First Capital Realty Inc.
Annual Report 2020

Plain-text annual report

MD&A MANAGEMENT’S DISCUSSION AND ANALYSIS Table of Contents 1 1 4 6 7 9 9 11 12 13 14 15 15 16 16 18 24 27 28 28 29 30 30 32 33 33 34 35 35 Introduction Outlook and Current Business Environment Non-IFRS Financial Measures Operating Metrics Summary Consolidated Information and Highlights Business and Operations Review Real Estate Investments Investment Properties 2020 Acquisitions 2019 Acquisitions 2020 Dispositions 2019 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 35 35 36 37 38 39 40 40 40 41 42 42 43 43 44 46 48 49 49 50 50 51 52 54 54 Capital Structure and Liquidity Total Capital Employed Credit Ratings Outstanding Debt and Principal Maturity Profile Mortgages Credit Facilities Senior Unsecured Debentures Unitholders' 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 Controls and Procedures Risks and Uncertainties Management’s Discussion and Analysis of Financial Position and Results of Operations INTRODUCTION This Management’s Discussion and Analysis (“MD&A”) of the financial position and results of operations of First Capital 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, 2020 and 2019. It should be read in conjunction with the Trust’s audited annual consolidated financial statements for the years ended December 31, 2020 and 2019. 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 9, 2021. 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. OUTLOOK AND CURRENT BUSINESS ENVIRONMENT With the on-set of the worldwide outbreak of the COVID-19 pandemic in early 2020, governments across Canada implemented various restrictive measures throughout the year, including mandated closures of non-essential businesses in the spring and fall of 2020 to mitigate the spread of the virus. First Capital’s tenant mix is focused on providing consumers with their everyday needs, as such, many of its tenants were deemed essential by governments across Canada and remained open during the various lockdowns. As 2020 came to a close, provincial directives for increased restrictions or the closure of non-essential businesses were in place across many regions in which the Trust operates. FCR has followed all governmental directives to ensure the safety of its employees, tenants, customers, and neighbours during the pandemic. In March, First Capital initiated physical distancing protocols for employees, including working remotely, for all staff other than its essential Property Operations Team. FCR's corporate and regional offices operated at reduced capacity to ensure appropriate physical distancing, and signage was added throughout office premises in order to direct and instruct employees toward safe operating procedures. Mandatory training on new health and safety protocols, and personal protective equipment was provided for all employees. These protocols and procedures remain in place. Actively managing assets First Capital operates a portfolio of assets primarily located in super urban neighbourhoods within Canada’s largest and fastest growing cities. First Capital’s portfolio is built on a solid foundation of grocery-anchored properties with a curated tenant mix that includes pharmacy, liquor, government and medical services, which are among the uses that were classified as essential and remained open under the directives issued by the applicable governments across Canada. FCR’s Property Operations Team continues to work together with its tenants to provide safe spaces for their employees and customers. Signage has been installed to guide tenants’ employees and customers through the properties and maintain safe physical distancing. FCR will continue to focus on health and safety at its properties, substantially all of which are grocery and pharmacy anchored, to minimize risk while continuing to serve neighbourhood needs and adapt to the current environment and beyond. As an example, earlier this year, FCR expanded its Quick Shop program by launching a Customer Quick Pick-up program which facilitates curbside pickup at designated parking areas within its properties to enhance convenience and safety for its tenants and their customers. 1 FIRST CAPITAL REIT ANNUAL REPORT 2020 Supporting our tenants First Capital recognizes that small businesses play an important role in the neighbourhoods where it operates. In late March, FCR announced the launch of its Small Business Support Program ("SBSP"), to provide up to $30 million of support to qualifying tenants in the form of deferred rent. During the second quarter, the federal government implemented the Canada Emergency Commercial Rental Assistance (“CECRA”) program to support small and medium sized businesses that were mandated to close, which largely replaced FCR's SBSP. The CECRA program covered the months of April through September 2020. Under the program, the property owner abated 75% of the qualifying tenant’s gross rent, the government extended a forgivable loan to the property owner equal to 50% of the gross rent, and the remaining 25% of gross rent was paid by the tenant. First Capital viewed the program as an investment in the financial health of its qualifying tenants that would benefit them positively and also benefit First Capital as the participating tenants were generally thriving and profitable businesses. As such, First Capital fully supported its qualifying tenants through participation in the program for all applicable periods. For the year ended December 31, 2020, First Capital recorded the tenants’ rental abatement, net of the related government receivable, as bad debt expense for a total of $13.2 million. First Capital also recorded other bad debt expense of $9.6 million for a total bad debt expense of $22.8 million for the year. To continue to assist businesses amid these difficult conditions, the federal government implemented a new rent support program, the Canada Emergency Rent Subsidy (“CERS”), that supports tenants directly. The CERS program is expected to continue through to June 2021. This new rent subsidy supports businesses that have suffered a revenue drop, by subsidizing eligible expenses, including rent, property insurance, property taxes and interest on commercial mortgages. The program subsidizes up to 65% of eligible expenses and includes a 25% top-up for organizations temporarily shut down by a mandatory public health order up to a maximum of $75,000 per location and an overall maximum of $300,000 for all locations including affiliated entities per four week claim period. In addition to participating in the CECRA program, First Capital is providing savings to tenants from FCR's participation in the Canada Emergency Wage Subsidy ("CEWS") program. The wage subsidy results in a reduction in property operations personnel costs that will be passed on to tenants through lower operating cost recoveries. First Capital remains committed to working with its tenants to assist them through the pandemic. However, despite the assistance programs available, some tenants may fail, in which case a temporary increase in vacancy may occur. Overall, First Capital collected 93% of the gross rent due in the fourth quarter, before any deferrals or abatements. Adjusting for approved deferrals and abatements, First Capital collected 94% of the gross rent due in the fourth quarter. Gross rent collections for 2020 totaled 94% prior to any deferrals or abatements, or 98% adjusting for approved deferrals and abatements. To date, First Capital collected 91% of the gross rent due for the month of January. Supporting our Communities As a way to support First Capital's independent grocery and restaurant tenants and to show its gratitude and thanks for the tireless efforts of front line and community service workers, First Capital delivered over 1,600 delicious and nutritious meals to these modern-day heroes over the past year. From hospital and emergency service workers to staff and patrons at men and women’s shelters, the meal delivery program was a win-win partnership between First Capital and its independent food tenants across Canada. Managing the balance sheet The full extent and duration of the financial impact of COVID-19 on communities and the economy remains uncertain. Therefore, First Capital has taken the following proactive measures to provide greater financial strength and flexibility. • • First Capital implemented a cost reduction program that includes both proactive and naturally occurring decreases in planned spending in several areas of the business due to limitations imposed by the pandemic. This included reducing property operating costs, general and administrative expenses, elective capital expenditures and deferring the commencement of certain planned development spend. FCR aimed to reduce the planned spend by a total of approximately $75 million by year-end 2020. First Capital surpassed its goal and reduced spending by approximately $85 million as of December 31, 2020. In the third quarter, First Capital funded a new 10-year $116 million mortgage bearing interest at 2.72%, which is the lowest 10-year rate the Trust has ever obtained. The proceeds were used to pay down a portion of the balance outstanding on the Trust's revolving credit facility, which further enhanced First Capital's liquidity position. FIRST CAPITAL REIT ANNUAL REPORT 2020 2  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued • On September 1, 2020, the Trust completed the issuance of $200 million principal amount of Series A senior unsecured debentures due March 1, 2028. These debentures bear interest at a coupon rate of 3.447% per annum, payable semi-annually commencing March 1, 2021. • On January 12, 2021, First Capital announced a temporary reduction of its monthly distribution to Unitholders from $0.0716 per unit to $0.036 per unit (or $0.432 per unit annually). The reduction of the distribution will provide First Capital with additional retained cash flow of approximately $95 million per annum and provide meaningful financial flexibility to advance the Trust’s strategic objectives. First Capital is continuing to maintain a strong balance sheet. As of February 9, 2021, the Trust's liquidity position included approximately $890 million of cash and undrawn credit facilities with remaining debt maturities for 2021 totaling only $292 million. As at December 31, 2020, the Trust had unencumbered properties with an IFRS value of approximately $7.0 billion and a net debt to asset ratio of 47.2%. • Lending activities First Capital provides 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 FCR with the opportunity to acquire full or partial interests in the underlying assets that are consistent with its 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, FCR partners with experienced real estate lenders and investment companies whose primary business is lending which helps to mitigate risk. FCR’s loans and mortgages receivable totaling $113.1 million (December 31, 2019 - $145.8 million) are secured primarily by interests in investment properties or shares of entities owning investment properties which helps to mitigate the risk of non-payment. Disposition program First Capital has an objective to sell 100% interests in properties that are deemed to be inconsistent with its Super Urban Strategy. In addition, First Capital also has an objective to sell 50% non-managing interests to institutional partners in certain stable but growing properties, to ultimately expand its position in these markets without increasing investment capital. In April 2019, following the share repurchase transaction, First Capital increased its strategic disposition target to $1.5 billion from $1.0 billion. During 2019, FCR completed dispositions under this strategy totaling $835.0 million, more than 50% of its target. During the year ended December 31, 2020, $251.4 million of strategic dispositions were completed increasing the total dispositions to approximately $1.1 billion or 73% of its target. As a result of the pandemic and the disruption in the financial markets, the property transaction market slowed considerably in the second quarter pending market and economic stabilization. Accordingly, FCR’s disposition program had been temporarily paused through mid-2020, but resumed in the second half of the year. Development initiatives Construction at five of First Capital's development projects was temporarily halted late in the first quarter under government directives. Construction on all projects resumed during the second quarter. All projects experienced only minor delays and are progressing towards completion within similar timeframes as originally planned. During 2019, FCR submitted entitlement applications for gross floor area of 9.0 million square feet and had an original goal to submit an additional 4.3 million square feet in 2020. FCR reduced this goal in response to the pandemic. In addition, due to the pandemic, municipal offices were initially functioning at reduced capacity early in the second quarter but had, for the most part, resumed normal activities by mid-year. As a result, FCR submitted applications for approximately 2.8 million square feet. Management continues to monitor the impacts of COVID-19 on the portfolio, including properties under development. As of December 31, 2020, FCR had approximately 0.5 million square feet under active development of which 0.3 million square feet is residential rental apartments. First Capital believes that the strategy to develop, own and operate properties that meet the needs of everyday urban life in Canada’s most densely populated neighbourhoods will provide value over the long term. 3 FIRST CAPITAL REIT ANNUAL REPORT 2020 Outlook The unprecedented restrictions across much of the world’s economy to mitigate the impacts of the pandemic has presented challenges across all industries and geographies. While it is too early to predict the full impact on First Capital, certain aspects of the Trust’s business and operations that could potentially be impacted include rental income, occupancy, tenant improvements, future demand for space, and market rents, all of which ultimately impact the underlying valuation of investment properties. Refer to the “Risks and Uncertainties” section of this MD&A for a discussion about the risks associated with the COVID-19 pandemic. First Capital believes, based on its exceptionally high-quality portfolio which has always been focused on everyday essentials, that it will continue to attract high tenant demand for its space and consequently low re-leasing risk for potential vacancy because of COVID-19. This has proven true thus far with the limited space that has become vacant, some of which has been re-leased. First Capital will continue to be guided by its corporate responsibility and sustainability program, and values. The core beliefs of collaboration, innovation, excellence, accountability, and passion continue to be demonstrated throughout all areas of the organization. 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 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. FIRST CAPITAL REIT ANNUAL REPORT 2020 4  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 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. 5 FIRST CAPITAL REIT ANNUAL REPORT 2020 Weighted average units (or shares) outstanding for FFO For purposes of calculating per unit (or per share for calculations prior to December 30, 2019) 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 includes all 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. OPERATING METRICS First Capital presents certain operating metrics and portfolio statistics in the MD&A, which include neighbourhood 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 FIRST CAPITAL REIT ANNUAL REPORT 2020 6  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 (20.0 million square feet at its ownership interest compared to 22.8 million square feet at 100% as at December 31, 2020). First Capital's operating metrics and GLA excludes residential GLA totaling 322,000 square feet and hotel GLA of 49,000 square feet as amounts are not significant at this time. Effective January 1, 2020, FCR has replaced property count with neighbourhood count to align further with its Super Urban Strategy. Prior period metrics have been restated to conform with the current period's presentation. 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 Increase (decrease) in value of hotel property Net income attributable to Unitholders / Shareholders 2020 2019 2018 $ 685,138 $ 399,032 $ $ $ (185,700) $ (9,432) $ 2,702 $ 779,822 $ 460,397 61,037 — $ 401,345 $ 756,024 $ 454,773 $ 102,389 $ — $ 343,606 Net income per unit / share attributable to Unitholders / Shareholders (diluted) $ 0.01 $ 1.74 $ 1.37 Weighted average number of units / shares - diluted (in thousands) 220,495 230,810 250,802 Cash provided by operating activities Distributions / Dividends Distributions / Dividends declared Distributions declared per unit Dividends declared per common share Cash distributions / dividends paid Cash distributions / dividends paid per unit / share As at December 31 Financial Information (1) Investment properties (3) Hotel property Total assets Mortgages (3) Credit facilities Senior unsecured debentures Exchangeable Units Unitholders' / Shareholders’ equity Net Asset Value per unit / share (2) Capitalization and Leverage $ 219,505 $ 269,147 $ 283,012 $ 188,027 0.860 $ — $ $ 187,929 0.860 $ $ 165,224 0.072 $ 0.645 $ $ 203,830 0.860 $ $ 215,537 — $ 0.860 $ $ 212,651 0.860 $ 2020 2019 2018 $ 9,490,641 $ 88,000 $ 10,032,463 $ 1,346,637 $ 915,928 $ 2,522,135 1,399 $ $ 4,227,164 22.34 $ $ 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 $ Trust Units / Shares outstanding (in thousands) Exchangeable Units outstanding 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) 219,315 103 $ 7,805,000 217,954 1,210 $ 9,301,000 254,828 — $ 9,239,000 47.2% 46.7% 42.1% 4.6 5.1 5.5 7 FIRST CAPITAL REIT ANNUAL REPORT 2020 As at December 31 Operational Information Number of neighbourhoods 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 2020 150 2019 2018 156 164 22,822,000 19,991,000 23,528,000 25,456,000 20,927,000 23,854,000 96.5% 96.2% 97.2% 96.9% 97.4% 96.7% 1,803,000 2,258,000 2,287,000 22,038,000 22,778,000 20,262,000 $ 21.89 $ 21.25 $ 20.24 Commercial GLA developed and transferred online - at ownership interest 33,000 201,000 283,000 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) For the years ended December 31 Funds from Operations (2) (4) FFO FFO per diluted unit / share FFO payout ratio (7) 193 (5.8%) (7.1%) 247 2.7% 3.3% — 2.7% 3.1% 2020 2019 2018 $ $ $ $ 221,974 1.01 85.4% 284,920 1.23 69.7% $ $ 302,971 1.21 71.1% Weighted average number of units / shares - diluted (in thousands) 220,495 230,810 250,474 Adjusted Cash Flow from Operations (2) (4) ACFO ACFO payout ratio on a rolling four quarter basis $ 203,047 $ 252,416 $ 267,168 92.6% 80.8% 79.6% (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 paid per share. FIRST CAPITAL REIT ANNUAL REPORT 2020 8 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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. 9 FIRST CAPITAL REIT ANNUAL REPORT 2020 Portfolio Overview As at December 31, 2020, First Capital had interests in 150 neighbourhoods, which were 96.2% occupied with a total GLA of 20.0 million square feet at FCR's ownership interest (22.8 million square feet at 100%) and a fair value of $9.6 billion. This compares to 156 neighbourhoods, 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 $9.8 billion as at December 31, 2019. The Same Property portfolio includes properties sub-categorized in Same Property – stable and Same Property with redevelopment. The Same Property portfolio is comprised of 131 neighbourhoods with a total GLA of 17.9 million square feet at FCR's ownership interest (20.5 million square feet at 100%) and a fair value of $7.6 billion. These properties represent 87.3% of FCR's neighbourhood count, 89.4% of its GLA at FCR's ownership interest and 78.2% of its fair value as at December 31, 2020. The balance of FCR’s real estate assets consists of properties which are in various stages of redevelopment, properties acquired in 2020 or 2019 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 Same Property – stable Same Property with redevelopment Total Same Property Major redevelopment Ground-up development Acquisitions (1) Investment properties classified as held for sale Dispositions (2) % of Total GLA 79.1% 10.3% 89.4% 7.0% 1.5% 0.3% 1.8% —% December 31, 2020 Weighted Average Rate per Occupied Square Foot 96.5% $ 21.87 GLA (000s sq. ft.) Occupancy 15,805 2,063 17,868 1,390 292 72 369 — 95.3% 96.4% 93.8% 99.5% 97.6% 93.4% —% 18.15 21.45 27.56 30.98 21.91 14.93 — December 31, 2019 GLA (000s sq. ft.) Occupancy Weighted Average Rate per Occupied Square Foot 97.2% $ 21.53 96.3% 97.1% 96.1% 99.2% 100.0% 93.1% 94.4% 17.96 21.12 25.81 32.36 29.57 15.02 15.31 % of Total GLA 75.7% 15,838 9.8% 2,058 85.5% 17,896 1,435 279 23 6.9% 1.3% 0.1% 1.8% 4.4% 369 925 Total 100.0% 19,991 96.2% $ 21.89 100.0% 20,927 96.9% $ 21.25 (1) Includes current year and prior year acquisitions. (2) Comparative information presented relates to 2020 dispositions that have been completed and no longer form part of these metrics as at December 31, 2020. FIRST CAPITAL REIT ANNUAL REPORT 2020 10 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued First Capital’s portfolio by major market is summarized as follows: As at December 31, 2020 December 31, 2019 Number of Neighbour- hoods 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 Neighbour- hoods GLA (000s sq. ft.) Fair Value(1) % of Total Fair Value Occupancy Weighted Average Rate per Occupied Square Foot % of Annual Minimum Rent 51 6,803 $ 4,624 48% 95.8% $ 25.23 39% 50 6,840 $ 4,580 47% 96.6% $ 24.43 37% 28 3,551 1,106 12% 96.3% 17.02 14% 32 3,860 1,187 12% 96.5% 16.46 14% 17 2,688 1,147 12% 95.7% 23.37 14% 17 2,723 1,200 12% 97.1% 23.24 14% 16 1,750 1,041 11% 95.9% 25.53 10% 17 1,785 1,059 11% 97.3% 25.16 10% 11 2,246 764 8% 95.2% 19.24 10% 11 2,279 811 8% 96.7% 19.44 10% 13 1,180 370 4% 97.9% 18.97 5% 13 1,304 399 4% 97.1% 18.85 6% 5 1,047 332 3% 98.3% 19.00 9 726 203 2% 98.7% 17.77 5% 3% 5 1,042 334 3% 99.3% 18.83 11 1,094 254 3% 96.4% 15.80 5% 4% 150 19,991 $ 9,587 100% 96.2% $ 21.89 100% 156 20,927 $ 9,824 100% 96.9% $ 21.25 100% (millions of dollars, except other data) Greater Toronto Area Greater Montreal Area Greater Calgary Area Greater Vancouver Area Greater Edmonton Area Greater Ottawa Area Kitchener/ Waterloo/Guelph Area Other Total (1) At FCR's proportionate interest, including hotel property at net book value as at December 31, 2020 and December 31, 2019, respectively. Among First Capital's real estate investment portfolio are forty-two (2019 - forty-three) assets each with a value greater than $85 million or size greater than 300,000 square feet. Together, these forty-two assets comprise $6.1 billion (2019 - $6.0 billion) or 65% (2019 - 62%) of FCR's aggregate $9.5 billion investment portfolio asset value (2019 - $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 (1) Investment properties and additional adjacent spaces Development activities and property improvements Reclassification to residential development inventory Increase (decrease) in value of investment properties, net Dispositions Other changes Balance at end of year (2) Year ended December 31, 2020 Investment Properties 9,752 $ 20 205 (58) (186) (251) 9 9,491 $ (1) During the first quarter of 2020, one of the Trust’s wholly owned subsidiaries purchased a property from another consolidated subsidiary, that is subject to a non-controlling interest. The Trust’s net effective ownership in the asset increased by 15.5% to 100%. The Trust’s acquisition cost for its incremental 15.5% interest was $25.4 million which is reflected as a distribution to the non-controlling interest partner in the audited annual consolidated financial statements. (2) Includes investment properties classified as held for sale as at December 31, 2020 totaling $161.8 million of investment properties. 11 FIRST CAPITAL REIT ANNUAL REPORT 2020 (millions of dollars) Balance at beginning of year Acquisitions Investment properties and additional adjacent spaces 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) Year ended December 31, 2019 Investment Properties 9,768 $ 392 228 131 61 (835) 7 9,752 $ (1) Includes investment properties classified as held for sale as at December 31, 2019 totaling $158.6 million of investment properties. 2020 Acquisitions Income-producing properties During the year ended December 31, 2020, First Capital acquired two super urban properties located in Toronto, the remaining 40% interest in the Hazelton Hotel located in Yorkville, and an adjacent property in Montreal. Additionally, First Capital acquired the remaining 15.5% interest in one downtown Toronto property held through Main & Main Urban Realty LP ("MMUR"), as summarized in the table below: Count Property Name 1. Yonge & Roselawn Assembly (1) 1795 Rue Fleury 261 Queens Quay E (Bayside Village) Hazelton Hotel (Yorkville Village) (2) 34 Montgomery Avenue 2. 3. 4. 5. Total City/Province Toronto, ON Montreal, QC Toronto, ON Toronto, ON Toronto, ON Quarter Acquired Interest Acquired GLA (sq. ft.) Acreage Acquisition Cost (in millions) Q1 Q3 Q3 Q4 Q4 15.5% 100% 50% 40% 100% — 4,193 23,979 4,506 — 32,678 0.3 $ 0.2 $ 1.6 $ — $ 0.1 $ 2.2 $ 25.4 1.7 15.3 31.7 3.2 77.3 (1) During the first quarter of 2020, one of the Trust’s wholly owned subsidiaries purchased a property from another consolidated subsidiary, that is subject to a non-controlling interest. The Trust’s net effective ownership in the asset increased by 15.5% to 100%. The Trust’s acquisition cost for its incremental 15.5% interest was $25.4 million which is reflected as a distribution to the non-controlling interest partner in the audited annual consolidated financial statements. (2) The acquisition of the hotel property was accounted for as a business combination under IFRS 3 "Business Combinations". Refer to Note 5 of the audited annual consolidated financial statements for further details. GLA represents retail space only. FIRST CAPITAL REIT ANNUAL REPORT 2020 12 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 2019 Acquisitions Income-producing properties During the year ended December 31, 2019, First Capital acquired four properties, three land parcels, one property slated for mixed use development in Yorkville and increased its interest in the King High Line project. During the third quarter of 2019, First Capital acquired the remaining 46.9% interest in four properties held through Main & Main Urban Realty LP, as summarized in the table below: Count Property Name 1855 Leslie Street (Leslie and York Mills assembly) 1626 Martin Drive (Semiahmoo) Bow Valley Crossing (1) 738-11th Avenue SW (Glenbow) 1100 King St. W. (Liberty Village) (2) Main & Main Urban Realty LP (3) - Yonge & Roselawn assembly - Dundas & Aukland - 400 King St. W. - 1092 Kingston Rd. (retail at base of condo) City/Province Toronto, ON Surrey, BC Calgary, AB Calgary, AB Toronto, ON Toronto, ON 140 Yorkville Avenue (Yorkville Village) Toronto, ON 134 Atlantic Avenue (Liberty Village) 30-60 Montgomery Avenue (Yonge & Roselawn) Yorkville Village adjacent properties Toronto, ON Toronto, ON Toronto, ON 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Quarter Acquired Interest Acquired GLA (sq. ft.) Acreage Acquisition Cost (in millions) — 0.6 $ 11.3 Q1 Q1 Q1 Q2 Q3 Q3 Q3 Q3 Q4 Q4 100% 100% 20% 50% 9,200 — 15,700 50%/30% 175,800 46.9% — 33% 100% 100% 100% — 3,150 — — — 9.7 — — 2.0 0.6 — 0.5 — 7.0 2.3 6.1 166.2 116.0 59.7 3.2 17.3 3.0 Total 203,850 13.4 $ 392.1 (1) In the second quarter of 2019, FCR disposed of its entire interest in this property. (2) FCR acquired an incremental interest of 50% and 30% of the Retail and Residential components, respectively. (3) FCR acquired the remaining 46.9% interest with its partner in Main and Main Developments LP. FCR's acquisition cost was $98.0 million. 13 FIRST CAPITAL REIT ANNUAL REPORT 2020 2020 Dispositions During the year ended December 31, 2020, First Capital disposed of its interests in two portfolios, eleven properties and two land parcels, none of which are in super urban neighbourhoods. These dispositions are summarized in the table below: Count Property Name 1. 2. 3. 4. 5. 6. 7. 8. 9. Greater Montreal Area Portfolio (1) Plaza Laval Elysee Gorge Shopping Centre 1610 The Queensway Windsor Portfolio (2) Carrefour Belvedere / Edifice Hooper Place Panama Phase I (land) Carrefour du Versant Ouest/Est Lakeview Plaza 10. Meadowbrook Centre 11. 12. 13. 14. 15. Place Nelligan Burlingwood Shopping Centre Place Cite des Jeunes Beacon Hill Plaza Place Lucerne (land) Total City/Province Montreal, QC Laval, QC Victoria, BC Toronto, ON Windsor, ON Sherbrooke, QC Brossard, QC Gatineau, QC Calgary, AB Edmonton, AB Gatineau, QC Burlington, ON Gatineau, QC Burlington, ON Ville Mont-Royal, QC (1) Includes Place Roland Therrien, Place Pointe-aux-Trembles, and Faubourg des Prairies. (2) Includes Ambassador Plaza, and University Plaza. Quarter Sold Interest Sold GLA (sq. ft.) Acreage Gross Sales Price (in millions) Q1 Q1 Q1 Q1 Q2 Q2 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 100% 100% 100% 100% 100% 100% 100% 50% 50% 50% 50% 50% 50% 50% 100% 226,300 19.8 64,700 37,000 2,200 5.3 1.7 0.5 285,900 41.5 98,000 — 57,600 34,700 35,400 36,900 23,400 33,100 10,200 — 8.6 3.2 7.4 2.6 3.1 3.3 2.0 2.2 0.9 0.8 945,400 102.9 $ 251.4 FIRST CAPITAL REIT ANNUAL REPORT 2020 14 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 Halton Hills Village 20. 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 GLA (sq. ft.) Acreage Gross Sales Price (in millions) 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% 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 — — 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. 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, 2020 and 2019 is summarized in the table below: For the year ended December 31 Central Region Eastern Region Western Region Total 15 FIRST CAPITAL REIT ANNUAL REPORT 2020 Acquired Disposed 2020 1,915 — — 1,915 $ $ 2019 8,140 — 484 8,624 $ $ 2020 3,803 6,530 2,550 12,883 $ $ 2019 3,648 31,657 11,463 46,768 $ $ Capital Expenditures 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 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 18,517 $ 15,346 4,138 23,766 61,767 $ — $ 11,624 833 130,809 143,266 $ $ $ 2020 Total 18,517 $ 26,970 4,971 154,575 205,033 $ 2019 Total 17,328 39,147 6,815 165,814 229,104 Capital expenditures for the year ended December 31, 2020 were $205.0 million, which was $24.1 million lower than in the prior year. At the onset of the pandemic, the Trust implemented a cost reduction program to manage elective capital expenditures and defer certain planned development activities, in order to provide itself with greater financial flexibility. As a result, spend has declined on revenue enhancing projects and new developments over the prior year. 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, 2020 and December 31, 2019: As at (millions of dollars) Property Type (1) Same Properties Properties under development / in transition (3) Properties held for sale (4) Total investment property fair value Valuation Method DCF (2) DCF, Cost, DCF less costs to complete or comparable land sales DCF December 31, 2020 Fair Value 7,498 $ December 31, 2019 Fair Value 7,587 $ 1,831 162 9,491 $ 2,006 159 9,752 $ (1) Prior periods restated to reflect current period property categories. (2) Discounted Cash Flow ("DCF") is a valuation method under the Income Approach. (3) Includes current and prior year acquisitions. (4) Comparative fair values includes properties that were disposed of in 2020. FIRST CAPITAL REIT ANNUAL REPORT 2020 16 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued The majority of the Trust's portfolio is valued under the Income Approach using the DCF method. As at December 31, 2020, the weighted average valuation yields (stabilized overall capitalization, terminal, and discount rates) used in valuing those investment properties under the Income Approach remained largely unchanged from December 31, 2019. Slight decreases in the weighted average terminal capitalization rates in the Eastern and Central regions were due to dispositions of properties that were inconsistent with the Trust's Super Urban Strategy. Over the past 24 months, the Trust's disposition program has been focused on disposing of lower quality assets with higher capitalization rates which has resulted in a reduction in the weighted average in-place overall capitalization rate for the portfolio. Due to the continuing risk created by the COVID-19 pandemic that has resulted in an economic slowdown, greater volatility in the capital markets, limited investment transactions, and a lower interest rate environment, the Trust has been closely monitoring valuation yields. The Trust has not observed a change to valuation yields for its properties at this time and as such, has not adjusted valuation yields in the valuation models used to determine the fair value of investment properties. To reflect the potential impact of COVID-19 on the cash flows in the valuation models, a comprehensive portfolio review was undertaken during the first and second quarters, on a property by property basis to identify properties with greater exposure to tenants deemed non-essential under government directives and therefore potentially subject to prolonged closures. The short-term cash flows in the 10 year valuation models for each of these properties was adjusted for increased vacancy, lower rental rate growth and other market leasing assumptions such as slower lease up of existing vacancy. As a result, a decrease in the value of investment properties was recorded in the first half of the year for $152.2 million. During the second half of 2020, the Trust recognized a $33.5 million decrease in the value of investment properties primarily due to revisions to overall capitalization rates or stabilized NOI, including the impact of COVID-19 on certain properties' cash flows as part of its normal course internal valuations. The associated stabilized capitalization rates by region for FCR's investment properties valued under the Income Approach were as follows as at December 31, 2020 and December 31, 2019: Stabilized Capitalization Rate Weighted Average 4.7% 5.7% 5.1% 5.0% Median 5.3% 5.8% 5.3% 5.4% Range 3.0%-7.0% 4.4%-7.5% 3.8%-7.0% 3.0%-7.5% Stabilized Capitalization Rate Weighted Average 4.7% 5.8% 5.1% 5.0% Median 5.3% 6.0% 5.3% 5.5% Range 3.0%-7.0% 4.4%-7.5% 3.8%-6.3% 3.0%-7.5% As at December 31, 2020 Central Region Eastern Region Western Region Weighted Average As at December 31, 2019 Central Region Eastern Region Western Region Weighted Average 17 FIRST CAPITAL REIT ANNUAL REPORT 2020 Properties Under Development As at December 31, 2020, properties under development / in transition (see table on page 16) totals approximately $1.8 billion. Currently 36% of these assets representing $668 million of IFRS fair value are non-income producing. These non- income producing properties represent approximately 7% of the Trust's total portfolio value and consists of development land, adjacent land parcels, properties slated for redevelopment with limited income and properties in active development. As at December 31, 2020, the invested cost of these non-income producing properties was $596 million as compared to a fair value of $668 million. Cumulative gains of approximately $72 million have been recognized to date and are expected to grow over time as development projects are entitled, advanced and completed. 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, 2020, First Capital's portfolio is comprised of 20.0 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, 2020, Management had identified approximately 23.8 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. A breakdown of the active development and incremental density within the portfolio by component and type is as follows: As at December 31, 2020 Active development Same Property with redevelopment Major redevelopment Ground-up development Future incremental density Medium term Long term Very long term Residential inventory Total development pipeline Commercial Residential Total Included in IFRS (1) Square feet (in thousands) 9 151 43 203 1,400 100 100 1,600 — 1,803 — — 295 295 10,700 6,700 4,200 21,600 143 22,038 9 151 338 498 12,100 6,800 4,300 23,200 143 23,841 498 5,303 143 5,944 (1) Represents the density that has been valued and included as part of the fair value of investment properties and residential inventory on the consolidated balance sheet. FIRST CAPITAL REIT ANNUAL REPORT 2020 18 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued First Capital determines its course of action with respect to its 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 5.9 million or 25% of FCR's 23.8 million square feet of identified incremental density has been at least partially included as part of the fair value of investment properties and residential inventory on the consolidated balance sheet. The 5.9 million square feet is comprised of 0.5 million square feet in active development which is valued as part of the overall property, 0.1 million square feet of residential inventory measured at the lower of cost or net realizable value and presented separately on the consolidated balance sheet and 5.3 million of incremental density carried at approximately $476 million or $90 per square foot. The value of the Trust's incremental density in IFRS totaling $476 million, as presented below, consists of development land and adjacent land parcels, future pad developments and properties slated for redevelopment with limited income. As of December 31, 2020, the invested cost of the incremental density included in IFRS totaled $404 million representing acquisition cost and pre-development costs to date. As at December 31, 2020 (in millions of dollars) Land IPP with density Value of incremental density in IFRS Unzoned Zoned Total Unzoned Zoned Total Unencumbered Encumbered $ $ 160 $ 96 256 147 18 165 421 $ 2 $ 10 12 33 10 43 55 $ Fair Value 162 106 268 180 28 208 476 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, incremental density and residential inventory by urban market is as follows: Incremental Density Pipeline Total % of Total 13,007 5,609 2,820 1,310 735 360 23,841 54.6% 23.5% 11.8% 5.5% 3.1% 1.5% 100.0% As at December 31, 2020 (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 19 FIRST CAPITAL REIT ANNUAL REPORT 2020 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 FCR expects remaining properties 3 and 4 to be zoned in the first half of 2021. 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 1. 2. 3. 4. Panama (All Phases) (1) Humbertown (All Phases) Appleby Village (2) 400 King St. W. 5. Wilderton Phase II 6. 7. 8. Longstreet Phase I Rutherford Marketplace (2) 200 West Esplanade Panama Ave. / Taschereau Blvd. Montreal, QC 100% 1,555 403 1,958 — 1,958 The Kingsway Toronto, ON Appleby Burlington, ON Entertainment District Outremont Toronto, ON Montreal, QC Adjacent to ICE District Edmonton, AB Thornhill Woods Vaughan, ON Lower Lonsdale North Vancouver, BC 100% 100% 35% 100% 100% 50% 50% 551 348 147 173 120 64 28 235 786 105 7 355 13 160 22 195 23 143 — 4 64 32 — — 42 7 — 21 681 355 160 153 136 64 11 Totals 2,986 707 3,693 175 3,518 (1) Disposed of Place Panama (Phase I) in the fourth quarter of 2020 which includes 1,047,000 square feet of previously zoned density. (2) Residential phases only. During 2019, FCR submitted entitlement applications for GFA of approximately 9.1 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. During 2020, zoning approvals were obtained on the Gloucester Phase 1 property. The current IFRS value of these properties in aggregate is approximately $601 million. FCR expects to recognize a meaningful increase to the current IFRS values once approvals for these submissions are received. 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 2019 Entitlement Applications Property Christie Cookie (1) Dufferin Corners Royal Orchard Semiahmoo Phase I 801 York Mills & 1855 Leslie Street Staples Lougheed 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Centre Commercial Cote St-Luc Cote Saint-Luc Montreal, QC Yonge & Roselawn Olde Oakville Phase I Plaza Baie D'Urfe (2) Gloucester Phase I Yonge & Eglinton Toronto, ON South Oakville Oakville, ON Hwy. 20 / Morgan St. Montreal, QC Gloucester Ottawa, ON 12. Merivale Mall (Residential Phase) Nepean Ottawa, ON 13. 1071 King St. W. Liberty Village Toronto, ON 000s of square feet submitted for (at FCR's share): Ownership Interest % Residential Commercial Total Existing Incremental 50% 100% 50% 100% 100% 100% 100% 100% 100% 100% 50% 50% 67% 2,948 576 3,524 990 697 490 535 475 559 533 217 218 157 135 132 37 1,027 22 32 22 49 80 65 44 9 17 9 4 719 522 557 524 639 598 261 227 174 144 136 Totals 8,086 966 9,052 — 81 22 20 62 32 158 67 28 42 3 1 — 516 3,524 946 697 502 495 492 481 531 233 185 171 143 136 8,536 (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 2020 20 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued During 2020, FCR had planned to submit entitlement applications for GFA of approximately 4.3 million square feet (incremental density of 4.0 million square feet). FCR reduced this goal in response to the pandemic. In addition, due to the COVID-19 pandemic, municipal offices were functioning at reduced capacity early in the second quarter but had, for the most part, resumed normal activities by mid-year. As a result, during the year ended December 31, 2020, FCR submitted entitlement applications for GFA of approximately 2.8 million square feet. Total entitlement submissions to date total approximately 13.7 million square feet representing 58% of FCR's 23.8 million incremental density pipeline. FCR previously secured zoning on 1.0 million square feet of density that was subsequently sold in the fourth quarter of 2020. The current IFRS value of these properties in aggregate is approximately $439 million. FCR expects to recognize a meaningful increase to the current IFRS values once approvals for these submissions are received. 2020 Entitlement Applications Property 1. 2. 3. 4. 5. 6. 138 Yorkville Avenue Rd. & Lawrence Hillcrest Plaza Liberty Village (portion of shopping centre) Place Viau (excess land) Portobello (excess land) 000s of square feet submitted for (at FCR's share): Neighbourhood City, Province Bloor - Yorkville Toronto, ON Bedford Park Toronto, ON Yonge & Sheppard Toronto, ON Liberty Village Toronto, ON Saint - Leonard Montreal, QC Brossard Montreal, QC Ownership Interest % Residential Commercial Total Existing Incremental 33% 100% 100% 100% 100% 100% 89 401 263 696 551 540 28 50 112 104 15 — 117 451 375 800 566 540 — 53 37 45 — — 117 398 338 755 566 540 Totals 2,540 309 2,849 135 2,714 21 FIRST CAPITAL REIT ANNUAL REPORT 2020 In addition to the properties listed in the entitlements section above, First Capital has 10.1 million square feet of additional incremental density which includes 9.6 million square feet primarily related to the properties listed below, where entitlements have yet to be submitted, and 0.5 million feet currently under active development (see active projects table). Additional Incremental Density Property Neighbourhood City, Province Ownership Interest % 332 Bloor St. W. 895 Lawrence 3434 Lawrence 1. 2. 3. Danforth Sobeys 4. 221 - 227 Sterling Rd. 5. Cliffcrest Plaza 6. Midland Lawrence Plaza 7. Kingston Square W. 8. Morningside (portion of shopping centre) 9. Olde Oakville (future phases) 10. Lakeshore & Kerr 11. Bayview Lane Plaza 12. Yonge-Davis Centre 13. Appleby Square 14. Harwood Plaza 15. 1000 Wellington St. 16. Centre Commercial Domaine 17. Centre Commercial Van Horne 18. Galeries Normandie 19. Place Provencher 20. Le Campanile & Place du Commerce 21. Place Michelet 22. Langley Mall 23. Scott 72 Shopping Centre 24. Semiahmoo (future phases) 25. GM Glenbow 26. 27. Newport Village 28. Mount Royal Village East 29. Gloucester City Centre (future phases) The Annex Don Mills Lawrence Ave. E. / Markham Rd. Danforth Village The Junction Cliffcrest Midland Park Lawrence Ave. E. / Morningside Ave. Lawrence Ave. E. / Morningside Ave. 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 Toronto, ON Toronto, ON Toronto, ON 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% 35% 100% 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 Management expects 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. 2020 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, 2020, First Capital completed the transfer of 33,000 square feet of new retail space in addition to 193 residential units to the income-producing portfolio at a total cost of $106.3 million. All of the retail space transferred was located in super urban neighbourhoods and became occupied at an average rental rate of $24.15 per square foot. FIRST CAPITAL REIT ANNUAL REPORT 2020 22 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued For the year ended December 31, 2020, First Capital had tenant closures for redevelopment of 63,000 square feet at an average rental rate of $19.49 per square foot. As of December 31, 2020, 26,000 square feet had been demolished. Active Development and Redevelopment Activities Construction at five of First Capital's development projects was temporarily halted late in the first quarter under government directives. Construction on all projects resumed during the second quarter. All projects experienced only minor delays and are progressing towards completion within similar timeframes as originally planned. 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 six projects comprised of approximately 498,000 square feet of space currently under development, of which 203,000 square feet is retail space and 295,000 square feet is residential rental apartments. A total of 130,000 square feet of the retail space currently under development is subject to committed leases at a weighted average rate of $30.26 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. Highlights of First Capital’s active projects as at December 31, 2020 are as follows: As at December 31, 2020 Count/Project 1. Eagleson Place, Ottawa, ON Major Tenants (Medical Clinic, Kettleman's) 2. 3. 4. 5. Chartwell Shopping Centre, Toronto, ON (Mabu Station, Coco Tea) King High Line (Shops at King Liberty), Toronto, ON (2)(3) (Longo's, Canadian Tire, Shoppers Drug Mart, Winners, Kids & Company, PetSmart, McDonald's) Dundas & Aukland, Toronto, ON (4) (Farm Boy) Leaside Expansion, Toronto, ON 6. Wilderton, Montreal, QC (5) (Shoppers Drug Mart, PetSmart, Medical Office) (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 Income- producing property 5 H1 2021 $4 - $5 $2 N/A Ownership Interest % 100% 100% 100%/ 67% 100% 100% 100% 4 H1 2021 $3 - $4 28 H2 2021 $350 - $370 $2 $14 N/A $331 310 H2 2021 $150 - $170 $121 72 H2 2021 $45 - $50 $32 — — 79 H2 2023 $57 - $62 $21 $14 Total development and redevelopment activities 498 $609 - $661 $192 $345 (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 28,000 square feet of rental residential space (at FCR's interest of 67%). (4) Subject to non-controlling interest of 29.12%. The area under development comprises 43,000 square feet of retail and 267,000 square feet of rental residential space. (5) 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 $96.8 million. Residential Inventory - active development 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 $16.2 million 23 FIRST CAPITAL REIT ANNUAL REPORT 2020 at December 31, 2020. Total invested cost at completion is estimated to be $23.4 million with a target completion date in the second half of 2021. All 50 townhomes have been sold and construction began in the second quarter of 2020. In addition, residential inventory also includes a future development project at 138 Yorkville Avenue for which FCR's ownership interest is 33%. These two residential projects represent approximately 143,000 square feet of incremental density at FCR's ownership interest. Leasing and Occupancy As at December 31, 2020, total portfolio occupancy, improved 0.2% to 96.2% while Same Property portfolio occupancy was up 0.1% compared to September 30, 2020. Total portfolio occupancy decreased 0.7% to 96.2% while Same Property portfolio occupancy was down 0.7% to 96.4% compared to December 31, 2019, primarily due to net closures versus openings. For the year ended December 31, 2020, the monthly average occupancy for the total portfolio was 96.2% compared to 96.6%, and the Same Property portfolio occupancy was 96.4% compared to 97.0% for the prior year, respectively. Occupancy of First Capital's portfolio by property categorization was as follows: As at (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 (1) Dispositions Total (2) (1) Includes current year and prior year acquisitions. (2) At FCR's ownership interest. Total Occupied Square Feet 15,251 1,966 17,217 1,304 290 344 19,155 70 — 19,225 December 31, 2020 Weighted Average Rate per Occupied Square Foot 21.87 96.5% $ % Occupied 95.3% 96.4% 93.8% 99.5% 93.4% 96.2% 97.6% —% 96.2% $ 18.15 21.45 27.56 30.98 14.93 21.89 21.91 — 21.89 Total Occupied Square Feet 15,398 1,982 17,380 1,379 277 343 19,379 20 873 20,272 December 31, 2019 Weighted Average Rate per Occupied Square Foot 21.53 97.2% $ % Occupied 96.3% 97.1% 96.1% 99.2% 93.1% 97.0% 100.0% 94.4% 96.9% $ 17.96 21.12 25.81 32.36 15.02 21.51 29.57 15.31 21.25 FIRST CAPITAL REIT ANNUAL REPORT 2020 24 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued During the three months ended December 31, 2020, First Capital completed 704,000 square feet of lease renewals across the portfolio. First Capital achieved a 5.5% 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, 2020, First Capital achieved a 6.7% 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 0.2% from $21.84 as at September 30, 2020 to $21.89 as at December 31, 2020 primarily due to rent escalations and renewal lifts. Changes in First Capital’s gross leasable area and occupancy for the total portfolio for the three months ended December 31, 2020 are set out below: Three months ended December 31, 2020 Total Same Property Major redevelopment, ground-up, acquisitions and dispositions Vacancy Total Portfolio (1) Tenant possession Tenant closures Tenant closures for redevelopment Developments – tenants coming online (3) Redevelopments – tenant possession Demolitions Reclassification Total portfolio before Q2 2020 acquisitions and dispositions Acquisitions (at date of acquisition) Dispositions (at date of disposition) Occupied Square Feet (thousands) % Weighted Average Rate per Occupied Square Foot Occupied Square Feet (thousands) % Weighted Average Rate per Occupied Square Foot Under Redevelop- ment Square Feet (thousands) September 30, 2020 (2) 17,199 96.3% $ 21.40 2,222 94.0% $ 25.22 138 (124) — 5 — — (1) 23.38 (20.20) — 28.89 — — — 81 (60) (12) 1 — — — 18.28 (22.28) (15.99) 18.00 — — — Vacant Square Feet (thousands) % Total Square Feet (thousands) Occupied Square Feet % Weighted Average Rate per Occupied Square Foot 811 4.0% 20,232 96.0% $ 21.84 % —% (219) 184 — — — — (4) — — — 6 — (11) (6) 21.50 (20.88) (15.99) 26.81 — — — — — — 12 — — (11) (1) 17,217 96.4% $ 21.45 2,232 94.9% $ 25.22 — —% 772 3.8% 20,221 96.2% $ 21.88 — —% — —% — — — —% — — —% (224) 97.7% 20.98 — —% — (6) — —% — (230) 97.7% 20.98 December 31, 2020 17,217 96.4% $ 21.45 2,008 94.6% $ 25.70 — —% 766 3.8% 19,991 96.2% $ 21.89 Renewals Renewals – expired 647 (647) 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) 57 (57) $ 18.29 $ (17.24) $ 1.05 6.1% $ 21.18 $ (21.16) $ 0.02 0.1% 704 (704) $ 18.52 $ (17.56) $ 0.96 5.5% 6.7% (1) At FCR's ownership interest. (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 – 2020 Development and Redevelopment Coming Online and Space Going Offline” section of this MD&A. 25 FIRST CAPITAL REIT ANNUAL REPORT 2020 Tenant possession Tenant closures Tenant closures for redevelopment Developments – tenants coming online (3) Redevelopments – tenant possession Demolitions Reclassification Total portfolio before 2020 acquisitions and dispositions Acquisitions (at date of acquisition) Dispositions (at date of disposition) During the year ended December 31, 2020, First Capital completed 2,122,000 square feet of lease renewals across the portfolio. First Capital achieved a 9.3% 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, 2020, First Capital achieved a 10.9% 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 3.0% from $21.25 as at December 31, 2019 to $21.89 as at December 31, 2020 primarily due to renewal lifts, rent escalations and dispositions. Changes in First Capital’s gross leasable area and occupancy for the total portfolio for the year ended December 31, 2020 are set out below: Year ended December 31, 2020 Total Same Property Major redevelopment, ground-up, acquisitions and dispositions Vacancy Total Portfolio (1) Occupied Square Feet (thousands) % Weighted Average Rate per Occupied Square Foot Occupied Square Feet (thousands) % Weighted Average Rate per Occupied Square Foot Under Redevelop- ment Square Feet (thousands) Vacant Square Feet (thousands) % Total Square Feet (thousands) Occupied Square Feet % % Weighted Average Rate per Occupied Square Foot December 31, 2019 (2) 17,380 97.1% $ 21.12 2,892 95.5% $ 22.02 424 (596) (12) 15 — — 6 23.00 (19.90) (29.04) 40.71 — — — 175 (209) (51) 17 — — 1 12.27 (15.30) (17.29) 11.12 — — — 17,217 96.4% $ 21.45 2,825 94.6% $ 22.58 13 — — 63 — — (86) 10 — 0.1% 642 3.1% 20,927 96.9% $ 21.25 (599) 805 — 1 — — (37) — — — 33 — (86) (20) 19.86 (18.71) (19.49) 24.15 — — — —% 812 3.9% 20,854 96.1% $ 21.61 — — —% —% — — 58 93.0% 25.00 (875) 94.5% 15.59 — — —% —% 4 (50) 62 93.0% 25.00 (925) 94.5% 15.59 December 31, 2020 17,217 96.4% $ 21.45 2,008 94.6% $ 25.70 — —% 766 3.8% 19,991 96.2% $ 21.89 Renewals Renewals – expired 1,838 (1,838) 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) 284 (284) $ 20.97 $ (19.42) $ 1.55 8.0% % Increase in rate per square foot – openings versus all closures 14.5% $ 21.80 $ (18.38) $ 3.42 18.6% (21.8%) 2,122 (2,122) $ 21.08 $ (19.29) $ 1.79 9.3% 10.9% 5.9% (1) At FCR's ownership interest. (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 – 2020 Development and Redevelopment Coming Online and Space Going Offline” section of this MD&A. FIRST CAPITAL REIT ANNUAL REPORT 2020 26 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Top Forty Tenants As at December 31, 2020, 55.0% of First Capital's annualized minimum rent came from its top 40 tenants (December 31, 2019 – 54.6%). Of these rents, 76.6% (December 31, 2019 – 76.9%) came from tenants that have investment grade credit ratings and who represent many of Canada’s leading grocery stores, pharmacies, national and discount retailers, financial institutions and other familiar retailers. The weighted average remaining lease term for First Capital’s top 10 tenants was 5.7 years as at December 31, 2020, excluding contractual renewal options. Canadian Tire TD Canada Trust RBC Royal Bank Save-On-Foods GoodLife Fitness Dollarama Tenant (1) (2) Rank Loblaw Companies Limited ("Loblaw") 1. 2. Sobeys 3. Metro 4. 5. Walmart 6. 7. 8. 9. 10. Top 10 Tenants Total CIBC 11. LCBO 12. 13. Lowe's 14. Winners 15. McKesson Longo's 16. Scotiabank 17. Restaurant Brands International 18. BMO 19. London Drugs 20. Recipe Unlimited 21. Nordstrom 22. Staples 23. 24. Starbucks 25. Michaels 26. Whole Foods Market 27. McDonald's Pusateri's 28. The Beer Store 29. Subway 30. Toys "R" Us 31. SAQ 32. 33. The Home Depot 34. Williams-Sonoma PetSmart 35. Alcanna Inc. 36. Pet Valu 37. Equinox 38. Indigo 39. Home Hardware 40. Number of Stores 95 49 34 22 13 45 41 9 24 47 379 35 21 4 13 23 5 25 53 25 8 30 1 9 41 4 2 20 1 12 61 3 16 2 2 4 14 20 2 3 5 Square Feet (thousands) 1,989 1,418 838 685 1,246 203 207 324 497 419 7,826 172 190 361 312 173 196 117 121 102 192 123 40 194 57 77 90 72 35 66 60 127 60 153 38 57 48 54 38 54 67 Percent of Total Gross Leasable Area 9.9% 7.1% 4.2% 3.4% 6.2% 1.0% 1.0% 1.6% 2.5% 2.1% 39.0% 0.9% 0.9% 1.8% 1.6% 0.9% 1.0% 0.6% 0.6% 0.5% 1.0% 0.6% 0.2% 1.0% 0.3% 0.4% 0.5% 0.4% 0.2% 0.3% 0.3% 0.6% 0.3% 0.8% 0.2% 0.3% 0.2% 0.3% 0.2% 0.3% 0.3% Percent of Total Annualized Minimum Rent 10.5% 5.4% 2.8% 2.8% 2.5% 2.0% 1.8% 1.8% 1.8% 1.7% 33.1% 1.4% 1.3% 1.3% 1.3% 1.2% 1.1% 1.0% 1.0% 1.0% 1.0% 0.9% 0.8% 0.8% 0.7% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.3% 0.3% DBRS Credit Rating BBB (high) BBB (low) BBB BBB AA AA (high) AA (high) S&P Credit Rating BBB BBB- BBB BBB AA AA- AA- Moody’s Credit Rating Aa2 Aa1 Aa2 BBB BBB Baa2 AA AA (low) BBB (high) AA AA BB A+ A+ BBB+ A BBB+ A+ BB A+ BB+ B BBB+ B A+ BBB+ Aa2 Aa3 Baa1 A2 Baa2 Aa2 Ba3 Aa2 Baa3 B1 Baa1 Ba3 A2 Baa1 AA (low) A+ Aa3 AA (low) A AA- A B- Aa2 A2 B2 CCC Caa3 Top 40 Tenants Total 843 11,272 56.5% 55.0% (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. 27 FIRST CAPITAL REIT ANNUAL REPORT 2020 Lease Maturity Profile First Capital’s lease maturity profile for its portfolio as at December 31, 2020, excluding any contractual renewal options, is as follows: Maturity Date Month-to-month tenants (1) 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Thereafter Total or Weighted Average (2) Number of Stores 145 559 640 599 544 513 253 164 163 177 163 59 72 4,051 Occupied Square Feet (thousands) 223 1,863 2,595 2,953 2,214 2,186 1,242 954 1,054 996 831 567 1,547 19,225 Percent of Total Square Feet 1.1 % 9.3 % 13.0 % 14.8 % 11.1 % 10.9 % 6.2 % 4.8 % 5.3 % 5.0 % 4.2 % 2.8 % 7.7 % 96.2 % $ Annualized Minimum Rent at Expiration (thousands) 4,804 36,250 59,577 59,842 50,201 53,738 32,541 23,688 29,725 26,520 23,423 13,366 40,204 453,879 $ Percent of Total Annualized Minimum Rent 1.1 % 8.0 % 13.1 % 13.2 % 11.1 % 11.8 % 7.2 % 5.2 % 6.5 % 5.8 % 5.2 % 2.9 % 8.9 % 100.0 % Average Annual Minimum Rent per Square Foot at Expiration 21.58 19.46 22.96 20.26 22.67 24.59 26.21 24.82 28.19 26.62 28.20 23.58 25.99 23.61 $ $ (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 5.2 years as at December 31, 2020, excluding contractual renewal options, but including month-to-month and other short-term leases. Investment in Joint Ventures As at December 31, 2020, 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 Name of Property/Business Activity Location December 31, 2020 December 31, 2019 College Square General Partnership College Square Green Capital Limited Partnership Royal Orchard Stackt Properties LP Shipping Container marketplace Fashion Media Group GP Ltd. Toronto Fashion Week events Ottawa, ON 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 50.0% 50.0% 94.0% 78.0% 25.0% 50.0% 50.0% 50.0% 94.0% 78.0% 25.0% 50.0% Effective Ownership 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 of 2019, First Capital, together with its partner in Main and Main Developments LP ("MMLP") acquired the remaining 46.9% interest in four remaining Main and Main Urban Realty LP assets for approximately $116.0 million. As a result, FCR now controls MMUR through its direct and indirect interests, requiring the consolidation of the assets, liabilities, revenues and expenses of MMUR from the date of acquisition. FIRST CAPITAL REIT ANNUAL REPORT 2020 28 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued The following table reconciles the changes in First Capital's interests in its equity accounted joint ventures for the years ended December 31, 2020 and 2019: 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 December 31, 2020 $ $ 59,498 $ 3,889 (2,982) — (7,835) 52,570 $ December 31, 2019 144,375 17,481 (25,648) (78,409) 1,699 59,498 For the year ended December 31, 2020, share of income from equity accounted joint ventures includes a $5.5 million decrease in value of investment properties (December 31, 2019 - $0.3 million increase in value of investment properties). As of December 31, 2020, none of the Trust’s investments in joint ventures were determined to be impaired taking into account the COVID-19 environment. 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) Other investments Total non-current Current Loans and mortgages receivable classified as FVTPL (a) Loans and mortgages receivable classified as amortized cost (a) FVTPL investments in securities (b) Total current Total December 31, 2020 December 31, 2019 $ 1,968 37,612 12,580 52,160 6 73,548 3,715 77,269 $ 20,726 58,940 16,302 95,968 132 65,984 3,949 70,065 $ 129,429 $ 166,033 (a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning investment properties. As at December 31, 2020, these receivables bear interest at weighted average effective interest rates of 6.3% (December 31, 2019 – 6.6%) and mature between 2021 and 2024. As of December 31, 2020, none of the Trust's loans and mortgages receivable classified as amortized cost required a provision or were determined to be impaired taking into account the COVID-19 environment. (b) 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). 29 FIRST CAPITAL REIT ANNUAL REPORT 2020 RESULTS OF OPERATIONS Net Operating Income First Capital’s net operating income for its portfolio is presented below: Property rental revenue Base rent (1) Operating cost recoveries Realty tax recoveries Lease termination fees Percentage rent Straight-line rent adjustment Prior year operating cost and tax recovery adjustments Temporary tenants, storage, parking and other (2) Total Property rental revenue Property operating costs Recoverable operating expenses Recoverable realty tax expense Prior year realty tax expense Other operating costs and adjustments (3) Total Property operating costs NOI (4) NOI margin Three months ended December 31 Year ended December 31 % change 2020 2019 % change 2020 2019 $ 107,882 $ 112,513 $ 426,845 $ 457,200 24,765 29,779 895 1,239 529 (19) 26,806 32,042 168 1,980 1,849 (475) 97,265 110,284 122,326 137,388 1,811 3,502 2,711 27 5,265 4,798 5,824 (933) 4,988 6,741 18,403 26,947 (6.4%) 170,058 181,624 (9.9%) 672,890 746,773 27,474 33,567 19 3,352 64,412 29,483 34,856 (331) 3,667 67,675 107,408 124,080 139,238 155,010 (284) 27,496 (1,215) 8,501 273,858 286,376 (7.3%) $ 105,646 $ 113,949 (13.3%) $ 399,032 $ 460,397 62.1% 62.7% 59.3% 61.7% (1) (2) (3) Includes residential revenue. Includes hotel property revenue. Includes residential operating costs, hotel property operating costs and bad debt expense. For the three months and year ended December 31, 2020, bad debt expense totals $2.6 million and $22.8 million, respectively (three months and year ended December 31, 2019 - ($0.1) million and $0.6 million, respectively). For the year ended December 31, 2020, bad debt expense of $22.8 million is comprised of $13.2 million of net rental abatements related to the CECRA program and additional provisions of $9.6 million in light of COVID-19. (4) Refer to the "Non-IFRS Financial Measures" section of this MD&A. For the three months and year ended December 31, 2020, total NOI decreased by $8.3 million and $61.4 million, respectively, compared to the same prior year periods primarily due to the impact of the Trust's disposition program as well as the increase in bad debt expense over prior year due to the impact of COVID-19 on rent collection and the abatement taken on gross rents as part of the CECRA program. In addition, lease termination fees were lower by $3.5 million over the prior twelve month period. For the three months and year ended December 31, 2020, NOI margins have decreased by 0.6% and 2.4%, respectively, compared to the same prior year periods primarily due to an increase in bad debt expense related to CECRA and COVID-19, lower lease termination fees and lower margins on NOI related to the hotel property as a result of lower occupancy due to COVID-19. The lower NOI margins were partially offset by lower operating cost shortfalls resulting from FCR's cost reduction program which will translate into lower operating costs billed to tenants. Excluding the impact of the increased bad debt expense, NOI margins for the three and twelve month period were 63.7% and 62.7%, respectively. FIRST CAPITAL REIT ANNUAL REPORT 2020 30 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Same Property NOI Growth First Capital’s net operating income for its portfolio by property category is presented below: Property rental revenue Base rent (1) Operating cost recoveries Realty tax recoveries Lease termination fees Percentage rent Prior year operating cost and tax recovery adjustments Temporary tenants, storage, parking and other (2) 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 (3) Total Same Property operating costs Total Same Property NOI (4) Major redevelopment Ground-up development Acquisitions – 2020 Acquisitions – 2019 Investment properties classified as held for sale Dispositions – 2020 Dispositions – 2019 Straight-line rent adjustment Development land NOI (4) NOI margin Three months ended December 31 Year ended December 31 % change 2020 2019 % change 2020 2019 $ 92,049 21,599 26,324 $ 91,656 22,148 26,200 71 1,040 (65) 4,190 166 1,352 (194) 5,953 145,208 147,281 23,206 28,771 50 3,916 55,943 (4.3%) $ 89,265 9,842 3,051 (104) 1,015 1,192 1,111 (261) 529 6 23,344 28,860 (77) 1,862 53,989 $ 93,292 8,469 1,009 — 102 1,319 3,348 4,555 1,849 6 $ 364,059 $ 363,026 82,887 106,276 87,552 108,466 909 3,012 (407) 5,195 3,394 (454) 15,618 572,354 23,485 590,664 89,486 116,877 (378) 24,536 230,521 95,158 118,688 (71) 8,917 222,692 (7.1%) $ 341,833 $ 367,972 32,518 31,356 9,484 (128) 1,544 4,612 6,339 95 2,711 24 2,915 — 526 4,885 12,803 34,020 5,824 96 (7.3%) $ 105,646 $ 113,949 (13.3%) $ 399,032 $ 460,397 62.1% 62.7% 59.3% 61.7% (1) (2) (3) Includes residential revenue. Includes hotel property revenue. Includes residential operating costs, hotel property operating costs and bad debt expense. (4) Refer to the "Non-IFRS Financial Measures" section of this MD&A. The components of SP NOI growth and comparisons to the same prior year period are as follows: Same Property – Stable Same Property with redevelopment (2) Total Same Property NOI Growth (3) Three months ended December 31 2019 (1) 2.6% 6.4% 3.0% 2020 (4.1%) (6.0%) (4.3%) Year ended December 31 2019 (1) 2.7% 8.4% 3.3% 2020 (5.8%) (18.0%) (7.1%) (1) Prior periods as reported; not restated to reflect current period property categories. (2) Same property with redevelopment includes the Trust's hotel property which has experienced a decline in NOI due to the impact of COVID-19. (3) Refer to the "Non-IFRS Financial Measures" section of this MD&A. 31 FIRST CAPITAL REIT ANNUAL REPORT 2020 For the three months and year ended December 31, 2020, SP NOI decreased by $4.0 million and $26.1 million, or 4.3% and 7.1%, respectively, primarily due to the impact of COVID-19, including increased bad debt expense due to CECRA abatements and other provisions, lower NOI related to the hotel property and lower lease termination fees over the prior year periods. NOI by Region NOI is presented by region as follows: Three months ended December 31, 2020 Property rental revenue Property operating costs NOI (2) Three months ended December 31, 2019 Property rental revenue Property operating costs NOI (2) Year ended December 31, 2020 Property rental revenue Property operating costs NOI Year ended December 31, 2019 Property rental revenue Property operating costs NOI Central Region 80,573 $ Eastern Region 33,969 $ Western Region 54,962 $ Other (1) Total 554 $ 170,058 30,576 15,147 18,220 469 64,412 49,997 $ 18,822 $ 36,742 $ 85 $ 105,646 Central Region 82,724 $ Eastern Region 40,363 $ Western Region 59,021 $ Other (1) Total (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 321,828 $ 134,502 $ 219,064 $ (2,504) $ 672,890 137,885 62,212 79,751 (5,990) 273,858 183,943 $ 72,290 $ 139,313 $ 3,486 $ 399,032 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 $ $ $ $ $ $ $ $ (1) Other items principally consist of inter-company eliminations. (2) Refer to the "Non-IFRS Financial Measures" section of this MD&A. For the year ended December 31, 2020, property operating costs include $16.4 million (year ended December 31, 2019 – $21.0 million) related to employee compensation. Employee compensation is presented net of subsidies received under the Canada Emergency Wage Subsidy ("CEWS") program for the year ended December 31, 2020 of $4.5 million related to property operations personnel. A portion of this wage subsidy will be passed on to tenants through lower operating cost recoveries. Interest and Other Income For the three months and year ended December 31, 2020, First Capital's interest and other income totaled $3.3 million and $12.2 million, compared to $3.9 million and $33.0 million, respectively, for the same prior year periods. The decrease of $0.6 million and $20.8 million, respectively, over the same prior year periods was primarily due to lower interest income as a result of lower loans and mortgages receivables outstanding over prior year and $7.8 million in non-recurring fees and investment income recognized in the year ended December 31, 2019. FIRST CAPITAL REIT ANNUAL REPORT 2020 32 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Interest Expense First Capital’s interest expense by type is as follows: Mortgages Credit facilities Senior unsecured debentures Distributions on Exchangeable Units (1) Interest capitalized Three months ended December 31 Year ended December 31 2020 2019 $ 13,381 $ 13,353 $ 6,667 25,816 22 (6,035) 9,648 26,565 86 (6,659) $ 2020 52,142 28,796 100,854 650 (24,731) 2019 53,920 34,163 106,326 86 (22,661) Interest expense $ 39,851 $ 42,993 $ 157,711 $ 171,834 (1) Effective December 30, 2019, 1.2 million Exchangeable Units were issued upon REIT conversion. As at December 31, 2020, 0.1 million Exchangeable Units were outstanding. The distributions declared on the Exchangeable Units are accounted for as interest expense. For the three months and year ended December 31, 2020, interest expense decreased by $3.1 million and $14.1 million, respectively, primarily due to the early redemption of Series M unsecured debentures, and early repayment of certain secured credit facilities and unsecured term loans as a result of FCR's disposition program. During the years ended December 31, 2020 and 2019, approximately 13.6% or $24.7 million, and 11.7% or $22.7 million, respectively, of interest expense was capitalized to real estate investments for properties undergoing development or redevelopment projects. The increase in capitalized interest of $2.1 million is due to MMUR development projects that are now consolidated and were previously equity accounted for most of the prior year. 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 Unit-based compensation Other corporate costs Total corporate expenses Amounts capitalized to investment properties under development Three months ended December 31 Year ended December 31 $ $ 2020 5,086 2,535 2,196 9,817 (1,764) 2019 7,082 1,451 2,896 11,429 (1,924) 2020 $ 22,985 $ 7,673 10,277 40,935 (7,697) 2019 28,743 5,740 12,385 46,868 (8,309) Corporate expenses $ 8,053 $ 9,505 $ 33,238 $ 38,559 For the three months and year ended December 31, 2020, gross corporate expenses, before capitalization decreased by $1.6 million and $5.9 million, respectively, due to $0.5 million and $3.8 million of wage subsidies received under the CEWS program for the three and twelve month periods, and reduced spending in light of COVID-19. 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, 2020 and 2019, approximately $7.7 million and $8.3 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. 33 FIRST CAPITAL REIT ANNUAL REPORT 2020 Other Gains (Losses) and (Expenses) First Capital's other gains, losses and expenses are as follows: Three months ended December 31 Unrealized gain (loss) on marketable securities Gain on below market purchase (1) Hotel transaction costs (2) Investment properties selling costs REIT conversion costs Other Total per consolidated statements 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 Gain on below market purchase (1) Hotel transaction costs (2) Gain on Investment (3) Proceeds from Target (4) Pre-selling costs of residential inventory Investment properties selling costs REIT conversion costs Transaction costs (5) Other 2020 2019 Consolidated Statements of Income Included in FFO Consolidated Statements of Income Included in FFO $ 580 $ 580 $ 176 $ 176 7,385 (1,121) (611) — 36 — — — — 36 — — (3,275) — — — (3,009) (3,009) (204) (204) $ $ 6,269 $ 616 $ (6,312) $ (3,037) (213) (210) (62) (26) 6,056 $ 406 $ (6,374) $ (3,063) 2020 2019 Consolidated Statements of Income Included in FFO Consolidated Statements of Income Included in FFO $ — $ — $ 1,164 $ 1,164 474 474 (234) (282) 7,385 (1,121) — — (234) (282) — — — — (142) (142) — — — 4,022 692 — (3,915) — (6,381) (906) (906) (5,013) — 73 — 73 (3,414) (303) — — — 4,022 692 — — (5,013) (3,414) (303) Total per consolidated statements of income Other gains (losses) and (expenses) under equity accounted joint ventures Total at First Capital's proportionate interest (6) $ $ 858 $ (1,491) $ (8,759) $ (2,378) (1,825) (1,884) (135) (16) (967) $ (3,375) $ (8,894) $ (2,394) (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 of 2019, 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 of 2019. (6) Refer to the "Non-IFRS Financial Measures" section of this MD&A. For the three months ended December 31, 2020, First Capital recognized $6.3 million in other gains in its consolidated statements of income compared to $6.3 million in other losses in the same prior year period. The other gains in the quarter were primarily due to the $7.4 million gain on below market purchase, partially offset by $1.1 million of transaction costs related to the 40% acquisition of the Hazelton Hotel. For the year ended December 31, 2020, FCR recognized $0.9 million in FIRST CAPITAL REIT ANNUAL REPORT 2020 34 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued other gains in its consolidated statements of income compared to $8.8 million in other losses in the prior year. The other gains for the year ended December 31, 2020 were primarily due to $6.3 million of net gains recognized on the 40% acquisition of the Hazelton Hotel, partially offset by investment property selling costs of $3.9 million, REIT conversion costs of $0.9 million, and loss on prepayment of Series M debentures of $0.3 million. Income Taxes For the three months and year ended December 31, 2020, deferred income tax expense (recovery) totaled $32.7 million and $23.9 million, compared to ($115.6) million and ($82.2) million, respectively, over the same prior year periods. The reduction of $148.3 million and $106.1 million in deferred tax recovery was primarily due to the re- measurement of the deferred income tax liability upon conversion of the Company into a publicly traded REIT on December 30, 2019. Net Income Attributable to Unitholders For the three months ended December 31, 2020, net income attributable to Unitholders was $37.3 million or $0.17 per diluted unit compared to $192.5 million or $0.87 per diluted unit for the prior year. The $126.6 million decrease was primarily due to a decrease in deferred income tax recovery of $148.3 million related to the prior year's REIT conversion and a $11.6 million reduction in the fair value of investment properties. For the year ended December 31, 2020, net income attributable to Unitholders was $2.7 million or $0.01 per diluted unit compared to $401.3 million or $1.74 per diluted unit for the prior year. The $370.0 million decrease was primarily due to a $246.7 million reduction in the fair value of investment properties, a decrease in deferred income tax recovery of $106.1 million related to prior year's REIT conversion, and a reduction in NOI of $40.4 million related to property dispositions. 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) Exchangeable Units (based on a closing per unit price of $13.55; December 31, 2019 - $20.67) Senior unsecured debentures Equity capitalization (2) Trust Units (based on a closing per unit price of $13.55; December 31, 2019 - $20.67) Enterprise value (1) December 31, 2020 December 31, 2019 $ 238 1,351,291 915,928 39,175 1,399 2,525,000 $ 60 1,331,219 899,165 40,144 25,010 2,500,000 2,971,723 7,804,754 $ 4,505,107 9,300,705 $ (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. Equity capitalization decreased from $4.5 billion at December 31, 2019 to $3.0 billion at December 31, 2020 due to a decrease in the Trust's unit price as a result of equity market volatility, including the impact of COVID-19. 35 FIRST CAPITAL REIT ANNUAL REPORT 2020 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 unsecured debentures (years) December 31, 2020 December 31, 2019 3.8% 4.6 4.0% 5.1 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) 47.2% 11.7 $ 7,003,026 2.1 2.2 46.7% 10.0 $ 7,037,334 2.2 2.4 (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. The Net debt to Adjusted EBITDA ratio increased by 1.7 to 11.7, as of December 31, 2020, due to a decrease in EBITDA. The decrease in EBITDA arose primarily from lower NOI due to dispositions and increased bad debt expense due to COVID-19 and CECRA. 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 value of investment properties, hotel property, 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, following which, FCR discontinued its Moody's rating services. On November 2, 2020, S&P confirmed their previously assigned rating of BBB- with a stable outlook. On June 24, 2020, DBRS confirmed FCR's Issuer Rating and Senior Unsecured Debentures rating at BBB with a Stable trend. According to DBRS, a credit rating in the BBB category is generally an indication of adequate credit quality and an acceptable capacity for the payment of financial obligations. DBRS indicates that BBB rated obligations may be vulnerable to future events. A rating trend, expressed as positive, stable or negative, provides guidance in respect of DBRS’ opinion regarding the outlook for the rating in question. FIRST CAPITAL REIT ANNUAL REPORT 2020 36  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 an obligor'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). 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, 2020 is summarized in the table below: As at December 31, 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Credit Facilities/ Bank Indebtedness Senior Unsecured Debentures Mortgages $ 91,008 $ 127,503 32,597 140,423 85,537 120,246 103,943 166,973 251,257 176,479 55,325 $ 1,351,291 $ 61,267 $ 175,000 450,000 300,000 300,000 300,000 300,000 500,000 200,000 — — — 916,166 $ 2,525,000 109,607 195,292 300,000 75,000 175,000 — — — — — $ Total 327,275 687,110 527,889 740,423 460,537 595,246 603,943 366,973 251,257 176,479 55,325 $ 4,792,457 % Due 6.8% 14.4% 10.9% 15.5% 9.6% 12.4% 12.6% 7.6% 5.3% 3.7% 1.2% 100.0% Add (deduct): unamortized deferred financing costs, (4,654) — (2,865) (7,519) premiums and discounts, net Total $ 1,346,637 $ 916,166 $ 2,522,135 $ 4,784,938 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. 37 FIRST CAPITAL REIT ANNUAL REPORT 2020 Mortgages The changes in First Capital’s mortgages during the year ended December 31, 2020 are set out below: Year ended December 31, 2020 Balance at beginning of year Mortgage borrowings Mortgage repayments Scheduled amortization on mortgages Amortization of financing costs and net premium Balance at end of year Amount 1,327,021 116,200 (67,724) (28,404) (456) 1,346,637 $ $ Weighted Average Effective Interest Rate 3.7% 2.8% 4.7% —% —% 3.6% As at December 31, 2020, 100% (December 31, 2019 – 100%) of the outstanding mortgages bore interest at fixed interest rates. The average remaining term of mortgages outstanding decreased from 6.4 years as at December 31, 2019 on $1.3 billion of mortgages to 6.0 years as at December 31, 2020 on $1.3 billion of mortgages after reflecting borrowing activity and repayments during the period. Mortgage Maturity Profile The maturity profile including scheduled amortization of First Capital’s mortgages as at December 31, 2020 is summarized in the table below: As at December 31, 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Add: unamortized deferred financing costs and premiums and discounts, net Total Scheduled Amortization 28,385 31,981 32,597 31,945 29,642 25,886 24,079 21,250 14,377 7,104 370 247,616 $ $ $ Payments on Maturity 62,623 95,522 — 108,478 55,895 94,360 79,864 145,723 236,880 169,375 54,955 $ 1,103,675 Weighted Average Effective Interest Rate 4.9 % 4.0 % N/A 3.8 % 3.5 % 3.2 % 3.6 % 3.8 % 3.5 % 3.3 % 3.5 % 3.6 % $ Total 91,008 127,503 32,597 140,423 85,537 120,246 103,943 166,973 251,257 176,479 55,325 $ 1,351,291 (4,654) $ 1,346,637 FIRST CAPITAL REIT ANNUAL REPORT 2020 38  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Credit Facilities First Capital’s credit facilities as at December 31, 2020 are summarized in the table below: As at December 31, 2020 Unsecured operating facilities Revolving facility maturing 2023 Borrowing Capacity Amounts Drawn Bank Indebtedness and Outstanding Letters of Credit Available to be Drawn $ 550,000 $ — $ (25,142) $ 524,858 Revolving facility maturing 250,000 — — 250,000 2022 Floating rate unsecured term loan maturing 2023 (1) Fixed rate unsecured term loans maturing 2024 - 2026 Secured construction facilities Maturing 2021 Maturing 2021 200,000 (195,054) 550,000 (550,000) 20,000 (19,984) 33,333 (33,333) — — — — — — 16 — Maturing 2022 138,000 (98,539) (1,592) 37,869 Secured Facilities Maturing 2021 (2) Maturing 2022 Maturing 2022 19,734 (7,950) (1,320) 10,464 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 BA + 1.20% April 15, 2023 3.29% March 28, 2024 - April 14, 2026 BA + 2.50% or Prime + 1.00% 2.79% June 1, 2021 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% December 30, 2021 September 28, 2022 December 19, 2022 Total $ 1,772,135 $ (915,928) $ (28,054) $ 823,207 (1) The Trust had drawn in U.S. dollars the equivalent of CAD$200.0 million which was revalued at CAD$195.1 million as at December 31, 2020. (2) Borrowing capacity decreased by $1.0 million to $19.7 million in the fourth quarter of 2020. 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. In the fourth quarter of 2019, First Capital repaid $100 million of floating rate unsecured term loans. During the first quarter of 2020, First Capital extended the maturity of its $11.9 million secured facility and $20.0 million secured construction facility to April 30, 2020 and July 31, 2020, respectively. During the second quarter of 2020, First Capital repaid its $11.9 million secured facility. During the third quarter of 2020, First Capital increased the borrowing capacity for one of its secured construction facilities to $20.0 million and extended the maturity date to June 1, 2021. During the fourth quarter of 2020, FCR extended the maturity of its $19.7 million secured facility to December 30, 2021. 39 FIRST CAPITAL REIT ANNUAL REPORT 2020 Senior Unsecured Debentures As at December 31, 2020 Interest Rate Series Maturity Date 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 March 1, 2028 Weighted Average or Total N O P Q R S T U V A Interest Payment Dates March 1, September 1 January 31, July 31 June 5, December 5 April 30, October 30 February 28, August 30 January 31, July 31 May 6, November 6 January 12, July 12 January 22, July 22 March 1, September 1 Coupon 4.50% 4.43% 3.95% 3.90% 4.79% 4.32% 3.60% 3.75% 3.46% 3.45% 4.02% Effective 4.63% 4.59% 4.18% 3.97% 4.72% 4.24% 3.56% 3.82% 3.54% 3.54% 4.07% Remaining Term to Maturity (years) 0.2 1.1 1.9 2.8 3.7 4.6 5.4 6.5 6.1 7.2 4.1 Principal Outstanding $ 175,000 200,000 250,000 300,000 300,000 300,000 300,000 300,000 200,000 200,000 $ 2,525,000 On April 16, 2020, First Capital redeemed its remaining 5.60% Series M Senior Unsecured Debentures for $175.0 million. The full redemption price and any accrued interest owing on the senior unsecured debentures was satisfied in cash. On September 1, 2020, the Trust completed the issuance of $200 million principal amount of Series A senior unsecured debentures due March 1, 2028. These debentures bear interest at a coupon rate of 3.45% per annum, payable semi- annually commencing March 1, 2021. Unitholders' Equity Unitholders’ equity amounted to $4.2 billion as at December 31, 2020, compared to Unitholders' equity of $4.4 billion as at December 31, 2019. The decrease is primarily attributed to distributions of $188.0 million declared in the year ended December 31, 2020. As at February 8, 2021, there were 219.3 million Trust Units and 0.1 million Exchangeable Units outstanding. Unit Options As at December 31, 2020, First Capital had 7.1 million unit options outstanding, with an average exercise price of $20.20, which, if exercised, would result in First Capital receiving proceeds of $143.5 million. 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, 2020 December 31, 2019 $ $ $ 823 100 7,003 $ $ $ 867 26 7,037 FIRST CAPITAL REIT ANNUAL REPORT 2020 40  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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, 2020, and availability on existing credit facilities, address substantially all of the contractual 2021 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 2020 2019 Year ended December 31 2019 2020 $ $ 92,737 $ 106,905 $ 219,505 $ 269,147 (60,620) 45,895 78,012 (436,190) 335,343 $ 6,058 $ (154,790) 10,226 74,941 (591,797) 332,619 $ 9,969 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 Excess (shortfall) of cash provided by operating activities over distributions / dividends declared Three months ended December 31 2020 2019 Year ended December 31 2019 2020 $ $ 92,737 $ 106,905 $ 219,505 $ 269,147 (47,152) (15,620) (188,027) (165,224) 45,585 $ 91,285 $ 31,478 $ 103,923 Cash provided by operating activities exceeded distributions / dividends declared for the three months and years ended December 31, 2020 and 2019. 41 FIRST CAPITAL REIT ANNUAL REPORT 2020 Contractual Obligations An analysis of First Capital’s contractual maturities of its material financial liabilities and other contractual commitments, as at December 31, 2020 is set out below: As at December 31, 2020 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 $ $ 2021 28,385 $ 62,623 61,267 175,000 165,761 1,189 33,764 Payments due by period 2022 to 2023 2024 to 2025 Thereafter 64,578 $ 95,522 304,899 750,000 280,001 2,076 61,587 $ 93,066 $ 164,373 375,000 600,000 185,252 1,238 781,157 175,000 1,000,000 131,023 16,203 Total 247,616 1,103,675 916,166 2,525,000 762,037 20,706 — — — 33,764 7,125 7,125 535,114 $ 1,497,076 $ 1,387,450 $ 2,196,449 $ 5,616,089 — — — (1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2020 (assuming balances remain outstanding through to maturity) and senior unsecured debentures, as well as standby credit facility fees. First Capital had $49.2 million of outstanding letters of credit issued by financial institutions to support certain of FCR’s contractual obligations and $0.2 million of bank overdrafts. First Capital’s estimated cost to complete properties currently under development is $96.8 million, of which $33.8 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 (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 $70.5 million (December 31, 2019 – $77.5 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 $49.2 million (December 31, 2019 – $33.3 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, 2019 – $1.2 million) with a total obligation of $20.7 million (December 31, 2019 – $21.9 million). FIRST CAPITAL REIT ANNUAL REPORT 2020 42  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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, 2020 December 31, 2019 Consolidated Balance Sheet (1) Adjustments for Proportionate Interest Proportionate Interest (2) Consolidated Balance Sheet (1) Adjustments for Proportionate Interest Proportionate Interest (2) Investment properties $ 9,328,792 $ 8,696 $ 9,337,488 $ 9,593,530 $ 9,259 $ 9,602,789 Investment properties – development land 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 Total assets LIABILITIES Mortgages Credit facilities Bank indebtedness Senior unsecured debentures Exchangeable Units Deferred tax liabilities Accounts payable and other liabilities Total liabilities EQUITY Unitholders' equity Non-controlling interest Total equity — 74,190 88,000 129,429 100,444 46,296 50,893 52,570 161,849 — 5,779 — 2,050 12,220 644 11,086 (52,570) — 79,969 88,000 131,479 112,664 46,940 61,979 — — 10,205 62,199 166,033 25,503 31,521 54,271 59,498 — 5,742 — 2,651 2,279 307 16,978 (59,498) — 15,947 62,199 168,684 27,782 31,828 71,249 — — 161,849 158,600 — 158,600 $ 10,032,463 $ (12,095) $ 10,020,368 $ 10,161,360 $ (22,282) $ 10,139,078 $ 1,346,637 $ 39,082 $ 1,385,719 $ 1,327,021 $ 40,036 $ 1,367,057 915,928 (34,514) 881,414 899,165 (19,749) 879,416 238 2,522,135 1,399 698,528 291,171 5,776,036 — — — — 12,600 17,168 238 60 2,522,135 2,497,213 1,399 698,528 303,771 25,010 701,549 235,836 — — — — 6,345 60 2,497,213 25,010 701,549 242,181 5,793,204 5,685,854 26,632 5,712,486 4,227,164 — 4,227,164 4,426,592 — 4,426,592 29,263 (29,263) — 48,914 (48,914) — 4,256,427 (29,263) 4,227,164 4,475,506 (48,914) 4,426,592 Total liabilities and equity $ 10,032,463 $ (12,095) $ 10,020,368 $ 10,161,360 $ (22,282) $ 10,139,078 (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. 43 FIRST CAPITAL REIT ANNUAL REPORT 2020 Reconciliation of Consolidated Statements of Income to First Capital’s Proportionate Interest The following tables provide a reconciliation of First Capital's consolidated statements of income for the three months ended December 31, 2020, to its proportionate interest. Three months ended December 31 2020 2019 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 unit-based compensation (Increase) decrease in value of Exchangeable Units Increase (decrease) in value of hotel property Increase (decrease) in value of investment properties, net Income before income taxes Deferred income tax expense (recovery) Net income Net income attributable to: Unitholders Non-controlling interest Net income per unit attributable to Unitholders: Basic Diluted $ $ $ $ $ $ Consolidated Statements of Income 170,058 $ 64,412 105,646 3,292 (39,851) (8,053) — (1,608) (147) 6,269 1,735 (30) (5,082) Proportionate interest (1) Adjustment to proportionate interest 2,049 $ 172,107 $ 1,472 577 65,884 106,223 Consolidated Statements of Income 181,624 $ 67,675 113,949 Adjustment to proportionate interest 2,295 $ 1,976 319 Proportionate interest (1) 183,919 69,651 114,268 304 (334) 5 — (669) 147 (213) — — — 3,596 (40,185) (8,048) — (2,277) — 6,056 1,735 3,870 (42,993) (9,505) (24) (1,231) (563) (6,312) 81 (30) 230 (5,082) — 388 (342) 226 — (666) 563 (62) — — — 4,258 (43,335) (9,279) (24) (1,897) — (6,374) 81 230 — 7,446 484 7,930 19,003 (90) 18,913 (36,029) 69,617 32,653 (276) 301 (3) (36,305) 69,918 32,650 (37,444) 76,505 (115,618) 17 336 — (37,427) 76,841 (115,618) 36,964 $ 304 $ 37,268 $ 192,123 $ 336 $ 192,459 37,268 $ (304) 36,964 $ — $ 304 304 $ 37,268 $ — 37,268 $ 192,459 $ (336) 192,123 $ — $ 336 336 $ 192,459 — 192,459 0.17 0.17 $ $ 0.88 0.87 (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. FIRST CAPITAL REIT ANNUAL REPORT 2020 44  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued The following tables provide a reconciliation of First Capital's consolidated statements of income for the year ended December 31, 2020, as presented in its audited annual consolidated financial statements, to its proportionate interest. Year ended December 31 2020 2019 $ Consolidated Statements of Income 672,890 $ 273,858 399,032 12,248 (157,711) (33,238) (90) (5,589) (7,835) 858 11,459 7,404 (9,432) Proportionate interest (1) Adjustment for proportionate interest 7,579 $ 680,469 $ 5,573 2,006 279,431 401,038 Consolidated Statements of Income 746,773 $ 286,376 460,397 Adjustment for proportionate interest 9,126 $ 5,758 3,368 Proportionate interest (1) 755,899 292,134 463,765 1,396 (1,348) (10) — (2,714) 7,835 (1,825) — — — 13,644 (159,059) (33,248) (90) (8,303) — (967) 11,459 7,404 (9,432) 33,049 (171,834) (38,559) (677) (4,511) 1,699 (8,759) 81 230 — (822) (1,740) 629 — (1,502) (1,699) (135) — — — 32,227 (173,574) (37,930) (677) (6,013) — (8,894) 81 230 — (185,700) (10,123) (195,823) 61,037 (11,097) 49,940 (367,626) 31,406 23,924 (6,789) (4,783) (3) (374,415) 26,623 23,921 7,482 $ (4,780) $ 2,702 $ (128,244) 332,153 (82,187) 414,340 $ (16,366) (12,998) (3) (12,995) $ (144,610) 319,155 (82,190) 401,345 2,702 $ 4,780 7,482 $ — $ (4,780) (4,780) $ 2,702 $ — 2,702 $ 401,345 $ 12,995 414,340 $ — $ (12,995) (12,995) $ 401,345 — 401,345 0.01 0.01 $ $ 1.75 1.74 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 non-cash compensation (Increase) decrease in value of Exchangeable Units Increase (decrease) in value of hotel property Increase (decrease) in value of investment properties, net Income before income taxes Deferred income tax expense (recovery) Net income Net income attributable to: Unitholders Non-controlling interest Net income per unit attributable to Unitholders: Basic Diluted $ $ $ $ $ (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. 45 FIRST CAPITAL REIT ANNUAL REPORT 2020 FFO and ACFO Funds from Operations A reconciliation from net income attributable to Unitholders to FFO can be found in the table below: Net income attributable to Unitholders $ 37,268 $ Add (deduct): 2020 0 2019 2 192,459 2020 2019 $ 2,702 $ 401,345 Three months ended December 31 Year ended December 31 (Increase) decrease in value of investment properties (1) (Increase) decrease in value of hotel property (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 (8) Investment properties selling costs (1) Deferred income taxes (recovery) (1) (7,930) (18,913) 195,823 (49,940) 5,082 669 1,611 499 (7,385) 1,121 22 30 (1,735) 614 32,650 — 666 1,565 198 — — 86 (230) (81) 3,311 (115,618) 9,432 2,714 6,571 1,432 (7,385) 1,121 650 (7,404) (11,459) 3,856 23,921 — 2,057 6,680 693 — — 86 (230) (81) 6,500 (82,190) FFO (9) $ 62,516 $ 63,443 $ 221,974 $ 284,920 (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. FIRST CAPITAL REIT ANNUAL REPORT 2020 46  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 Weighted average number of units – diluted (in thousands) Three months ended December 31 Year ended December 31 % change 2020 2019 % change 2020 2019 $ 106,223 3,596 (40,163) (6,437) — (1,109) 406 62,516 0.28 (1.5%) $ (1.7%) $ $ 114,268 4,258 (43,249) (7,714) (24) (1,033) (3,063) 63,443 0.29 $ $ $ 401,038 13,644 (158,409) (26,677) (90) (4,157) (3,375) (22.1%) $ 221,974 (18.4%) $ 1.01 $ 463,765 32,227 (172,933) (31,250) (677) (3,818) (2,394) $ 284,920 1.23 $ —% 220,551 220,545 (4.5%) 220,495 230,810 (1) (2) Includes an adjustment to capitalize interest related to FCR's equity accounted joint ventures in accordance with the recommendations of REALPAC. 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. For the three months ended December 31, 2020, FFO decreased $0.9 million or $0.01 per diluted unit. The decrease was primarily due to the impact of property dispositions completed over the past 12 months and higher bad debt expense due to COVID-19, partially offset by interest expense and corporate expense savings. Prior period results also include $3.0 million of non-recurring REIT conversion costs. For the year ended December 31, 2020, FFO decreased $62.9 million or $0.23 per diluted unit. The decrease was primarily due to a reduction of NOI related to property dispositions, higher bad debt expense of $22.2 million, and lower interest and other income related to lower loan receivable balances. These factors were partially offset by reduced interest expense, lower corporate expenses, and a reduced weighted-average unit count. 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 on sale of marketable securities Non-controlling interest ACFO (2) $ Three months ended December 31 Year ended December 31 2020 92,737 2019 106,905 $ 2020 219,505 $ 2019 269,147 $ $ (26,494) 203 (3,746) (3,887) 403 — 284 59,500 $ (35,076) 449 (2,307) (1,612) 391 — (192) 68,558 3,357 1,062 (18,517) (4,971) 1,643 — 968 203,047 $ 4,411 2,647 (17,328) (6,815) 1,670 1,164 (2,480) 252,416 $ (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. 47 FIRST CAPITAL REIT ANNUAL REPORT 2020 For the three months and year ended December 31, 2020, ACFO totaled $59.5 million and $203.0 million compared to $68.6 million and $252.4 million for the prior year periods, respectively. The $9.1 million decrease in ACFO for the three months ended December 31, 2020 is primarily due to lower NOI as a result of property dispositions and COVID-19 as well as higher capital expenditures, partially offset by lower interest expense. The $49.4 million decrease in ACFO for the year ended December 31, 2020 was primarily due to lower NOI as a result of property dispositions, lower interest and other income, and lower parking income and hotel occupancy as a result of COVID-19, partially offset by lower interest expense over prior year. ACFO Payout Ratio First Capital's ACFO payout ratio for the four quarters ended December 31, 2020 is calculated as follow: ACFO (1) Cash distributions paid ACFO payout ratio (1) Year ended December 31, 2020 $ 203,047 187,929 $ Q4 2020 59,500 $ 47,150 Q3 2020 68,117 $ 46,990 Q2 2020 36,500 $ 46,915 Q1 2020 38,930 46,874 92.6% (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. First Capital's ACFO payout ratio for the four quarters ended December 31, 2019 is calculated as follow: ACFO (1) Cash distributions / dividends paid (2) ACFO payout ratio (1) Year ended December 31, 2019 $ 252,416 203,830 $ Q4 2019 68,558 $ 47,106 Q3 2019 60,533 $ 47,104 Q2 2019 70,855 $ 54,832 Q1 2019 52,470 54,788 80.8% (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 considers a rolling four quarter payout ratio (cash distributions / 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, 2020, the ACFO payout was 92.6% (December 31, 2019 - 80.8%). Net Asset Value The following table provides FCR's calculation of NAV for the years ended December 31, 2020 and 2019: As at Unitholders' equity Exchangeable Units Deferred tax liabilities Net Asset Value (NAV) (1) Units outstanding - diluted (1) NAV per unit (1) December 31, 2020 December 31, 2019 $ $ $ 4,227,164 $ 1,399 698,528 4,927,091 $ 220,574 22.34 $ 4,426,592 25,010 701,549 5,153,151 220,343 23.39 (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. The decrease in NAV per unit from $23.39 to $22.34 is primarily due to the decrease in the value of investment properties of $195.8 million (proportionate basis) for the year ended December 31, 2020. FIRST CAPITAL REIT ANNUAL REPORT 2020 48  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued DISTRIBUTIONS / DIVIDENDS Prior to converting to a REIT on December 30, 2019, First Capital paid regular quarterly dividends to common Shareholders. Upon conversion, First Capital adopted a distribution policy to make monthly cash distributions to Unitholders initially totaling $0.860 per Trust Unit on an annual basis. First Capital must distribute annually all of its taxable income to Unitholders to maintain its status as a REIT pursuant to the Income Tax Act (Canada). Distributions on the Trust Units are declared at the discretion of the Board of Trustees. In determining the annual level or monthly amount of distributions, the Board of Trustees considers many factors including the macro economic and industry specific environment, the impact and duration of the COVID-19 environment and applicable government programs, common industry cash distribution practices, investor expectations, capital market conditions, forecasted cash flows and debt metrics, anticipated capital requirements, estimated taxable income, and the overall financial condition of the Trust. The Trust does not use net income, as calculated in accordance with IFRS, as the basis to determine the annual distribution rate. Net income is impacted by non-cash adjustments, including fair value changes to investment properties and Exchangeable Units, and is not equivalent to taxable income and therefore is expected to vary from the distributions declared. The following chart specifies distributions / dividends 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 2020 $ 0.215 N/A 2019 $ 0.072 N/A 2020 $ 0.860 N/A 2019 0.072 0.645 $ $ (1) FCR paid cash dividends of $0.860 per share for the year ended December 31, 2019. On January 12, 2021, First Capital announced a temporary reduction of its monthly distribution to Unitholders from $0.0716 per unit to $0.036 per unit, or $0.432 on an annualized basis. The decrease will be effective for First Capital's January 2021 distribution, payable to Unitholders in February 2021. 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 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 FCR (1) 290 $ 182 328 $ 217 Guarantors (2) 387 $ 218 422 $ 245 Non-Guarantors (3) 1 $ 1 Consolidation Adjustments (4) (5) $ (2) (6) $ (5) 3 $ 3 Total Consolidated 673 $ 399 747 460 3 $ 401 $ 346 $ 288 $ 9 $ 12 $ (355) $ (300) $ 3 $ 401 Property rental revenue NOI (5) Net income (loss) attributable to Unitholders $ $ 49 FIRST CAPITAL REIT ANNUAL REPORT 2020 (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 FCR (1) 225 $ (427) 449 4,091 $ FCR (1) 125 $ 122 411 4,425 $ As at December 31, 2020 Guarantors (2) Non-Guarantors (3) Consolidation Adjustments (4) 258 $ 10,767 104 1,132 $ 1 $ 123 4 66 $ (2) $ (913) (5) (65) $ Total Consolidated 482 9,550 552 5,224 As at December 31, 2019 Guarantors (2) Non-Guarantors (3) Consolidation Adjustments (4) 188 $ 10,206 90 736 $ 1 $ 161 2 40 $ — $ (642) (2) (16) $ Total Consolidated 314 9,847 501 5,185 $ $ $ $ (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. RELATED PARTY TRANSACTIONS (a) Gazit-Globe During the first quarter of 2020, Gazit sold its remaining 6.7% interest in FCR and is no longer a related party. (b) Joint ventures During the year ended December 31, 2020, First Capital earned fee income of nil (December 31, 2019 – $1.9 million) from its joint ventures. During the year ended December 31, 2020, First Capital also advanced nil (December 31, 2019 – $1.2 million) to one of its joint ventures. (c) 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 Reduction in Distributions to Unitholders On January 12, 2021, First Capital announced the temporary reduction of its monthly distribution to Unitholders from $0.0716 per unit to $0.036 to provide the Trust with additional retained cash flow of approximately $95 million per annum. Monthly Distributions On January 12, 2021, First Capital announced that it will pay a distribution, for the month of January, of $0.036 per Trust Unit on February 15, 2021 to Unitholders of record as at January 31, 2021. FIRST CAPITAL REIT ANNUAL REPORT 2020 50  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Collection of January 2021 Rent As of February 9, 2021, First Capital has collected approximately 91% of the gross rents payable from tenants for the month of January. QUARTERLY FINANCIAL INFORMATION (unit / share counts in thousands) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 2020 2019 Property rental revenue Net operating income (1) Net income (loss) attributable to Unitholders / Shareholders Net income (loss) per unit / share attributable to Unitholders / Shareholders: Basic Diluted FFO (1) FFO per diluted unit / share (1) Weighted average number of diluted units / shares outstanding Cash provided by operating activities ACFO (1) Distribution declared per unit / dividend per share $ $ $ $ $ $ $ $ 170,058 $ 163,952 $ 162,744 $ 176,136 $ 181,624 $ 183,650 $ 186,825 $ 194,674 $ 105,646 $ 101,478 $ 37,268 $ 11,262 0.17 0.17 62,516 0.28 $ $ $ $ 0.05 0.05 58,140 0.26 $ $ $ $ $ $ 88,768 $ 103,140 $ 113,949 $ 115,023 $ 115,994 $ 115,431 10,530 $ (56,358) $ 192,459 $ 65,490 $ 81,244 $ 62,152 0.05 0.05 47,462 0.22 $ $ $ $ (0.26) $ (0.26) $ 0.88 0.87 53,856 0.24 $ $ 63,443 0.29 $ $ $ $ 0.30 0.30 75,595 0.34 $ $ $ $ 0.36 0.36 70,229 0.31 $ $ $ $ 0.24 0.24 75,653 0.30 220,551 220,522 220,492 220,470 220,545 220,664 226,417 256,178 92,737 59,500 $ $ 43,469 68,117 $ $ 46,249 36,500 $ $ 37,050 $ 106,905 38,930 $ 68,558 $ $ 70,254 60,533 $ $ 43,106 70,855 $ $ 48,882 52,470 0.215 $ 0.215 $ 0.215 $ 0.215 $ 0.072 $ 0.215 $ 0.215 $ 0.215 Total assets $ 10,032,463 $ 10,013,445 $ 10,037,370 $ 10,237,121 $ 10,161,360 $ 10,585,127 $ 10,375,405 $ 10,465,288 Total mortgages and credit facilities Unitholders' / Shareholders’ equity Other Number of neighbourhoods GLA - at 100% (in thousands) GLA - at ownership interest (in thousands) Monthly average occupancy % Total portfolio occupancy % $ 2,262,565 $ 2,270,557 $ 2,434,042 $ 2,447,687 $ 2,226,186 $ 2,655,151 $ 2,551,058 $ 1,891,884 $ 4,227,164 $ 4,233,905 $ 4,252,417 $ 4,298,037 $ 4,426,592 $ 4,272,781 $ 4,252,318 $ 4,979,080 150 22,822 150 22,830 149 22,844 151 23,246 156 23,528 164 25,092 163 25,294 164 25,334 19,991 20,232 20,250 20,651 20,927 22,936 23,136 23,731 96.0% 96.2% 96.1% 96.0% 96.3% 96.3% 96.5% 96.4% 96.6% 96.9% 96.4% 96.7% 96.7% 96.8% 96.6% 96.8% (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. 51 FIRST CAPITAL REIT ANNUAL REPORT 2020 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 FIRST CAPITAL REIT ANNUAL REPORT 2020 52  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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, 2020 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. COVID-19 The outbreak of coronavirus (“COVID-19”), which the World Health Organization has declared a global pandemic, and government related action to shutdown large parts of the economy has impacted global commercial activity and contributed to significant volatility in certain equity and debt markets. The extent and duration of the impact of COVID-19 on communities and the economy remains unclear. In the preparation of these audited annual consolidated financial statements, the Trust has incorporated the potential impact of COVID-19 into its estimates and assumptions that affect the carrying amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amount of 53 FIRST CAPITAL REIT ANNUAL REPORT 2020 earnings for the reporting periods using the best available information as of December 31, 2020. Actual results could differ from those estimates. The estimates and assumptions that the Trust considers critical and/or could be impacted by COVID-19 include those underlying the valuation of investment properties, the valuation of its hotel property, the net realizable value of residential inventory, the carrying amount of its investment in joint ventures, the estimate of any expected credit losses on amounts receivable or loans and mortgages receivable and determining the values of financial instruments for disclosure purposes. CONTROLS AND PROCEDURES As at December 31, 2020, 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, 2020, 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, 2020 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. In addition, First Capital has identified a new risk factor related to the outbreak of the novel strain of coronavirus, specifically identified as COVID-19, which is further discussed below. COVID-19 On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The duration and long-term impact of this pandemic on First Capital remains unknown at this time. As such, it is not possible to reliably estimate the length and severity of the impact of COVID-19 on First Capital’s financial results and operations. FIRST CAPITAL REIT ANNUAL REPORT 2020 54  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued A substantial portion of First Capital’s tenants were forced to close in accordance with government regulations or were or have been operating at a reduced capacity, which may negatively impact their ability to pay rent in accordance with the terms of their lease. First Capital has received a large number of rent deferral requests from tenants across the country and some of its tenants have withheld rent. Qualifying small business tenants were granted an initial two months’ rent deferral as part of First Capital’s Small Business Support Program and other tenants have been or may be granted similar or more substantial rent relief on a case by case basis. A substantial number of tenants elected to participate in the government relief programs, CECRA and CERS, including many that had initially been part of First Capital's Small Business Support Program. There is no certainty as to the extent the recently enacted CERS program will benefit FCR or its tenants. The timing and extent to which certain non-essential businesses can reopen and operate at full capacity remains uncertain and there is no certainty that these businesses will be allowed to remain open should governmental authorities reinstate business closures. There is also no certainty as to the timing and effect on FCR and its tenants of vaccines identified to protect against COVID-19. Additionally, First Capital may be required to take further action that negatively impacts its financial results and operations in response to directives of government and public health authorities or that are in the best interests of the health and safety of its employees, tenants, partners and other stakeholders, as necessary. In addition to the changes described above and the macroeconomic impact of COVID-19, specific effects of the pandemic that may impact FCR’s business operations, financial results and its ability to execute on its strategy, may include: consumer demand for tenants’ products or services, changing consumer habits, a temporary or long-term increase in vacancy, temporary or long-term stoppage of development projects, temporary or long-term stoppage of construction projects, temporary or long-term labour shortages or disruptions, temporary or long-term impacts on global supply chains, closures or slowdowns of government offices and increased risks to IT systems and networks. Changes to operations in response to these and other effects of COVID-19 on the economy and consumer habits could materially adversely impact FCR’s financial results and may negatively impact several aspects of First Capital’s business, including but not limited to: the fair value of its properties and other investments; the net realizable value of residential inventory and ability to lease residential space; the performance of its hotel operations, the carrying amount of its investment in joint ventures; its ability to execute on its strategy, including dispositions and acquisitions and surfacing value from its density pipeline; tenants’ ability to pay rent in full or at all (including deferred rent); its ability to complete construction required to transfer possession of leased premises to tenants; its ability to renew expiring leases and to lease vacant space; its ability to collect on interest and loans receivables; its ability to meet deleveraging targets, maintain current and/or achieve target debt metrics, maintain current credit ratings and to comply with debt covenants; its ability to make distributions; its ability to maintain its balance sheet and to access capital on acceptable terms or at all. Additionally, health and safety issues related to COVID-19 as well as actions taken by First Capital with respect to tenant defaults could also result in legal claims and proceedings against FCR. Uncertain economic conditions resulting from the COVID-19 pandemic may, in the short or long term, materially adversely impact operations and the financial performance of First Capital. The spread of COVID-19 has caused an economic slowdown and increased volatility in financial markets, which has negatively impacted the market price for FCR’s securities. Governments and central banks have responded with monetary and fiscal interventions intended to stabilize economic conditions. However, it is not currently known how these interventions will impact debt and equity markets or the economy generally. Although the ultimate impact of COVID-19 on the global economy and its duration remains uncertain, disruptions caused by COVID-19 may materially adversely affect the performance of First Capital. Uncertain economic conditions resulting from the COVID-19 outbreak may, in the short or long term, materially adversely impact First Capital’s tenants and/or the debt and equity markets, both of which could adversely impact First Capital’s operations and financial performance. 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 55 FIRST CAPITAL REIT ANNUAL REPORT 2020 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. 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. Changes in lease accounting rules may require tenants to account for real property leases differently and, as a result, may incentivize tenants to seek new and renewal leases on different terms. Tenants may favour shorter lease terms, fewer renewals and a heavier weighting to variable as opposed to fixed rents, which could adversely affect the stability of First Capital’s rental income, the level of secured financing available, the value of its properties and FCR’s financial position and results of operations. 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. FIRST CAPITAL REIT ANNUAL REPORT 2020 56  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 $1.2 billion principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured debentures and secured credit facilities maturing between January 1, 2021 and December 31, 2023 at a weighted average coupon interest rate of 4.1%. 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 $12.1 million. In addition, as at December 31, 2020, FCR had $298.3 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 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. Management and the Board have discretion under the Declaration of Trust to increase the amount of outstanding debt. The decisions with regard to the incurrence and maintenance of debt are based on available investment opportunities for which capital is required, the cost of debt in relation to such investment opportunities, whether secured or unsecured debt is available, the effect of additional debt on existing financial ratios and the maturity of the proposed new debt relative to maturities of existing debt. First Capital could become more highly leveraged, resulting in increased debt service costs that could adversely affect cash flows and operating results. First Capital's intention is to gradually return its leverage to levels prior to the share buy back that took place in 2019 and may do so in a number of ways, including by disposing of selected assets. Any failure to gradually return its leverage to levels prior to the share buy back may have a material adverse impact on First Capital's requirements, its financial position or its ability to achieve its business objectives. 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. 57 FIRST CAPITAL REIT ANNUAL REPORT 2020 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. 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. FIRST CAPITAL REIT ANNUAL REPORT 2020 58  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 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; Non-Cash Distributions 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 may deteriorate if First Capital is unable to meet its 59 FIRST CAPITAL REIT ANNUAL REPORT 2020 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. In addition, certain distributions declared by the Trustees on the Trust Units may be payable in cash, Trust Units or a combination of cash and Trust Units. Immediately after any pro rata distribution of additional Trust Units to all Unitholders, the number of the outstanding Trust Units may be automatically consolidated such that each such holder will hold after the consolidation the same number of Trust Units as such holder held before the distribution of additional Trust Units (provided that Unitholders not resident in Canada for Canadian federal income tax purposes may be subject to applicable withholding taxes in connection therewith). Such an automatic consolidation may affect a Unitholder’s after-tax return relating to their investment in Trust Units. 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. Taxation Matters 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. 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. Although First Capital is of the view that all expenses to be claimed by it and its subsidiaries will be reasonable and deductible and that the cost amount and capital cost allowance claims of entities indirectly owned by First Capital will have been correctly determined, there can be no assurance that the Tax Act, or the interpretation of the Tax Act, will not change, or that the Canada Revenue Agency (the “CRA”) will agree. If the CRA successfully challenges the deductibility of such expenses or the allocation of such income, First Capital's taxable income, and indirectly the taxable income of Unitholders, will increase or change. FIRST CAPITAL REIT ANNUAL REPORT 2020 60 FS CONSOLIDATED FINANCIAL STATEMENTS Table of Contents 62 63 66 67 68 69 70 71 71 71 80 84 85 86 87 87 88 89 91 92 92 93 94 97 98 98 99 99 100 101 103 105 106 107 108 109 109 110 Management's Responsibility Independent Auditor's Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Comprehensive Income (Loss) 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 Investment Properties 4 Investment in Joint Ventures 5 Hotel Property 6 Loans, Mortgages and Other Assets 7 Amounts Receivable 8 Other Assets 9 Capital Management 10 Mortgages and Credit Facilities 11 Senior Unsecured Debentures 12 Accounts Payable and Other Liabilities 13 Exchangeable Units 14 Unitholders' Equity 15 Unit-based Compensation Plans 16 Net Operating Income 17 Interest and Other Income 18 Interest Expense 19 Corporate Expenses 20 Other Gains (Losses) and (Expenses) 21 Income Taxes 22 Risk Management 23 Fair Value Measurement 24 Subsidiaries with Non-controlling Interest 25 Co-ownership Interests 26 Supplemental Other Comprehensive Income (Loss) Information 27 Supplemental Cash Flow Information 28 Commitments and Contingencies 29 Related Party Transactions 30 Subsequent Events  Management's Responsibility 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 9, 2021. 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 9, 2021 FIRST CAPITAL REIT ANNUAL REPORT 2020 62 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, 2020 and 2019, and the consolidated statements of income, consolidated statements of comprehensive income (loss), 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, 2020 and 2019, 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. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements.The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements. Key Audit Matter Valuation of Investment Properties How our audit addressed the key audit matter The Trust’s investment property portfolio is comprised primarily of income-producing properties and properties under development with a fair value of $9.5 billion which represents 94.5% of total assets at December 31, 2020. With the assistance of our real estate valuation specialists, we evaluated the appropriateness of the underlying valuation methodology, and performed the following audit procedures, among others: The Trust employs a certified staff appraiser to value the investment property portfolio. The valuation methodology for these investment properties is primarily based on an income approach, utilizing the direct capitalization method and/or the discounted cash flow method. We assessed the competence and objectivity of management’s valuation department, including the certified staff appraiser, by reviewing the qualifications and expertise of the individuals involved in the preparation and review of the valuations. 63 FIRST CAPITAL REIT ANNUAL REPORT 2020 Independent Auditor's Report Key Audit Matter How our audit addressed the key audit matter The valuation of the Trust’s investment property portfolio is a key audit matter given the inherently subjective nature of significant assumptions including discount rates, stabilized capitalization rates, terminal capitalization rates, and stabilized cash flows or net operating income which are based on vacancy and leasing assumptions, as applicable. These assumptions are influenced by property-specific characteristics including location, type and quality of the properties and tenancy agreements. For properties under development, depending on the complexity and stage of completion, costs to complete, leasing and construction risk are additional significant assumptions that impact the final valuation. Note 2(h) of the consolidated financial statements describes the accounting policy for investment properties, including the valuation method and valuation inputs. Note 3(b) of the consolidated financial statements discloses the sensitivity of the fair value of investment properties to a change in stabilized capitalization rates and stabilized net operating income. We selected a sample of properties where either the fair value change from prior year or significant assumptions, fell outside our expectations, based on our understanding of the geographical real estate market for the specific asset type. For this sample of investment properties, we evaluated the significant assumptions by comparison to the expected real estate market benchmark range for similar assets and tenancies, in similar locations. We also considered whether there were any additional asset-specific characteristics that may impact the significant assumptions utilized and that these were appropriately considered in the overall assessment of fair value. We assessed the accuracy of management’s historical fair value estimates through comparison to transactions to acquire and dispose of interests in investment properties completed by the Trust. For properties under development, in addition to the procedures performed above, we compared construction budgets to actual expenditures and evaluated estimated costs to complete by reference to third party data, as applicable, on a sample basis. We also evaluated whether the discount rate used to value properties under development considered the complexity of the development and stage of completion. We evaluated the Trust’s critical accounting policies and related disclosures in the consolidated financial statements to assess appropriateness and conformity with IFRS. 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. FIRST CAPITAL REIT ANNUAL REPORT 2020 64 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. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Kim Tang. Toronto, Canada February 9, 2021 65 FIRST CAPITAL REIT ANNUAL REPORT 2020 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' 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 Note December 31, 2020 December 31, 2019 3 4 5 6 8 27(d) 6 7 8 3(d) 10 10 11 13 12 21 10 10 10 11 12 14 24 $ 9,328,792 52,570 88,000 52,160 9,521,522 28,555 9,550,077 $ 9,593,530 59,498 62,199 95,968 9,811,195 36,105 9,847,300 100,444 77,269 74,190 46,296 22,338 320,537 161,849 482,386 $ 10,032,463 25,503 70,065 10,205 31,521 18,166 155,460 158,600 314,060 $ 10,161,360 $ 1,256,333 854,661 2,347,170 1,399 65,998 698,528 5,224,089 238 90,304 61,267 174,965 225,173 551,947 5,776,036 $ 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 4,227,164 29,263 4,256,427 $ 10,032,463 4,426,592 48,914 4,475,506 $ 10,161,360 FIRST CAPITAL REIT ANNUAL REPORT 2020 66 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 (loss) from joint ventures Other gains (losses) and (expenses) (Increase) decrease in value of unit-based compensation liability (Increase) decrease in value of Exchangeable Units Increase (decrease) in value of hotel property Increase (decrease) in value of investment properties, net Income before income taxes Deferred income tax expense (recovery) Net income Net income attributable to: Unitholders Non-controlling interest Refer to accompanying notes to the consolidated financial statements. Year ended December 31 Note 2020 2019 $ 672,890 $ 746,773 16 17 18 19 4 20 15 13 5 3 21 14 24 273,858 399,032 286,376 460,397 12,248 (157,711) (33,238) (90) (5,589) (7,835) 858 11,459 7,404 (9,432) (185,700) (367,626) 31,406 23,924 7,482 2,702 4,780 7,482 $ $ $ 33,049 (171,834) (38,559) (677) (4,511) 1,699 (8,759) 81 230 — 61,037 (128,244) 332,153 (82,187) 414,340 401,345 12,995 414,340 $ $ $ 67 FIRST CAPITAL REIT ANNUAL REPORT 2020 Consolidated Statements of Comprehensive Income (Loss) (thousands of dollars) Net income Other comprehensive income (loss) Unrealized gain (loss) on revaluation of hotel property Unrealized gain (loss) on cash flow hedges (1) Reclassification of net losses on cash flow hedges to net income Deferred tax expense (recovery) Other comprehensive income (loss) Comprehensive income (loss) Comprehensive income (loss) attributable to: Unitholders Non-controlling interest (1) Items that may subsequently be reclassified to net income (loss). Refer to accompanying notes to the consolidated financial statements. Note 5 21 14 24 Year ended December 31 2020 7,482 2019 $ 414,340 (2,910) (56,012) 2,203 (56,719) (20,941) (35,778) (28,296) (33,076) 4,780 (28,296) 2,910 (12,967) 1,687 (8,370) (5,056) (3,314) 411,026 398,031 12,995 411,026 $ $ $ $ $ $ $ FIRST CAPITAL REIT ANNUAL REPORT 2020 68 Consolidated Statements of Changes in Equity (thousands of dollars) December 31, 2019 Changes during the year: Net income Conversion of Exchangeable Units Options, deferred units, restricted units, and performance units, net Other comprehensive income (loss) Contributions from (distributions to) non- controlling interest, net Distributions (Note 14(b)) December 31, 2020 Accumulated Other Comprehensive Income (Loss) Retained Earnings Trust Units (Note 14(a)) Total Unitholders' Equity Non- Controlling Interest Total Equity $ 1,561,487 $ (7,802) $ 2,872,907 $ 4,426,592 $ 48,914 $ 4,475,506 2,702 — — — — (188,027) — — — — 16,207 5,468 (35,778) — — — — — 2,702 16,207 5,468 (35,778) 4,780 — — — — (24,431) 7,482 16,207 5,468 (35,778) (24,431) (188,027) — (188,027) $ 1,376,162 $ (43,580) $ 2,894,582 $ 4,227,164 $ 29,263 $ 4,256,427 Accumulated Other Comprehensive Income (Loss) Retained Earnings Share Capital Trust Units Contributed Surplus and Other Equity Items Total Shareholders’ Equity Non- Controlling Interest Total Equity (Note 14(a)) (Note 14(a)) (Note 14(c)) $ 1,573,588 $ (4,488) $ 3,364,948 $ — $ 44,194 $ 4,978,242 $ 29,830 $ 5,008,072 401,345 (149,604) — — — — — — — — — — — (475,560) (8,850) 6,553 (3,314) — — — — — — — — — — 401,345 12,995 414,340 — — (149,604) (24,903) (741,600) — (8,850) 2,450 9,003 — — — — (149,604) (741,600) (8,850) 9,003 — — (3,314) — (3,314) — 6,089 6,089 Repurchase of common shares (241,137) (thousands of dollars) December 31, 2018 Changes during the year: Net income Dividends Share repurchase costs, net of tax effect 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 Distributions (Note 14(b)) (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 Refer to accompanying notes to the consolidated financial statements. 69 FIRST CAPITAL REIT ANNUAL REPORT 2020 Consolidated Statements of Cash Flows (thousands of dollars) OPERATING ACTIVITIES Net income Adjustments for: (Increase) decrease in value of investment properties, net (Increase) decrease in value of hotel property Interest expense Amortization expense Share of (profit) loss 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 Repurchase of common shares Transaction costs related to share repurchase Issuance of trust units / common shares, net of issue costs Payment of distributions / dividends Net contributions from (distributions to) non-controlling interest Cash provided by (used in) financing activities INVESTING ACTIVITIES Acquisition of investment properties 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. Year ended December 31 Note 2020 2019 $ 7,482 $ 414,340 3 5 18 4 18 27(a) 27(b) 10 10 10 10 10 11 11 24 3(c) 5 3(d) 4 4 3(a) 27(c) 185,700 9,432 157,711 5,589 7,835 (151,235) 8,213 (11,222) 219,505 115,236 (28,404) (67,724) 18,730 — 198,870 (175,000) (6,964) — — 2,826 (187,929) (24,431) (154,790) (20,248) (11,769) 232,453 2,982 (3,889) (205,033) (11,228) 26,958 10,226 74,941 25,503 27(d) $ 100,444 $ (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) (251,642) — 700,437 25,648 (17,481) (228,190) (41,607) 145,454 332,619 9,969 15,534 25,503 FIRST CAPITAL REIT ANNUAL REPORT 2020 70 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 refer to activities 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. 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 9, 2021. (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. (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 71 FIRST CAPITAL REIT ANNUAL REPORT 2020 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, a subsidiary of the Trust, 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. FIRST CAPITAL REIT ANNUAL REPORT 2020 72  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (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 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. Also included in investment properties is development land, which includes land parcels 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. 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 73 FIRST CAPITAL REIT ANNUAL REPORT 2020 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. FIRST CAPITAL REIT ANNUAL REPORT 2020 74  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (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 typically performed annually, unless market conditions arise which would require quarterly revaluations. 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 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. 75 FIRST CAPITAL REIT ANNUAL REPORT 2020 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) 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 termination fees and percentage rent are considered lease components and are in the scope of IFRS 16, "Leases" ("IFRS 16"). 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. FIRST CAPITAL REIT ANNUAL REPORT 2020 76  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued Lease termination 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. (o) 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). 77 FIRST CAPITAL REIT ANNUAL REPORT 2020 The following summarizes the Trust’s classification and measurement of financial assets and liabilities for the years ended December 31, 2020 and 2019: 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 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 (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. (p) Cash and cash equivalents Cash and cash equivalents include cash and short-term investments with original maturities at the time of acquisition of three months or less. FIRST CAPITAL REIT ANNUAL REPORT 2020 78  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (q) 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. (r) 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. The outbreak of coronavirus (“COVID-19”), which the World Health Organization has declared a global pandemic, and government related action to shutdown large parts of the economy has impacted global commercial activity and contributed to significant volatility in certain equity and debt markets. The extent and duration of the impact of COVID-19 on communities and the economy remains unclear. In the preparation of these audited annual consolidated financial statements, the Trust has incorporated the potential impact of COVID-19 into its 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 using the best available information as of December 31, 2020. Actual results could differ from those estimates. The estimates and assumptions that the Trust considers critical and/or could be impacted by COVID-19 include those underlying the valuation of investment properties, the valuation of its hotel property, the net realizable value of residential inventory, the carrying amount of its investment in joint ventures, the estimate of any expected credit losses on amounts receivable or loans and mortgages receivable and determining the values of financial instruments for disclosure purposes (Note 23). Additional critical accounting estimates and assumptions include those used for estimating deferred taxes (Note 21), and estimating the fair value of unit-based compensation arrangements (Note 15). (s) Impacts of COVID-19 Rent Abatements FCR accounts for rental abatements, in connection with tenants experiencing financial hardship as a result of COVID-19 and qualify under the Canada Emergency Commercial Rent Assistance ("CECRA") program, under the derecognition rules of IFRS 9, "Financial Instruments". Financial assets, such as trade receivables, are derecognized when all or a portion of outstanding amounts will be forgiven or abated and no further collection activities will be pursued. The forgiveness or abatement of the tenant receivable is recognized in the period First Capital forgoes the contractual right to all or a 79 FIRST CAPITAL REIT ANNUAL REPORT 2020 portion of the outstanding receivable and is recognized as a loss in the consolidated statement of income, under property operating costs. Government Assistance First Capital recognizes government assistance, in the form of grants or forgivable loans, when there is reasonable assurance that the Trust will be able to comply with the conditions attached to the assistance and that the assistance will be received. Government assistance that compensates FCR for expenses incurred is recognized in the consolidated statements of income, as a reduction of the related expense, in the periods in which the expenses are recognized. 3. INVESTMENT PROPERTIES (a) Activity The following tables summarize the changes in First Capital’s investment properties for the year ended December 31, 2020 and year ended December 31, 2019: Balance at beginning of year $ 5,146,534 $ 1,535,433 $ 3,070,163 $ 9,752,130 Central Region Eastern Region Western Region Total Year ended December 31, 2020 Acquisitions Capital expenditures Reclassification to residential development inventory Increase (decrease) in value of investment properties, net Straight-line rent and other changes Dispositions Balance at end of year Investment properties (1) Investment properties classified as held for sale Total 18,559 151,694 (57,519) 1,689 24,524 — — 28,815 — 20,248 205,033 (57,519) (83,050) (411) (102,239) (185,700) 5,868 1,112 837 7,817 (57,363) (149,099) (44,906) (251,368) $ 5,124,723 $ 1,413,248 $ 2,952,670 $ $ $ 9,490,641 9,328,792 161,849 9,490,641 (1) Investment properties include income producing properties, development land as well as properties under development. FIRST CAPITAL REIT ANNUAL REPORT 2020 80  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued Central Region Eastern Region Western Region Total Year ended December 31, 2019 Balance at beginning of year $ 4,489,359 $ 2,037,411 $ 3,241,505 $ 9,768,275 Acquisitions Capital expenditures Consolidation of equity accounted joint venture Increase (decrease) in value of investment properties, net Straight-line rent and other changes Dispositions Balance at end of year Investment properties (1) Investment properties classified as held for sale Total 376,700 157,955 131,480 83,274 4,193 (96,427) — 26,678 — (5,486) 15,410 43,557 — (16,751) 392,110 228,190 131,480 61,037 1,212 607 6,012 (524,382) (214,165) (834,974) $ 5,146,534 $ 1,535,433 $ 3,070,163 $ $ $ 9,752,130 9,593,530 158,600 9,752,130 (1) Investment properties include income producing properties, development land as well as properties under development. Investment properties with a fair value of $2.8 billion (December 31, 2019 – $2.8 billion) are pledged as security for $1.5 billion (December 31, 2019 – $1.5 billion) in mortgages and secured credit facilities. (b) Investment property valuation Stabilized overall capitalization, terminal, and discount rates by region for investment properties valued under the Income Approach are set out in the table below: As at December 31, 2020 December 31, 2019 Overall Capitalization Rate Terminal Capitalization Rate Discount Rate Weighted Average Central Region Eastern Region Western Region 4.7% 4.9% 5.5% 5.7% 6.0% 6.5% 5.1% 5.4% 5.9% Total 5.0% 5.2% 5.8% 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% Total 5.0% 5.3% 5.8% The majority of the Trust's portfolio is valued under the Income Approach using the DCF method. As at December 31, 2020, the weighted average valuation yields (stabilized overall capitalization, terminal, and discount rates) used in valuing those investment properties under the Income Approach remained largely unchanged from December 31, 2019. Slight decreases in the weighted average terminal capitalization rates in the Eastern and Central regions were due to dispositions of properties that were inconsistent with the Trust's Super Urban Strategy. Over the past 24 months, the Trust's disposition program has been focused on disposing of lower quality assets with higher capitalization rates which has resulted in a reduction in the weighted average in-place overall capitalization rate for the portfolio. Due to the continuing risk created by the COVID-19 pandemic that has resulted in an economic slowdown, greater volatility in the capital markets, limited investment transactions, and a lower interest rate environment, the Trust has been closely monitoring valuation yields. The Trust has not observed a change to valuation yields for its properties at this time and as such, has not adjusted valuation yields in the valuation models used to determine the fair value of investment properties. To reflect the potential impact of COVID-19 on the cash flows in the valuation models, a comprehensive portfolio review was undertaken, on a property by property basis to identify properties with greater exposure to tenants deemed non- essential under government directives and therefore potentially subject to prolonged closures. The short-term cash flows in the 10 year valuation models for each of these properties was adjusted for increased vacancy, lower rental rate growth and other market leasing assumptions such as slower lease up of existing vacancy. In addition, as part of its normal course 81 FIRST CAPITAL REIT ANNUAL REPORT 2020 internal valuations, the Trust made revisions to overall capitalization rates or stabilized NOI. As a result, an overall decrease in the value of investment properties was recorded for the year ended December 31, 2020 for $185.7 million. The sensitivity of the fair values of investment properties to stabilized overall capitalization rates as at December 31, 2020 is set out in the table below: As at December 31, 2020 (Decrease) Increase in stabilized overall capitalization rate (1.00%) (0.75%) (0.50%) (0.25%) 0.25% 0.50% 0.75% 1.00% (millions of dollars) Resulting increase (decrease) in fair value of investment properties 2,301 1,624 1,023 484 (438) (837) (1,200) (1,534) $ $ $ $ $ $ $ $ Additionally, a 1% increase or decrease in stabilized net operating income ("SNOI") would result in a $92 million increase or a $92 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 $581 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 $526 million. (c) Investment properties – Acquisitions For the years ended December 31, 2020 and 2019, First Capital acquired investment properties as follows: Year ended December 31 Total purchase price, including acquisition costs (1) Debt assumption on acquisition Settlement of loans receivable on acquisition Total cash paid 2020 20,248 $ 2019 392,110 $ — — (50,646) (89,822) $ 20,248 $ 251,642 (1) During the first quarter of 2020, one of the Trust’s wholly owned subsidiaries purchased a property from another consolidated subsidiary, that is subject to a non-controlling interest. The Trust’s net effective ownership in the asset increased by 15.5% to 100%. The Trust’s acquisition cost for its incremental 15.5% interest was $25.4 million which is reflected as a distribution to the non-controlling interest partner in the audited annual consolidated financial statements. (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, 2020 $ 161,849 $ December 31, 2019 158,600 The increase of $3.2 million in investment properties classified as held for sale from December 31, 2019, 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. FIRST CAPITAL REIT ANNUAL REPORT 2020 82  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued For the years ended December 31, 2020 and 2019, First Capital sold investment properties as follows: Year ended December 31 Total selling price Mortgages assumed and vendor take-back mortgage on sale Property selling costs Net cash proceeds 2020 251,368 $ (15,000) (3,915) 232,453 $ 2019 834,974 (128,156) (6,381) 700,437 $ $ (e) Reconciliation of investment properties to total assets Investment properties by region and a reconciliation to total assets are set out in the tables below: As at December 31, 2020 Total investment properties (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, 2019 Total investment properties (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. Central Region Eastern Region Western Region Total $ 5,124,723 $ 1,413,248 $ 2,952,670 $ 9,490,641 100,444 129,429 50,893 46,296 52,570 88,000 74,190 $ 10,032,463 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 83 FIRST CAPITAL REIT ANNUAL REPORT 2020 4. INVESTMENT IN JOINT VENTURES As at December 31, 2020, 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 Name of Property/Business Activity Location December 31, 2020 December 31, 2019 College Square General Partnership College Square Green Capital Limited Partnership Royal Orchard Stackt Properties LP Shipping Container marketplace Fashion Media Group GP Ltd. Toronto Fashion Week events Ottawa, ON 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 50.0% 50.0% 94.0% 78.0% 25.0% 50.0% 50.0% 50.0% 94.0% 78.0% 25.0% 50.0% Effective Ownership 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 of 2019, First Capital, together with its partner in Main and Main Developments LP ("MMLP") acquired the remaining 46.9% interest in four remaining Main and Main Urban Realty LP ("MMUR") assets for approximately $116.0 million. As a result, FCR now controls MMUR through its direct and indirect interests, requiring the consolidation of the assets, liabilities, revenues and expenses of MMUR from the date of acquisition. 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 (decrease) in value of investment properties, net Other income and (expenses) Income (loss) before income taxes Net income and total comprehensive income at 100% First Capital's share of income in equity accounted joint ventures $ December 31, 2020 December 31, 2019 200,631 (64,553) 136,078 59,498 206,891 (83,339) 123,552 52,570 $ $ $ $ $ December 31, 2020 December 31, 2019 16,496 (8,338) 532 235 8,925 8,925 1,699 15,429 (8,660) (10,965) (8,355) (12,551) (12,551) (7,835) $ $ $ $ During 2020, First Capital received distributions from its joint ventures of $3.0 million (2019 – $25.6 million) and made contributions to its joint ventures of $3.9 million (2019 – $17.5 million). As at December 31, 2020, there were no outstanding commitments or contingent liabilities for the six equity accounted joint ventures. As of December 31, 2020, none of the Trust's investments in joint ventures were determined to be impaired taking into account the COVID-19 environment. FIRST CAPITAL REIT ANNUAL REPORT 2020 84  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 5. HOTEL PROPERTY On October 1, 2020, First Capital acquired the remaining 40% interest in the Hazelton Hotel ("hotel property") located in Toronto, Ontario. The hotel property is a mixed-use luxury hotel located in Yorkville Village. Subsequent to the acquisition, First Capital owns a 100% interest in the hotel property (December 31, 2019 - 60%). The total purchase price before closing costs was $30.6 million. The transaction was accounted for as a business combination under IFRS 3 "Business Combinations". First Capital recognized a gain on the purchase of the hotel property of $7.4 million and incurred transaction costs of $1.1 million, which have been expensed in 'Other gains (losses) and (expenses)' in the consolidated statements of income. The purchase price was based on a fixed price formula that resulted in a discount to the fair value on acquisition date. The purchase price was satisfied primarily through the settlement of a loan in the amount of $20.0 million advanced from First Capital to the co-owner. 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 asset Purchase price for net assets acquired (1) Gain on below market purchase $ 34,604 2,476 78 37,158 778 (30,551) $ 7,385 (1) Includes purchase price of $29.8 million and closing adjustments of $0.8 million. The following table summarizes the changes in the net book value of the hotel property for the years ended December 31, 2020 and 2019. Balance at beginning of year Acquisition Revaluation of hotel property (1) Additions Amortization Balance at end of year December 31, 2020 December 31, 2019 $ 62,199 37,080 (12,342) 2,495 (1,432) $ 58,604 — 2,910 1,378 (693) $ 88,000 $ 62,199 (1) The revaluation loss of $12.3 million was recognized partly through other comprehensive income (loss) to reverse previously recognized gains on the hotel property of $2.9 million in accordance with the revaluation model accounting for the hotel. The remaining $9.4 million revaluation loss was recognized in the consolidated statements of income. Due to the on-going impact of COVID-19 on the hospitality industry, the hotel property was revalued on a quarterly basis and a $12.3 million reduction in value was recognized for the year. 85 FIRST CAPITAL REIT ANNUAL REPORT 2020 6. 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) Other investments Total non-current Current Loans and mortgages receivable classified as FVTPL (a) Loans and mortgages receivable classified as amortized cost (a) FVTPL investments in securities (b) Total current Total December 31, 2020 December 31, 2019 $ 1,968 37,612 12,580 52,160 6 73,548 3,715 77,269 $ 20,726 58,940 16,302 95,968 132 65,984 3,949 70,065 $ 129,429 $ 166,033 (a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning investment properties. As at December 31, 2020, these receivables bear interest at weighted average effective interest rates of 6.3% (December 31, 2019 – 6.6%) and mature between 2021 and 2024. As of December 31, 2020, none of the Trust's loans and mortgages receivable classified as amortized cost required a provision or were determined to be impaired taking into account the COVID-19 environment. (b) 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, 2020 are as follows: 2021 2022 2023 2024 Unamortized deferred financing fees and accrued interest Current Non-current Total Scheduled Receipts $ 71,617 32,358 1,836 5,000 110,811 2,323 $ 113,134 $ 73,554 39,580 $ 113,134 Weighted Average Effective Interest Rate 6.7 % 5.6 % 5.3 % 5.0 % 6.3 % 6.7 % 5.6 % 6.3 % FIRST CAPITAL REIT ANNUAL REPORT 2020 86  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 7. AMOUNTS RECEIVABLE As at Tenant receivables (net of allowances for doubtful accounts of $11.4 million; December 31, 2019 – $3.0 million) Corporate and other amounts receivable Total December 31, 2020 December 31, 2019 $ 45,439 $ 25,356 857 46,296 $ 6,165 31,521 $ 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 as well as the impact of COVID-19 on tenant's ability to pay any trade receivables outstanding at December 31, 2020. During the second and third quarters, the Trust provided rental abatements for 75% of gross rent to qualifying tenants participating in the CECRA program. As a result, the qualifying tenant’s outstanding receivable was reduced and recorded as a charge to bad debt expense. Concurrently, the Trust recognized the benefit of the government’s forgivable loan covering 50% of gross rent as a reduction of bad debt expense. As such, the net charge to bad debt expense included in property operating costs totaled $13.2 million for the year ended December 31, 2020, related to the CECRA program. 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 as well as the impact of COVID-19 on tenant's ability to pay any trade receivables outstanding at December 31, 2020. The Trust has increased its provision for doubtful accounts for the year ended December 31, 2020 by $8.4 million as a result of the COVID-19 environment. 8. OTHER ASSETS As at Non-current Note December 31, 2020 December 31, 2019 $ 9,958 $ 11,670 3,021 1,611 13,965 — 28,555 10,450 10,679 250 959 — 22,338 50,893 3,886 3,105 14,513 2,931 36,105 5,691 9,088 250 765 2,372 18,166 54,271 $ Fixtures, equipment and computer hardware and software (net of accumulated amortization of $18.2 million; December 31, 2019 – $15.6 million) Deferred financing costs on credit facilities (net of accumulated amortization of $6.3 million; December 31, 2019 – $5.3 million) Environmental indemnity and insurance proceeds receivable Bond asset Derivatives at fair value Total non-current Current 12(a) 23 Deposits and costs on investment properties under option Prepaid expenses Other deposits Restricted cash Derivatives at fair value Total current Total 23 $ 87 FIRST CAPITAL REIT ANNUAL REPORT 2020 9. 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 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 Liabilities (principal amounts outstanding) Bank indebtedness Mortgages Credit facilities Mortgages under equity accounted joint ventures (at the Trust’s interest) Exchangeable Units (based on a closing per unit price of $13.55; December 31, 2019 - $20.67) Senior unsecured debentures Equity Capitalization December 31, 2020 December 31, 2019 $ 238 1,351,291 915,928 39,175 1,399 2,525,000 $ 60 1,331,219 899,165 40,144 25,010 2,500,000 Trust Units (based on closing per unit price of $13.55; December 31, 2019 - $20.67) 2,971,723 4,505,107 Total capital employed $ 7,804,754 $ 9,300,705 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, 2020, First Capital remains in compliance with all of its applicable financial covenants. The following table summarizes a number of First Capital's key ratios: As at Net debt to total assets Unencumbered aggregate assets to unsecured debt, using 10 quarter average capitalization rate (1) Unitholders' equity, using four quarter average (billions) (1) Secured indebtedness to total assets (1) For the rolling four quarters ended Interest coverage (Adjusted EBITDA to interest expense) (1) Fixed charge coverage (Adjusted EBITDA to debt service) (1) Measure/ Covenant ≥1.3 >$2.0B <35% >1.65 >1.50 December 31, 2020 December 31, 2019 47.2% 46.7% 2.0 4.3 $ 2.0 4.5 $ 15.2% 14.5% 2.2 1.9 2.4 2.1 (1) Calculations required under the Trust's credit facility agreements or indentures governing the senior unsecured debentures. The above ratios include measures not specifically defined in IFRS. Certain calculations are required pursuant to debt covenants and are meaningful measures for this reason. Measures used in these ratios are defined below: • Debt consists of principal amounts outstanding on credit facilities and mortgages, and the par value of senior unsecured debentures; • 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; FIRST CAPITAL REIT ANNUAL REPORT 2020 88  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued • 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, hotel property, 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. 10. MORTGAGES AND CREDIT FACILITIES As at Fixed rate mortgages Unsecured facilities Secured facilities Mortgages and credit facilities Current Non-current Total December 31, 2020 $ 1,346,637 745,054 170,874 $ 2,262,565 151,571 $ 2,110,994 $ 2,262,565 December 31, 2019 $ 1,327,021 772,030 127,135 $ 2,226,186 114,875 $ 2,111,311 $ 2,226,186 Mortgages and secured facilities are secured by First Capital's investment properties. As at December 31, 2020, approximately $2.8 billion (December 31, 2019 – $2.8 billion) of investment properties out of $9.5 billion (December 31, 2019 – $9.8 billion) (Note 3(a)) had been pledged as security under the mortgages and the secured facilities. As at December 31, 2020, mortgages bear coupon interest at a weighted average coupon rate of 3.5% (December 31, 2019 – 3.7%) and mature in the years ranging from 2021 to 2031. The weighted average effective interest rate on all mortgages as at December 31, 2020 is 3.6% (December 31, 2019 – 3.7%). Principal repayments of mortgages outstanding as at December 31, 2020 are as follows: 2021 2022 2023 2024 2025 2026 to 2031 Unamortized deferred financing costs and premiums, net Total Scheduled Amortization 28,385 $ 31,981 32,597 31,945 29,642 93,066 247,616 $ Payments on Maturity 62,623 $ 95,522 — 108,478 55,895 781,157 1,103,675 $ $ $ Weighted Average Effective Interest Rate 4.9 % 4.0 % N/A 3.8 % 3.5 % 3.5 % 3.6 % Total 91,008 127,503 32,597 140,423 85,537 874,223 1,351,291 (4,654) $ 1,346,637 89 FIRST CAPITAL REIT ANNUAL REPORT 2020 First Capital’s credit facilities as at December 31, 2020 are summarized in the table below: As at December 31, 2020 Unsecured Operating Facilities Revolving facility maturing 2023 Borrowing Capacity Amounts Drawn Bank Indebtedness and Outstanding Letters of Credit Available to be Drawn $ 550,000 $ — $ (25,142) $ 524,858 Revolving facility maturing 250,000 — — 250,000 2022 Floating rate unsecured term loan maturing 2023 (1) Fixed rate unsecured term loans maturing 2024 - 2026 Secured Construction Facilities 200,000 (195,054) 550,000 (550,000) Maturing 2021 20,000 (19,984) Maturing 2021 33,333 (33,333) — — — — — — 16 — Maturing 2022 138,000 (98,539) (1,592) 37,869 Secured Facilities Maturing 2021 (2) Maturing 2022 Maturing 2022 19,734 (7,950) (1,320) 10,464 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 BA + 1.20% April 15, 2023 3.29% March 28, 2024 - April 14, 2026 BA + 2.50% or Prime + 1.00% June 1, 2021 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% December 30, 2021 September 28, 2022 December 19, 2022 Total $ 1,772,135 $ (915,928) $ (28,054) $ 823,207 (1) The Trust had drawn in U.S. dollars the equivalent of CAD$200.0 million which was revalued at CAD$195.1 million as at December 31, 2020. (2) Borrowing capacity decreased by $1.0 million to $19.7 million in the fourth quarter of 2020. 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. In the fourth quarter of 2019, First Capital repaid $100 million of floating rate unsecured term loans. During the first quarter of 2020, First Capital extended the maturity of its $11.9 million secured facility and $20.0 million secured construction facility to April 30, 2020 and July 31, 2020, respectively. During the second quarter of 2020, First Capital repaid its $11.9 million secured facility. During the third quarter of 2020, First Capital increased the borrowing capacity for one of its secured construction facilities to $20.0 million and extended the maturity date to June 1, 2021. During the fourth quarter of 2020, FCR extended the maturity of its $19.7 million secured facility to December 30, 2021. FIRST CAPITAL REIT ANNUAL REPORT 2020 90  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 11. SENIOR UNSECURED DEBENTURES As at Series Maturity Date M April 30, 2020 N March 1, 2021 O P Q R January 31, 2022 December 5, 2022 October 30, 2023 August 30, 2024 S July 31, 2025 T May 6, 2026 U July 12, 2027 January 22, 2027 V A March 1, 2028 Weighted Average or Total Current Non-current Total Interest Rate Coupon Effective 5.60% 4.50% 4.43% 3.95% 3.90% 4.79% 4.32% 3.60% 3.75% 3.46% 3.45% 4.02% 5.60% 4.63% 4.59% 4.18% 3.97% 4.72% 4.24% 3.56% 3.82% 3.54% 3.54% 4.07% December 31, 2020 December 31, 2019 Principal Outstanding $ — $ Liability — $ 175,000 200,000 250,000 300,000 300,000 300,000 300,000 300,000 200,000 200,000 $ $ $ 2,525,000 $ 175,000 $ 2,350,000 2,525,000 $ 174,965 199,667 248,966 299,460 300,684 301,008 300,585 298,783 199,129 198,888 2,522,135 $ 174,965 $ 2,347,170 2,522,135 $ Liability 174,999 174,754 199,372 248,461 299,284 300,853 301,208 300,683 298,622 198,977 — 2,497,213 174,999 2,322,214 2,497,213 Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity. On April 16, 2020, First Capital redeemed its remaining 5.60% Series M Senior Unsecured Debentures for $175.0 million. The full redemption price and any accrued interest owing on the senior unsecured debentures was satisfied in cash. On September 1, 2020, the Trust completed the issuance of $200 million principal amount of Series A senior unsecured debentures due March 1, 2028. These debentures bear interest at a coupon rate of 3.45% per annum, payable semi- annually commencing March 1, 2021. 91 FIRST CAPITAL REIT ANNUAL REPORT 2020 12. 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 Distributions payable Interest payable Tenant deposits Derivatives at fair value Other liabilities Total current Total Note December 31, 2020 December 31, 2019 23 15(c) 15(c) 14(b) 23 $ 1,476 9,444 45,422 2,541 4,275 2,840 65,998 74,334 46,196 9,627 15,718 36,826 37,509 4,946 17 225,173 $ 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 $ 291,171 $ 235,836 (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 $1.6 million (December 31, 2019 - $3.1 million) in other assets (Note 8). 13. 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 14). The following table sets forth the particulars of First Capital's Exchangeable Units issued and outstanding: As at December 31, 2020 December 31, 2019 Balance at beginning of year Issued on conversion to REIT structure Converted to Trust Units Fair value adjustment Balance at end of year Number of Exchangeable Units 1,210 $ — (1,107) — 103 $ Value 25,010 — (16,207) (7,404) 1,399 Number of Exchangeable Units — $ 1,210 — — Value — 25,240 — (230) 1,210 $ 25,010 FIRST CAPITAL REIT ANNUAL REPORT 2020 92  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 14. UNITHOLDERS’ EQUITY Upon conversion of First Capital from a corporation to a real estate investment trust, on December 30, 2019, 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. Special Voting Units: Each Exchangeable Unit (Note 13) 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 trust / share units Share repurchase costs, net of tax effect REIT Conversion Balance at end of year (b) Distributions / Dividends Number of Trust Units 2020 Value of Trust Units Number of Trust Units Value of Trust Units Number of Common Shares 2019 Value of Common Shares 217,954 $ 2,872,907 — $ — 254,828 $ 3,364,948 — 254 — 5,468 — — — — — — — — — — — (36,000) (475,560) 336 6,553 — — — (8,850) 217,954 2,872,907 (219,164) (2,887,091) 219,315 $ 2,894,582 217,954 $ 2,872,907 — $ — Conversion of Exchangeable Units 1,107 16,207 First Capital declared monthly distributions totaling $0.860 per Trust Unit for the year ended December 31, 2020. Prior to the REIT conversion, the Company declared quarterly dividends of $0.645 per common share for the nine months ended September 30, 2019. For the three months ended December 31, 2019, First Capital declared an initial monthly distribution of $0.072 per Trust Unit to Unitholders of record on December 31, 2019. 93 FIRST CAPITAL REIT ANNUAL REPORT 2020 (c) Contributed surplus and other equity items Contributed surplus and other equity items comprise the following: Year ended December 31 2020 2019 Balance at beginning of year Repurchase of common shares Options vested Exercise of options Deferred units Restricted units Performance units Settlement of any restricted, performance and deferred units REIT Conversion Balance at end of year Contributed Surplus Stock-based Compensation Plan Awards Total Contributed Surplus Stock-based Compensation Plan Awards $ — $ — $ — $ 24,903 $ Total 19,291 $ 44,194 — — — — — — — — — — — — — — — — — — — — — — — — (24,903) — — — — — — — — (24,903) 1,238 (269) 864 1,647 3,179 1,238 (269) 864 1,647 3,179 (4,209) (4,209) (21,741) (21,741) $ — $ — $ — $ — $ — $ — All 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. As a result, the entire balance in other equity items related to stock-based compensation plan awards was reclassified to liabilities on the consolidated balance sheet upon REIT conversion on December 30, 2019. 15. UNIT-BASED COMPENSATION PLANS REIT Conversion Upon completion of the REIT conversion on December 30, 2019, 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, 2020, First Capital is authorized to grant up to 19.7 million (December 31, 2019 – 19.7 million) Trust Unit options to the employees, officers and Trustees. As of December 31, 2020, 4.6 million (December 31, 2019 – 6.1 million) unit options are available to be granted to the employees, officers and Trustees. In addition, as at December 31, 2020, 7.1 million unit options were outstanding (December 31, 2019 - 5.6 million). 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, 2020 have exercise prices ranging from $15.70 - $21.24 (December 31, 2019 – $13.91 - $21.14). As at December 31, 2020 December 31, 2019 Outstanding Options Vested Options Outstanding Options Vested Options Exercise Price Range ($) 15.70 - 19.78 19.79 - 20.16 20.17 - 21.19 21.20 - 21.24 15.70 - 21.24 Number of Trust Units Issuable (in thousands) Weighted Average Exercise Price per Trust Unit 1,953 $ 18.81 2,000 $ 20.04 1,346 $ 21.04 1,804 $ 21.24 7,103 $ 20.20 Weighted Average Remaining Life (years) 4.0 6.7 7.9 9.2 6.8 Number of Trust Units Issuable (in thousands) Weighted Average Exercise Price per Trust Units 1,800 $ 18.75 1,013 $ 20.04 356 $ 20.85 — $ — 3,169 $ 19.40 Number of Common Trust Units (in thousands) 1,434 $ 886 $ 1,918 $ 1,346 $ 5,584 $ Weighted Average Exercise Price per Trust Units 18.05 19.61 20.05 21.04 19.70 Weighted Average Remaining Life (years) 4.0 5.9 7.8 8.9 6.8 Number of Common Trust Units (in thousands) Weighted Average Exercise Price per Trust Units 1,335 $ 18.02 556 $ 19.59 547 $ 20.05 87 $ 20.24 2,525 $ 18.89 FIRST CAPITAL REIT ANNUAL REPORT 2020 94  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued During the year ended December 31, 2020, $1.1 million (year ended December 31, 2019 – $1.2 million) was recorded as an expense related to stock options. Year ended December 31 Outstanding at beginning of year Granted (a) Exercised (b) Forfeited Expired Outstanding at end of year Number of Trust Units Issuable (in thousands) 5,584 1,804 (162) (19) (104) $ 2020 Weighted Average Exercise Price 19.70 21.24 17.48 17.43 16.44 Number of Trust Units Issuable (in thousands) 4,736 1,201 (233) (120) — $ 2019 Weighted Average Exercise Price 19.27 21.14 18.17 19.74 — 7,103 $ 20.20 5,584 $ 19.70 (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 distribution / dividend yield Weighted average risk free interest rate Fair value (thousands) 2020 February 28, 2020 1,804 10 years $21.24 13.7 % 6.6 years 4.30 % 1.08 % $1,373 2019 March 6, 2019 1,201 10 years $21.14 14.0 % 5.8 years 4.08 % 1.71 % $1,617 (b) The weighted average market price at which options were exercised for the year ended December 31, 2020 was $21.71 (year ended December 31, 2019 – $21.34). The assumptions used to measure the fair value of the unit options under the Black-Scholes model (level 2) as at December 31, 2020 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 2020 2019 22.93% - 50.12% 12.06% - 14.35% 0.2 - 5.7 years 4.16% 1.65% - 1.73% 0.2 - 6.5 years 6.30% 0.07% - 0.44% 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 for RU arrangements only, 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. 95 FIRST CAPITAL REIT ANNUAL REPORT 2020 Year ended December 31 (in thousands) Outstanding at beginning of year Granted (a) (b) Distributions / Dividends reinvested Exercised Forfeited Outstanding at end of year Expense recorded for the year DUs 289 59 20 — — 368 $1,084 2020 RUs / PUs 663 295 44 (189) (24) 789 $5,830 2019 RSUs / PSUs 588 244 22 (179) (12) 663 $4,290 DSUs 289 31 10 (41) — 289 $581 (a) The fair value of the DUs granted during the year ended December 31, 2020 was $0.8 million (year ended December 31, 2019 – $0.7 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, 2020 was $3.5 million (year ended December 31, 2019 – $1.9 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, 2020 was $2.6 million (year ended December 31, 2019 – $3.4 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 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 Unitholder / Shareholder return Weighted average risk free interest rate Fair value (thousands) 2020 February 28, 2020 131 3 years 13.8% 35.0% (4.0%) 1.11% $2,573 2019 March 6, 2019 154 3 years 14.0% 30.8% 9.1% 1.68% $3,399 (c) Increase (decrease) in the value of unit-based compensation First Capital’s unit-based compensation plans are accounted for as cash-settled awards. Therefore, outstanding Unit Options, Deferred Units, Restricted Units and Performance Units are recognized as a liability and carried at fair value through profit and loss. As at December 31, 2020, the carrying value of the unit-based compensation liability was $12,168 (December 31, 2019 – $19,187)(Note 12). For the year ended December 31, 2020, FCR recognized a decline in the value of the unit-based compensation plans which resulted in a gain of $11.5 million due to a decrease in the Trust's unit price as a result of equity market volatility in light of COVID-19. FIRST CAPITAL REIT ANNUAL REPORT 2020 96  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 16. NET OPERATING INCOME Net Operating Income by Component First Capital’s net operating income by component is presented below: Property rental revenue Base rent (1) Operating cost recoveries Realty tax recoveries Lease termination fees Percentage rent Straight-line rent adjustment Prior year operating cost and tax recovery adjustments Temporary tenants, storage, parking and other (2) Total Property rental revenue Property operating costs Recoverable operating expenses Recoverable realty tax expense Prior year realty tax expense Other operating costs and adjustments (3) Total Property operating costs Total NOI NOI margin Year ended December 31 % change 2020 2019 $ 426,845 $ 457,200 97,265 110,284 122,326 137,388 1,811 3,502 2,711 27 5,265 4,798 5,824 (933) 18,403 26,947 (9.9%) 672,890 746,773 107,408 124,080 139,238 155,010 (284) 27,496 (1,215) 8,501 273,858 286,376 (13.3%) $ 399,032 $ 460,397 59.3% 61.7% (1) (2) (3) Includes residential revenue. Includes hotel property revenue. Includes residential operating costs, hotel property operating costs and bad debt expense. Included in other operating costs and adjustments is bad debt expense for the year ended December 31, 2020 of $22.8 million (December 31, 2019 - $0.6 million) comprised of $13.2 million of net rental abatements related to the CECRA program and additional provisions of $9.6 million in light of COVID-19. Net Operating Income by Segment Net operating income is presented by segment as follows: Year ended December 31, 2020 Property rental revenue Property operating costs Net operating income Central Region 321,828 $ Eastern Region 134,502 $ Western Region 219,064 $ Subtotal 675,394 $ 137,885 62,212 79,751 279,848 Other (1) (2,504) $ (5,990) Total 672,890 273,858 183,943 $ 72,290 $ 139,313 $ 395,546 $ 3,486 $ 399,032 $ $ 97 FIRST CAPITAL REIT ANNUAL REPORT 2020 Year ended December 31, 2019 Property rental revenue Property operating costs Net operating income Central Region 326,491 $ Eastern Region 180,194 $ Western Region 242,390 $ Subtotal 749,075 $ Other (1) (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 $ $ (1) Other items principally consist of inter-company eliminations. For the year ended December 31, 2020, property operating costs include $16.4 million (year ended December 31, 2019 – $21.0 million) related to employee compensation. Employee compensation is presented net of subsidies received under the Canada Emergency Wage Subsidy ("CEWS") program for the year ended December 31, 2020 of $4.5 million related to property operations personnel. A portion of this wage subsidy will be passed on to tenants through lower operating cost recoveries. 17. INTEREST AND OTHER INCOME Year ended December 31 6 6 6 Note 10 10 11 13 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 and mortgages receivable at amortized cost Fees and other income Total 18. INTEREST EXPENSE Mortgages Credit facilities Senior unsecured debentures Distributions on Exchangeable Units (1) 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 2020 $ 1,082 $ 922 6,791 3,453 $ 12,248 $ 2019 4,473 2,767 15,517 10,292 33,049 Year ended December 31 2020 $ 52,142 $ 28,796 100,854 650 182,442 (24,731) 2019 53,920 34,163 106,326 86 194,495 (22,661) $ 157,711 $ 171,834 (1,524) 1,203 401 (6,556) 97 1,303 1,272 (6,428) $ 151,235 $ 168,078 (1) Effective December 30, 2019, 1.2 million Exchangeable Units were issued upon REIT conversion. As at December 31, 2020, 0.1 million Exchangeable Units were outstanding. The distributions declared on the Exchangeable Units are accounted for as interest expense. FIRST CAPITAL REIT ANNUAL REPORT 2020 98  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 19. CORPORATE EXPENSES Salaries, wages and benefits Unit-based compensation Other corporate costs Total corporate expenses Amounts capitalized to investment properties under development Year ended December 31 2020 $ 22,985 $ 7,673 10,277 40,935 (7,697) 2019 28,743 5,740 12,385 46,868 (8,309) 38,559 Corporate expenses $ 33,238 $ For the year ended December 31, 2020, salaries, wages and benefits include $3.8 million of wage subsidies received under the CEWS program. 20. OTHER GAINS (LOSSES) AND (EXPENSES) Realized gain on sale of marketable securities Unrealized gain (loss) on marketable securities Net gain (loss) on prepayments of debt Gain on below market purchase (1) Hotel acquisition transaction costs (1) Gain on Investment (a) Proceeds from Target (2) Pre-selling costs of residential inventory Investment properties selling costs REIT conversion costs Transaction costs (b) Other Total Year ended December 31 2020 $ — $ (234) (282) 7,385 (1,121) — — (142) (3,915) (906) — 73 $ 858 $ 2019 1,164 474 — — — 4,022 692 — (6,381) (5,013) (3,414) (303) (8,759) (1) (2) In connection with acquisition of hotel property - Refer to Note 5. 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 of 2019, 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 of 2019, 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 of 2019. 99 FIRST CAPITAL REIT ANNUAL REPORT 2020 21. 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 a Mutual Fund Corporation. The sources of deferred tax balances and movements are as follows: December 31, 2019 Net income Recognized in OCI Equity and other December 31, 2020 Deferred taxes related to non-capital losses $ — $ (35,442) $ Deferred tax liabilities related to difference in tax and book basis primarily related to real estate, net 701,549 59,366 (2,716) $ (18,225) (2,032) $ (3,972) (40,190) 738,718 Net deferred taxes $ 701,549 $ 23,924 $ (20,941) $ (6,004) $ 698,528 As at December 31, 2020, the corporate subsidiaries of the Trust had approximately $103.0 million of non-capital losses which expire between 2028 and 2040. 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. The following reconciles the expected tax expense computed at the statutory tax rate to the actual tax expense for the years ended December 31, 2020 and 2019 relating to the Trust. Income tax computed at the Canadian statutory rate of Nil applicable to the Trust at December 31, 2020 and December 31, 2019 Increase (decrease) in income taxes due to: Derecognition of deferred income tax liability on REIT conversion Deferred income taxes applicable to corporate subsidiaries Impact of change in provincial income tax rate Other Deferred income taxes Year ended December 31 2020 — $ 2019 — $ — (160,940) 22,481 481 962 98,184 (20,848) 1,417 $ 23,924 $ (82,187) FIRST CAPITAL REIT ANNUAL REPORT 2020 100  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 22. 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, 2020, First Capital has a total of $332.6 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 $3.3 million. First Capital has a total of $1.2 billion principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured debentures and secured credit facilities maturing between January 1, 2021 and December 31, 2023 at a weighted average coupon interest rate of 4.1%. 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 $12.1 million. As at December 31, 2020, First Capital’s loans and mortgages receivable that earn interest at variable rates total $75.1 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 $0.8 million, and if the variable interest rate were 100 basis points lower, FCR’s annual interest income would decrease by approximately $0.1 million. First Capital’s loans and mortgages receivable that earn interest at fixed rates total $35.8 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 $0.4 million. (b) Credit risk Credit risk arises from the possibility that tenants and/or debtors may experience financial difficulty and be unable or unwilling to fulfill their lease commitments or loan obligations. 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 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, 2020, Loblaw Companies Limited (“Loblaw”) is FCR's largest tenant and accounts for 10.5% 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’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 101 FIRST CAPITAL REIT ANNUAL REPORT 2020 $ 2020 397,377 1,100,187 751,421 $ 2,248,985 (c) Liquidity risk 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. An analysis of First Capital’s contractual maturities of its material financial liabilities and other contractual commitments as at December 31, 2020 is set out below: As at December 31, 2020 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 $ Payments Due by Period 2022 to 2023 2024 to 2025 Thereafter 64,578 $ 95,522 304,899 750,000 280,001 2,076 — — 61,587 $ 93,066 $ 164,373 375,000 600,000 185,252 1,238 781,157 175,000 1,000,000 131,023 16,203 — — — — 2021 28,385 $ 62,623 61,267 175,000 165,761 1,189 33,764 7,125 Total 247,616 1,103,675 916,166 2,525,000 762,037 20,706 33,764 7,125 $ 535,114 $ 1,497,076 $ 1,387,450 $ 2,196,449 $ 5,616,089 (1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2020 (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 secured and unsecured credit facilities, mortgages and unsecured debentures; and issuing equity when considered appropriate. As at December 31, 2020, there was $0.7 billion (December 31, 2019 – $0.8 billion) of cash advances drawn against First Capital’s unsecured credit facilities. In addition, as at December 31, 2020, First Capital had $49.2 million (December 31, 2019 – $33.3 million) of outstanding letters of credit issued by financial institutions primarily to support certain of FCR’s contractual obligations and $0.2 million (December 31, 2019 – $0.1 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 $0.1 million (December 31, 2019 – $1.2 million); and (ii) Unit-based compensation liabilities $2.3 million (December 31, 2019 – $3.2 million) FIRST CAPITAL REIT ANNUAL REPORT 2020 102  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 23. 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 2020 2019 2020 2019 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 6 6 6 8 6 8 10 10 11 13 15 12 $ 3,715 $ 1,974 111,160 13,965 12,580 — 3,949 $ 20,858 124,924 14,513 12,302 5,303 3,715 $ 1,974 110,045 13,965 12,580 — 3,949 20,858 124,740 14,513 12,302 5,303 899,165 $ 1,346,637 $ 1,327,021 $ 1,446,711 $ 1,346,852 899,165 2,580,365 25,010 19,187 4,686 915,928 2,497,213 2,693,223 1,399 12,168 50,368 915,928 2,522,135 1,399 12,168 50,368 25,010 19,187 4,686 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, 2020, the risk-adjusted interest rates ranged from 1.2% to 10.4% (December 31, 2019 – 3.5% to 11.4%). 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, 2020, these rates ranged from 1.5% to 2.3% (December 31, 2019 – 3.2% to 3.4%). The fair value of the senior unsecured debentures are based on closing bid risk-adjusted spreads and current underlying Government of Canada bond yields on discounted cash flows. For the purpose of this calculation, the Trust uses, among others, interest rate quotations provided by financial institutions. As at December 31, 2020, these rates ranged from 0.8% to 2.6% (December 31, 2019 – 2.3% to 3.6%). The fair value of the Exchangeable Units are based on the Trust's closing price as of December 31, 2020. 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, 2020. Performance Units: Fair value is calculated using a Monte-Carlo simulation model. 103 FIRST CAPITAL REIT ANNUAL REPORT 2020 The fair value hierarchy of financial instruments in the audited annual consolidated balance sheets is as follows: As at December 31, 2020 December 31, 2019 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 $ Fair value of financial instruments 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 Fair value of financial instruments measured at amortized cost Financial Assets Loans and mortgages receivable Bond asset Financial Liabilities Mortgages Credit facilities Senior unsecured debentures $ 3,715 $ — — — — — — — $ — — — — $ 1,974 12,580 — 3,949 $ — — — — $ — — 5,303 — 20,858 12,302 — 1,399 12,168 50,368 — — — — — — 25,010 19,187 4,686 — — — — $ — 13,965 — $ 110,045 $ — — — 1,446,711 915,928 2,693,223 — — — — — $ — — $ 14,513 124,740 — — — — 1,346,852 899,165 2,580,365 — — — 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, 2020, the interest rates ranged from 1.7% to 2.5% (December 31, 2019 – 1.7% to 3.7%). The fair values of First Capital's asset (liability) hedging instruments are as follows: Designated as Hedging Instrument Maturity as at December 31, 2020 December 31, 2020 December 31, 2019 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 N/A N/A N/A N/A April 2024 - March 2027 February 2021 $ $ $ $ — — — — — 45,422 4,946 50,368 $ $ $ $ 2,372 2,931 — 5,303 — 1,677 3,009 4,686 As at December 31, 2020, the $45.7 million increase in the fair value of outstanding derivative liabilities is primarily due to significant fluctuations in market rates (Canadian Bankers' Acceptance rate and Government of Canada bond rate) relative to the market rates locked-in at inception of outstanding interest rate swaps. FIRST CAPITAL REIT ANNUAL REPORT 2020 104  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 24. SUBSIDIARIES WITH NON-CONTROLLING INTEREST As at December 31, 2020, 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. (2) Primary Investment 46.875% Interest in MMUR (1) 46.875% Interest in MMUR (1) Effective Ownership December 31, 2020 December 31, 2019 67.0% 70.9% 67.0% 90.0% (1) FCR has owned a 6.25% direct interest in MMUR since 2014. (2) FCR's ownership in Maincore Equities Inc. decreased due to the redemption of its Class B common shares. First Capital controls MMLP, a subsidiary in which it holds a 67% ownership interest. During the third quarter of 2019, 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 first quarter of 2020, one of the Trust's wholly owned subsidiaries purchased a property from MMUR, which is also a consolidated subsidiary. The entire proceeds from the sale were distributed to the limited partners, including $24.4 million to the non-controlling interest partner. Non-controlling interest in the equity and the results of these subsidiaries, before any inter-company eliminations, are as follows: $ December 31, 2020 95,319 1,170 96,489 23 23 96,466 29,263 $ $ $ December 31, 2019 213,183 25 213,208 69 69 213,139 48,914 $ $ Year ended December 31 2020 4 32,360 (5,497) 26,867 4,780 2019 6,113 40,209 (1,571) 44,751 12,995 $ $ $ Year ended December 31 2020 (5,745) 361 5,291 (93) 2019 8,153 — (9,265) (1,112) $ $ $ $ $ $ $ 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 (used in) operating activities Cash provided by financing activities Cash provided by (used in) investing activities Net increase (decrease) in cash and cash equivalents 105 FIRST CAPITAL REIT ANNUAL REPORT 2020 25. 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 101 Yorkville Avenue 2150 Lake Shore Blvd. West (Christie Cookie) 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 261 Queens Quay East (Bayside Village) Midland (land) Rutherford Marketplace (Residential Inventory) Hunt Club – Petrocan Gatineau Portfolio (1) Hunt Club Marketplace Lachenaie Properties South Oakville Properties (2) Whitby Mall Thickson Mall St. Hubert Portfolio (3) Ottawa Portfolio (3) West Island Portfolio (4) Burlington Portfolio (5) Seton Gateway Sherwood Park The Edmonton Brewery District 138 Yorkville Avenue Meadowbrook Centre Lakeview Plaza Location Toronto, ON Toronto, ON Calgary, AB Calgary, AB Ottawa, ON Gatineau, QC Ottawa, ON Repentigny, QC Repentigny, QC St. Albert, AB Toronto, ON Toronto, ON Midland, ON Vaughan, ON Ottawa, ON Gatineau, QC Ottawa, ON Lachenaie, QC Oakville, ON Whitby, ON Whitby, ON St. Hubert, QC Ottawa, ON Ownership Interest December 31, 2020 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 66.6% 50% 50% 50% 50% 50% 66.6% 50% 50% 50% 50% 50% 50% 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% Beaconsfield, QC / Kirkland, QC Burlington, ON Calgary, AB Sherwood Park, AB Edmonton, AB Toronto, ON Edmonton, AB Calgary, AB 50% 50% 50% 50% 50% 33.3% 50% 50% 50% —% 50% 50% 50% 33.3% —% —% (1) Gatineau Portfolio includes Place Cite des Jeunes, Place Nelligan, and Carrefour du Versant Ouest/Est. (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) Burlington Portfolio includes Burlingwood Shopping Centre and Beacon Hill Plaza. FIRST CAPITAL REIT ANNUAL REPORT 2020 106  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued Property West Springs Village 216 Elgin Street 221 - 227 Sterling London Portfolio (1) Molson's Building 1071 King Street West 200 Esplanade (Empire Theatres) 400 King Street West (2) 1120 Kingston Road (2) Location Calgary, AB Ottawa, ON Toronto, ON London, ON Calgary, AB Toronto, ON North Vancouver, BC Toronto, ON Toronto, ON Ownership Interest December 31, 2020 50% 50% 35% 49.5% 75% 66.6% 50% 50% 60% December 31, 2019 50% 50% 35% 49.5% 75% 66.6% 50% 50% 60% (1) London Portfolio includes Wellington Corners, Sunningdale Village, Byron Village, Hyde Park Plaza, Stoneybrook Plaza, and Adelaide Shoppers. (2) Co-ownership interests held by MMUR. 26. SUPPLEMENTAL OTHER COMPREHENSIVE INCOME (LOSS) INFORMATION (a) Accumulated other comprehensive income (loss) Year ended December 31 2020 2019 Unrealized gains (losses) on cash flow hedges Unrealized gains (losses) on revaluation of hotel property Accumulated other comprehensive income (loss) Opening Balance January 1 Net Change During the Year Closing Balance December 31 Opening Balance January 1 Net Change During the Year Closing Balance December 31 (10,712) (32,868) (43,580) (4,488) (6,224) (10,712) 2,910 (2,910) — — 2,910 2,910 $ (7,802) $ (35,778) $ (43,580) $ (4,488) $ (3,314) $ (7,802) (b) Tax effects relating to each component of other comprehensive income (loss) 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 2020 Net of Tax Amount Before-Tax Amount Tax (Expense) Recovery 2019 Net of Tax Amount $ (56,012) $ 21,798 $ (34,214) $ (12,967) $ 5,812 $ (7,155) 2,203 (857) 1,346 1,687 (756) 931 (2,910) — (2,910) 2,910 — 2,910 Other comprehensive income (loss) $ (56,719) $ 20,941 $ (35,778) $ (8,370) $ 5,056 $ (3,314) 107 FIRST CAPITAL REIT ANNUAL REPORT 2020 27. SUPPLEMENTAL CASH FLOW INFORMATION (a) Items not affecting cash and other items Straight-line rent adjustment Investment properties selling costs Realized (gain) loss on sale of marketable securities Unrealized (gain) loss on marketable securities classified as FVTPL Gain on below market purchase (1) Hotel transaction costs (1) Transaction costs (2) Gain on Investment Unit-based compensation expense Increase (decrease) in value of Exchangeable Units Increase (decrease) in value of unit-based compensation Deferred income taxes (recovery) Other non-cash items Total Note Year ended December 31 2019 2020 16 20 20 20 20 20 20 20 15 13 15 21 $ (2,711) $ 3,915 — 234 (7,385) 1,121 — — 8,019 (7,404) (11,459) 23,924 (41) (5,824) 6,381 (1,164) (474) — — 3,414 (4,022) 5,696 (230) (81) (82,187) 338 $ 8,213 $ (78,153) (1) In connection with acquisition of hotel property - Refer to Note 5. (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 Other investments, net Investment in marketable securities, net Proceeds from disposition of marketable securities Total Year ended December 31 2020 $ (14,775) $ (1,303) 12,228 (602) (6,770) $ (11,222) $ 2019 4,870 (1,517) (12,459) 570 (4,035) (12,571) Year ended December 31 2019 2020 $ (18,083) $ (62,545) 45,319 (278) — — $ 26,958 $ 183,194 3,554 (5,000) 26,251 145,454 FIRST CAPITAL REIT ANNUAL REPORT 2020 108  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (d) Cash and cash equivalents As at Cash and cash equivalents December 31, 2020 December 31, 2019 $ 100,444 $ 25,503 28. 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 $70.5 million (December 31, 2019 – $77.5 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 $49.2 million (December 31, 2019 – $33.3 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, 2019 – $1.2 million) with a total obligation of $20.7 million (December 31, 2019 – $21.9 million). 29. RELATED PARTY TRANSACTIONS (a) Gazit-Globe During the first quarter of 2020, Gazit sold its remaining 6.7% interest in FCR and is no longer a related party. (b) Joint ventures During the year ended December 31, 2020, First Capital earned fee income of nil (year ended December 31, 2019 – $1.9 million) from its joint ventures. During the year ended December 31, 2020, First Capital also advanced nil (year ended December 31, 2019 – $1.2 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. (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-based compensation (non-cash compensation expense) Year ended December 31 $ 2020 4,390 6,108 $ 10,498 2019 4,724 4,362 9,086 $ $ 109 FIRST CAPITAL REIT ANNUAL REPORT 2020 30. SUBSEQUENT EVENTS Reduction in Distributions to Unitholders On January 12, 2021, First Capital announced the temporary reduction of its monthly distribution to Unitholders from $0.0716 per unit to $0.036 to provide the Trust with additional retained cash flow of approximately $95 million per annum. Monthly Distributions On January 12, 2021, First Capital announced that it will pay a distribution, for the month of January, of $0.036 per Trust Unit on February 15, 2021 to Unitholders of record as at January 31, 2021. Collection of January 2021 Rent As of February 9, 2021, First Capital has collected approximately 91% of the gross rents payable from tenants for the month of January. FIRST CAPITAL REIT ANNUAL REPORT 2020 110 

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