized in the period that recoverable costs are incurred or services are performed.
(p) Financial instruments and derivatives
In accordance with IFRS 9, “Financial Instruments” (“IFRS 9”) 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 FVTPL, fair value through other comprehensive income (“FVOCI”) or amortized cost.
Derivative instruments are recorded in the consolidated balance sheets at fair value, including those derivatives that are
embedded in financial or non-financial contracts.
First Capital 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 U.S. 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 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).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
The following summarizes the Trust’s classification and measurement of financial assets and liabilities:
Financial assets
Other investments
Derivative assets
Loans and mortgages receivable
Loans and mortgages receivable (1)
Equity securities designated as FVTPL
Amounts receivable
Cash and cash equivalents
Restricted cash
Bond asset
Financial liabilities
Bank indebtedness
Mortgages
Credit facilities
Senior unsecured debentures
Exchangeable Units
Accounts payable and other liabilities
Unit-based compensation plans
Derivative liabilities
December 31, 2019
December 31, 2018
Classification &
Measurement
Classification &
Measurement
FVTPL
FVTPL
Amortized Cost
FVTPL
FVTPL
Amortized Cost
Amortized Cost
Amortized Cost
Amortized Cost
Amortized Cost
Amortized Cost
Amortized Cost
Amortized Cost
FVTPL
Amortized Cost
FVTPL
FVTPL
FVTPL
FVTPL
Amortized Cost
FVTPL
FVTPL
Amortized Cost
Amortized Cost
Amortized Cost
N/A
Amortized Cost
Amortized Cost
Amortized Cost
Amortized Cost
N/A
Amortized Cost
N/A
FVTPL
(1) The Loans whose cash flows are not solely payments of principal or interest are classified as FVTPL.
In determining fair values, the Trust 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 as follows:
(i) Level 1 Inputs – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Trust has the
ability to access at the measurement date. The Trust’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 Trust’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 Trust'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 Trust’s own
data. The Trust's loans and mortgages receivable classified as FVTPL and other investments are measured using Level
3 inputs.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Trust determines whether
transfers have occurred between levels in the hierarchy by reassessing 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.
(q) Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments with original maturities at the time of acquisition of
three months or less.
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(r) Critical judgments in applying accounting policies
The following are the critical judgments that have been made in applying First Capital's accounting policies and that have
the most significant effect on the amounts in the consolidated financial statements:
(i) Investment properties
In applying the Trust’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.
(ii) Hedge accounting
Where the Trust 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
First Capital retains its REIT status if it meets the prescribed conditions under the Act. Management uses judgment in its
interpretation and application of these conditions. First Capital determined that it qualifies as a REIT for the current
period and expects to meet the prescribed conditions going forward. However, should the Trust no longer meet the REIT
conditions, substantial adverse tax consequences may result.
With respect to its corporate subsidiaries, the Trust 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 Trust reflects
the Trust's interpretation of the relevant tax laws. The Trust 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.
(s) Critical accounting estimates and assumptions
First Capital 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 Trust considers critical include those underlying the
valuation of investment properties, as set out above, which describes the process by which investment properties are
valued, and the determination of which properties are externally and internally appraised and how often.
Additional critical accounting estimates and assumptions include those used for determining the values of financial
instruments for disclosure purposes (Note 26), estimating deferred taxes, and estimating the fair value of unit-based
compensation arrangements (Note 18).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
3. ADOPTION OF NEW AND AMENDED IFRS PRONOUNCEMENTS
IFRS Amendments
First Capital adopted the following IFRS pronouncements listed below as of January 1, 2019, in accordance with their
respective transitional provisions.
Leases
In January 2016, the IASB issued IFRS 16, replacing IAS 17, "Leases" and related interpretations. The standard introduces a
single on-balance sheet recognition and measurement model for lessees, eliminating the distinction between operating and
finance leases. Lessors continue to classify leases as finance and operating leases.
Impact upon adoption of IFRS 16
FCR has applied the new standard using the full retrospective method. Upon adoption, there was no significant impact to
its consolidated financial statements as leases with tenants continue to be accounted for as operating leases under IFRS
16.
Uncertainty over income tax treatments
In June 2017, the IFRS Interpretations Committee issued IFRIC 23, "Uncertainty over Income Tax Treatments" ("IFRIC 23"),
which clarifies how the recognition and measurement requirements of IAS 12, "Income Taxes", are applied where there is
uncertainty over income tax treatments.
Impact upon adoption of IFRIC 23
There was no impact to First Capital's consolidated financial statements on adoption of these amendments.
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4. REIT CONVERSION
On December 30, 2019, the Plan of Arrangement to convert the Company into a publicly traded real estate investment
trust was completed. The adjustments recorded effective December 30, 2019 related to First Capital's conversion to a REIT
are as follows:
(a) Conversion of publicly traded common shares
Under the terms of the Arrangement, each outstanding common share of the Company was exchanged for one Trust Unit,
unless a qualifying Shareholder elected to receive an Exchangeable Unit.
Exchangeable Units
Effective December 30, 2019, 1,209,965 Exchangeable Units were issued and approximately $16.0 million was reclassified
from share capital to Exchangeable Units, a liability on the consolidated balance sheet. The Exchangeable Units were
recorded at fair value based on the closing price of the Company's common shares on December 27, 2019, the last trading
day prior to completion of the Arrangement and a fair value loss of $9.3 million was recorded through retained earnings.
Trust Units
First Capital issued 217,953,899 Trust Units under the Arrangement. Approximately $2.9 billion was reclassified from
share capital to Trust Unit capital within unitholders' equity.
(b) Conversion of non-cash compensation plans
Pursuant to the Arrangement, all grants outstanding under the stock option plan and share unit plans were transferred on
a one-to-one basis to unit-based compensation plans. Upon conversion, the unit-based compensation plans are now
accounted for in accordance with Note 2(m) and approximately $21.7 million was reclassified from other equity items to
liabilities on the consolidated balance sheet. The unit-based compensation plans were recorded at fair value and a fair
value gain of $2.5 million was recorded through retained earnings, resulting in a total liability of $19.2 million upon
conversion. The fair value of the unit-based compensation plans was calculated using the Black-Scholes model for unit
options, a Monte-Carlo simulation model for the PSUs and the closing price of the Company’s common shares on
December 27, 2019 for the RSUs and DSUs.
(c) Impact on deferred income taxes
Effective December 30, 2019, First Capital recorded the derecognition of a portion of its deferred tax liability to reflect the
tax structure of the REIT and its subsidiaries following the conversion under the Arrangement. The net adjustment to the
deferred tax liability of $160.9 million was recorded in the consolidated statements of income.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
5. INVESTMENT PROPERTIES
(a) Activity
The following tables summarize the changes in First Capital’s investment properties for the year ended December
31, 2019 and year ended December 31, 2018:
Central
Region
Eastern
Region
Western
Region
Total
Investment
Properties (2)
Development
Land
Year ended December 31, 2019
Balance at beginning of year
$
4,489,359 $
2,037,411 $
3,241,505 $
9,768,275
$
9,690,179 $
376,700
157,955
131,480
83,274
—
26,678
15,410
43,557
—
—
(5,486)
(16,751)
392,110
228,190
131,480
61,037
361,201
220,302
131,480
60,499
4,193
1,212
607
6,012
6,012
78,096
30,909
7,888
—
538
—
(96,427)
(524,382)
(214,165)
(834,974)
(809,542)
(25,432)
$
5,146,534 $
1,535,433 $
3,070,163 $
9,752,130
Acquisitions
Capital expenditures
Consolidation of equity accounted
joint venture(1)
Increase (decrease) in value of
investment properties, net
Straight-line rent and other
changes
Dispositions
Balance at end of year
Investment properties
Investment properties classified as held for sale
Total
Balance at beginning of year
Acquisitions
Capital expenditures
Reclassifications between
investment properties and
development land
Increase (decrease) in value of
investment properties, net
Straight-line rent and other
changes
Dispositions
Balance at end of year
Investment properties
Central
Region
Eastern
Region
Western
Region
$
4,263,757 $
80,371
171,586
—
1,980,077 $
5,680
34,580
—
3,152,525 $
45,896
60,189
—
Total
9,396,359
131,947
266,355
—
48,506
18,931
30,952
98,389
87,792
10,597
139
4,218
2,883
7,240
8,388
(1,148)
(75,000)
4,489,359 $
(6,075)
2,037,411 $
(50,940)
3,241,505 $
(132,015)
9,768,275
$
Investment properties classified as held for sale
Total
(1) See Note 6.
(2) Investment properties include income producing properties as well as properties under development.
$
$
$
9,660,131 $
9,501,531 $
158,600
91,999
91,999
—
9,660,131 $
91,999
Year ended December 31, 2018
Development
Investment
Properties (2)
Land
$
9,317,306 $
130,153
258,813
10,742
79,053
1,794
7,542
(10,742)
(123,015)
9,690,179 $
9,623,905 $
66,274
9,690,179 $
$
$
$
(9,000)
78,096
58,709
19,387
78,096
Investment properties with a fair value of $2.8 billion (December 31, 2018 – $3.0 billion) are pledged as security for
$1.5 billion (December 31, 2018 – $1.4 billion) in mortgages and secured credit facilities.
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(b) Investment property valuation
Stabilized overall capitalization, terminal, and discount rates by region for investment properties valued under the
discounted cash flow method are set out in the table below:
As at
December 31, 2019
December 31, 2018
Overall Capitalization Rate
Terminal Capitalization Rate
Discount Rate
Weighted Average
Central
Region
Eastern
Region
Western
Region
4.7%
5.0%
5.5%
5.8%
6.1%
6.6%
5.1%
5.4%
5.9%
Weighted Average
Central
Region
Eastern
Region
Western
Region
5.0%
5.2%
5.7%
5.9%
6.2%
6.8%
5.2%
5.4%
6.0%
Total
5.0%
5.3%
5.8%
Total
5.3%
5.5%
6.1%
The sensitivity of the fair values of investment properties to stabilized overall capitalization rates as at December 31, 2019 is
set out in the table below:
As at December 31, 2019
(Decrease) Increase in stabilized overall capitalization rate
(millions of dollars)
Resulting increase (decrease) in fair
value of investment properties
(0.75%)
(0.50%)
(0.25%)
0.25%
0.50%
0.75%
$
$
$
$
$
$
1,629
1,026
486
(440)
(841)
(1,207)
Additionally, a 1% increase or decrease in stabilized net operating income ("SNOI") would result in a $93 million increase or
a $93 million decrease, respectively, in the fair value of investment properties. 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 investment properties of $584 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 investment properties of $529
million.
(c) Investment properties – Acquisitions
During the years ended December 31, 2019 and 2018, First Capital acquired investment properties and development land
for rental income and future development and redevelopment opportunities as follows:
Year ended December 31
2019
2018
Total purchase price, including acquisition costs
Debt assumption on acquisition
Settlement of loans receivable on acquisition
Total cash paid
Investment
Properties
Development
Land
Investment
Properties
Development
Land
$
361,201
(50,646)
(89,822)
$
30,909
—
—
$
130,153
—
—
$
220,733
$
30,909
$
130,153
$
$
1,794
—
—
1,794
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(d) Investment properties classified as held for sale
First Capital has certain investment properties classified as held for sale. These properties are considered to be non-core
assets and are as follows:
As at
Aggregate fair value
December 31, 2019
December 31, 2018
$
158,600 $
85,661
The increase of $72.9 million in investment properties classified as held for sale from December 31, 2018, primarily arose
from new investment properties classified as held for sale, in line with First Capital's super urban strategy, offset by
dispositions completed in the period and changes in fair value.
For the years ended December 31, 2019 and 2018, First Capital sold investment properties and development land as
follows:
Total selling price
Mortgages assumed and vendor take-back mortgage on sale
Property selling costs
Total cash proceeds
Year ended December 31
2018
132,015
(29,536)
2019
834,974 $
(128,156)
(6,381)
700,437 $
(2,556)
99,923
$
$
(e) Reconciliation of investment properties to total assets
Investment properties and development land by region and a reconciliation to total assets are set out in the tables below:
As at December 31, 2019
Total investment properties and development land (1)
Cash and cash equivalents
Loans, mortgages and other assets
Other assets
Amounts receivable
Investment in joint ventures
Hotel property
Residential development inventory
Total assets
(1) Includes investment properties classified as held for sale.
As at December 31, 2018
Total investment properties and development land (1)
Cash and cash equivalents
Loans, mortgages and other assets
Other assets
Amounts receivable
Investment in joint ventures
Hotel property
Residential development inventory
Total assets
(1) Includes investment properties classified as held for sale.
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FIRST CAPITAL REIT ANNUAL REPORT 2019
Central
Region
Eastern
Region
Western
Region
Total
$ 5,146,534
$ 1,535,433
$ 3,070,163
$ 9,752,130
25,503
166,033
54,271
31,521
59,498
62,199
10,205
10,161,360
$
Central
Region
Eastern
Region
Western
Region
Total
$ 4,489,359
$ 2,037,411
$ 3,241,505
$
9,768,275
15,534
364,059
56,307
36,391
144,375
58,604
9,510
$ 10,453,055
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6. INVESTMENT IN JOINT VENTURES
As at December 31, 2019, First Capital had interests in six joint ventures that it accounts for using the equity method. The
Trust's joint ventures are as follows:
Name of Entity
M+M Urban Realty LP ("MMUR") (1)
College Square General Partnership
Name of Property/Business Activity
Commercial/residential properties (2)
College Square
Location
Toronto, ON
Ottawa, ON
Green Capital Limited Partnership
Royal Orchard
Stackt Properties LP
Shipping Container marketplace
Fashion Media Group GP Ltd.
Toronto Fashion Week events
Markham, ON
Toronto, ON
Toronto, ON
FC Access LP
Whitby Mall (self storage operation) Whitby, ON
Edenbridge Kingsway (Humbertown) Humbertown Condos (Phase 1)
Toronto, ON
Effective Ownership
December 31, 2019
N/A
December 31, 2018
53.1%
50.0%
50.0%
94.0%
78.0%
25.0%
50.0%
50.0%
50.0%
94.0%
72.0%
N/A
N/A
(1) MMUR was an equity accounted joint venture between the Trust, Main and Main Developments LP ("MMLP") and an institutional investor. On July 22, 2019, FCR and its
partner acquired the remaining 46.9% interest in MMUR from the institutional investor.
(2) As at December 31, 2019 and December 31, 2018, MMUR owned 4 properties.
First Capital has determined that these investments are joint ventures as all decisions regarding their activities are made
unanimously between the Trust and its partners.
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%
First Capital'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%
First Capital's share of income in equity accounted joint ventures
December 31, 2019 December 31, 2018
$
$
200,631
(64,553)
136,078
59,498
$
432,365
(136,701)
295,664
$
144,375
December 31, 2019 December 31, 2018
$
$
$
16,496
(8,338)
532
236
8,926
1
8,925
1,699
$
$
$
18,222
(6,374)
41,919
(4,856)
48,911
(7)
48,918
30,411
During the third quarter, First Capital, together with its partner in MMLP acquired the remaining 46.9% interest in four
remaining MMUR assets for approximately $116.0 million. As a result, FCR now controls MMUR through its direct and
indirect interests (further described in Note 27), requiring the consolidation of the assets, liabilities, revenues and expenses
of MMUR from the date of acquisition.
During 2019, First Capital received distributions from its joint ventures of $25.6 million (2018 – $110.9 million) and made
contributions to its joint ventures of $17.5 million (2018 – $25.1 million).
As at December 31, 2019, there were no outstanding commitments or contingent liabilities for the six equity accounted
joint ventures.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
7. HOTEL PROPERTY
First Capital owns a 60% non-managing interest in the Hazelton Hotel ("hotel property") located in Toronto, Ontario. The
hotel property is a mixed-use luxury hotel located in Yorkville Village.
The following table summarizes the changes in the net book value of the hotel property for the years ended December 31,
2019 and 2018.
Hotel property, beginning balance
Acquisition
Revaluation of hotel property
Additions
Amortization
Hotel property, ending balance
December 31, 2019
December 31, 2018
$
58,604
$
2,910
1,378
(693)
—
59,017
—
—
(413)
$
62,199
$
58,604
On July 4, 2018, First Capital paid a total purchase price before closing costs of $45.0 million. The following table
summarizes the allocation of the purchase price to the fair value of each major asset acquired and net liability assumed as
at the acquisition date.
Land and Building
Furniture, Fixtures & Equipment
Working capital, net
Identifiable assets acquired
Deferred tax liability
Purchase price for net assets acquired
Gain on below market purchase
$
58,800
217
641
59,658
(643)
(45,040)
$
13,975
8. LOANS, MORTGAGES AND OTHER ASSETS
As at
Non-current
Loans and mortgages receivable classified as FVTPL (a)
Loans and mortgages receivable classified as amortized cost (a)(b)
Other investments
Total non-current
Current
Loans and mortgages receivable classified as FVTPL (a)
Loans and mortgages receivable classified as amortized cost (a)(b)
FVTPL investments in securities (c)
Total current
Total
December 31, 2019
December 31, 2018
$
$
$
$
$
20,726
58,940
16,302
95,968
132
65,984
3,949
70,065
166,033
$
$
$
$
$
20,511
57,003
15,834
93,348
87,106
160,043
23,562
270,711
364,059
(a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning
investment properties. As at December 31, 2019, these receivables bear interest at weighted average effective interest
rates of 6.6% (December 31, 2018 – 9.7%) and mature between 2020 and 2028.
(b) During the third quarter, approximately $131.3 million of mortgages receivable were fully repaid related to First
Capital's priority ranking mortgages on a development project at the southwest corner of Yonge Street and Bloor
Street in Toronto, Ontario.
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(c) From time to time, First Capital invests 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 and the weighted average effective floating or fixed
interest rates as at December 31, 2019 are as follows:
2020
2021
2022
2023
2024
2025 to 2028
Unamortized deferred financing fees and accrued interest
Current
Non-current
Total
9. AMOUNTS RECEIVABLE
As at
Trade receivables (net of allowances for doubtful accounts of $3.0 million;
December 31, 2018 – $2.5 million)
Corporate and other amounts receivable
Total
Scheduled
Receipts
63,293
31,492
22,328
1,926
5,000
18,800
142,839
2,943
145,782
66,116
79,666
145,782
$
$
$
$
$
Weighted
Average Effective
Interest Rate
7.1%
7.0%
5.8%
6.2%
5.0%
5.5%
6.6%
7.1%
6.2%
6.6%
December 31, 2019
December 31, 2018
$
$
25,356
6,165
31,521
$
$
30,862
5,529
36,391
First Capital 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 REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
10. OTHER ASSETS
As at
Non-current
Fixtures, equipment and computer hardware and software (net of accumulated
amortization of $15.6 million; December 31, 2018 – $10.1 million)
Deferred financing costs on credit facilities (net of accumulated amortization of $5.3
million; December 31, 2018 – $4.5 million)
Environmental indemnity and insurance proceeds receivable
Bond asset (a)
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, 2019
December 31, 2018
$
11,670
$
13,352
15(a)
26
26
3,886
3,105
14,513
2,931
36,105
5,691
9,088
250
765
2,372
18,166
54,271
$
$
$
$
2,327
4,707
—
9,983
30,369
6,080
6,535
316
462
12,545
25,938
56,307
$
$
$
$
(a) During the fourth quarter, First Capital completed an in-substance defeasance of one of its mortgages, that matures
January 1, 2021.
11. CAPITAL MANAGEMENT
First Capital manages its capital, taking into account the long-term business objectives of the Trust, to provide stability and
reduce risk while generating an acceptable return on investment to Unitholders over the long term. The Trust’s capital
structure currently includes Trust Units, Exchangeable Units, senior unsecured debentures, mortgages, credit facilities,
bank term loans and bank indebtedness, which together provide First Capital with financing flexibility to meet its capital
needs. Primary uses of capital include reducing debt levels, development activities, acquisitions, capital improvements
and leasing costs. 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, property and capital market conditions and
Management’s general view of the required leverage in the business.
Components of the Trust’s capital are set out in the table below:
As at
December 31, 2019
December 31, 2018
Liabilities (principal amounts outstanding)
Bank indebtedness
Mortgages
Credit facilities
Mortgages under equity accounted joint ventures (at the Trust’s interest)
Credit facilities under equity accounted joint venture (at the Trust's interest)
Exchangeable Units (based on a closing per unit price of $20.67 at December 31, 2019)
Senior unsecured debentures
Equity Capitalization
Common Shares (based on closing per share price of $18.85 at December 31, 2018)
Trust Units (based on closing per unit price of $20.67 at December 31, 2019)
$
60
1,331,219
899,165
40,144
—
25,010
2,500,000
N/A
4,505,107
$
7,226
1,287,247
626,172
41,081
34,135
—
2,450,000
4,803,505
N/A
Total capital employed
$ 9,300,705
$ 9,249,366
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First Capital is subject to financial covenants in agreements governing its senior unsecured debentures and its credit
facilities. In accordance with the terms of the Trust's credit agreements, all ratios are calculated with joint ventures
proportionately consolidated. As at December 31, 2019, First Capital remains in compliance with all of its applicable
financial covenants.
The following table summarizes a number of First Capital's key ratios:
Measure/
Covenant
December 31, 2019
December 31, 2018
As at
Net debt to total assets
Unencumbered aggregate assets to unsecured debt, using 10 quarter average
capitalization rate (1)
Unitholders' / 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)
$
>$2.0B
<35%
>1.65
>1.50
(1) Calculations required under the Trust's credit facility agreements or indentures governing the senior unsecured debentures.
$
46.7%
2.0
4.5
14.5%
2.4
2.1
42.1%
2.3
4.8
14.0%
2.5
2.2
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;
• 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, Exchangeable Units and unit-based
compensation; other gains (losses) and (expenses); and other non-cash or non-recurring items. The Trust 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;
• 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 bank term loans, unsecured credit facilities,
and senior unsecured debentures.
12. MORTGAGES AND CREDIT FACILITIES
As at
Fixed rate mortgages
Unsecured facilities
Secured facilities
Mortgages and credit facilities
Current
Non-current
Total
December 31, 2019
December 31, 2018
$ 1,327,021
772,030
127,135
$ 2,226,186
114,875
$
2,111,311
$ 2,226,186
$ 1,285,908
503,005
123,167
$ 1,912,080
233,203
$
1,678,877
$ 1,912,080
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Mortgages and secured facilities are secured by First Capital's investment properties. As at December 31, 2019,
approximately $2.8 billion (December 31, 2018 – $3.0 billion) of investment properties out of $9.8 billion
(December 31, 2018 – $9.8 billion) (Note 5(a)) had been pledged as security under the mortgages and the secured
facilities.
As at December 31, 2019, mortgages bear coupon interest at a weighted average coupon rate of 3.7% (December 31, 2018 –
4.0%) and mature in the years ranging from 2020 to 2031. The weighted average effective interest rate on all mortgages as
at December 31, 2019 is 3.7% (December 31, 2018 – 4.0%).
Principal repayments of mortgages outstanding as at December 31, 2019 are as follows:
2020
2021
2022
2023
2024
2025 to 2031
Unamortized deferred financing costs and premiums, net
Total
Scheduled
Amortization
Payments on
Maturity
28,399 $
28,424
29,700
29,791
29,062
104,813
250,189 $
56,875 $
73,437
95,522
—
108,478
746,718
1,081,030 $
$
$
$
Total
85,274
101,861
125,222
29,791
137,540
851,531
1,331,219
(4,198)
1,327,021
Weighted
Average Effective
Interest Rate
4.8%
4.8%
4.0%
N/A
3.7%
3.5%
3.7%
First Capital 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. Concurrently with the U.S. dollar draws, the Trust enters into cross currency
swaps to exchange its U.S. dollar borrowings into Canadian dollar borrowings.
On April 16, 2019, the Company completed the share repurchase of 36,000,000 common shares from a subsidiary of Gazit-
Globe Ltd. ("Gazit") at a price of $20.60 per share for gross proceeds to Gazit of $741.6 million. To fund the share repurchase
and other operational needs, FCR entered into $850 million of senior unsecured bank term loans with maturities ranging
from 4 - 7 years. Concurrent with funding, the majority of the unsecured bank term loans were swapped to fixed rates
bearing a weighted average interest rate of 3.3% with a weighted average term to maturity of 5.8 years. The remaining debt
bears interest at a floating rate and can be repaid with no prepayment penalty. As a result of the debt-financed share
repurchase transaction, both Moody's and DBRS downgraded the ratings of First Capital's senior unsecured debentures by
one notch to Baa3 (Moody's) and BBB (DBRS). On November 6, 2019, S&P began rating FCR's senior unsecured debentures
and assigned a public rating of BBB- with a stable outlook, as a result, FCR discontinued its Moody's rating services.
During the third quarter, First Capital entered into a new revolving credit facility with a borrowing capacity of CAD$250.0
million as well as a new secured construction facility with a borrowing capacity of CAD$33.3 million, key terms of which are
presented in the table below. Concurrent with obtaining the new revolving facility, First Capital reduced the borrowing
capacity of its existing revolving facility from $800 million to $550 million.
During the fourth quarter, First Capital extended the maturity of its $20.7 million secured facility to June 30, 2020. In
addition, First Capital repaid $100.0 million of floating rate unsecured bank term loans and $23.4 million of secured credit
facilities.
In addition, First Capital extended the maturity of its $11.9 million secured facility to January 27, 2020. Subsequent to year-
end, First Capital further extended the maturity date by one month.
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First Capital’s credit facilities as at December 31, 2019 are summarized in the table below:
As at December 31, 2019
Unsecured Operating Facilities
Revolving facility maturing
2023
Borrowing
Capacity
Amounts
Drawn
Bank
Indebtedness
and Outstanding
Letters of Credit
Available to be
Drawn
$
550,000 $
— $
(11,428) $
538,572
Revolving facility maturing
2022 (1)
250,000
(24,743)
Floating rate unsecured term
loan maturing 2023 (2)
Fixed rate unsecured term
loans maturing 2024 - 2026
Secured Construction Facilities
Maturing 2020 (3)
200,000
(197,287)
550,000
(550,000)
15,000
(14,984)
Maturing 2021
33,333
(33,333)
—
—
—
—
—
225,257
—
16
—
Maturing 2022 (3)
Secured Facilities
Maturing 2020
Maturing 2020
Maturing 2022
Maturing 2022
138,000
(52,825)
(1,592)
83,583
20,734
(3,050)
(818)
16,866
11,875
(11,875)
4,313
(4,313)
6,755
(6,755)
—
—
—
—
—
—
Interest Rates
Maturity Date
BA + 1.45% or
Prime + 0.45% or
US$ LIBOR + 1.45%
BA + 1.10% or
Prime + 0.25% or
US$ LIBOR + 1.10%
June 30, 2023
September 29, 2022
2,713
BA + 1.20%
April 15, 2023
3.29%
March 28, 2024
- April 14, 2026
BA + 2.50% or
Prime + 1.00%
January 31, 2020
2.79%
August 26, 2021
BA + 1.350% or
Prime + 0.350%
October 26, 2022
BA + 1.20% or
Prime + 0.20%
BA + 1.20% or
Prime + 0.20%
BA + 1.20% or
Prime + 0.20%
BA + 1.20% or
Prime + 0.20%
June 30, 2020
January 27, 2020
September 28, 2022
December 19, 2022
Total
$
1,780,010 $
(899,165) $
(13,838) $
867,007
(1) The Trust had drawn in U.S. dollars the equivalent of CAD$25.0 million which was revalued at CAD$24.7 million as at December 31, 2019.
(2) The Trust had drawn in U.S. dollars the equivalent of CAD$200.0 million which was revalued at CAD$197.3 million as at December 31, 2019.
(3) The Trust now consolidates the assets, liabilities, revenues and expenses of MMUR which was previously equity accounted. See Note 6.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
13. SENIOR UNSECURED DEBENTURES
As at
Series Maturity Date
L
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
V
July 12, 2027
January 22, 2027
Weighted Average or Total
Current
Non-current
Total
Interest Rate
Coupon
Effective
5.48%
5.60%
4.50%
4.43%
3.95%
3.90%
4.79%
4.32%
3.60%
3.75%
3.46%
4.18%
5.61%
5.60%
4.63%
4.59%
4.18%
3.97%
4.72%
4.24%
3.56%
3.82%
3.54%
4.22%
December 31, 2019 December 31, 2018
Principal
Outstanding
$
— $
Liability
— $
175,000
175,000
200,000
250,000
300,000
300,000
300,000
300,000
300,000
200,000
174,999
174,754
199,372
248,461
299,284
300,853
301,208
300,683
298,622
198,977
$
$
2,500,000 $
2,497,213 $
175,000
2,325,000
174,999
2,322,214
2,500,000 $
2,497,213 $
Liability
149,891
174,994
174,553
199,091
247,976
299,114
301,016
301,401
300,775
298,467
—
2,447,278
149,891
2,297,387
2,447,278
Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity.
On July 22, 2019, First Capital completed the issuance of $200 million principal amount of Series V senior unsecured
debentures due January 22, 2027. These debentures bear interest at a coupon rate of 3.456% per annum, payable semi-
annually commencing January 22, 2020. The net proceeds of the offering were used to repay existing debt.
14. CONVERTIBLE DEBENTURES
(a) Principal redemption
On February 28, 2018, First Capital redeemed its remaining 4.45% Series J convertible debentures for $55.1 million, at par.
The full redemption price and any accrued interest owing on the convertible debentures was satisfied in cash.
(b) Principal and interest
During the year ended December 31, 2019, First Capital paid Nil (year ended December 31, 2018 – $1.0 million) in cash to
pay accrued interest to holders of convertible debentures.
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15. ACCOUNTS PAYABLE AND OTHER LIABILITIES
As at
Non-current
Asset retirement obligations (a)
Ground leases payable
Derivatives at fair value
Unit-based compensation plans
Deferred purchase price of investment property
Other liabilities
Total non-current
Current
Trade payables and accruals
Construction and development payables
Unit-based compensation plans
Dividends payable
Distributions payable
Interest payable
Tenant deposits
Derivatives at fair value
Other liabilities
Total current
Total
Note
December 31, 2019 December 31, 2018
26
18
18
17
26
$
$
$
$
$
1,980
10,035
1,677
4,447
5,700
1,005
24,844
57,978
45,722
14,740
—
15,620
35,960
37,955
3,009
8
210,992
235,836
$
$
$
$
$
2,642
10,405
666
—
7,125
—
20,838
67,295
62,563
—
54,788
—
36,056
37,451
5,706
402
264,261
285,099
(a) First Capital has obligations for environmental remediation at certain sites within its property portfolio. FCR has also
recognized a related environmental indemnity and insurance proceeds receivable totaling $3.1 million in other assets
(Note 10).
16. EXCHANGEABLE UNITS
The Exchangeable Units are non-transferable, but are exchangeable, on a one-for-one basis, into First Capital Trust Units
at the option of the holder. Any Exchangeable Units outstanding on December 29, 2023 will be automatically exchanged
for Trust Units. Prior to such exchange, Exchangeable Units will, in all material respects, be economically equivalent to
Trust Units on a per unit basis. Distributions will be made on these Exchangeable Units in an amount equivalent to the
distributions that would have been made had the units been exchanged for Trust Units. Holders of Exchangeable Units will
receive special voting units that will entitle the holder to one vote at Unitholder meetings (Note 17).
The following table sets forth the particulars of First Capital's Exchangeable Units issued and outstanding:
Year ended December 31
Balance at beginning of year
Issued on conversion
Fair value adjustment
Balance at end of year
Number of
Exchangeable
Units
Note
— $
1,210
—
1,210 $
2019
Value
—
25,240
(230)
25,010
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
17. UNITHOLDERS’ / SHAREHOLDERS' EQUITY
Upon conversion of First Capital from a corporation to a real estate investment trust, the former Shareholders of the
Company received Trust Units or Exchangeable Units which are accompanied by special voting units.
The Declaration of Trust authorizes the issuance of an unlimited number of Trust Units and special voting units:
Trust Units: Each Trust Unit is transferable and represents an equal, undivided beneficial interest in the Trust and any
distributions from the Trust and entitles the holder to one vote at a meeting of Unitholders. With certain restrictions, a
Unitholder has the right to require First Capital to redeem its Trust Units on demand. Upon receipt of a redemption notice
by First Capital, all rights to and under the Trust Units tendered for redemption shall be surrendered and the holder
thereof shall be entitled to receive a price per unit as determined by a market formula and shall be paid in accordance
with the conditions provided for in the Declaration of Trust (December 31, 2018 - The authorized share capital of the
Company consisted of an unlimited number of authorized common shares and preference shares).
Special Voting Units: Each Exchangeable Unit (Note 16) is accompanied by one special voting unit which provides the
holder thereof with a right to vote on matters respecting the Trust.
(a) Trust Units / Common Shares
The following table sets forth the particulars of First Capital's Trust Units / Common Shares issued and outstanding:
Year ended December 31
Balance at beginning of year
Repurchase of common shares
Exercise of options, and settlement of
any restricted, performance and
deferred share units
Issuance of common shares
Share repurchase costs, net of tax
effect
REIT Conversion
Balance at end of year
Note
Number of
Trust Units
Value of Trust
Units
— $
—
—
—
—
—
—
—
—
—
Number of
Common
Shares
2019
Value of
Common
Shares
Number of
Common
Shares
2018
Value of
Common
Shares
254,828 $ 3,364,948
244,431 $ 3,159,542
(36,000)
(475,560)
336
6,553
—
640
—
11,556
—
—
—
9,757
200,019
(8,850)
—
—
(6,169)
—
4
217,954
2,872,907
(219,164)
(2,887,091)
217,954 $ 2,872,907
— $
—
254,828 $ 3,364,948
On April 16, 2019, the Company completed the share repurchase of 36 million common shares from Gazit at a price of
$20.60 per share for gross proceeds to Gazit of $741.6 million. The share repurchase resulted in a reduction of stated capital
representing the par value of the 36 million common shares of $475.6 million, a reduction in contributed surplus of $24.9
million and a reduction in retained earnings of $241.1 million. The share repurchase was cross-conditional on the
completion of Gazit's bought deal secondary offering of 22 million of the Company's common shares at a price of $20.60 per
share to a syndicate of underwriters for gross proceeds to Gazit of approximately $453 million which closed on April 11,
2019.
(b) Dividends / Distributions
Prior to the REIT conversion, the Company declared quarterly dividends of $0.645 per common share for the year ended
December 31, 2019 (year ended December 31, 2018 – $0.860).
First Capital adopted a distribution policy, as permitted under the Declaration of Trust, to make monthly cash distributions
to Unitholders initially equal to, on an annual basis, $0.86 per Trust Unit. The initial monthly distribution of $0.0716 per unit
was declared to unitholders of record on December 31, 2019, and will be paid by First Capital on January 15, 2020.
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(c) Contributed surplus and other equity items
Contributed surplus and other equity items comprise the following:
Year ended December 31
2019
Contributed
Surplus
Stock-based
Compensation
Plan Awards
Total
Contributed
Surplus
Convertible
Debentures
Equity
Component
Stock-based
Compensation
Plan Awards
2018
Total
Balance at beginning of year
Redemption of convertible debentures
Repurchase of common shares
$
24,903 $
—
(24,903)
19,291 $ 44,194 $
—
—
— (24,903)
Options vested
Exercise of options
Deferred units
Restricted units
Performance units
Settlement of any restricted, performance and
deferred units
REIT Conversion (Note 4)
Balance at end of year
24,517 $
386
386 $
(386)
17,067 $ 41,970
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,121
(709)
785
1,576
2,394
—
1,121
(709)
785
1,576
2,394
(2,943)
(2,943)
—
—
—
—
—
—
—
—
—
1,238
(269)
864
1,647
3,179
1,238
(269)
864
1,647
3,179
(4,209)
(4,209)
(21,741)
(21,741)
$
— $
— $
— $
24,903 $
— $
19,291 $ 44,194
18. UNIT-BASED COMPENSATION PLANS
REIT Conversion
Upon completion of the REIT conversion, all grants outstanding under the common stock option plan and share unit plans
were transferred on a one-to-one basis to unit-based compensation plans.
(a) Unit Option Plan
As of December 31, 2019, First Capital is authorized to grant up to 19.7 million (December 31, 2018 – 19.7 million) Trust
Unit options to the employees, officers and Trustees. As of December 31, 2019, 3.5 million (December 31, 2018 – 4.4
million) unit options are available to be granted to the employees, officers and Trustees. In addition, as at December 31,
2019, 5.6 million unit options were outstanding. Options granted by First Capital expire 10 years from the date of grant
and vest over five years.
The outstanding options as at December 31, 2019 have exercise prices ranging from $13.91 - $21.14
(December 31, 2018 – $9.81 - $20.24).
As at
December 31, 2019
December 31, 2018
Outstanding Options
Vested Options
Outstanding Options
Vested Options
Exercise Price
Range ($)
13.91 - 18.99
19.00 - 20.00
20.01 - 20.16
20.17 - 21.14
13.91 - 21.14
Number of
Trust Units
Issuable
(in thousands)
1,434 $
886 $
1,918 $
1,346 $
Weighted
Average
Exercise
Price per
Trust Unit
18.05
19.61
20.05
21.04
5,584 $
19.70
4.0
5.9
7.8
8.9
6.8
Weighted
Average
Remaining
Life
(years)
Number of
Trust Units
Issuable
(in thousands)
Weighted
Average
Exercise
Price per
Trust Option
Number of
Common
Shares
Issuable
(in thousands)
Weighted
Average
Remaining
Life
(years)
Number of
Common
Shares
Issuable
(in thousands)
1,335 $
556 $
547 $
87 $
18.02
19.59
20.05
20.24
1,239 $
1,200 $
1,302 $
995 $
Weighted
Average
Exercise
Price per
Common
Share
17.70
19.38
20.02
20.09
4.9
6.1
8.9
8.1
7.0
Weighted
Average
Exercise
Price per
Common
Share
17.51
19.24
19.96
20.11
954 $
705 $
76 $
228 $
2,525 $
18.89
4,736 $
19.27
1,963 $
18.53
During the year ended December 31, 2019, $1.2 million (year ended December 31, 2018 – $1.1 million) was recorded as
an expense related to stock options.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
Year ended December 31
Outstanding at beginning of year
Granted (a)
Exercised (b)
Forfeited
Outstanding at end of year
Number of
Trust Units
Issuable
(in thousands)
4,736
1,201
(233)
(120)
5,584
2019
Weighted
Average
Exercise Price
19.27
21.14
18.17
19.74
19.70
$
$
Number of
Common Shares
Issuable
(in thousands)
4,132
1,197
(505)
(88)
4,736
2018
Weighted
Average
Exercise Price
18.74
20.03
16.75
19.59
19.27
$
$
(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.
Year ended December 31
Grant date
Unit / 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)
2019
2018
March 6, 2019
1,201
10 years
$21.14
14.0%
5.8 years
4.08%
1.71%
$1,617
March 2, 2018
1,197
10 years
$20.03
13.5%
5.5 years
4.33%
2.01%
$1,395
(b) The weighted average market price at which options were exercised for the year ended December 31, 2019
was $21.34 (year ended December 31, 2018 – $20.19).
(c) The assumptions used to measure the fair value of the unit options under the Black-Scholes model (level 2) as at
December 31, 2019 were as follows:
Year ended December 31
Expected Trust Unit price volatility
Expected life of options
Expected distribution yield
Risk free interest rate
(b) Trust Unit arrangements
2019
12.06% - 14.35%
0.2 - 5.7 years
4.16%
1.65% - 1.73%
First Capital’s Trust Unit plans include a Trustees' Deferred Unit ("DU")(formerly "DSU") plan and a Restricted Unit ("RU")
(formerly "RSU") plan that provides for the issuance of Restricted Units and Performance Units ("PU")(formerly "PSU").
Under the DU and RU arrangements, a participant is entitled to receive one Trust Unit, or equivalent cash value, at First
Capital’s option, (i) in the case of a DU, upon redemption by the holder after the date that the holder ceases to be a
Trustee of FCR 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 an RU, on the third anniversary of the grant date. Under the
PU arrangement, a participant is entitled to receive 0.5 – 1.5 Trust Units per PU granted, or equivalent cash value at First
Capital's option, on the third anniversary of the grant date. Holders of units granted under each plan receive distributions
in the form of additional units when First Capital declares distributions on its Trust Units.
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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
DUs
289
31
10
(41)
—
289
$581
2019
RUs / PUs
588
244
22
(179)
(12)
663
$4,290
DSUs
301
28
12
(52)
—
289
$549
2018
RSUs / PSUs
482
221
27
(111)
(31)
588
$3,555
(a) The fair value of the DUs granted during the year ended December 31, 2019 was $0.7 million (year ended December
31, 2018 – $0.5 million), measured based on First Capital’s prevailing Trust Unit / common share price on the date of
grant. The fair value of the RUs granted during the year ended December 31, 2019 was $1.9 million (year ended
December 31, 2018 – $1.6 million), measured based on First Capital’s Trust Unit / share price on the date of grant.
(b) The fair value of the PUs granted during the year ended December 31, 2019 was $3.4 million (year ended December 31,
2018 – $2.9 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 Unitholder / Shareholder return of First Capital's Trust
Units relative to the S&P/TSX Capped REIT Index.
Year ended December 31
Grant date
PUs 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)
2019
2018
March 6, 2019
154
3 years
14.0%
30.8%
9.1%
1.68%
$3,399
March 2, 2018
140
3 years
14.7%
37.3%
-3.3%
1.87%
$2,866
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
19. NET OPERATING INCOME
Net Operating Income by Component
First Capital’s net operating income by component is presented below:
Property rental revenue
Base rent
Operating cost recoveries
Realty tax recoveries
Lease surrender fees
Percentage rent
Straight-line rent adjustment
Prior year operating cost and tax recovery adjustments
Temporary tenants, storage, parking and other
Total Property rental revenue
Property operating costs
Recoverable operating expenses
Recoverable realty tax expense
Prior year realty tax expense
Other operating costs and adjustments
Total Property operating costs
Total NOI
NOI margin
Net Operating Income by Segment
Net operating income is presented by segment as follows:
Year ended December 31
% change
2019
2018
$ 457,200
$ 452,445
110,284
137,388
5,265
4,798
5,824
(933)
26,947
2.4%
746,773
124,080
155,010
(1,215)
8,501
107,604
137,909
1,983
4,351
7,062
(2,320)
20,561
729,595
122,300
156,084
(3,100)
(462)
286,376
274,822
1.2% $ 460,397
$ 454,773
61.7%
62.3%
Year ended December 31, 2019
Property rental revenue
Property operating costs
Net operating income
Year ended December 31, 2018
Property rental revenue
Property operating costs
Net operating income
$
$
$
$
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
326,491 $
180,194 $
242,390 $
749,075 $
(2,302) $
129,947
80,248
81,578
291,773
(5,397)
Total
746,773
286,376
196,544 $
99,946 $
160,812 $
457,302 $
3,095 $
460,397
Central
Region
Eastern
Region
Western
Region
Subtotal
Other (1)
304,426 $
190,384 $
237,095 $
731,905 $
(2,310) $
118,559
82,401
79,755
280,715
(5,893)
Total
729,595
274,822
185,867 $
107,983 $
157,340 $
451,190 $
3,583 $
454,773
(1) Other items principally consist of inter-company eliminations.
For the year ended December 31, 2019, property operating costs include $21.0 million (year ended December 31, 2018 –
$20.7 million) related to employee compensation.
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20. INTEREST AND OTHER INCOME
Interest, dividend and distribution income from marketable securities and other investments
Interest income from loans and mortgages receivable classified as FVTPL
Interest income from loans, deposit and mortgages receivable at amortized cost
Fees and other income
Total
21. INTEREST EXPENSE
Mortgages
Credit facilities
Senior unsecured debentures
Distributions on Exchangeable Units (1)
Convertible debentures
Total interest expense
Interest capitalized to investment properties under development
Interest expense
Change in accrued interest
Coupon interest rate in excess of effective interest rate on senior unsecured debentures
Coupon interest rate in excess of effective interest rate on assumed mortgages
Amortization of deferred financing costs
Cash interest paid associated with operating activities
$
$
$
Note
8
8
8
Note
12
12
13
16
14
Year ended December 31
2019
4,473
2,767
15,517
10,292
33,049
$
$
2018
1,994
5,060
11,323
8,052
26,429
Year ended December 31
2019
53,920
34,163
106,326
86
—
194,495
(22,661)
$
2018
46,212
18,652
113,284
—
446
178,594
(25,354)
$
171,834
$
153,240
97
1,303
1,272
(6,428)
1,089
1,177
967
(5,304)
$
168,078
$
151,169
(1) Effective December 30, 2019, 1.2 million Exchangeable Units were issued upon REIT conversion. The distributions declared on the Exchangeable Units are accounted for as
interest expense.
22. CORPORATE EXPENSES
Salaries, wages and benefits
Non-cash compensation
Other corporate costs
Total corporate expenses
Amounts capitalized to investment properties under development
Corporate expenses
Year ended December 31
2019
28,825
5,658
12,304
46,787
(8,309)
38,478
$
$
2018
27,418
4,805
12,408
44,631
(7,537)
37,094
$
$
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
23. 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 (non-cash)
Gain on below market purchase (1)
Hotel transaction costs (1)
Gain on Investment (a)
Proceeds from Target (2)
Investment properties selling costs
REIT conversion costs
Transaction costs (b)
Other
Total
$
Year ended December 31
$
2019
1,164
474
—
—
—
4,022
692
(6,381)
(5,013)
(3,414)
(303)
2018
4,232
(623)
(726)
13,975
(2,052)
—
—
(2,556)
(1,540)
—
23
$
(8,759)
$
10,733
(1) In connection with acquisition of hotel property.
(2) In connection with proceeds recognized under Target Canada's CCAA plan of arrangement related to the closure of two Target stores in FCR's portfolio in 2015.
(a) During the third quarter, one of First Capital's other investments in which FCR was a minority Shareholder was
acquired for cash and share consideration resulting in the recognition of a $4.0 million gain on investment.
(b) During the first quarter, the Company paid $9.0 million or 50% of the underwriters’ commission as part of the
secondary offering by Gazit of 22 million of the FCR shares. Given the cross-conditional nature of the secondary
offering and the share repurchase transaction, the $9.0 million was allocated to both the share repurchase ($5.6
million) and the secondary offering ($3.4 million). The amount allocated to the secondary offering was recorded in
other gains (losses) and (expenses) during the first quarter.
24. INCOME TAXES
The Trust qualifies for the REIT Exemption and as such the Trust itself will not be subject to income taxes provided it
continues to qualify as a REIT for purposes of the Act. A REIT is not taxable and not considered to be a Specified Investment
Flow-Through Trust provided it complies with certain tests and distributes all of its taxable income in a taxation year to its
unitholders. The Trust is a flow-through vehicle and accounts only for income taxes pertaining to its corporate subsidiaries.
The Trust's most significant corporate subsidiary, First Capital Realty Inc., is an MFC.
The sources of deferred tax balances and movements are as follows:
December 31, 2018
Net income
Recognized in OCI
Equity and other December 31, 2019
Deferred taxes related to non-capital losses
$
(13,046) $
17,012 $
Deferred tax liabilities related to difference
in tax and book basis primarily related to
real estate, net
806,346
(99,199)
(2,360) $
(2,696)
(1,606) $
(2,902)
—
701,549
Net deferred taxes
$
793,300 $
(82,187) $
(5,056) $
(4,508) $
701,549
As at December 31, 2019, the corporate subsidiaries of the Trust had approximately Nil of non-capital losses.
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December 31, 2017
Net income
Recognized in OCI
Equity and other December 31, 2018
Deferred taxes related to non-capital losses $
(29,383) $
Deferred tax liabilities related to difference
in tax and book basis primarily related to
real estate, net
749,814
17,875 $
61,276
(40) $
(1,602)
(1,498) $
(3,142)
(13,046)
806,346
Net deferred taxes
$
720,431 $
79,151 $
(1,642) $
(4,640) $
793,300
As at December 31, 2018, the corporate subsidiaries of FCR had approximately $49.9 million of non-capital losses which
expire between 2026 and 2038.
The following reconciles the expected tax expense computed at the statutory tax rate to the actual tax expense for the year
ended December 31, 2019 relating to the REIT and for the year ended December 31, 2018 relating to the Company.
Income tax computed at the Canadian statutory rate of Nil applicable to the REIT at
December 31, 2019; the Canadian federal and provincial tax rate of 26.7% applicable to the
Company at December 31, 2018
Increase (decrease) in income taxes due to:
Derecognition of deferred income tax liability on REIT conversion
Non-taxable portion of capital gains and other
Deferred income taxes applicable to corporate subsidiaries
Impact of change in provincial income tax rate
Non-controlling interests in income of consolidated limited partnership
Other
Deferred income taxes
Year ended December 31
2019
2018
$
— $
115,074
(160,940)
—
98,184
(20,848)
—
1,417
$
(82,187) $
—
(31,681)
—
—
(2,198)
(2,044)
79,151
During the second quarter, the Canadian federal and provincial income tax rate decreased primarily due to a decrease in the
general corporate income tax rate in the Province of Alberta resulting in a tax recovery of $20.8 million upon revaluation of
FCR's temporary differences.
Effective December 30, 2019, First Capital recorded the derecognition of a portion of its deferred tax liability to reflect the
tax structure of the REIT and its subsidiaries following the conversion under the Arrangement.
25. RISK MANAGEMENT
In the normal course of its business, First Capital 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
First Capital 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 FCR’s mortgages, loans and credit facilities are floating rate
instruments. From time to time, FCR 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. As at December 31, 2019, First Capital
has a total of $315.8 million of outstanding debt bearing interest at variable rates. If the average variable interest rate was
100 basis points higher or lower than the existing rate, FCR’s annual interest cost would increase or decrease, respectively,
by $3.2 million.
First Capital has a total of $1.1 billion principal amount of fixed rate interest-bearing instruments outstanding including
mortgages, senior unsecured debentures and secured credit facilities maturing between January 1, 2020 and December
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
31, 2022 at a weighted average coupon interest rate of 4.5%. If these amounts were refinanced at an average interest rate
that was 100 basis points higher or lower than the existing rate, FCR’s annual interest cost would increase or decrease,
respectively, by $11.5 million.
As at December 31, 2019, First Capital’s loans and mortgages receivable that earn interest at variable rates total
$64.4 million. If the average variable interest rate was 100 basis points higher than the existing rate, FCR’s annual interest
income would increase by approximately $644.0 thousand, and if the variable interest rate were 100 basis points lower,
FCR’s annual interest income would decrease by approximately $42.4 thousand.
First Capital’s loans and mortgages receivable that earn interest at fixed rates total $78.4 million. If the loans were
refinanced at 100 basis points higher or lower than the existing rate, FCR’s annual interest income would increase or
decrease by approximately $784.4 thousand.
(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. First Capital 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, 2019, Loblaw Companies Limited
(“Loblaw”) is FCR's largest tenant and accounts for 10.2% of FCR’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. First Capital
mitigates the risk of credit loss from debtors by undertaking a number of activities typical in lending arrangements
including obtaining registered mortgages on the real estate properties.
First Capital’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
(c) Liquidity risk
$
2019
409,885
1,176,779
797,853
$ 2,384,517
Real estate investments are relatively illiquid. This tends to limit First Capital’s ability to sell components of its portfolio
promptly in response to changing economic or investment conditions. If FCR 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.
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An analysis of First Capital’s contractual maturities of its material financial liabilities and other contractual commitments
as at December 31, 2019 is set out below:
As at December 31, 2019
Payments Due by Period
Scheduled mortgage principal amortization
Mortgage principal repayments on maturity
Credit facilities and bank indebtedness
Senior unsecured debentures
Interest obligations (1)
Land leases (expiring between 2023 and 2061)
Contractual committed costs to complete current
development projects
Other committed costs
Total contractual obligations
2020
2021 to 2022
2023 to 2024
Thereafter
Total
$
28,399 $
56,875
29,909
175,000
174,759
1,199
73,745
58,124 $
58,853 $
168,959
121,969
625,000
301,620
2,413
—
108,478
497,347
600,000
216,082
1,489
—
104,813 $
746,718
250,000
1,100,000
174,881
16,808
—
250,189
1,081,030
899,225
2,500,000
867,342
21,909
73,745
7,028
—
—
—
7,028
$
546,914 $ 1,278,085 $ 1,482,249 $ 2,393,220 $ 5,700,468
(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2019 (assuming balances remain outstanding through to
maturity), and senior unsecured debentures, as well as standby credit facility fees.
First Capital 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, 2019,
there was $772.0 million (December 31, 2018 – $503.0 million) of cash advances drawn against First Capital’s unsecured
credit facilities.
In addition, as at December 31, 2019, First Capital has $33.3 million (December 31, 2018 – $35.7 million) of outstanding
letters of credit issued by financial institutions primarily to support certain of FCR’s contractual obligations and $0.1
million (December 31, 2018 – $7.2 million) of bank overdrafts.
(d) Unit price risk
First Capital is exposed to Trust Unit price risk as a result of the issuance of Exchangeable Units, which are economically
equivalent to and exchangeable for Trust Units, as well as the issuance of unit-based compensation. Exchangeable Units
and unit-based compensation liabilities are recorded at their fair value based on market trading prices. Exchangeable
Units and unit-based compensation negatively impact operating income when the Trust Unit price rises and positively
impact operating income when the Trust Unit price declines. An increase of $1 dollar in the underlying price of First
Capital's Trust Units would result in an increase to liabilities, and a decrease to net income as follows:
(i) Exchangeable Units $1.2 million (December 31, 2018 – N/A); and
(ii) Unit-based compensation liabilities $3.2 million (December 31, 2018 – N/A)
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
26. FAIR VALUE MEASUREMENT
A comparison of the carrying amounts and fair values, by class, of First Capital’s financial instruments, other than those
whose carrying amounts approximate their fair values, is as follows:
Carrying Amount
Fair Value
Notes
2019
2018
2019
2018
Financial assets
FVTPL investments in securities
Loans and mortgages receivable classified as FVTPL
Loans and mortgages receivable classified as amortized cost
Bond asset
Other investments
Derivatives at fair value
Financial liabilities
Mortgages
Credit facilities
Senior unsecured debentures
Exchangeable Units
Unit-based compensation plans
Derivatives at fair value
8
8
8
10
8
10
12
12
13
16
15
15
$
3,949 $
23,562 $
3,949 $
20,858
124,924
14,513
12,302
5,303
107,617
217,046
N/A
11,834
22,528
20,858
124,740
14,513
12,302
5,303
23,562
107,617
216,791
N/A
11,834
22,528
$ 1,327,021 $ 1,285,908 $ 1,346,852 $ 1,288,695
626,172
2,477,968
N/A
N/A
6,372
899,165
2,497,213
25,010
19,187
4,686
899,165
2,580,365
25,010
19,187
4,686
626,172
2,447,278
N/A
N/A
6,372
The fair values of First Capital’s FVTPL investments in securities are based on quoted market prices. First Capital has other
investments in certain funds and a private entity classified as Level 3, for which the fair values are based on the fair value
of the properties held in the funds. The private entity fair value approximates its cost.
The fair value of First Capital’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, 2019, the risk-adjusted interest rates ranged from 3.5% to 11.4%
(December 31, 2018 – 4.1% to 15.6%).
The fair value of First Capital’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, 2019, these rates ranged from 3.2% to 3.4%
(December 31, 2018 – 3.3% to 3.7%).
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 Trust uses, among
others, interest rate quotations provided by financial institutions. As at December 31, 2019, these rates ranged from 2.3%
to 3.6% (December 31, 2018 – 2.6% to 4.1%).
The fair value of the Exchangeable Units are based on the Trust's closing price as of December 31, 2019.
The fair value of the unit-based compensation plans are based on the following:
Unit Option Plan: Fair value of each tranche is valued separately using a Black-Scholes option pricing model.
Deferred Units/Restricted Units: Fair value is based on the Trust's closing price as of December 31, 2019.
Performance Units: Fair Value is calculated using a Monte-Carlo simulation model.
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The fair value hierarchy of financial instruments on the audited annual consolidated balance sheets is as follows:
As at
December 31, 2019
December 31, 2018
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Measured at fair value
Financial Assets
FVTPL investments in securities
Loans and mortgages receivable
Other investments
Derivatives at fair value – assets
Financial Liabilities
Exchangeable Units
Unit-based compensation plans
Derivatives at fair value – liabilities
Measured at amortized cost
Financial Assets
Loans and mortgages receivable
Bond asset
Financial Liabilities
Mortgages
Credit facilities
Senior unsecured debentures
$
$
3,949 $
—
—
—
— $
—
—
5,303
— $
20,858
12,302
—
23,562 $
—
—
—
— $
—
—
22,528
—
107,617
11,834
—
—
—
—
—
—
25,010
19,187
4,686
—
—
—
—
14,513
124,740
—
—
—
—
—
—
—
—
6,372
—
—
—
—
—
216,791
—
— 1,346,852
—
899,165
— $ 2,580,365 $
—
—
— $
— 1,288,695
—
626,172
— $ 2,477,968 $
—
—
—
First Capital 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 First Capital has applied hedge accounting,
the change in fair value for the effective portion of the derivative is recorded in OCI from the date of designation. For
those derivative instruments to which First Capital 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, 2019, the interest rates ranged from
1.7% to 3.7% (December 31, 2018 – 2.0% to 4.5%). The fair values of First Capital's asset (liability) hedging instruments are
as follows:
Designated as
Hedging Instrument Maturity as at December 31, 2019
December 31, 2019 December 31, 2018
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
May 2020
April 2024 - March 2027
N/A
N/A
April 2024 - April 2026
January 2020
$
$
$
$
2,372
2,931
—
5,303
—
1,677
3,009
4,686
$
$
$
$
4,125
9,983
8,420
22,528
5,706
666
—
6,372
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
27. SUBSIDIARIES WITH NON-CONTROLLING INTEREST
As at December 31, 2019 First Capital has interests in two entities that it controls and consolidates 100% of the assets,
liabilities, revenues and expenses of each entity subject to a non-controlling interest.
Name of Entity
Main and Main Developments LP
Maincore Equities Inc.
Primary Investment
December 31, 2019
December 31, 2018
Effective Ownership
46.875% Interest in MMUR (1)
46.875% Interest in MMUR (1)
67.0%
90.0%
67.0%
N/A
(1) FCR has owned a 6.25% direct interest in MMUR since 2014.
First Capital controls MMLP, a subsidiary in which it holds a 67% ownership interest.
During the third quarter, First Capital, together with its partner acquired the remaining 46.9% interest in MMUR from the
exiting partner by acquiring the shares of Maincore Equities Inc.
During the year ended December 31, 2018, MMUR completed the sale of the majority of its portfolio (19 of 23 properties)
for approximately $310 million. The net proceeds from the sale, after repayment of debt were distributed to the joint
venture partners, including MMLP, which was then distributed to FCR and to the non-controlling interest. As a result, First
Capital received net distributions of $74.2 million representing its direct and indirect interests while the non-controlling
interest partner received $30.5 million.
Non-controlling interest in the equity and the results of these subsidiaries, before any inter-company eliminations, are as
follows:
As at
Non-current assets
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Non-controlling interest
Revenue
Share of profit from joint ventures
Expenses
Net income
Non-controlling interest
Cash provided by operating activities
Cash used in financing activities
Cash provided by (used in) investing activities
Net increase (decrease) in cash and cash equivalents
101
FIRST CAPITAL REIT ANNUAL REPORT 2019
December 31, 2019
December 31, 2018
$
$
$
$
$
$
$
$
$
213,183
25
213,208
69
69
213,139
48,914
$
$
$
$
84,070
6,440
90,510
117
117
90,393
29,830
Year ended December 31
2019
6,113
40,209
(1,571)
44,751
12,995
2018
5,155
23,075
(3,283)
24,947
8,232
$
$
$
Year ended December 31
2019
8,153
—
(9,265)
(1,112)
2018
1,768
—
(1,500)
268
$
$
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28. CO-OWNERSHIP INTERESTS
First Capital has co-ownership interests in several properties, as listed below, that are subject to joint control and represent
joint operations under IFRS 11, "Joint Arrangements". First Capital 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 (1)
101 Yorkville Avenue
2150 Lake Shore Blvd. West
816-838 11th Ave. (Glenbow)
738-11th Avenue SW (Glenbow)
Gloucester City Centre
Carrefour du Plateau
Merivale Mall
Galeries de Repentigny
Galeries Brien Ouest/Est
Gateway Village
King High Line - Residential
Midland (land)
Rutherford Marketplace (Residential Inventory)
Hunt Club – Petrocan
Hunt Club Marketplace
Lachenaie Properties
South Oakville Properties (2)
Whitby Mall
Thickson Mall
St. Hubert Portfolio (3)
Ottawa Portfolio (3)
West Island Portfolio (4)
Seton Gateway
Sherwood Park
The Edmonton Brewery District
140 Yorkville Avenue
West Springs Village
216 Elgin Street
221 - 227 Sterling
London Portfolio (5)
Molson's Building
1071 King Street West
200 Esplanade (Empire Theatres)
400 King Street West (6)
1120 Kingston Road (6)
Ownership Interest
Location
Toronto, ON
Toronto, ON
Calgary, AB
Calgary, AB
Ottawa, ON
Gatineau, QC
Ottawa, ON
Repentigny, QC
Repentigny, QC
St. Albert, AB
Toronto, ON
Midland, ON
Vaughan, ON
Ottawa, ON
Ottawa, ON
Lachenaie, QC
Oakville, ON
Whitby, ON
Whitby, ON
St. Hubert, QC
Ottawa, ON
Beaconsfield, QC / Kirkland, QC
December 31, 2019
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
66.6%
50%
50%
50%
66.6%
50%
50%
50%
50%
50%
50%
50%
December 31, 2018
50%
50%
50%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
50%
50%
50%
50%
66.6%
50%
50%
50%
50%
N/A
N/A
N/A
Calgary, AB
Sherwood Park, AB
Edmonton, AB
Toronto, ON
Calgary, AB
Ottawa, ON
Toronto, ON
London, ON
Calgary, AB
Toronto, ON
North Vancouver, BC
Toronto, ON
Toronto, ON
50%
50%
50%
33.3%
50%
50%
35%
49.5%
75%
66.6%
50%
50%
60%
50%
50%
50%
N/A
50%
50%
35%
49.5%
75%
66.6%
50%
N/A
N/A
(1) During 2019, FCR disposed of Kanata Terry Fox (land)(December 31, 2018 - 50%), McLaughlin Corners (December 31, 2018 - 50%) and Bow Valley Crossing (land)
((December 31, 2018 - 75%).
(2) South Oakville Properties includes one property at 50% interest, with the remaining properties held at 100% interest.
(3) St. Hubert Portfolio includes Carrefour St-Hubert, Plaza Actuel, and Promenades du Parc. Ottawa Portfolio includes Loblaws Plaza, Eagleson Place, and Strandherd Crossing.
(4) West Island Portfolio includes Centre Commercial Beaconsfield, Plaza Beaconsfield, Centre St-Charles, Centre Kirkland, and Place Kirkland.
(5) London Portfolio includes Wellington Corners, Sunningdale Village, Byron Village, Hyde Park Plaza, Stoneybrook Plaza, and Adelaide Shoppers.
(6) Co-ownership interests held by MMUR. As at December 31, 2018, MMUR was a joint venture accounted for using the equity method.
FIRST CAPITAL REIT ANNUAL REPORT 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
29. SUPPLEMENTAL OTHER COMPREHENSIVE INCOME (LOSS)
INFORMATION
(a) Accumulated other comprehensive income (loss)
Year ended December 31
2019
Opening
Balance
January 1
Net Change
During
the Year
Closing
Balance
December 31
Opening
Balance
January 1
Net Change
During
the Year
2018
Closing
Balance
December 31
Unrealized gains (losses) on
investments in equity securities
Unrealized gains (losses) on cash
flow hedges
Unrealized gains (losses) on
revaluation of hotel property
Accumulated other comprehensive
income (loss)
$
45 $
— $
45 $
45 $
— $
45
(4,533)
(6,224)
(10,757)
—
2,910
2,910
(5)
—
(4,528)
(4,533)
—
—
$
(4,488) $
(3,314) $
(7,802) $
40 $
(4,528) $
(4,488)
(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
Unrealized gains (losses) on
revaluation of hotel property
Before-Tax
Amount
Tax (Expense)
Recovery
2019
Net of Tax
Amount
Before-Tax
Amount
Tax (Expense)
Recovery
2018
Net of Tax
Amount
$
(12,967) $
5,812 $
(7,155) $
(7,638) $
2,032 $
(5,606)
1,687
2,910
(756)
—
931
2,910
1,468
(390)
1,078
—
—
—
Other comprehensive income (loss)
$
(8,370) $
5,056 $
(3,314) $
(6,170) $
1,642 $
(4,528)
103
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30. 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
Gain on below market purchase (1)
Hotel transaction costs (1)
Net (gain) loss on prepayments of debt
Transaction costs (2)
Gain on Investment
Non-cash compensation expense
Increase (decrease) in value of Exchangeable Units
Deferred income taxes
Other non-cash items
Total
(1)
In connection with acquisition of hotel property - Refer to Note 7.
$
Note
19
23
23
23
23
23
23
23
23
16
24
(2) Transaction costs incurred relate to the secondary offering by Gazit of 22 million of the Company's common shares.
(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 assets
Advances of loans and mortgages receivable
Repayments of loans and mortgages receivable and deposits
Other investments, net
Investment in marketable securities, net
Proceeds from disposition of marketable securities
Total
$
$
$
$
Year ended December 31
2018
(7,062)
2,556
(4,232)
$
2019
(5,824)
6,381
(1,164)
(474)
—
—
—
3,414
(4,022)
5,615
(230)
(82,187)
338
(78,153)
$
623
(13,975)
2,052
726
—
—
5,226
—
79,151
(23)
65,042
$
Year ended December 31
2018
(10,954)
1,120
3,838
6,668
(7,046)
(6,374)
2019
4,870
(1,517)
(12,459)
570
(4,035)
(12,571)
$
Year ended December 31
2018
(112,015)
29,001
$
2019
(62,545)
183,194
3,554
(5,000)
26,251
$
145,454
$
(9,269)
(96,221)
97,988
(90,516)
FIRST CAPITAL REIT ANNUAL REPORT 2019
104
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued
(d) Cash and cash equivalents
As at
Cash and cash equivalents (1)
(1) Principally consisting of cash related to co-ownerships and properties managed by third parties.
December 31, 2019
25,503
$
December 31, 2018
15,534
$
31. COMMITMENTS AND CONTINGENCIES
(a) First Capital 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 FCR.
(b) First Capital is contingently liable, jointly and severally or as guarantor, for approximately $77.5 million (December 31,
2018 – $152.2 million) to various lenders in connection with certain third-party obligations, including, without
limitation, loans advanced to its joint arrangement partners secured by the partners’ interest in the joint
arrangements and underlying assets.
(c) First Capital is contingently liable by way of letters of credit in the amount of $33.3 million (December 31, 2018 –
$35.7 million), issued by financial institutions on FCR's behalf in the ordinary course of business.
(d) First Capital has obligations as lessee under long-term leases for land. Annual commitments under these ground
leases are approximately $1.2 million (December 31, 2018 – $1.2 million) with a total obligation of $21.9 million
(December 31, 2018 – $23.6 million).
32. RELATED PARTY TRANSACTIONS
(a) Gazit-Globe
Effective April 16, 2019, Gazit's ownership of First Capital was reduced to approximately 9.9% following the completion of
the secondary offering and share repurchase transactions. In the fourth quarter, Gazit sold a portion of its remaining
interest in FCR, reducing its ownership as at December 31, 2019 to 6.7% (December 31, 2018 – 31.3%). Subsequent to
year-end, Gazit further reduced its ownership interest in FCR from 6.7% to 4.4%.
Corporate and other amounts receivable include amounts due from Gazit. Gazit reimburses First Capital for certain
accounting and administrative services provided to it by FCR. Such amounts consist of the following:
Reimbursements for professional services
Year ended December 31
2018
2019
$
157
$
186
As at December 31, 2019, amounts due from Gazit were $27 thousand (December 31, 2018 – $40 thousand).
(b) Joint ventures
During the year ended December 31, 2019, First Capital earned fee income of $1.9 million (December 31, 2018 – $4.5
million) from its joint ventures.
During the year ended December 31, 2019, First Capital also advanced $1.2 million (December 31, 2018 – $2.1 million) to
one of its joint ventures.
(c) Subsidiaries of the Trust
These audited annual consolidated financial statements include the financial statements of First Capital Real Estate
Investment Trust and all of its subsidiaries, including First Capital Realty Inc., First Capital REIT Limited Partnership and
First Capital Holdings Trust. First Capital Realty Inc. and First Capital Holdings Trust are the significant subsidiaries of the
Trust and are wholly owned.
105
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(d) Compensation of Key Management Personnel
Aggregate compensation for Trustees 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
Unit / Share-based compensation (non-cash compensation expense)
33. SUBSEQUENT EVENTS
Monthly Distribution
Year ended December 31
2019
4,724
4,362
9,086
$
$
2018
4,551
3,912
8,463
$
$
On January 15, 2020, First Capital announced that it will pay a distribution, for the month of January, of $0.072 per Trust
Unit on February 14, 2020 to Unitholders of record on January 31, 2020.
FIRST CAPITAL REIT ANNUAL REPORT 2019
106
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Unitholder Information
HEAD OFFICE
TRANSFER AGENT
Shops at King Liberty
85 Hanna Avenue, Suite 400
Toronto, Ontario M6K 3S3
Tel: 416 504 4114
Fax: 416 941 1655
Computershare Trust Company
of Canada
100 University Avenue, 11th Floor
Toronto, Ontario M5J 2Y1
Toll-free: 1 800 564 6253
MONTREAL OFFICE
EXECUTIVE LEADERSHIP TEAM
TRUSTEES
Bernard McDonell
Chair of the Board
Leonard Abramsky
Trustee
Paul Douglas
Trustee
Jon Hagan
Trustee
Annalisa King
Trustee
Al Mawani
Trustee
Adam Paul
Trustee
Dori Segal
Trustee
Adam Paul
President and Chief Executive Officer
Kay Brekken
Executive Vice President and
Chief Financial Officer
Jordan Robins
Executive Vice President and
Chief Operating Officer
Carmine Francella
Senior Vice President, Leasing
Alison Harnick
Senior Vice President, General Counsel
Andrea Stephen
Trustee
Maryanne McDougald
Senior Vice President, Operations
Jodi Shpigel
Senior Vice President, Development
Michele Walkau
Senior Vice President, Brand & Culture
AUDITORS
Ernst & Young LLP
Toronto, Ontario
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
Edmonton Brewery District
12068 – 104 Avenue, Suite 301
Edmonton, Alberta T5K 0K2
Tel: 780 475 3695
VANCOUVER OFFICE
Shops at New West
800 Carnarvon Street, Suite 320
New Westminster, BC V3M 0G3
Tel: 604 278 0056
Fax: 604 242 0266
FCR.CA
CORPORATE PROFILEFirst Capital is a leading developer, owner and manager of mixed-use real estate located in Canada’s most densely populated cities. First Capital’s focus is on creating thriving urban neighbourhoods to generate value for businesses, residents, communities and our investors.FORWARD-LOOKING STATEMENT ADVISORYCertain statements contained in this MD&A constitute forward-looking statements. Other statements concerning First Capital’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 First Capital’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, the ability of the Trust to make loans at the same rate or in the same amount as repaid loans, amount of development costs, capital expenditures, operating costs and corporate expenses, level and timing of acquisitions of income-producing properties, the Trust’s ability to complete dispositions and the timing, terms and anticipated benefits of any such dispositions, the Trust’s ability to redevelop, sell or enter into partnerships with respect to the future incremental density it has identified in its portfolio, number of units outstanding, the Trust’s ability to qualify as a real estate investment trust under the Tax Act and numerous other factors. Moreover, the assumptions underlying the Trust’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 First Capital’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, property taxes and income taxes; First Capital’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 Trust’s business, including the repayment of existing indebtedness as well as development, intensification and acquisition activities; changes in interest rates and credit spreads; organizational structure; changes to credit ratings; the availability of a new competitive supply of retail properties which may become available either through construction, lease or sublease; the Trust’s ability to: execute on its Urban Investment Strategy, including with respect to dispositions, capitalize on competitive advantages, optimize portfolio assets and accelerate value delivered to its investors and stakeholders, remain ahead of changing market conditions, surface unrecognized value, reach its demographic targets and ensure the Trust retains its best in class position; unexpected costs or liabilities related to acquisitions, development and construction; geographic and tenant concentration; residential development, sales and leasing; compliance with financial covenants; changes in governmental regulation; environmental liability and compliance costs; unexpected costs or liabilities related to dispositions; challenges associated with the integration of acquisitions into the Trust; uninsured losses and First Capital’s ability to obtain insurance coverage at a reasonable cost; market risk; loss of key personnel; the ability of tenants to maintain necessary licenses, certifications and accreditations and risks and uncertainties related to the effects of COVID-19 on First Capital, including the length, spread and severity of the pandemic, the nature and extent of the measures taken by all levels of government to mitigate against the severity and spread of the virus, the impact of the virus and government authorities’ and public health officials’ responses thereto on: our tenants’ ability to pay rent in full or at all, domestic and global credit and capital markets, our ability to access capital on favourable terms or at all, the health and safety of our employees and our tenants’ personnel and domestic and global supply chains, among other risks related to COVID-19. Given the evolving circumstances surrounding COVID-19, it is difficult to predict how significant the adverse impact will be on the global and domestic economy, the business, operations and financial position of the REIT’s tenants, and the business operations and financial position of the REIT. 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 undertakes no obligation to publicly update any such statement or to reflect new information or the occurrence of future events or circumstances, except as required by applicable securities law. All forward-looking statements in this MD&A are made as of February 11, 2020 and the accompanying letter to unitholders as of August 14, 2020 and are qualified by these cautionary statements. 2019 Annual Report85 HANNA AVENUE, SUITE 400, TORONTO, ONTARIO M6K 3S3