MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
Table of Contents
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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
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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.
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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
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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.
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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.
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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
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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.
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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
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63
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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.
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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
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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.
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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