First Capital Realty Inc.
Annual Report 2021

Plain-text annual report

MD&A MANAGEMENT’S DISCUSSION AND ANALYSIS Table of Contents 1 1 4 6 7 9 9 11 12 12 13 14 14 15 16 17 22 25 26 26 27 28 28 30 30 31 31 32 33 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 2021 Acquisitions 2020 Acquisitions 2021 Dispositions 2020 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 33 33 35 36 37 38 39 39 39 40 41 41 42 42 43 45 47 47 47 48 49 49 50 52 53 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 (Loss) to First Capital's Proportionate Interest FFO and ACFO NAV per unit Distributions 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, 2021 and 2020. It should be read in conjunction with the Trust’s audited annual consolidated financial statements for the years ended December 31, 2021 and 2020. 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 8, 2022. 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. OUTLOOK AND CURRENT BUSINESS ENVIRONMENT Throughout most of the fourth quarter, essential and non-essential businesses were operating at near capacity, with additional protection from proof of vaccination measures for restaurants, gyms and other venues. In late November, healthcare agencies first identified the new Omicron COVID variant which quickly became the dominant strain worldwide. In late 2021 and early 2022, provincial governments mandated temporary capacity restrictions and lockdowns in an effort to slow the speed of the Omicron variant. These restrictions have adversely impacted certain tenants. In response to these restrictions, the Federal government enacted new COVID-19 support measures on December 17, 2021 and introduced the Local Lockdown Program and the Canada Work Lockdown Benefit. The Local Lockdown Program provides wage and rent support for organizations subject to a qualifying public health restriction, regardless of sector. Despite the continuing challenges facing many businesses as a result of the pandemic, First Capital's high quality grocery- anchored and mixed-use portfolio continues to produce solid leasing activity, growth in its average net rental rate while 2021 has seen new leases signed with numerous growing retailers and full-service restaurant operators. 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. 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, FCR expanded its Quick Shop program in 2020, 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. Supporting our tenants First Capital recognizes that small businesses play an important role in the neighbourhoods where it operates. In late March of 2020, FCR announced the launch of its Small Business Support Program ("SBSP"), to provide relief to a subset of qualifying tenants in the form of two months' deferred rent. During the second quarter of 2020, the federal government implemented the Canada Emergency Commercial Rental Assistance (“CECRA”) program, which largely replaced FCR's SBSP. 1 FIRST CAPITAL REIT ANNUAL REPORT 2021 The CECRA program operated from April through September 2020, abating 75% of the qualifying tenants' gross rent and extending a forgivable government loan to the property owner equal to 50% of the gross rent. Under this program, FCR abated $13.2 million of tenants' rent, net of the government's support, as a charge to bad debt expense in 2020. In September 2020, to continue to assist businesses amid these difficult conditions, the federal government implemented a rent support program, the Canada Emergency Rent Subsidy "CERS", that supported tenants directly. This rent subsidy supported businesses that suffered a revenue drop, by subsidizing eligible expenses, including rent, property insurance, property taxes and interest on commercial mortgages. The program subsidized up to 65% of eligible expenses and included 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. The program was available to qualifying tenants from September 27, 2020 to October 23, 2021. The Tourism and Hospitality Recovery Program and the Hardest-Hit Business Recovery Program took effect October 24, 2021 and are available until May 7, 2022. The Tourism and Hospitality Recovery Program will provide help through wage and rent subsidies for hotels, tour operators, travel agencies and restaurants with a subsidy rate of up to 75%. The Hardest- Hit Business Recovery Program will provide support through wage and rent subsidies for other businesses that have faced deep losses, with a subsidy rate of up to 50%. For these two programs, eligibility will require both a significant revenue loss over 12 months during the pandemic and a revenue loss in the current month of application. The Local Lockdown Program is currently available to organizations, regardless of sector that are subject to a qualifying health restriction from October 24, 2021 to May 7, 2022. Businesses that have one or more locations subject to a public health restriction for at least seven days in the claim period may be eligible for support at the same subsidy rates available under the Tourism and Hospitality Recovery Program. To qualify, the public health restriction must cause the business to cease activities that accounted for at least approximately 25% of their total revenues during the prior reference period. In addition, the organization must have a current month revenue loss of at least 40%. First Capital also provided 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 are passed on to tenants through lower operating cost recoveries. The CEWS program was extended to October 23, 2021, however after July 3, 2021, only applicants with a minimum revenue decline of 10% can participate. 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. First Capital recorded bad debt expense of $1.4 million and $8.5 million for the three months and year ended December 31, 2021. To date, First Capital collected 98% of the gross rent due in the fourth quarter. 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. • On January 12, 2021, First Capital announced a 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 8, 2022, the Trust's liquidity position included approximately $661 million of cash and undrawn credit facilities with remaining debt maturities for 2022 totaling only $327 million. As at December 31, 2021, the Trust had unencumbered properties with an IFRS value of approximately $7.4 billion and a net debt to asset ratio of 43.9%. • 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 can 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 FIRST CAPITAL REIT ANNUAL REPORT 2021 2  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 $240.0 million (December 31, 2020 - $113.1 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’s approach to property dispositions is centered around several objectives. The first is to sell 100% interests in properties that are deemed to be inconsistent with its Super Urban Strategy, as properties in these markets do not benefit from the same attractive long-term demographic growth drivers as the business overall. 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. Finally, First Capital seeks to strategically partner with organizations that offer expertise that is complementary to the REIT’s existing strengths in retail real estate operations, master planning and entitlements, in order to maximize the potential value and reduce risk inherent in its large- scale mixed-use projects. In April 2019, following the share repurchase transaction, First Capital increased its strategic disposition target to $1.5 billion from $1.0 billion. Since the beginning of 2019, FCR has completed dispositions under this strategy totaling approximately $1.4 billion or 95% of its target. FCR continues to pursue strategic disposition opportunities as the property transaction market has demonstrated strong momentum in 2021 despite the on-going pandemic. Development initiatives Management continues to monitor the impacts of COVID-19 on the portfolio, including properties under development. As of December 31, 2021, FCR had approximately 0.5 million square feet under active development, including residential inventory. 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 in all the asset classes in which it invests. On September 17, 2021, the Pemberton Group ("Pemberton") subscribed to 50% ownership in a new strategic partnership to develop the 28-acre site located at 2150 Lake Shore Boulevard West at Park Lawn Road in Toronto (the "Development Site") into a sustainable and inclusive master-planned, mixed-use, transit-oriented neighbourhood. First Capital exercised a previously secured option to purchase its former partner's 50% interest in the Development Site for approximately $56 million at the same time Pemberton invested $156 million in the new partnership. The Trust has maintained its 50% ownership interest in the property. Outlook Across Canada there are ongoing restrictions aimed at mitigating the transmission of COVID-19 and variants. These restrictions continue to present challenges to many businesses, including some of our tenants. There are also ongoing effects of the pandemic, including but not limited to social distancing recommendations, capacity limits in enclosed spaces that remain lower than pre-COVID limits, higher operating costs for many businesses due to personal protective equipment provisioning, and labour shortages in some instances. While the full impact on First Capital is still unknown, 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. 3 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 nine equity accounted joint ventures are presented on one line item in the consolidated balance sheets and the consolidated statements of income (loss), 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 nine 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. 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, ground-up development, properties under construction, and density and development land 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 FIRST CAPITAL REIT ANNUAL REPORT 2021 4  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 guidance on "Funds from Operations and Adjusted Funds From Operations for IFRS" dated January 2022. 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 guidance on "Adjusted Cashflow From Operations (ACFO) for IFRS" dated January 2022. 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. Weighted average units outstanding for FFO For purposes of calculating per unit amounts for FFO, the weighted average number of diluted units outstanding includes the weighted average outstanding Trust Units 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 principal or par value amounts of First Capital's net 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. 5 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 on a proportionate basis. 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 on a proportionate basis. FCR also adjusts for incremental leasing costs, which is a recognized adjustment to FFO, in accordance with the recommendations of REALPAC. Management believes Adjusted EBITDA is useful in assessing the Trust's ability to service its debt, finance capital expenditures and provide for distributions to its Unitholders. 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 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. Management believes that NAV is useful to financial statement users who consider it a key measure of the intrinsic value of the Trust. 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 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 (19.7 million square feet at its ownership interest compared to 22.5 million square feet at 100% as at December 31, 2021). First Capital's operating metrics and GLA excludes residential GLA totaling 364,000 square feet and hotel GLA of 49,000 square feet, at its ownership interest, as amounts are not significant at this time. In measuring performance or allocating resources, the Trust does not distinguish or group it's operations on a geographical or any other basis and, accordingly, has a single reportable segment for disclosure purposes. As a result, effective January 1, 2021, the Trust has one reportable segment for financial reporting purposes which comprises the ownership, management and development of investment properties located across Canada. FIRST CAPITAL REIT ANNUAL REPORT 2021 6 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 (loss) attributable to Unitholders Net income (loss) per unit attributable to Unitholders (diluted) Weighted average number of units - diluted (in thousands) Cash provided by operating activities Distributions Distributions declared Distributions declared per unit Dividends declared per common share Cash distributions paid As at December 31 Financial Information (1) Investment properties (3) Hotel property Total assets Mortgages (3) Credit facilities Senior unsecured debentures Exchangeable Units Unitholders' equity Net Asset Value per unit (2) Capitalization and Leverage 2021 2020 2019 $ 685,770 $ 685,138 $ 779,822 $ 412,538 $ 399,032 $ 460,397 $ 198,617 $ (185,700) $ 61,037 $ (1,122) $ (9,432) $ — $ 460,131 $ 2.08 $ $ 2,702 $ 401,345 0.01 $ 1.74 220,826 220,495 230,810 $ 249,613 $ 219,505 $ 269,147 $ $ $ 94,804 $ 188,027 $ 165,224 0.432 — $ $ 0.860 — $ $ 0.072 0.645 $ 102,618 $ 187,929 $ 203,830 2021 2020 2019 $ 9,126,839 $ 9,490,641 $ 9,752,130 $ 85,400 $ 88,000 $ 62,199 $ 10,109,074 $ 10,032,463 $ 10,161,360 $ 1,173,175 $ 1,346,637 $ 1,327,021 $ 899,777 $ 915,928 $ 899,165 $ 2,348,145 $ 2,522,135 $ 2,497,213 $ 1,947 $ 1,399 $ 25,010 $ 4,620,942 $ 4,227,164 $ 4,426,592 $ 24.28 $ 22.34 $ 23.39 Trust Units outstanding (in thousands) Exchangeable Units outstanding (in thousands) 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) 219,541 219,315 217,954 103 103 1,210 $ 8,568,292 $ 7,657,576 $ 9,253,174 43.9% 47.2% 46.7% 4.0 4.6 5.1 7 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 Weighted average rate per occupied square foot Commercial GLA developed and transferred online - at ownership interest (6) Residential units developed and transferred online (6) Same Property - stable NOI - increase (decrease) over prior period (2) (7) Total Same Property NOI - increase (decrease) over prior period (2) (7) For the years ended December 31 Funds from Operations (2) (4) FFO FFO per diluted unit FFO payout ratio Weighted average number of units - diluted (in thousands) Adjusted Cash Flow from Operations (2) (4) ACFO ACFO payout ratio on a rolling four quarter basis 2021 2020 2019 146 150 156 22,485,000 22,822,000 23,528,000 19,657,000 19,991,000 20,927,000 96.0% 96.1% 96.1% 96.2% 97.2% 96.9% 1,720,000 1,803,000 2,258,000 21,752,000 22,038,000 22,778,000 $ 22.42 $ 21.89 $ 21.25 194,000 33,000 201,000 399 5.1% 5.7% 193 (5.8%) (7.1%) 247 2.7% 3.3% 2021 2020 2019 $ 250,989 $ 221,974 $ 1.14 $ 38.0% 1.01 85.4% $ $ 284,920 1.23 69.7% 220,826 220,495 230,810 $ 243,816 $ 203,047 $ 252,416 42.1% 92.6% 80.8% (1) As presented in First Capital's IFRS consolidated financial statements, except for weighted average number of diluted units and per unit amounts. (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. Total assets excludes cash balances. Refer to the "Non-IFRS Financial Measures – Proportionate Interest" section of this MD&A. (5) At First Capital's ownership interest. (6) During the twelve months ended December 31. (7) Calculated based on the year-to-date NOI. Prior period amounts not restated for current period property categories. FIRST CAPITAL REIT ANNUAL REPORT 2021 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 density and 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 recently completed multi-year redevelopment projects with significant intensification, reconfiguration and building and tenant upgrades. Ground-up development – consists of recently completed 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. Properties under construction – consists of properties under major redevelopment or ground-up development that are under active construction. Density and Development land – comprises land sites where there are no development activities underway, except for those in the planning stage and certain zoned or unzoned sites where specific density value has been ascribed. 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. 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. Portfolio Overview As at December 31, 2021, First Capital had interests in 146 neighbourhoods, which were 96.1% occupied with a total GLA of 19.7 million square feet at FCR's ownership interest (22.5 million square feet at 100%) and a fair value of $9.5 billion. This compares to 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 as at December 31, 2020. The Same Property portfolio includes properties sub-categorized in Same Property – stable and Same Property with redevelopment. The Same Property portfolio is comprised of 136 neighbourhoods with a total GLA of 18.9 million square feet at FCR's ownership interest (21.7 million square feet at 100%) and a fair value of $8.5 billion. These properties represent 93% of FCR's neighbourhood count, 96% of its GLA at FCR's ownership interest and 89% of its fair value as at December 31, 2021. The balance of FCR’s real estate assets consists of properties which are in various stages of redevelopment, properties acquired in 2021 or 2020 and properties in close proximity to them, as well as properties held for sale. 9 FIRST CAPITAL REIT ANNUAL REPORT 2021 First Capital's portfolio based on property categorization is summarized as follows: As at Property Type (1) Same Property – stable Same Property with redevelopment Total Same Property Major redevelopment Ground-up development Properties under construction Acquisitions (3) Density and Development land (4) (5) Investment properties classified as held for sale Dispositions (6) Total December 31, 2021 Weighted Average Rate per Occupied Square Foot 96.0% $ 22.76 % of Total GLA GLA (000s sq. ft.) 87.5% 17,492 $ 7,900 Fair Value (2) Occupancy December 31, 2020 Weighted Average Rate per Occupied Square Foot 96.1% $ 22.49 GLA (000s sq. ft.) Fair Value (2) Occupancy 17,514 $ 8,001 % of Total GLA 89.1% 7.1% 1,398 96.2% 2.0% 0.4% —% 0.1% 0.2% 18,912 397 86 — 22 33 1.1% 207 477 8,478 113 265 16 71 437 151 97.9% 96.1% 94.8% 89.7% —% 82.7% 99.2% 98.9% 18.12 22.41 21.44 32.68 — 51.72 15.90 19.37 7.0% 1,386 462 96.0% 17.63 94.5% 18,878 323 — — 7 49 1.6% —% —% 0.1% 0.2% 8,362 96 144 124 50 433 96.1% 94.6% —% —% 39.1% 100.0% 22.13 18.14 — — 40.28 15.95 1.1% 226 135 99.0% 19.32 —% — — —% — 2.5% 508 243 97.8% 17.04 100.0% 19,657 $ 9,531 96.1% $ 22.42 100.0% 19,991 $ 9,587 96.2% $ 21.89 (1) Prior periods restated to reflect current period property categories. (2) At FCR's proportionate interest, including investment properties classified as held for sale and hotel property at net book value as at December 31, 2021 and December 31, 2020, respectively. (3) Includes current year and prior year acquisitions. (4) Approximately $5 million of density and development land is included in acquisitions as at December 31, 2021. (5) Approximately $72 million (December 31, 2020 - $77 million) of density and development land is included in investment properties classified as held for sale as at December 31, 2021. (6) Comparative information presented relates to 2021 dispositions that have been completed and no longer form part of these metrics as at December 31, 2021. First Capital’s portfolio by major market is summarized as follows: As at December 31, 2021 December 31, 2020 (millions of dollars, except other data) Area 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 Greater Toronto 50 6,862 $ 4,599 48% 96.0% $ 25.73 Greater Montreal 28 3,586 1,140 12% Greater Calgary 15 2,380 1,081 11% Greater Vancouver 15 1,613 1,032 11% Greater Edmonton Greater Ottawa KW/Guelph (2) Other Total 11 2,256 13 1,182 5 1,047 9 731 754 379 338 208 8% 4% 4% 2% 95.9% 93.9% 96.3% 96.8% 98.4% 96.5% 98.1% 17.12 24.93 27.35 19.39 18.98 19.04 18.48 40% 14% 13% 10% 10% 5% 5% 3% 51 6,803 $ 4,624 48% 95.8% $ 25.23 28 3,551 1,106 12% 17 2,688 1,147 12% 16 1,750 1,041 11% 11 2,246 13 1,180 5 1,047 9 726 764 370 332 203 8% 4% 3% 2% 96.3% 95.7% 95.9% 95.2% 97.9% 98.3% 98.7% 17.02 23.37 25.53 19.24 18.97 19.00 17.77 39% 14% 14% 10% 10% 5% 5% 3% 146 19,657 $ 9,531 100% 96.1% $ 22.42 100% 150 19,991 $ 9,587 100% 96.2% $ 21.89 100% (1) At FCR's proportionate interest, including investment properties classified as held for sale and hotel property at net book value as at December 31, 2021 and December 31, 2020, respectively. (2) Includes Kitchener, Waterloo, and Guelph Area. Among First Capital's real estate investment portfolio are forty-three (2020 - forty-two) assets each with a value greater than $85 million or size greater than 300,000 square feet. Together, these forty-three assets comprise $6.3 billion (2020 - $6.2 billion) or 66% (2020 - 65%) of FCR's aggregate $9.5 billion investment portfolio asset value (2020 - $9.6 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 10 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Investment Properties A continuity of First Capital’s investment in its property acquisitions, dispositions, development and portfolio improvement activities is as follows: (millions of dollars) Balance at beginning of year Acquisitions Investment properties and additional adjacent spaces Development activities and property improvements Reclassification to residential development inventory Increase (decrease) in value of investment properties, net Dispositions Reclassification to equity accounted joint ventures (1) Other changes Balance at end of year (2) Year ended December 31, 2021 Consolidated Balance Sheet Adjustments for Proportionate Interest $ 9,491 $ 15 154 (92) 199 (367) (274) 1 9,127 $ $ 8 $ 8 (9) 20 (18) 34 274 2 319 $ Proportionate Interest (3) 9,499 23 145 (72) 181 (333) — 3 9,446 (1) (2) In the third quarter of 2021, two properties were reclassified to investment in joint ventures as the legal ownership of these two properties changed or was restructured as part of disposition transactions. The two properties are now beneficially owned in separate limited partnerships owned 50/50 by the Trust and their respective partners. Includes investment properties classified as held for sale as at December 31, 2021 totaling $151 million ($151 million at First Capital's share) of investment properties. (3) Refer to the "Non-IFRS Financial Measures" section of this MD&A. (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 Consolidated Balance Sheet Adjustments for Proportionate Interest $ 9,752 $ 20 205 (58) (186) (251) 9 $ 9,491 $ 9 $ 25 (15) — (10) — (1) 8 $ Proportionate Interest (3) 9,761 45 190 (58) (196) (251) 8 9,499 (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 $162 million ($162 million at First Capital's share) of investment properties. (3) Refer to the "Non-IFRS Financial Measures" section of this MD&A. 11 FIRST CAPITAL REIT ANNUAL REPORT 2021 2021 Acquisitions Income-producing properties During the year ended December 31, 2021, First Capital acquired four properties located in Toronto, as summarized in the table below: Count Property Name 1. 2. 3. 4. 8051 Yonge Street (Royal Orchard) 129 Jefferson Avenue (Liberty Village) 199 Avenue Road 897-901 Eglinton Avenue West Total City/Province Toronto, ON Toronto, ON Toronto, ON Toronto, ON Quarter Acquired Interest Acquired GLA (sq. ft.) Acreage Acquisition Cost (in millions) Q1 Q1 Q2 Q3 50% 100% 20% 50% 2,478 3,700 3,186 5,628 14,992 0.2 $ 0.1 0.1 0.2 0.6 $ 5.4 2.1 2.7 12.4 22.6 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. 2. 3. 4. 5. Yonge & Roselawn Assembly (1) 1795 Rue Fleury 261 Queens Quay E (Bayside Village) Hazelton Hotel (Yorkville Village) (2) 34 Montgomery Avenue 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% — 0.3 $ 4,193 23,979 4,506 — 0.2 1.6 — 0.1 32,678 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 2021 12 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 2021 Dispositions Consistent with First Capital's strategy of focusing on super urban neighbourhoods and partnering with strategic institutional partners, First Capital completed $344.8 million of dispositions during 2021. In addition, First Capital entered into a new strategic partnership with Pemberton Group to develop the former Christie Cookie site in Toronto (2150 Lakeshore Boulevard West). The $156 million transaction crystallized a significant gain for First Capital, and provided for a sizeable increase in the fair value of the REIT's 50% interest in the property. These dispositions are summarized in the table below: Quarter Sold Interest Sold GLA (sq. ft.) Acreage Gross Sales Price (in millions) Q2 Q2 Q3 Q3 Q3 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 100% 50% 50% (1) 100% 100% 31,000 2,294 109,809 249,875 20,551 100% 136,657 16.67% 53,822 50% 50% 50% 100% 100% 50% 50% 32,669 10,404 15,000 6,400 5,002 2,474 2.9 0.2 0.3 27.1 1.7 9.1 0.3 0.7 0.2 0.2 0.1 1.2 0.3 — 675,957 0.9 45.2 $ 344.8 Count Property Name 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Fairview Mall - Staples Eagleson Place - expansion unit Dundas & Aukland (Station Place) Towerlane Centre & Airdrie Village Square 134, 146-150 Lakeshore Road West (Lakeshore & Kerr) Langley Mall City/Province St. Catharines Ottawa, ON Toronto, ON Airdrie, AB Oakville, ON Langley, BC King High Line (King's Club residential) Toronto, ON 802, 812, 816-838 – 11th Avenue SW (GM Glenbow) 731-739 – 10th Avenue SW (Five Roses Building) 738 – 11th Avenue SW (Sherwin Block) 5095-5107 Queen Mary Fairview Mall - Kelsey's Eagleson Place - expansion unit Humbertown Shopping Centre (land) (2) Total Calgary, AB Calgary, AB Calgary, AB Montreal, QC St. Catharines Ottawa, ON Toronto, ON (1) 35% at FCR's proportionate share. (2) Previously classified as Residential Inventory. 13 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 were 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. Impact of Acquisitions and Dispositions 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 The annualized NOI of properties acquired and disposed, at the time of acquisition or disposition, during the years ended December 31, 2021 and 2020 is summarized in the table below: For the year ended December 31 Greater Toronto Area Greater Montreal Area Greater Calgary Area Greater Vancouver Area Greater Edmonton Area Greater Ottawa Area KW/Guelph Area (1) Other Total (1) Includes Kitchener, Waterloo, and Guelph Area. Acquired Disposed 2021 637 — — — — — — — 637 2020 1,915 — — — — — — — 1,915 $ $ 2021 1,642 164 4,424 1,112 — 165 — 680 8,187 $ $ 2020 778 3,800 1,034 703 814 2,041 — 3,713 12,883 $ $ $ $ FIRST CAPITAL REIT ANNUAL REPORT 2021 14 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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, ground-up development as well as condominium and townhome 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 and residential inventory by type are summarized in the table below: Year ended December 31 2021 2020 Capital Expenditures Adjustments for Proportionate Interest Proportionate Interest (1) Capital Expenditures Adjustments for Proportionate Interest Revenue sustaining Revenue enhancing Expenditures recoverable from tenants Development expenditures Sub-total Residential Inventory Total $ $ $ $ 15,554 $ 35,438 4,033 98,494 153,519 $ 14,541 $ 168,060 $ (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. 16 $ 3 — (8,991) (8,972) $ 6,545 $ (2,427) $ 15,570 $ 35,441 4,033 89,503 144,547 $ 21,086 $ 165,633 $ 18,517 $ 26,970 4,971 154,575 205,033 $ 8,349 $ 213,382 $ Proportionate Interest (1) 18,556 27,261 4,971 139,173 189,961 8,386 198,347 39 $ 291 — (15,402) (15,072) $ 37 $ (15,035) $ Capital expenditures for the year ended December 31, 2021 were $165.6 million, which was $32.7 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 new developments over the prior year. 15 FIRST CAPITAL REIT ANNUAL REPORT 2021 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, 2021 and December 31, 2020: As at and for the three and twelve months ended (millions of dollars) December 31, 2021 Property Type Same Property - stable Same Property with redevelopment Total Same Property Major redevelopment Ground-up development Properties under construction Acquisitions Density and Development Land (3) (4) Investment properties classified as held for sale Dispositions Total investment properties NOI related to other investments Total NOI Adjustments for Proportionate Interest Proportionate Interest (1) Fair Value Valuation Method DCF (2) DCF (2) $ $ DCF (2) DCF (2) DCF (2), Cost (2) DCF (2), Cost (2) Cost (2), comparable land sales DCF (2), comparable land sales 7,939 $ 428 8,367 $ 113 183 16 29 268 151 N/A — 9,127 $ $ 62 $ (2) 60 $ — 82 — 8 169 — — 319 $ Net Operating Income (1) 94 $ 369 8,001 $ 6 426 23 8,427 $ 100 $ 392 7 4 — — 113 265 16 37 2 2 — — 437 151 — 1 1 4 1 — 6 9,446 $ 106 $ 414 2 $ 107 $ 416 1 (1) At First Capital's proportionate interest. Refer to the "Non-IFRS Financial Measures" section of this MD&A. (2) Discounted Cash Flow ("DCF") is a valuation method under the Income Approach. At cost where cost approximates fair value. (3) Approximately $72 million ($72 million at First Capital's share) of density and development land is included in investment properties classified as held for sale. (4) Approximately $5 million, at First Capital's share, of density and development land is included in acquisitions. As at and for the three and twelve months ended (millions of dollars) December 31, 2020 Adjustments for Proportionate Interest Proportionate Interest (2) Fair Value Property Type (1) Same Property - stable Same Property with redevelopment Total Same Property Major redevelopment Ground-up development Properties under construction Acquisitions Density and Development Land (4) Investment properties classified as held for sale Dispositions (5) Total investment properties NOI related to other investments Total NOI Valuation Method DCF (3) DCF (3) $ $ DCF (3) DCF (3) DCF (3), Cost (3) DCF (3), Cost (3) Cost (3), comparable land sales DCF (3), comparable land sales N/A $ 7,838 $ 411 8,249 $ 96 145 146 15 440 135 265 9,491 $ 62 $ (2) 60 $ — — (22) — (8) — (22) 8 $ Net Operating Income (2) 93 $ 354 6 21 99 $ 375 6 2 — — 2 2 1 — — 1 7,900 $ 409 8,309 $ 96 145 124 15 432 135 1 4 3 243 14 9,499 $ 107 $ 403 (2) (1) $ 106 $ 401 (1) Prior periods restated to reflect current period property categories. (2) At First Capital's proportionate interest. Refer to the "Non-IFRS Financial Measures" section of this MD&A. (3) Discounted Cash Flow ("DCF") is a valuation method under the Income Approach. At cost where cost approximates fair value. (4) Approximately $77 million ($77 million at First Capital's share) of density and development land is included in investment properties classified as held for sale. (5) Includes properties that were disposed of in 2021. FIRST CAPITAL REIT ANNUAL REPORT 2021 16 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued The majority of the Trust's portfolio is valued under the Income Approach using the discounted cash flow ("DCF") method. As at December 31, 2021, the weighted average valuation yields (stabilized overall capitalization, terminal, and discount rates) used in valuing those investment properties under the Income Approach remained substantially unchanged from December 31, 2020. Throughout 2021, as part of its normal course internal valuations, the Trust adjusted the fair value of certain properties to reflect the contractual sale price prior to disposition, as well as revaluations of development land. In addition, the Trust made revisions to capitalization and discount rates for certain properties. As a result, an overall increase in the value of investment properties was recorded in the amount of $198.6 million ($181.5 million at FCR's share) for the year ended December 31, 2021. At the onset of the pandemic which arose in the first quarter of 2020, an overall decrease in the value of investment properties was recorded in the amount of $185.7 million ($195.8 million at FCR's share) for the year ended December 31, 2020. The decrease reflected the potential impact of COVID-19 on the cash flows in the valuation models. As part of a comprehensive portfolio review, properties with greater exposure to tenants deemed non-essential under government directives, and therefore potentially subject to prolonged closures, were identified. The short term cash flows in the 10 year valuation models for each of these properties were adjusted for increased vacancy, lower rental rate growth, and other market leasing assumptions such as slower lease up of existing vacancy. The associated stabilized capitalization rates by major market for FCR's investment properties valued under the Income Approach were as follows as at December 31, 2021 and December 31, 2020: As at December 31, 2021 Area Greater Toronto Greater Montreal Greater Calgary Greater Vancouver Greater Edmonton Greater Ottawa KW/Guelph (1) Other Weighted Average As at December 31, 2020 Area Greater Toronto Greater Montreal Greater Calgary Greater Vancouver Greater Edmonton Greater Ottawa KW/Guelph (1) Other Weighted Average Stabilized Capitalization Rate Weighted Average Median Range 4.5% 5.6% 5.2% 4.3% 5.8% 5.8% 5.6% 5.9% 5.0% 4.8% 5.5% 5.3% 4.4% 5.8% 5.8% 5.6% 5.8% 5.3% 3.0%-7.0% 4.5%-7.0% 4.9%-6.0% 3.5%-5.3% 5.0%-6.5% 4.4%-6.3% 5.3%-6.3% 5.0%-7.0% 3.0%-7.0% Stabilized Capitalization Rate Weighted Average Median Range 4.5% 5.7% 5.3% 4.4% 5.8% 6.0% 5.6% 6.0% 5.0% 4.8% 5.8% 5.3% 4.5% 5.8% 6.0% 5.6% 5.8% 5.4% 3.0%-7.0% 4.6%-7.5% 4.9%-7.0% 3.8%-5.3% 5.0%-6.5% 4.4%-6.8% 5.3%-6.3% 5.3%-7.0% 3.0%-7.5% (1) Includes Kitchener, Waterloo, and Guelph Area. Properties Under Development As at December 31, 2021, the Trust's share of properties under construction as well as density and development land totaled approximately $530 million. These non-income producing properties represent approximately 6% of the Trust's 17 FIRST CAPITAL REIT ANNUAL REPORT 2021 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, 2021, the invested cost of these non-income producing properties was $424 million as compared to a fair value of $530 million. Cumulative gains of approximately $106 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, 2021, First Capital's portfolio is comprised of 19.7 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, 2021, Management had identified approximately 23.5 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 properties under construction, density and development land, and residential inventory within the portfolio by component and type is as follows: As at December 31, 2021 Properties under construction Density and development land Medium term Long term Very long term Residential inventory Total development pipeline Square feet (in thousands) Value recognized (1)(2) Commercial Residential Total (1) Recognized to date (2) 20 24 44 44 $ (in millions) 16 1,600 100 — 1,700 — 1,720 10,700 6,800 3,800 21,300 428 21,752 12,300 6,900 3,800 23,000 428 23,472 7,232 $ 428 $ 7,704 $ 514 161 691 (1) At First Capital's proportionate interest. Refer to the "Non-IFRS Financial Measures" section of this MD&A. (2) Represents the density that has been valued and included as part of the fair value of investment properties and the cost of residential inventory on the proportionate balance sheet. 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 7.7 million or 33% of FCR's 23.5 million square feet of identified incremental density has been at least partially included as part of the fair value of investment properties and the cost of residential inventory on the proportionate balance sheet. FIRST CAPITAL REIT ANNUAL REPORT 2021 18 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued The value of the Trust's density and development land recognized in the Trust's proportionate balance sheet totaling $514 million, or $71 per square foot, 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, 2021, the invested cost of the density and development land recognized in the Trust's proportionate balance sheet totaled $409 million representing acquisition cost and pre-development costs to date. As at December 31, 2021 (1) (in millions) Development land IPP with density Value of density and development land Unzoned Zoned Total Unzoned Zoned Total Unencumbered Encumbered $ $ 61 $ 255 316 49 127 176 492 $ 12 $ — 12 — 10 10 22 $ Fair Value 73 255 328 49 137 186 514 (1) At First Capital's proportionate interest. Refer to the "Non-IFRS Financial Measures" section of this MD&A. The remaining 15.8 million square feet of identified incremental density may 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 properties under construction, density and development land, and residential inventory by urban market is as follows: As at December 31, 2021 (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 Incremental Density Pipeline Total % of Total 13,416 5,486 2,410 1,097 712 351 23,472 57.1% 23.4% 10.3% 4.7% 3.0% 1.5% 100.0% 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”). As of December 31, 2021, entitlement submissions to date total approximately 15.1 million square feet representing 64% of FCR's 23.5 million incremental density pipeline. To date, 8.0 million square feet has been zoned and the Trust expects approximately 2.0 million of existing entitlement submissions to be zoned throughout 2022. Entitlement Applications 1. 2. 3. 4. Pre-2019 Entitlement Applications (1) 2019 Entitlement Applications 2020 Entitlement Applications 2021 Entitlement Applications Total Entitlement Applications 000s of square feet submitted for (at FCR's share): Residential Commercial Total Existing Incremental 2,986 8,086 2,540 1,477 707 966 309 22 3,693 9,052 2,849 1,499 15,089 2,004 17,093 175 516 135 126 952 3,518 8,536 2,714 1,373 Zoned 3,209 4,675 115 — 16,141 7,999 (1) Disposed of Place Panama (Phase I) in the fourth quarter of 2020 which included 1,047,000 square feet of previously zoned density. 19 FIRST CAPITAL REIT ANNUAL REPORT 2021 First Capital has 8.4 million square feet of additional incremental density which includes 8.3 million square feet primarily related to the properties listed below, where entitlements have yet to be submitted, and 44 thousand feet currently under active development (see active projects table). Additional Incremental Density Property 895 Lawrence 1. Danforth Sobeys 2. Cliffcrest Plaza 3. Midland Lawrence Plaza 4. Kingston Square W. 5. Morningside (portion of shopping centre) 6. Olde Oakville (future phases) 7. Bayview Lane Plaza 8. Yonge-Davis Centre 9. Appleby Square 10. Harwood Plaza 11. 1000 Wellington St. 12. Centre Commercial Domaine 13. Centre Commercial Van Horne 14. Galeries Normandie 15. Place Provencher 16. Le Campanile & Place du Commerce 17. Place Michelet 18. Scott 72 Shopping Centre 19. Semiahmoo (future phases) 20. Newport Village 21. 22. Mount Royal Village East 23. Gloucester City Centre (future phases) Neighbourhood City, Province Ownership Interest % Don Mills Danforth Village Cliffcrest Midland Park Lawrence Ave. E. / Morningside Ave. Lawrence Ave. E. / Morningside Ave. South Oakville 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 120 St./72 Ave. South Surrey Macleod Trail SE/Southland Dr. SE Beltline Gloucester Toronto, ON Toronto, ON Toronto, ON Toronto, ON Toronto, ON Toronto, 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 Delta, BC Surrey, BC Calgary, AB Calgary, AB Ottawa, ON 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 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. 2021 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, 2021, First Capital completed the transfer of 194,000 square feet of new retail space in addition to 399 residential units to the income-producing portfolio at a total cost of $196.5 million. All of the retail space transferred was located in super urban neighbourhoods and 168,000 square feet became occupied at an average rental rate of $31.74 per square foot. For the year ended December 31, 2021, First Capital had tenant closures for redevelopment of 75,000 square feet at an average rental rate of $19.36 per square foot. FIRST CAPITAL REIT ANNUAL REPORT 2021 20 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Active Development and Redevelopment Activities Construction on all projects has largely been unaffected by COVID-19 restrictions during 2021. 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 two projects under construction. At the Trust's share, these projects include approximately 44,000 square feet of space, of which 20,000 square feet is retail space and 24,000 square feet is residential rental apartments. As construction on large projects occurs in phases, there continues to be ongoing lease 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, 2021 are as follows: As at December 31, 2021 Count/Project 200 West Esplanade, Vancouver, BC (2) 1. 2. Wilderton, Montreal, QC (3) Major Tenants (Residential rental units) (Metro, Pharmaprix, Tim Hortons, SAQ) Total properties under construction at FCR's share (4) Ownership Interest % 50% 100% Square Feet Under Development (in thousands) Target Completion Date (1) Fair Value (in millions) 29 H2 2023 15 H2 2023 44 $ 16 (1) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively. (2) The square feet under development consists of 9,000 square feet of retail and 48,000 square feet of residential space (75 rental units) for a total of 57,000 square feet on a 100% basis. FCR proportionately consolidates 50% of this property under IFRS. (3) Target completion date reflects future phases. (4) At First Capital's proportionate interest. Refer to the "Non-IFRS Financial Measures" section of this MD&A. Costs to Complete Active and Redevelopment Activities Costs to complete the development, redevelopment and expansion activities underway are estimated to be $22.4 million. Residential Inventory - active development First Capital has four residential development projects representing approximately 428,000 square feet of incremental density at FCR's ownership interest. Highlights of First Capital’s active residential projects as at December 31, 2021 are as follows: As at December 31, 2021 Count/Project 1. 2. 3. 4. Rutherford Marketplace Humbertown Condos (Phase 1) 400 King St. W. 138 Yorkville Total Residential Inventory City, Province Vaughan, ON Toronto, ON Toronto, ON Toronto, ON Ownership Interest % Square Feet Under Development (in thousands) Total Units Target Completion Date (1) Value recognized (in millions) (2) 50% 50% 35% 33% 50 209 612 65 936 64 122 151 91 428 H1 2022 H1 2025 H2 2025 H2 2026 $ 161 (1) H1 and H2 refer to the first six months of the year and the last six months of the year, respectively. (2) At First Capital's proportionate interest. Refer to the "Non-IFRS Financial Measures" section of this MD&A. 21 FIRST CAPITAL REIT ANNUAL REPORT 2021 Leasing and Occupancy As at December 31, 2021, total portfolio occupancy increased 0.2% to 96.1%, while Same Property occupancy remained flat at 96.1% compared to September 30, 2021 occupancy rates. Total portfolio occupancy decreased 0.1% to 96.1%, primarily due to net closures versus openings, while Same Property occupancy remained flat at 96.1% compared to December 31, 2020. For the year ended December 31, 2021, the monthly average occupancy for the total portfolio was 95.9% compared to 96.2%, and the Same Property portfolio occupancy was 96.0% compared to 96.3% 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 (2) Density and Development land Total (3) Total Occupied Square Feet 16,808 1,368 18,176 376 77 205 18,834 19 — 33 18,886 % Occupied December 31, 2021 Weighted Average Rate per Occupied Square Foot 22.76 18.12 22.41 21.44 32.68 19.37 96.0% $ 97.9% 96.1% 94.8% 89.7% 98.9% 96.1% 82.7% —% 99.2% 96.1% $ 22.40 51.72 — 15.90 22.42 Total Occupied Square Feet 16,817 1,331 18,148 305 — 223 18,676 3 497 49 19,225 % Occupied December 31, 2020 Weighted Average Rate per Occupied Square Foot 22.49 17.63 22.13 18.14 — 19.32 96.1% $ 96% 96.1% 94.6% —% 99% 96.1% 39.1% 97.8% 100.0% 96.2% $ 22.03 40.28 17.04 15.95 21.89 (1) Includes current year and prior year acquisitions. (2) Comparative information presented relates to 2021 dispositions that have been completed and no longer form part of these metrics as at December 31, 2021. (3) At FCR's ownership interest. FIRST CAPITAL REIT ANNUAL REPORT 2021 22 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued During the three months ended December 31, 2021, First Capital completed 452,000 square feet of lease renewals across the portfolio. First Capital achieved an 9.2% lease renewal rate increase when comparing the per square foot net rental rate in the first year of the renewal term to the per square foot net rental rate of the last year of the expiring term. For the three months ended December 31, 2021, First Capital achieved a 11.1% lease renewal rate increase when comparing the average net rental rate over the renewal term to the net rental rate in the last year of the expiring term. The average rental rate per occupied square foot for the total portfolio increased 0.8% from $22.24 as at September 30, 2021 to $22.42 as at December 31, 2021 primarily due to dispositions, 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, 2021 are set out below: Three months ended December 31, 2021 Total Same Property Major redevelopment, ground-up, acquisitions, dispositions, density & development land Vacancy Total Portfolio (1) Occupied Square Feet (thousands) % Weighted Average Rate per Occupied Square Foot Occupied Square Feet (thousands) % Weighted Average Rate per Occupied Square Foot Under Redevelop- ment Square Feet (thousands) Vacant Square Feet (thousands) % Total Square Feet (thousands) Occupied Square Feet % % Weighted Average Rate per Occupied Square Foot September 30, 2021 (2) 18,158 96.1% $ 22.32 887 92.4% $ 20.60 7 —% 801 4.0% 19,853 95.9% $ 22.24 Tenant possession Tenant closures Tenant closures for redevelopment Developments – tenants coming online (3) Redevelopments – tenant possession Demolitions Reclassification Total portfolio before Q4 2021 acquisitions and dispositions Acquisitions (at date of acquisition) Dispositions (at date of disposition) 169 (159) — 3 — — 5 18.31 (18.74) — 72.00 — — — 40 (6) (26) 4 — — (3) 18.35 (5.74) (21.60) 61.03 — — — — — 26 — — — (33) (209) 165 — 6 — — 31 — — — 13 — — — 18.31 (18.26) (21.60) 65.00 — — — 18,176 96.1% $ 22.41 896 93.9% $ 20.72 — —% 794 4.0% 19,866 96.0% $ 22.33 — —% — —% — — — —% — — —% — — —% — (186) 89.1% (13.64) — —% (23) (209) 89.1% (13.64) December 31, 2021 18,176 96.1% $ 22.41 710 95.2% $ 22.58 — —% 771 3.9% 19,657 96.1% $ 22.42 Renewals Renewals – expired 442 (442) 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) 10 (10) $ 26.61 $ (24.37) $ 2.24 9.2% $ 26.00 $ (23.69) $ 2.31 9.8% 452 (452) $ 26.60 $ (24.36) $ 2.24 9.2% 11.1% (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 – 2021 Development and Redevelopment Coming Online and Space Going Offline” section of this MD&A. 23 FIRST CAPITAL REIT ANNUAL REPORT 2021 During the year ended December 31, 2021, First Capital completed 2,081,000 square feet of lease renewals across the portfolio. First Capital achieved an 8.6% lease renewal rate increase when comparing the per square foot net rental rate in the first year of the renewal term to the per square foot net rental rate of the last year in the expiring term. For the year ended December 31, 2021, First Capital achieved a 10.5% lease renewal rate increase when comparing the average net rental rate over the renewal term to the net rental rate in the last year of the expiring term. The average rental rate per occupied square foot for the total portfolio increased 2.4% from $21.89 as at December 31, 2020 to $22.42 as at December 31, 2021 primarily due to rent escalations, renewal lifts, and dispositions. Changes in First Capital’s gross leasable area and occupancy for the total portfolio for the year ended December 31, 2021 are set out below: Year ended December 31, 2021 Total Same Property Major redevelopment, ground-up, acquisitions, dispositions, density & development land 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, 2020 (2) 18,148 96.1% $ 22.13 1,077 97.3% $ 17.83 Tenant possession Tenant closures Tenant closures for redevelopment Developments – tenants coming online (3) Redevelopments – tenant possession Demolitions Reclassification Total portfolio before 2021 acquisitions and dispositions Acquisitions (at date of acquisition) Dispositions (at date of disposition) 453 (417) 20.82 (22.89) — — — — (8) — — — — — 69 (69) (75) 168 — — (1) 19.20 (14.99) (19.36) 31.09 — — — — — — 75 — — (4) (71) — % 766 3.8% 19,991 96.2% $ 21.89 (522) 486 — 26 — — 67 — — — 20.60 (21.78) (19.36) 194 31.74 — (4) (13) — — — 18,176 96.1% $ 22.41 1,169 93.0% $ 20.04 — —% 823 4.1% 20,168 95.9% $ 22.27 — —% — —% — — 17 100.0% 51.70 — —% — 17 100.0% 51.70 (476) 90.2% (17.38) — —% (52) (528) 90.2% (17.38) December 31, 2021 18,176 96.1% $ 22.41 710 95.2% $ 22.58 — —% 771 3.9% 19,657 96.1% $ 22.42 Renewals Renewals – expired 1,998 (1,998) 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) 83 (83) $ 21.19 $ (19.47) $ 1.72 8.8% % Increase in rate per square foot – openings versus all closures (9.1%) $ 19.49 $ (19.11) $ 0.38 2.0% 11.1% 2,081 (2,081) $ 21.13 $ (19.46) $ 1.67 8.6% 10.5% (4.0%) (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 – 2021 Development and Redevelopment Coming Online and Space Going Offline” section of this MD&A. FIRST CAPITAL REIT ANNUAL REPORT 2021 24 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Top Forty Tenants As at December 31, 2021, 55.4% of First Capital's annualized minimum rent came from its top 40 tenants (December 31, 2020 – 55.0%). Of these rents, 74.9% (December 31, 2020 – 76.6%) 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, 2021, excluding contractual renewal options. Canadian Tire Tenant (1) (2) Rank Loblaw Companies Limited ("Loblaw") 1. 2. Sobeys 3. Metro 4. 5. Walmart 6. 7. 8. 9. 10. TD Canada Trust Save-On-Foods RBC Royal Bank GoodLife Fitness Dollarama Top 10 Tenants Total CIBC 11. Lowe's 12. 13. LCBO 14. Winners 15. McKesson Longo's (3) 16. Restaurant Brands International 17. Scotiabank 18. London Drugs 19. BMO 20. Nordstrom 21. Recipe Unlimited 22. Staples 23. Starbucks 24. 25. Petsmart 26. Michaels 27. Whole Foods Market 28. 29. McDonald's Toys "R" Us 30. Subway 31. The Beer Store 32. SAQ 33. The Home Depot 34. 35. Alcanna Inc. 36. Williams-Sonoma 37. Equinox 38. Pet Valu 39. Goodwill Indigo 40. Top 40 Tenants Total Pusateri's Number of Stores 93 50 35 21 12 43 9 39 24 47 Square Feet (thousands) 1,936 1,389 879 670 1,163 196 324 202 466 420 Percent of Total Gross Leasable Area 10.2% 7.4% 4.7% 3.5% 6.2% 1.0% 1.7% 1.1% 2.5% 2.2% Percent of Total Annualized Minimum Rent 10.4% 5.5% 3.2% 2.7% 2.4% 2.0% 1.8% 1.8% 1.7% 1.7% DBRS Credit Rating BBB (high) BBB (low) BBB BBB AA AA (high) S&P Credit Rating BBB BBB- BBB BBB AA AA- AA (high) AA- Moody’s Credit Rating Aa2 Aa1 Aa2 BBB BBB Baa2 373 34 4 22 13 24 5 55 25 8 25 1 29 8 36 6 4 2 1 20 3 60 10 16 2 16 2 2 19 2 3 830 7,645 170 361 192 312 176 196 123 117 192 102 40 112 168 50 100 77 90 35 72 127 59 59 60 153 48 38 37 51 52 54 11,068 40.5% 0.9% 1.9% 1.0% 1.7% 0.9% 1.0% 0.7% 0.6% 1.0% 0.5% 0.2% 0.6% 0.9% 0.3% 0.5% 0.4% 0.5% 0.2% 0.4% 0.7% 0.3% 0.3% 0.3% 0.8% 0.3% 0.2% 0.2% 0.3% 0.3% 0.3% 58.7% 33.2% 1.4% 1.4% 1.3% 1.3% 1.3% 1.1% 1.1% 1.1% 1.0% 1.0% 0.8% 0.8% 0.7% 0.7% 0.7% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.3% 0.3% 0.3% 55.4% AA BBB (high) AA (low) AA AA BB A+ BBB+ A+ A BBB+ BB A+ A+ BB+ B BBB+ B B AA- Aa2 Baa1 Aa3 A2 Baa2 Ba3 Aa2 Aa2 Ba1 B2 Baa1 B2 B1 A1 BBB+ Baa1 AA (low) AA (low) A A+ AA- A Aa3 Aa2 A2 CCC Caa3 (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. (3) As of May 2021, Empire Company Ltd., the parent of Sobeys Inc., owns 51% of Longo's. 25 FIRST CAPITAL REIT ANNUAL REPORT 2021 Lease Maturity Profile First Capital’s lease maturity profile for its portfolio as at December 31, 2021, excluding any contractual renewal options, is as follows: Maturity Date Month-to-month tenants (1) 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Thereafter Total or Weighted Average (2) Number of Stores 147 597 612 565 533 473 273 163 174 153 143 68 76 3,977 Occupied Square Feet (thousands) 280 1,969 2,864 2,375 2,324 1,774 1,658 1,047 955 798 861 533 1,448 18,886 Percent of Total Square Feet 1.4 % 10.0 % 14.6 % 12.1 % 11.8 % 9.0 % 8.4 % 5.3 % 4.9 % 4.1 % 4.4 % 2.7 % 7.4 % 96.1 % $ Annualized Minimum Rent at Expiration (thousands) 5,031 43,403 58,509 52,600 57,465 47,932 38,805 29,279 25,750 21,408 22,863 12,712 39,875 455,632 $ Percent of Total Annualized Minimum Rent 1.1 % 9.5 % 12.9 % 11.5 % 12.6 % 10.5 % 8.5 % 6.4 % 5.7 % 4.7 % 5.0 % 2.8 % 8.8 % 100.0 % Average Annual Minimum Rent per Square Foot at Expiration 17.94 22.05 20.43 22.14 24.73 27.01 23.41 27.97 26.98 26.82 26.55 23.85 27.53 24.12 $ $ (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 M+M Realty LP ("MMUR"). The weighted average remaining lease term for the portfolio was 5.1 years as at December 31, 2021, excluding contractual renewal options, but including month-to-month and other short-term leases. Investment in Joint Ventures As at December 31, 2021, First Capital had interests in nine joint ventures that it accounts for using the equity method. First Capital's joint ventures are as follows: Name of Entity Aukland and Main Developments LP (1) Station Place Name of Property/Business Activity College Square General Partnership College Square Location Toronto, ON Ottawa, ON Edenbridge Kingsway (Humbertown) Humbertown Condos (Phase 1) Toronto, ON Fashion Media Group GP Ltd. FC Access LP (2) Toronto Fashion Week events Toronto, ON Whitby Mall (self storage operation) Whitby, ON FC Urban Properties, LP 199 Avenue Road Green Capital Limited Partnership Royal Orchard Lakeshore Development LP 2150 Lake Shore Blvd. W. Toronto, ON Markham, ON Toronto, ON Stackt Properties LP Shipping Container marketplace Toronto, ON Effective Ownership December 31, 2021 December 31, 2020 35.4% 50.0% 50.0% 78.0% 25.0% 20.0% 50.0% 50.0% 94.0% 70.9% 50.0% 50.0% 78.0% 25.0% N/A 50.0% N/A 94.0% (1) As at December 31, 2020, Aukland and Main Developments LP was a consolidated subsidiary subject to a non-controlling interest of 29.1%, resulting in the Trust's effective ownership of 70.9%. In the third quarter of 2021, the Trust's new partner in Station Place subscribed to 50% of the limited partnership units of Aukland and Main Developments LP, reducing the Trust's effective ownership to 35.4%. (2) During the third quarter of 2021, FC Access LP disposed of its self storage operations at Whitby Mall. The joint venture is in the process of being legally wound up. 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 26 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, 2021 and 2020: Balance at beginning of year Contributions to equity accounted joint ventures Distributions from equity accounted joint ventures Reclassification to equity accounted joint ventures Share of income (loss) from equity accounted joint ventures Balance at end of year December 31, 2021 $ $ 52,570 $ 17,110 (16,897) 298,165 (1,460) 349,488 $ December 31, 2020 59,498 3,889 (2,982) — (7,835) 52,570 On September 1, 2021, the Trust's new 50% partner in Station Place subscribed to 50% of the limited partnership units in Aukland and Main Developments LP, the beneficial owner of the property, for $117.5 million. On September 17, 2021, the Trust's new 50% partner in 2150 Lake Shore Boulevard West subscribed to 50% of the limited partnership units in the newly formed Lakeshore Development LP for $156 million by way of $56 million in cash and $100 million in notes receivable. Concurrent with the subscription, the Trust's 50% interest in the Christie Cookie lands was transferred into the new joint venture as well as the purchase of the former partner's 50% interest which was conveyed to Lakeshore Development LP on closing. On November 26, 2021, the Trust contributed 100% of the lands to the Edenbridge Kingsway (Humbertown) joint venture which was previously classified as residential inventory for $24.7 million. The Trust’s joint venture partner contributed $12.3 million to the partnership, to pay for its portion of the land which was subsequently distributed to the Trust. As of December 31, 2021, none of the Trust’s investments in joint ventures were determined to be impaired. Loans, Mortgages and Other Assets As at Non-current December 31, 2021 December 31, 2020 Loans and mortgages receivable classified as FVTPL (a) $ 1,486 $ Loans and mortgages receivable classified as amortized cost (a)(b) Other investments Total non-current Current Loans and mortgages receivable classified as FVTPL (a) Loans and mortgages receivable classified as amortized cost (a)(b) FVTPL investments in securities (c) Total current Total 122,321 5,801 129,608 6 116,152 25,976 142,134 1,968 37,612 12,580 52,160 6 73,548 3,715 77,269 $ 271,742 $ 129,429 (a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning investment properties. As at December 31, 2021, these receivables bear interest at weighted average effective interest rates of 5.4% (December 31, 2020 – 6.3%) and mature between 2022 and 2026. As of December 31, 2021, 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) On September 17, 2021, the Trust's partner in 2150 Lake Shore Boulevard West subscribed to 50% of the units in the newly formed Lakeshore Development LP for $156 million. The subscription price was satisfied through the payment of $56 million in cash and $100 million in loans receivable. One half of the loan, or $50 million, is due on or before December 31, 2022, and the remainder is due on or before September 17, 2026. The loan bears no interest until December 31, 2022 and thereafter bears interest at the greater of prime plus 2.5% or 5%. At inception, a discount in 27 FIRST CAPITAL REIT ANNUAL REPORT 2021 the amount of $6.5 million was recognized and netted against the principal amount of the loan. This discount will be accreted into interest income over the interest free period of the loan. (c) From time to time, First Capital invests in publicly traded real estate and related securities. These securities are recorded at market value. Realized and unrealized gains and losses on FVTPL securities are recorded in other gains (losses) and (expenses). 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 2021 2020 % change 2021 2020 $ 106,291 26,367 28,955 7 797 32 (594) 8,342 170,197 29,297 32,659 (513) 2,836 $ 107,882 24,765 29,779 895 1,239 529 (19) 4,988 170,058 27,474 33,567 19 3,352 0.1% $ 426,146 100,865 118,842 1,541 2,528 2,082 (2,308) 25,194 674,890 111,951 134,899 (1,877) 17,379 $ 426,845 97,265 122,326 1,811 3,502 2,711 27 18,403 672,890 107,408 139,238 (284) 27,496 0.3% 64,279 64,412 262,352 273,858 0.3% $ 105,918 $ 105,646 3.4% $ 412,538 $ 399,032 62.2% 62.1% 61.1% 59.3% (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, 2021, bad debt expense totaled $1.4 million and $8.5 million, respectively (three months and year ended December 31, 2020 - $2.6 million and $22.8 million, respectively). (4) Refer to the "Non-IFRS Financial Measures" section of this MD&A. For the three months and year ended December 31, 2021, total NOI increased by $0.3 million and $13.5 million, respectively, compared to the same prior year periods primarily due to higher variable revenues and lower bad debt expense, partially offset by the impact of dispositions. For the three months and year ended December 31, 2021, the NOI margin increased 0.1% and 1.8%, respectively, compared to the same prior year periods due to lower bad debt expense, partially offset by lower lease termination fees. For the three months and year ended December 31, 2021, property operating costs include $5.2 million and $20.8 million, respectively, (three months and year ended December 31, 2020 – $4.4 million and $16.4 million, respectively) related to employee compensation. Employee compensation is presented net of subsidies received under the Canada Emergency Wage Subsidy ("CEWS") program for the three months and year ended December 31, 2021 of Nil and $0.6 million, respectively, related to property operations personnel (three months and year ended December 31, 2020 - $0.5 million and $4.5 million, respectively). A portion of this wage subsidy will be passed on to tenants through lower operating cost recoveries. FIRST CAPITAL REIT ANNUAL REPORT 2021 28 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 – 2021 Acquisitions – 2020 Investment properties classified as held for sale Dispositions – 2021 Dispositions – 2020 Straight-line rent adjustment Development land NOI (4) NOI margin Three months ended December 31 Year ended December 31 % change 2021 2020 % change 2021 2020 $ 101,238 $ 100,530 25,646 23,506 28,050 28,148 7 734 (608) 43 814 (5) 7,873 4,645 162,940 157,681 28,227 25,828 31,104 30,878 (15) 3,130 51 3,582 62,446 60,339 $ 403,180 $ 395,431 97,110 91,794 114,101 115,019 1,493 2,386 (2,249) 956 2,974 457 22,001 16,902 638,022 623,533 106,657 100,560 125,933 127,678 (1,185) (216) 15,487 25,599 246,892 253,621 3.2% $ 100,494 $ 97,342 5.7% $ 391,130 $ 369,912 1,928 1,748 110 (38) 964 457 28 32 195 2,101 679 — (104) 1,086 2,202 869 529 942 5,399 3,149 170 165 4,021 5,800 29 2,082 593 5,611 1,684 — (128) 4,036 7,680 5,925 2,711 1,601 0.3% $ 105,918 $ 105,646 3.4% $ 412,538 $ 399,032 62.2% 62.1% 61.1% 59.3% (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 2020 (1) (4.1%) (6.0%) (4.3%) 2021 1.9% 24.6% 3.2% Year ended December 31 2020 (1) 2021 (5.8%) 5.1% (18.0%) 15.4% (7.1%) 5.7% (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 experienced a decline in NOI due to the impact of COVID-19 in 2020. (3) Refer to the "Non-IFRS Financial Measures" section of this MD&A. 29 FIRST CAPITAL REIT ANNUAL REPORT 2021 For the three months and year ended December 31, 2021, SP NOI increased by $3.2 million and $21.2 million, or 3.2% and 5.7%, respectively, primarily due to higher variable revenues, rent escalations and lower bad debt expense over the same prior year periods. Excluding bad debt expense and lease termination fees, SP NOI increased 2.2% and 2.0% for the three months and year ended December 31, 2021, respectively. Interest and Other Income Interest, dividend and distribution income from marketable securities and other investments Interest income from loans and mortgages receivable classified as FVTPL Interest income from loans and mortgages receivable at amortized cost Fees and other income Total Three months ended December 31 Year ended December 31 2021 109 26 2,564 1,234 3,933 $ $ 2020 292 116 1,677 1,207 3,292 $ $ $ $ 2021 499 100 5,809 4,472 $ 10,880 $ 2020 1,082 922 6,791 3,453 12,248 For the three months ended December 31, 2021, interest and other income increased $0.6 million over the same prior year period primarily due to higher interest income as a result of increased loans receivable activity quarter-over-quarter. For the year ended December 31, 2021, interest and other income decreased $1.4 million over the prior year primarily due to the repayment of loans & mortgages receivables bearing higher interest rates over the past year. 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 2021 2020 $ 11,658 $ 13,381 $ 6,250 23,851 12 (4,168) 6,667 25,816 22 (6,035) $ 2021 49,912 26,260 95,961 45 (19,508) 2020 52,142 28,796 100,854 650 (24,731) Interest expense $ 37,603 $ 39,851 $ 152,670 $ 157,711 (1) The distributions declared on the Exchangeable Units are accounted for as interest expense. For the three months and year ended December 31, 2021, interest expense decreased by $2.2 million and $5.0 million, respectively, primarily due to the repayment of mortgages as well as the Series N unsecured debentures on March 1, 2021, and lower capitalized interest. During the years ended December 31, 2021 and 2020, approximately 11.3% or $19.5 million, and 13.6% or $24.7 million, respectively, of interest expense was capitalized to real estate investments for properties undergoing development or redevelopment projects. The decrease in capitalized interest is primarily due to the completion, or near completion, of major development projects such as King High Line, Station Place and Wilderton. FIRST CAPITAL REIT ANNUAL REPORT 2021 30 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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 Corporate expenses Three months ended December 31 Year ended December 31 $ $ 2021 6,001 1,788 2,510 10,299 (1,539) 2020 5,086 2,535 2,196 9,817 (1,764) 2021 $ 27,675 $ 7,155 10,611 45,441 (7,234) 2020 22,985 7,673 10,277 40,935 (7,697) $ 8,760 $ 8,053 $ 38,207 $ 33,238 For the three months and year ended December 31, 2021, gross corporate expenses, before capitalization, increased by $0.5 million and $4.5 million, respectively. The increase was primarily due to higher compensation expense as a result of lower wage subsidies received over the prior year periods for the three months and year ended December 31, 2021 of $0.5 million and $3.5 million, respectively. 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, 2021 and 2020, approximately $7.2 million and $7.7 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. 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 Net gain (loss) on prepayments of debt Gain on below market purchase (1) Hotel transaction costs (2) Pre-selling costs of residential inventory Investment properties selling costs Other 2021 2020 Consolidated Statements of Income (Loss) Included in FFO Consolidated Statements of Income (Loss) Included in FFO $ (2,276) $ (2,276) $ 580 $ 580 (1,139) (1,139) — — — (27) (3,093) (5) — — (27) — (5) 7,385 (1,121) — (611) 36 — — — — — 36 616 — (210) 406 Total per consolidated statements of income (loss) $ (6,540) $ (3,447) $ 6,269 $ Other gains (losses) and (expenses) applicable to NCI Other gains (losses) and (expenses) under equity accounted joint ventures (3) Total at First Capital's proportionate interest (4) 8 8 (164) (164) — (213) $ (6,696) $ (3,603) $ 6,056 $ (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) Other gains (losses) and (expenses) under equity accounted joint ventures, included in FFO, is comprised of pre-selling costs of residential inventory of $0.2 million (December 31, 2020 - $0.2 million). (4) Refer to the "Non-IFRS Financial Measures" section of this MD&A. 31 FIRST CAPITAL REIT ANNUAL REPORT 2021 Year ended December 31 2021 2020 Consolidated Statements of Income (Loss) Included in FFO Consolidated Statements of Income (Loss) Included in FFO Unrealized gain (loss) on marketable securities $ 14,786 $ 14,786 $ (234) $ Net gain (loss) on prepayments of debt Gain on below market purchase (1) Hotel transaction costs (2) Pre-selling costs of residential inventory Investment properties selling costs REIT conversion costs Gain on Option Other (1,139) (1,139) — — — — (282) 7,385 (1,121) (238) (238) (142) (7,133) — 80,822 — — — (9) (9) (3,915) (906) — 73 (234) (282) — — (142) — (906) — 73 Total per consolidated statements of income (loss) $ 87,089 $ 13,400 $ 858 $ (1,491) Other gains (losses) and (expenses) applicable to NCI Other gains (losses) and (expenses) under equity accounted joint ventures (3) Total at First Capital's proportionate interest (4) 69 145 69 148 — — (1,825) (1,884) $ 87,303 $ 13,617 $ (967) $ (3,375) (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) Other gains (losses) and (expenses) under equity accounted joint ventures, included in FFO, is comprised of a gain on investment of $0.7 million, partially offset by pre- selling costs of residential inventory of $0.6 million (December 31, 2020 - $1.9 million). (4) Refer to the "Non-IFRS Financial Measures" section of this MD&A. For the three months ended December 31, 2021, First Capital recognized $6.5 million in other losses in its consolidated statement of income (loss) compared to $6.3 million in other gains for the same prior year period. The $12.8 million decrease is primarily due to a $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 in the fourth quarter of 2020. Additionally, FCR recognized higher unrealized losses on marketable securities, higher investment property selling costs, and a $1.1 million non-recurring loss due to the early repayment of mortgages in the fourth quarter of 2021. For the year ended December 31, 2021, FCR recognized $87.1 million in other gains in its consolidated statement of income (loss) compared to $0.9 million in the prior year. The $86.2 million increase is primarily due to an $80.8 million gain on option and higher unrealized gains on marketable securities. The unrealized gain on marketable securities primarily relates to a $13.8 million mark-to-market on shares of a construction management company which completed an initial public offering in May 2021. In the third quarter of 2021, the Trust exercised its option to buy its former partner's 50% interest in 2150 Lake Shore Boulevard West for $55.5 million. Concurrent with closing, the Trust entered into a new partnership and conveyed 50% of the property to a new partner for $156 million. The gain on the option of $100.5 million was reduced by the derecognition of $13.2 million in previously capitalized option costs and the discount recognized on the loans receivable of $6.5 million. Income Taxes For the three months and year ended December 31, 2021, deferred income tax expense (recovery) totaled $48.9 million and $25.9 million, respectively, compared to $32.7 million and $23.9 million, respectively, over the same prior year periods. The increase of $16.3 million and $2.0 million, respectively, in deferred income tax expense was primarily due to the increase in taxable income as a result of dispositions applicable to the Trust's corporate subsidiaries. FIRST CAPITAL REIT ANNUAL REPORT 2021 32  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Net Income (Loss) Attributable to Unitholders For the three months ended December 31, 2021, net income attributable to Unitholders was $28.6 million or $0.13 per diluted unit compared to $37.3 million or $0.17 per diluted unit for the prior year. The $8.6 million decrease was primarily due to an increase in deferred income tax expense of $16.3 million and higher other losses and expenses of $12.8 million, partially offset by an increase in the fair value of investment property of $18.6 million. For the year ended December 31, 2021, net income attributable to Unitholders was $460.1 million or $2.08 per diluted unit compared to $2.7 million or $0.01 per diluted unit for the prior year. The $457.4 million increase was primarily due to an increase in the fair value of investment property of $384.3 million, and an $80.8 million gain related to the exercise of a previously secured option to purchase it's partner's 50% interest in 2150 Lake Shore Boulevard West. 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 (1) Credit facilities (1) Senior unsecured debentures Total Debt (1) Cash and cash equivalents (1) Net Debt (1) (2) Exchangeable Units Equity market capitalization (3) Enterprise value (1) Trust Units outstanding (000's) Closing market price December 31, 2021 December 31, 2020 $ 2,476 $ 238 1,216,872 893,958 2,350,000 1,390,466 881,414 2,525,000 $ 4,463,306 $ 4,797,118 (37,512) (112,664) $ 4,425,794 $ 4,684,454 1,947 1,399 4,140,551 2,971,723 $ 8,568,292 $ 7,657,576 219,541 219,315 $ 18.86 $ 13.55 (1) At First Capital's proportionate interest. Refer to the "Non-IFRS Financial Measures" section of this MD&A. (2) Net Debt is a non-IFRS measure that is calculated as the sum of total debt including 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 on a proportionate basis. (3) Equity market capitalization is the market value of FCR's units outstanding at a point in time. The measure 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 market capitalization increased from $3.0 billion at December 31, 2020 to $4.1 billion at December 31, 2021 due to an increase in the Trust's unit price year-over-year. 33 FIRST CAPITAL REIT ANNUAL REPORT 2021 Adjusted EBITDA Adjusted EBITDA is a non-IFRS measure that 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 on a proportionate basis. First Capital also adjusts for incremental leasing costs, which is a recognized adjustment to FFO, in accordance with the recommendations of REALPAC. The following table reconciles First Capital's net income (loss) to Adjusted EBITDA for the three months and years ended December 31, 2021 and 2020: Net income (loss) attributable to Unitholders Add (deduct) (1): Deferred income tax expense (recovery) Interest Expense Amortization expense (Increase) decrease in value of investment properties (Increase) decrease in value of hotel property Increase (decrease) in value of Exchangeable Units Increase (decrease) in value of unit-based compensation Incremental leasing costs Abandoned transaction costs Other non-cash and/or non-recurring items Adjusted EBITDA (1) Three months ended December 31 Year ended December 31 2021 $ 28,629 $ 47,773 37,941 1,850 (25,833) 2,161 140 2,528 1,448 146 6,696 0 2020 2 37,268 32,650 40,185 2,277 (7,930) 5,082 30 (1,735) 1,611 — (6,056) 2021 $ 460,131 $ 2020 2,702 24,782 154,013 8,473 (181,490) 1,122 548 9,286 5,859 248 (87,303) 23,921 159,059 8,303 195,823 9,432 (7,404) (11,459) 6,571 90 967 $ 103,479 $ 103,382 $ 395,669 $ 388,005 (1) At First Capital's proportionate interest. Refer to the "Non-IFRS Financial Measures" section of this MD&A. 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) Net debt to total assets (1) Net debt to Adjusted EBITDA (1) Unencumbered aggregate assets (1) Unencumbered aggregate assets to unsecured debt, based on fair value (1) Adjusted EBITDA interest coverage (1) December 31, 2021 December 31, 2020 3.8% 4.0 43.9% 11.2 3.8% 4.6 47.3% 12.0 $ 7,394,398 $ 7,003,026 2.3 2.3 2.1 2.1 (1) Calculated with joint ventures proportionately consolidated in accordance with FCR's debt covenants. Total assets excludes cash balances. Refer to the "Non-IFRS Financial Measures" section of this MD&A. The Net debt to Adjusted EBITDA ratio decreased by 0.8 to 11.2, as of December 31, 2021, primarily due to a $258.7 million decrease in net debt following the repayment of senior unsecured debentures and mortgages from the proceeds of asset sales. 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; FIRST CAPITAL REIT ANNUAL REPORT 2021 34 MANAGEMENT’S DISCUSSION AND ANALYSIS – 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 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 on a proportionate basis. 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, FCR 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 June 4, 2021, S&P affirmed FCR's Issuer Rating and issue level debt rating at BBB-, but revised the outlook to negative from stable. On June 23, 2021, 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. 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). 35 FIRST CAPITAL REIT ANNUAL REPORT 2021 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, 2021 is summarized in the table below: As at December 31, 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Mortgages (1) Credit Facilities/Bank Indebtedness (2) Senior Unsecured Debentures Total $ 44,285 $ 77,461 $ 450,000 $ 571,746 32,597 140,422 85,536 120,246 103,942 166,973 251,257 176,480 55,326 — 205,257 269,535 75,000 275,000 — — — — — — 300,000 300,000 300,000 300,000 500,000 200,000 — — — — 537,854 709,957 460,536 695,246 603,942 366,973 251,257 176,480 55,326 — % Due 12.8% 12.2% 15.9% 10.4% 15.7% 13.7% 8.3% 5.7% 4.0% 1.3% —% $ 1,177,064 $ 902,253 $ 2,350,000 $ 4,429,317 100.0% Add (deduct): unamortized deferred financing costs, premiums and discounts, net (3,889) — (1,855) (5,744) Total $ 1,173,175 $ 902,253 $ 2,348,145 $ 4,423,573 (1) Principal amount outstanding for mortgages on a proportionate basis is $1,216,872. (2) Principal amount outstanding for credit facilities and bank indebtedness on a proportionate basis is $893,958 and $2,476, respectively. 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 36 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Mortgages The changes in First Capital’s mortgages during the year ended December 31, 2021 are set out below: Year ended December 31, 2021 Balance at beginning of year Mortgage repayments Scheduled amortization on mortgages Amortization of financing costs and net premium Balance at end of year Amount Weighted Average Effective Interest Rate $ 1,346,637 (146,112) (28,115) 765 $ 1,173,175 3.6% 4.4% —% —% 3.5% As at December 31, 2021, 100% (December 31, 2020 – 100%) of the outstanding mortgages bore interest at fixed interest rates. The average remaining term of mortgages outstanding decreased from 6.0 years as at December 31, 2020 on $1.3 billion of mortgages to 5.8 years as at December 31, 2021 on $1.2 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, 2021 is summarized in the table below: As at December 31, 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Scheduled Amortization Payments on Maturity Total $ 30,947 $ 13,338 $ 44,285 32,597 31,944 29,641 25,886 24,078 21,250 14,377 7,105 371 — 108,478 55,895 94,360 79,864 145,723 236,880 169,375 54,955 32,597 140,422 85,536 120,246 103,942 166,973 251,257 176,480 55,326 $ 218,196 $ 958,868 $ 1,177,064 Weighted Average Effective Interest Rate 3.7 % N/A 3.8 % 3.4 % 3.2 % 3.6 % 3.8 % 3.5 % 3.3 % 3.5 % 3.5 % Add: unamortized deferred financing costs and premiums and discounts, net Total (3,889) $ 1,173,175 37 FIRST CAPITAL REIT ANNUAL REPORT 2021 2022 Floating rate unsecured term loan maturing 2023 (2) Fixed rate unsecured term loans maturing 2024 - 2026 Secured construction facilities Maturing 2022 Maturing 2022 Secured Facilities Maturing 2022 Maturing 2022 Maturing 2022 Credit Facilities First Capital’s credit facilities as at December 31, 2021 are summarized in the table below: As at December 31, 2021 Unsecured operating facilities Revolving facility maturing 2026 Revolving facility maturing 2024 (1) Borrowing Capacity Amounts Drawn Bank Indebtedness and Outstanding Letters of Credit Available to be Drawn $ 450,000 $ — $ (8,593) $ 441,407 100,000 (69,535) — 30,465 Revolving facility maturing 250,000 — — 250,000 200,000 (205,257) 550,000 (550,000) 20,000 (19,984) 33,333 (33,333) — — — — — — 16 — 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% BA + 1.10% or Prime + 0.25% or US$ LIBOR + 1.10% June 30, 2026 August 31, 2024 September 29, 2022 BA + 1.20% April 15, 2023 3.29% March 28, 2024 - April 15, 2026 BA + 2.50% or Prime + 1.00% 2.79% January 20, 2022 February 25, 2022 14,234 (10,600) (1,320) 2,314 4,313 (4,313) 6,755 (6,755) — — — — BA + 1.20% or Prime + 0.20% BA + 1.20% or Prime + 0.20% BA + 1.20% or Prime + 0.20% May 31, 2022 September 28, 2022 December 19, 2022 Total $ 1,628,635 $ (899,777) $ (9,913) $ 724,202 (1) The Trust had drawn in U.S. dollars the equivalent of CAD$70.0 million which was revalued at CAD$69.5 million as at December 31, 2021. (2) The Trust had drawn in U.S. dollars the equivalent of CAD$200.0 million which was revalued at CAD$205.3 million as at December 31, 2021. 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 September 1, 2021, First Capital extended and amended its $450.0 million unsecured revolving credit facilities while also transitioning them into "Sustainability-Linked Credit facilities ("SLCs"). This demonstrates the continued integration of sustainability priorities into FCR's strategic direction and its commitment to environmental, social and governance ("ESG") leadership in real estate operations, development and finance. FIRST CAPITAL REIT ANNUAL REPORT 2021 38 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Senior Unsecured Debentures As at December 31, 2021 Interest Rate Remaining Term to Maturity Principal Outstanding Series Maturity Date Interest Payment Dates Coupon Effective (years) O P Q R S T U V A 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 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 4.43% 3.95% 3.90% 4.79% 4.32% 3.60% 3.75% 3.46% 3.45% 3.99% 4.59% 4.18% 3.97% 4.72% 4.24% 3.56% 3.82% 3.54% 3.54% 4.03% 0.1 0.9 1.8 2.7 3.6 4.4 5.5 5.1 6.2 3.4 $ 200,000 250,000 300,000 300,000 300,000 300,000 300,000 200,000 200,000 $ 2,350,000 On March 1, 2021, upon maturity, First Capital repaid its 4.50% Series N Senior Unsecured Debentures in the amount of $175.0 million. Unitholders' Equity Unitholders’ equity amounted to $4.6 billion as at December 31, 2021, compared to Unitholders' equity of $4.2 billion as at December 31, 2020. The increase is primarily attributed to higher net income and other comprehensive income for the year ended December 31, 2021. As at February 7, 2022, there were 219.5 million Trust Units and 0.1 million Exchangeable Units outstanding. Unit Options As at December 31, 2021, First Capital had 6.3 million unit options outstanding, with an average exercise price of $19.75, which, if exercised, would result in First Capital receiving proceeds of $125.2 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, 2021 December 31, 2020 $ $ $ 724 35 7,394 $ $ $ 823 100 7,003 39 FIRST CAPITAL REIT ANNUAL REPORT 2021 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, 2021, and availability on existing credit facilities, address substantially all of the contractual 2022 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. Three months ended December 31 Year ended December 31 2021 2020 2021 2020 Cash provided by (used in) operating activities $ 83,575 $ 92,737 $ 249,613 $ 219,505 Cash provided by (used in) financing activities Cash provided by (used in) investing activities (161,267) 67,600 Net change in cash and cash equivalents $ (10,092) $ (60,620) 45,895 78,012 (470,245) 154,887 $ (65,745) $ (154,790) 10,226 74,941 The following table presents the excess (shortfall) of cash provided by operating activities over distributions declared: Cash provided by operating activities Distributions declared Excess (shortfall) of cash provided by operating activities over distributions declared Three months ended December 31 Year ended December 31 2021 2020 2021 2020 83,575 $ 92,737 $ 249,613 $ 219,505 (23,710) (47,152) (94,804) (188,027) 59,865 $ 45,585 $ 154,809 $ 31,478 $ $ Cash provided by operating activities exceeded distributions declared for the three months and years ended December 31, 2021 and 2020. FIRST CAPITAL REIT ANNUAL REPORT 2021 40 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Contractual Obligations An analysis of First Capital’s contractual maturities of its material financial liabilities and other contractual commitments, as at December 31, 2021 is set out below: As at December 31, 2021 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 $ 2022 30,947 $ 13,338 77,461 450,000 147,647 1,208 9,337 39,365 Payments due by period 2023 to 2024 2025 to 2026 Thereafter 64,541 $ 55,527 $ 67,181 $ 108,478 474,792 600,000 240,576 1,486 — — 150,255 350,000 600,000 144,296 1,245 — — 686,797 — 700,000 73,943 15,512 — — Total 218,196 958,868 902,253 2,350,000 606,462 19,451 9,337 39,365 $ 769,303 $ 1,489,873 $ 1,301,323 $ 1,543,433 $ 5,103,932 (1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2021 (assuming balances remain outstanding through to maturity) and senior unsecured debentures, as well as standby credit facility fees. First Capital had $29.7 million of outstanding letters of credit issued by financial institutions to support certain of FCR’s contractual obligations and $2.5 million of bank overdrafts. First Capital’s estimated cost to complete properties currently under development is $22.4 million, of which $9.3 million ($9.2 million at First Capital's interest) 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 $73.2 million (December 31, 2020 – $70.5 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 $29.7 million (December 31, 2020 – $49.2 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, 2020 – $1.2 million) with a total obligation of $19.5 million (December 31, 2020 – $20.7 million). 41 FIRST CAPITAL REIT ANNUAL REPORT 2021 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, 2021 December 31, 2020 Consolidated Balance Sheet (1) Adjustments for Proportionate Interest Proportionate Interest (2) Consolidated Balance Sheet (1) Adjustments for Proportionate Interest Proportionate Interest (2) Investment properties $ 8,975,539 $ 319,015 $ 9,294,554 $ 9,328,792 $ 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 156,039 85,400 271,742 34,699 27,784 57,083 349,488 151,300 $ 10,109,074 $ 5,056 — 108 2,813 665 21,858 (349,488) — 27 161,095 85,400 271,850 37,512 28,449 78,941 — 74,190 88,000 129,429 100,444 46,296 50,893 52,570 8,696 5,779 — 2,050 12,220 644 11,086 (52,570) $ 9,337,488 79,969 88,000 131,479 112,664 46,940 61,979 — 151,300 161,849 — 161,849 $ 10,109,101 $ 10,032,463 $ (12,095) $ 10,020,368 $ 1,173,175 $ 39,731 $ 1,212,906 $ 1,346,637 $ 39,082 $ 1,385,719 915,928 (34,514) 881,414 899,777 2,476 2,348,145 1,947 740,309 274,163 5,439,992 (5,819) — — — (1,147) 15,402 48,167 893,958 2,476 238 2,348,145 2,522,135 1,947 739,162 289,565 1,399 698,528 291,171 5,488,159 5,776,036 — — — — 12,600 17,168 238 2,522,135 1,399 698,528 303,771 5,793,204 4,620,942 — 4,620,942 4,227,164 — 4,227,164 48,140 (48,140) — 29,263 (29,263) — 4,669,082 (48,140) 4,620,942 4,256,427 (29,263) 4,227,164 Total liabilities and equity $ 10,109,074 $ 27 $ 10,109,101 $ 10,032,463 $ (12,095) $ 10,020,368 (1) The consolidated balance sheets have been presented on a non-classified basis for purposes of this reconciliation. (2) Refer to the "Non-IFRS Financial Measures" section of this MD&A. FIRST CAPITAL REIT ANNUAL REPORT 2021 42 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Reconciliation of Consolidated Statements of Income (Loss) to First Capital’s Proportionate Interest The following table provides a reconciliation of First Capital's consolidated statements of income (loss) for the three months ended December 31, 2021 and 2020, to its proportionate interest. Three months ended December 31 2021 2020 Consolidated Statements of Income (Loss) $ 170,197 $ 64,279 105,918 Adjustment to proportionate interest 2,639 $ 1,986 653 Proportionate interest (1) 172,836 $ 66,265 106,571 Consolidated Statements of Income (Loss) 170,058 $ 64,412 105,646 Adjustment to proportionate interest 2,049 $ 1,472 577 Proportionate interest (1) 172,107 65,884 106,223 3,933 (37,603) (8,760) (146) (1,453) (813) (6,540) (2,528) (140) (2,161) 262 (338) 25 — (397) 813 (156) — — — 4,195 (37,941) (8,735) (146) (1,850) — (6,696) 3,292 (39,851) (8,053) — (1,608) (147) 6,269 (2,528) 1,735 304 (334) 5 — (669) 147 (213) — 3,596 (40,185) (8,048) — (2,277) — 6,056 1,735 (140) (30) — (30) (2,161) (5,082) — (5,082) 25,996 (163) 25,833 7,446 484 7,930 (30,215) 75,703 48,920 46 699 (1,147) (30,169) 76,402 47,773 (36,029) 69,617 32,653 (276) 301 (3) (36,305) 69,918 32,650 26,783 $ 1,846 $ 28,629 $ 36,964 $ 304 $ 37,268 28,629 $ (1,846) 26,783 $ — $ 1,846 1,846 $ 28,629 $ — 28,629 $ 37,268 $ (304) 36,964 $ — $ 304 304 $ 37,268 — 37,268 0.13 0.13 $ $ 0.17 0.17 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 (loss) before income taxes Deferred income tax expense (recovery) Net income (loss) Net income (loss) attributable to: Unitholders Non-controlling interest Net income (loss) per unit attributable to Unitholders: Basic Diluted $ $ $ $ $ (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. 43 FIRST CAPITAL REIT ANNUAL REPORT 2021 The following table provides a reconciliation of First Capital's consolidated statements of income (loss) for the years ended December 31, 2021 and 2020, as presented in its audited annual consolidated financial statements, to its proportionate interest. Year ended December 31 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 (loss) before income taxes Deferred income tax expense (recovery) Net income (loss) Net income (loss) attributable to: Unitholders Non-controlling interest Net income (loss) per unit attributable to Unitholders: Basic Diluted $ $ $ $ $ $ Consolidated Statements of Income (Loss) 674,890 $ 262,352 412,538 Adjustment for proportionate interest 9,010 $ 5,395 3,615 2021 2020 Proportionate interest (1) 683,900 $ 267,747 416,153 Consolidated Statements of Income (Loss) 672,890 $ 273,858 399,032 Adjustment for proportionate interest 7,579 $ 5,573 2,006 Proportionate interest (1) 680,469 279,431 401,038 10,880 (152,670) (38,207) (248) (6,018) (1,460) 87,089 (9,286) (548) (1,122) 955 (1,343) 29 — (2,455) 1,460 214 11,835 (154,013) (38,178) (248) (8,473) — 87,303 12,248 (157,711) (33,238) (90) (5,589) (7,835) 858 1,396 (1,348) (10) — (2,714) 7,835 (1,825) 13,644 (159,059) (33,248) (90) (8,303) — (967) — — — (9,286) 11,459 — 11,459 (548) 7,404 — 7,404 (1,122) (9,432) — (9,432) 198,617 (17,127) 181,490 (185,700) (10,123) (195,823) 87,027 499,565 25,929 473,636 $ (18,267) (14,652) (1,147) (13,505) $ 68,760 484,913 24,782 460,131 $ (367,626) 31,406 23,924 (6,789) (4,783) (3) 7,482 $ (4,780) $ (374,415) 26,623 23,921 2,702 460,131 $ 13,505 473,636 $ — $ 460,131 $ (13,505) (13,505) $ — 460,131 $ 2,702 $ 4,780 7,482 $ — $ (4,780) (4,780) $ 2,702 — 2,702 2.10 2.08 $ $ 0.01 0.01 (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. FIRST CAPITAL REIT ANNUAL REPORT 2021 44 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued FFO and ACFO Funds from Operations A reconciliation from net income (loss) attributable to Unitholders to FFO can be found in the table below: Three months ended December 31 Year ended December 31 2021 28,629 $ $ Net income (loss) attributable to Unitholders Add (deduct): (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 Transaction costs Distributions on Exchangeable Units (5) Increase (decrease) in value of Exchangeable Units (5) Increase (decrease) in value of unit-based compensation (6) Gain on Option (7) Investment properties selling costs (1) Deferred income taxes (recovery) (1) FFO (8) $ (25,833) 2,161 397 1,448 481 — — 12 140 2,528 — 3,093 47,773 60,829 $ 0 2020 2 37,268 (7,930) 5,082 669 1,611 499 (7,385) 1,121 22 30 (1,735) — 614 32,650 62,516 2021 460,131 $ $ 2020 2,702 (181,490) 1,122 2,455 5,859 1,937 — — 45 548 9,286 (80,822) 7,136 24,782 250,989 $ 195,823 9,432 2,714 6,571 1,432 (7,385) 1,121 650 (7,404) (11,459) — 3,856 23,921 221,974 $ (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 distributions and fair value adjustments on Exchangeable Units in accordance with the recommendations of REALPAC. (6) Adjustment to exclude fair value adjustments on unit-based compensation plans in accordance with the recommendations of REALPAC. (7) Adjustment to exclude the gain on option in accordance with the recommendations of REALPAC. (8) Refer to the "Non-IFRS Financial Measures" section of this MD&A. The components of FFO at proportionate interest are as follows: Net operating income Interest and other income Interest expense (1) Corporate expenses (2) Abandoned transaction costs Amortization expense (3) Other gains (losses) and (expenses) (4) FFO (5) FFO per diluted unit Weighted average number of units – diluted (in thousands) Three months ended December 31 Year ended December 31 % change 2021 2020 % change 2021 2020 $ 106,571 4,195 (37,929) (7,287) (146) $ 106,223 3,596 (40,163) (6,437) — (972) (3,603) 60,829 0.28 $ $ (1,109) 406 62,516 0.28 (2.7%) $ (2.8%) $ 13.1% 12.9% $ 416,153 11,835 (153,968) (32,319) (248) (4,081) 13,617 $ 250,989 1.14 $ $ 401,038 13,644 (158,409) (26,677) (90) (4,157) (3,375) $ 221,974 1.01 $ 0.2% 220,929 220,551 0.2% 220,826 220,495 (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. 45 FIRST CAPITAL REIT ANNUAL REPORT 2021 For the three months ended December 31, 2021, FFO decreased by approximately $0.01 per diluted unit over the same prior year period. The decrease was primarily due to higher unrealized losses on marketable securities and a prepayment penalty for the early settlement of mortgages, totaling $4.0 million, or $0.02 per unit. This is partially offset by lower interest expense of $2.2 million, or $0.01 per unit, over the same prior year period. For the year ended December 31, 2021, FFO increased by $0.13 per diluted unit over prior year primarily due to a $13.8 million, or $0.06 per unit, mark-to-market gain on shares of a construction management company which completed an initial public offering in May 2021, and lower bad debt expense of $14.3 million, or $0.07 per unit. 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): Three months ended December 31 Year ended December 31 2021 83,575 $ 2020 92,737 2021 249,613 $ 2020 219,505 $ $ Working capital adjustments (1) Adjustment for equity accounted joint ventures Revenue sustaining capital expenditures Recoverable capital expenditures Leasing costs on properties under development Non-controlling interest ACFO (2) $ (15,926) 387 (4,828) (1,648) 362 (826) 61,096 (26,494) 203 (3,746) (3,887) 403 284 59,500 $ 12,826 2,322 (15,554) (4,033) 1,465 (2,823) 243,816 $ 3,357 1,062 (18,517) (4,971) 1,643 968 203,047 $ (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 guidance on ACFO issued in January 2022. (2) Refer to the "Non-IFRS Financial Measures" section of this MD&A. For the three months and year ended December 31, 2021, ACFO totaled $61.1 million and $243.8 million compared to $59.5 million and $203.0 million for the same prior year periods, respectively. The $40.8 million increase in ACFO for the year ended December 31, 2021 was primarily due to higher cash inflows from working capital and lower capital expenditures. ACFO Payout Ratio First Capital's ACFO payout ratio for the four quarters ended December 31, 2021 is calculated as follow: ACFO (1) Cash distributions paid ACFO payout ratio (1) Year ended December 31, 2021 Q4 2021 Q3 2021 Q2 2021 $ 243,816 $ 61,096 $ 70,710 $ 69,398 $ 102,618 23,710 23,704 23,696 42.1% (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, 2020 is calculated as follow: ACFO (1) Cash distributions paid ACFO payout ratio (1) Year ended December 31, 2020 Q4 2020 Q3 2020 Q2 2020 $ 203,047 $ 59,500 $ 68,117 $ 36,500 $ 187,929 47,150 46,990 46,915 92.6% (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. Q1 2021 42,612 31,508 Q1 2020 38,930 46,874 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, 2021, the ACFO payout was 42.1% (December 31, 2020 - 92.6%). FIRST CAPITAL REIT ANNUAL REPORT 2021 46 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Net Asset Value The following table provides FCR's calculation of NAV for the years ended December 31, 2021 and 2020: As at Unitholders' equity Exchangeable Units Deferred tax liabilities Net Asset Value (NAV) (1) Units outstanding - diluted (1) NAV per unit (1) December 31, 2021 December 31, 2020 $ $ $ 4,620,942 $ 1,947 739,162 5,362,051 $ 220,879 24.28 $ 4,227,164 1,399 698,528 4,927,091 220,574 22.34 (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. The increase in NAV per unit from $22.34 to $24.28 is primarily due to an increase in the fair value of investment properties of $181.5 million (at the Trust's share) over the past 12 months, an $80.8 million gain on option exercised in Q3 2021 and retained FFO over the last year. DISTRIBUTIONS 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. On January 12, 2021, First Capital announced a 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 was effective for First Capital's January 2021 distribution, payable to Unitholders in February 2021. The following chart specifies distributions declared by First Capital: (in dollars) Distributions declared per unit Three months ended December 31 Year ended December 31 2021 0.108 $ 2020 0.215 2021 0.432 $ 2020 0.860 $ $ 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. 47 FIRST CAPITAL REIT ANNUAL REPORT 2021 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) Three months ended December 31 Property rental revenue NOI (5) Net income (loss) attributable to Unitholders (millions of dollars) Property rental revenue NOI (5) Net income (loss) attributable to Unitholders (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 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 FCR (1) 71 $ 47 $ Guarantors (2) Non-Guarantors (3) Consolidation Adjustments (4) Total Consolidated 70 $ 100 $ 100 $ 46 $ 59 $ 58 $ — $ — $ 1 $ 1 $ (1) $ — $ (1) $ 170 $ 1 $ 106 $ 170 106 29 $ 37 $ 81 $ 110 $ (1) $ — $ (80) $ (110) $ 29 $ 37 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 FCR (1) Guarantors (2) Non-Guarantors (3) Consolidation Adjustments (4) Total Consolidated 278 $ 290 $ 400 $ 387 $ 182 $ 182 $ 231 $ 218 $ 1 $ — $ 1 $ 1 $ (4) $ — $ (5) $ (2) $ 675 $ 413 $ 673 399 Year ended December 31 460 $ 3 $ 576 $ 346 $ 24 $ 9 $ (600) $ (355) $ 460 $ 3 $ $ $ $ $ $ $ $ FCR (1) 203 $ (562) $ 688 $ 3,671 $ FCR (1) 225 $ (427) $ 449 $ 4,091 $ Guarantors (2) Non-Guarantors (3) 352 $ 10,966 $ 100 $ 976 $ 81 $ 130 $ 2 $ 38 $ Guarantors (2) Non-Guarantors (3) 258 $ 10,767 $ 104 $ 1,132 $ 1 $ 123 $ 4 $ 66 $ As at December 31, 2021 Consolidation Adjustments (4) Total Consolidated (79) $ (982) $ 1 $ (36) $ 557 9,552 791 4,649 As at December 31, 2020 Consolidation Adjustments (4) Total Consolidated (2) $ (913) $ (5) $ (65) $ 482 9,550 552 5,224 (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 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 48 MANAGEMENT’S DISCUSSION AND ANALYSIS – continued SUBSEQUENT EVENTS Redemption of $200 million of 4.43% Series O Senior Unsecured Debentures On January 31, 2022, upon maturity, First Capital repaid its 4.43% Series O Senior Unsecured Debentures in the amount of $200.0 million. QUARTERLY FINANCIAL INFORMATION (unit counts in thousands) 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 / Dividend declared per unit / share $ $ $ $ $ $ $ 2021 2020 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 $ 170,197 $ 165,613 $ 167,168 $ 171,912 $ 170,058 $ 163,952 $ 162,744 $ 176,136 $ 105,918 $ 103,078 $ 102,593 $ 100,949 $ 105,646 $ 101,478 $ 28,629 $ 181,526 $ 211,989 $ 37,987 $ 37,268 $ 11,262 $ $ $ $ $ $ 88,768 $ 103,140 10,530 $ (56,358) 0.05 0.05 47,462 0.22 $ $ $ $ (0.26) (0.26) 53,856 0.24 0.13 0.13 60,829 0.28 $ $ $ $ 0.83 0.82 59,047 0.27 $ $ $ $ 0.97 0.96 76,104 0.35 $ $ $ $ 0.17 0.17 55,009 0.25 $ $ $ $ 0.17 0.17 62,516 0.28 $ $ $ $ 0.05 0.05 58,140 0.26 220,929 220,899 220,863 220,667 220,551 220,522 220,492 220,470 83,575 61,096 0.108 $ $ $ 50,590 70,710 0.108 $ $ $ 71,152 69,398 0.108 $ $ $ 44,296 42,612 0.108 $ $ $ 92,737 59,500 0.215 $ $ $ 43,469 68,117 0.215 $ $ $ 46,249 36,500 0.215 $ $ $ 37,050 38,930 0.215 Total assets $ 10,109,074 $ 10,186,252 $ 10,189,522 $ 9,972,075 $ 10,032,463 $ 10,013,445 $ 10,037,370 $ 10,237,121 Total mortgages and credit facilities $ 2,072,952 $ 2,211,920 $ 2,370,499 $ 2,358,551 $ 2,262,565 $ 2,270,557 $ 2,434,042 $ 2,447,687 Unitholders' equity $ 4,620,942 $ 4,608,489 $ 4,445,198 $ 4,254,796 $ 4,227,164 $ 4,233,905 $ 4,252,417 $ 4,298,037 Other Number of neighbourhoods 146 148 150 150 150 150 149 151 GLA - at 100% (in thousands) 22,485 22,736 22,935 22,890 22,822 22,830 22,844 23,246 GLA - at ownership interest (in thousands) Monthly average occupancy % Total portfolio occupancy % 19,657 19,853 20,092 20,053 19,991 20,232 20,250 20,651 96.0% 96.1% 95.9% 95.9% 95.8% 95.9% 96.0% 95.8% 96.0% 96.2% 96.1% 96.0% 96.3% 96.3% 96.5% 96.4% (1) Refer to the "Non-IFRS Financial Measures" section of this MD&A. 49 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 2021 50 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, 2021 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 51 FIRST CAPITAL REIT ANNUAL REPORT 2021 earnings for the reporting periods using the best available information as of December 31, 2021 and 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. Accounting Policy Changes Refer to Note 2(b) and Note 2(t) of the audited annual consolidated financial statements for the years ended December 31, 2021 and 2020 for details on the impact of accounting policy changes including those related to the adoption of amended IFRS pronouncements. The IASB has issued amendments to existing standards. These changes are not yet adopted by First Capital and could have an impact on future periods. These changes are described in detail below: Amendment to IAS 1, Presentation of Financial Statements - Classification of Liabilities as Current or Non- Current In January 2020, the IASB issued amendments to IAS 1 to clarify the requirements for classifying liabilities as current or non-current. The amendments clarify the classification of liabilities as current or non-current based on rights that are in existence at the end of the reporting period and unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability. The amendments also clarify the definition of 'settlement' of a liability. The amendments are effective January 1, 2023, with early adoption permitted. The amendments are to be applied retrospectively. Management is currently assessing the impact of this amendment. CONTROLS AND PROCEDURES As at December 31, 2021, 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, 2021, 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, 2021 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 52  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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. Ongoing Pandemic, Epidemics or New Outbreaks On March 11, 2020, the World Health Organization declared a global pandemic and it continues to impact Canadian society at large with the emergence of new variants such as the Omicron variant. Although it is difficult to ascertain the ultimate impacts of the pandemic (or any subsequent pandemic, epidemic or other outbreak) on First Capital’s operating results for 2022, the positive impact of high vaccination rates on the overall economy and an improved and more stable operating environment support a strengthening outlook for FCR. However, a substantial portion of First Capital’s tenants have been forced at various times throughout the pandemic 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 FCR’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 government relief programs), including many that had initially been part of FCR’s Small Business Support Program. There is no certainty as to the extent that government relief programs will benefit First Capital or its tenants. The timing and extent to which certain non-essential businesses will be able to operate at full capacity remains uncertain with the emergence of new variants 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 adequate supply, availability and long-term efficacy of vaccines (including new variant-specific vaccines) and the corresponding effect on First Capital and its tenants. 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 the pandemic, epidemic or other outbreak, specific effects of the pandemic that may impact the 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 employee engagement, IT systems and networks. Changes to operations in response to these and other effects of the pandemic on the economy and consumer habits could materially adversely impact First Capital’s financial results and may negatively impact several aspects of FCR’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 the pandemic as well as actions taken by FCR with respect to tenant defaults could also result in 53 FIRST CAPITAL REIT ANNUAL REPORT 2021 legal claims and proceedings against First Capital. Uncertain economic conditions resulting from the pandemic may, in the short or long term, materially adversely impact operations and the financial performance of FCR. The spread of the pandemic has caused economic uncertainty 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 known how these interventions will impact short or long-term debt and equity markets or the economy generally. Although the ultimate impact of the pandemic on the global economy and its duration remains uncertain, disruptions caused by the pandemic may materially adversely affect the performance of First Capital. Uncertain economic conditions resulting from the pandemic 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 FCR’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 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 54  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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. 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 $1.5 billion principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured debentures and secured credit facilities maturing between January 1, 2022 and December 31, 2024 at a weighted average coupon interest rate of 4.0%. 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 $14.9 million. In addition, as at December 31, 2021, First Capital had $313.1 million at FCR's share, principal amount of debt (or 7% 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. 55 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 “Capital Structure and Liquidity - Credit Ratings”. Any lowering, withdrawal or revision of a credit rating may have an adverse effect on the market price of the senior unsecured debentures and the other securities of First Capital, may adversely affect a securityholder’s ability to sell its senior unsecured debentures or other securities of FCR and may adversely affect FCR’s access to financial markets and its cost of borrowing. Acquisition, Expansion, Development, Redevelopment and Strategic Dispositions First Capital’s acquisition and investment strategy and market selection process may not ultimately be successful and may not provide positive returns on investment. The acquisition of properties or portfolios of properties entails risks that include the following, any of which could adversely affect FCR’s financial position and results of operations and its ability to meet its obligations: (i) FCR may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the properties identified; (ii) FCR may not be able to successfully integrate any acquisitions into its existing operations; (iii) properties acquired may fail to achieve the occupancy or rental rates projected at the time of the acquisition decision, which may result in the properties’ failure to achieve the returns projected; (iv) FCR’s pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs, which could significantly increase FCR’s total acquisition costs; (v) FCR’s investigation of a property or building prior to acquisition, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase its acquisition cost; and (vi) representations and warranties obtained from third party vendors may not adequately protect against unknown, unexpected or undisclosed liabilities and any recourse against such vendors may be limited by the financial capacity of such vendors. Further, FCR’s development and redevelopment commitments are subject to those risks usually attributable to construction projects, which include: (i) construction or other unforeseen delays; (ii) cost overruns; (iii) the failure of tenants to occupy and pay rent in accordance with existing lease agreements, some of which are conditional; (iv) the inability to achieve projected rental rates or anticipated pace of lease-ups; and (v) an increase in interest rates during the life of the development or redevelopment. Where FCR’s development commitments relate to properties intended for sale, such as the residential portion of certain projects, FCR is also subject to the risk that purchasers of such properties may become unable or unwilling to meet their obligations to FCR or that FCR may not be able to close the sale of a significant number of units in a development project on economically favourable terms. In addition, FCR undertakes strategic property dispositions in order to recycle its capital and maintain an optimal portfolio composition. FCR may be subject to unexpected costs or liabilities related to such dispositions, which could adversely affect FCR's financial position and results of operations and its ability to meet its obligations. Competition The real estate business is competitive. Numerous other developers, managers and owners of retail properties compete with First Capital in seeking tenants. Some of the properties located in the same markets as FCR’s properties may be newer, better located and/or have stronger anchor tenants than FCR’s properties. The existence of developers, managers and owners in the markets in which FCR operates, or any increase in supply of available space in such markets (due to new construction, tenant insolvencies or other vacancy) and competition for FCR’s tenants could adversely affect FCR’s ability to lease space in its properties in such markets and on the rents charged or concessions granted. In addition, the internet and other technologies increasingly play a more significant role in consumer preferences and shopping patterns, which presents an evolving competitive risk to FCR that is not easily assessed. Any of the aforementioned factors could have an adverse effect on FCR’s financial position and results of operations. FIRST CAPITAL REIT ANNUAL REPORT 2021 56  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued Residential Development Sales and Leasing First Capital is and expects to be increasingly involved in the development of mixed-use properties that include residential condominiums and rental apartments. These developments are often carried out with an experienced residential developer as FCR's partner. Purchaser demand for residential condominiums is cyclical and is significantly affected by changes in general and local economic and industry conditions, such as employment levels, availability of financing for homebuyers, interest rates, consumer confidence, levels of new and existing homes for sale, demographic trends and housing demand. As a residential landlord in its properties that include rental apartments, FCR is subject to the risks inherent in the multi- unit residential rental property industry. In addition to the risks highlighted above, these include exposure to private individual tenants (as opposed to commercial tenants in FCR's retail properties), fluctuations in occupancy levels, the inability to achieve economic rents (including anticipated increases in rent), controlling bad debt exposure, rent control regulations, increases in operating costs including the costs of utilities (residential leases are often “gross” leases under which the landlord is not able to pass on costs to its residents), the imposition of increased taxes or new taxes and capital investment requirements. Environmental Matters First Capital maintains comprehensive environmental insurance and conducts environmental due diligence upon the acquisition of new properties. There is, however, a risk that the value of any given property in FCR’s portfolio could be adversely affected as a result of unforeseen or uninsured environmental matters or changes in governmental regulations. Under various federal, provincial and local laws, FCR, as an owner, and potentially as a person in control of or managing real property, could potentially be liable for costs of investigation, remediation and monitoring of certain contaminants, hazardous or toxic substances present at or released from its properties or disposed of at other locations, whether FCR knows of, or is responsible for, the environmental contamination and whether the contamination occurred before or after FCR acquired the property. The costs of investigation, removal or remediation of hazardous or toxic substances are not estimable, may be substantial and could adversely affect FCR’s results of operations or financial position. The presence of contamination or the failure to remediate such substances, if any, may adversely affect FCR’s ability to sell such real estate or to borrow using such real estate as collateral and could potentially also result in claims, including proceedings by government regulators or third-party lawsuits. Environmental legislation can change rapidly and FCR may become subject to more stringent environmental laws in the future, and compliance with more stringent environmental laws, or increased enforcement of the same, could have a material adverse effect on its business, financial position or results of operations. Partnerships First Capital has investments in properties with non-affiliated partners through partnership, co-ownership and limited liability corporate venture arrangements (collectively, “partnerships”). As a result, FCR does not control all decisions regarding those properties and may be required to take actions that are in the interest of the partners collectively, but not in FCR’s sole best interests. Accordingly, FCR may not be able to favourably resolve any issues that arise with respect to such decisions, or FCR may have to take legal action or provide financial or other inducements to partners to obtain such resolution. In addition, FCR may be exposed to risks resulting from the actions, omissions or financial situation of a partner, which may result in harm to FCR’s reputation or adversely affect the value of FCR’s investments. Investments Subject to Credit and Market Risk First Capital provides co-owner financing, priority mortgages and mezzanine loans to third parties in connection with certain transactions and partnerships (“Loans and Mortgages Receivable”). First Capital also invests in marketable and other securities. FCR is exposed to customary risks in the event that the values of its Loans and Mortgages Receivable and/or its investments, in marketable and other securities, decrease due to overall market conditions, business failure, and/or other non-performance/defaults by the counterparties or investees. Not all lending activities will translate into acquisitions or equity participation in a project and the value of the assets securing FCR’s Loans and Mortgages Receivable is dependent on real estate market conditions and in the event of a large market correction, their value may be unable to support the investments. There can also be no assurance FCR will advance new Loans and Mortgages Receivable at the same rate or in 57 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 58  MANAGEMENT’S DISCUSSION AND ANALYSIS – continued 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. 59 FIRST CAPITAL REIT ANNUAL REPORT 2021 FS CONSOLIDATED FINANCIAL STATEMENTS Table of Contents 61 62 65 66 67 68 69 70 70 70 79 81 82 83 84 85 85 87 89 89 90 90 91 94 94 95 95 95 96 97 99 101 102 103 104 105 105 105 Management's Responsibility Independent Auditor's Report Consolidated Balance Sheets Consolidated Statements of Income (Loss) 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 8, 2022. 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 Neil Downey Executive Vice President, Enterprise Strategies and Chief Financial Officer Toronto, Ontario February 8, 2022 61 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 (the "Trust"), which comprise the consolidated balance sheets as at December 31, 2021 and 2020, and the consolidated statements of income (loss), 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, 2021 and 2020, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRS"). 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 The Trust’s investment property portfolio has a fair value of $9.1 billion, which represents 90.3% of total assets at December 31, 2021. 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. How our audit addressed the key audit matter 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: 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 62 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. Note 2(h) of the consolidated financial statements describes the accounting policy for investment properties, including the valuation method and valuation inputs. 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 whether 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. 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 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 & 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 & 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 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. 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 63 FIRST CAPITAL REIT ANNUAL REPORT 2021 Independent Auditor's Report 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 consolidated 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 8, 2022 FIRST CAPITAL REIT ANNUAL REPORT 2021 64 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 65 FIRST CAPITAL REIT ANNUAL REPORT 2021 Note December 31, 2021 December 31, 2020 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 $ 8,975,539 349,488 85,400 129,608 9,540,035 12,174 9,552,209 $ 9,328,792 52,570 88,000 52,160 9,521,522 28,555 9,550,077 34,699 142,134 156,039 27,784 44,909 405,565 151,300 556,865 $ 10,109,074 100,444 77,269 74,190 46,296 22,338 320,537 161,849 482,386 $ 10,032,463 $ 1,129,500 824,792 1,898,677 1,947 53,497 740,309 4,648,722 2,476 43,675 74,985 449,468 220,666 791,270 5,439,992 $ 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 4,620,942 48,140 4,669,082 $ 10,109,074 4,227,164 29,263 4,256,427 $ 10,032,463  Consolidated Statements of Income (Loss) (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 (Increase) decrease in value of Exchangeable Units Increase (decrease) in value of hotel property Increase (decrease) in value of investment properties, net Income (loss) before income taxes Deferred income tax expense (recovery) Net income (loss) Net income (loss) attributable to: Unitholders Non-controlling interest Refer to accompanying notes to the consolidated financial statements. Year ended December 31 Note 2021 2020 $ 674,890 $ 672,890 16 17 18 19 4 20 15 13 5 3 21 14 24 262,352 412,538 273,858 399,032 10,880 (152,670) (38,207) (248) (6,018) (1,460) 87,089 (9,286) (548) (1,122) 198,617 87,027 499,565 25,929 473,636 460,131 13,505 473,636 $ $ $ 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 $ $ $ FIRST CAPITAL REIT ANNUAL REPORT 2021 66 Consolidated Statements of Comprehensive Income (Loss) (thousands of dollars) Net income (loss) 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. Year ended December 31 Note 2021 $ 473,636 $ 5 21 14 24 — 37,485 3,143 40,628 15,866 24,762 498,398 484,893 13,505 498,398 $ $ $ $ $ $ 2020 7,482 (2,910) (56,012) 2,203 (56,719) (20,941) (35,778) (28,296) (33,076) 4,780 (28,296) 67 FIRST CAPITAL REIT ANNUAL REPORT 2021 Consolidated Statements of Changes in Equity (thousands of dollars) December 31, 2020 Changes during the year: Net income (loss) 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, 2021 (thousands of dollars) December 31, 2019 Changes during the year: Net income (loss) Conversion of Exchangeable Units (Note 13) 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 $ 1,376,162 $ (43,580) $ 2,894,582 $ 4,227,164 $ 29,263 $ 4,256,427 460,131 — — — (94,804) — — — 3,689 460,131 3,689 24,762 — — — — — 24,762 — 13,505 — — 5,372 473,636 3,689 24,762 5,372 (94,804) — (94,804) $ 1,741,489 $ (18,818) $ 2,898,271 $ 4,620,942 $ 48,140 $ 4,669,082 Retained Earnings Accumulated Other Comprehensive Income (Loss) 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 Refer to accompanying notes to the consolidated financial statements. FIRST CAPITAL REIT ANNUAL REPORT 2021 68 Consolidated Statements of Cash Flows Year ended December 31 Note 2021 2020 $ 473,636 $ 7,482 3 5 18 4 18 27(a) 27(b) 10 10 10 10 11 11 24 3(c) 5 3(d) 4 4 3(a) 27(c) (198,617) 1,122 152,670 6,018 1,460 (149,490) (47,118) 9,932 249,613 — (28,115) (146,112) (24,753) — 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) (175,000) — 981 (102,618) 5,372 (470,245) (14,504) — 319,068 16,897 (17,110) (153,519) (4,430) 8,485 154,887 (65,745) 100,444 (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) $ 34,699 $ 100,444 (thousands of dollars) OPERATING ACTIVITIES Net income (loss) 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) Issuance of senior unsecured debentures, net of issue costs Repayment of senior unsecured debentures Settlement of hedges Issuance of trust units, net of issue costs Payment of distributions 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. 69 FIRST CAPITAL REIT ANNUAL REPORT 2021 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, grocery anchored and mixed-use real estate located in Canada's most densely populated cities. 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. 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 to all years presented, unless otherwise noted. In measuring performance or allocating resources, the Trust does not distinguish or group its operations on a geographical or any other basis and, accordingly, has a single reportable segment for disclosure purposes. Reportable segments have been aggregated based on Management's judgement, which considered the nature of operations, type of tenants and that the aggregated segments would have similar long-term economic characteristics. As a result, effective January 1, 2021, the Trust has one reportable segment for financial reporting purposes, which comprises the ownership, management and development of investment properties located across Canada. These audited annual consolidated financial statements were approved by the Board of Trustees and authorized for issue on February 8, 2022. (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 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 70  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 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 consolidated balance sheets 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 consolidated statements of income (loss) reflect its share of the results of operations of the joint ventures after tax, if applicable. (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. 71 FIRST CAPITAL REIT ANNUAL REPORT 2021 (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 reporting period end 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 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 72  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (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. (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 that 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 73 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 (loss). (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. Deferred tax assets are recorded for all deductible temporary differences, carryforward 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 FIRST CAPITAL REIT ANNUAL REPORT 2021 74  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 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 (loss) 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 (loss) 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 retains 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. Lease termination fees are earned from tenants in connection with the cancellation or early termination of their remaining lease obligations, and are 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. 75 FIRST CAPITAL REIT ANNUAL REPORT 2021 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). The following summarizes the Trust’s classification and measurement of financial assets and liabilities for the years ended December 31, 2021 and 2020: 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 FIRST CAPITAL REIT ANNUAL REPORT 2021 76  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (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. (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, 2021. Actual results could differ from those estimates. The estimates and assumptions that the Trust considers critical and/or could be impacted by 77 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 portion of the outstanding receivable and is recognized as a loss in the consolidated statements of income (loss), 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 (loss), as a reduction of the related expense, in the periods in which the expenses are recognized. (t) Adoption of Amended IFRS Pronouncements Interbank Offered Rate ("IBOR") Benchmark Reform - Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 The amendments provide temporary reliefs which address the financial reporting effects when an IBOR is replaced with an alternative nearly risk-free interest rate ("RFR"). The amendments include the following practical expedients: (i) A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest (ii) Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued (iii) Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component These amendments had no impact on the consolidated financial statements of First Capital. First Capital intends to use the practical expedients in future periods if they become applicable. (u) Future Changes in Accounting Policies Amendment to IAS 1, Presentation of Financial Statements - Classification of Liabilities as Current or Non- Current In January 2020, the IASB issued amendments to IAS 1 to clarify the requirements for classifying liabilities as current or non-current. The amendments clarify the classification of liabilities as current or non-current based on rights that are in existence at the end of the reporting period and unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability. The amendments also clarify the definition of 'settlement' of a liability. The amendments are effective January 1, 2023, with early adoption permitted. The amendments are to be applied retrospectively. Management is currently assessing the impact of this amendment. FIRST CAPITAL REIT ANNUAL REPORT 2021 78  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 3. INVESTMENT PROPERTIES (a) Activity The following tables summarize the changes in First Capital’s investment properties for the years ended December 31, 2021 and 2020 : Income Producing Properties Properties under Construction Density & Development Land Total Year ended December 31, 2021 Balance at beginning of year $ 8,786,149 $ 221,116 $ 483,376 $ 9,490,641 Acquisitions Capital expenditures Developments transferred offline / online, net Reclassification to residential development inventory Increase (decrease) in value of investment properties, net Straight-line rent and other changes Dispositions Reclassification to equity accounted joint ventures (1) Balance at end of year Investment properties Investment properties classified as held for sale Total $ $ $ 14,504 67,856 262,238 — — 59,783 (278,306) — 25,880 16,068 — (92,286) 14,504 153,519 — (92,286) 121,336 13,428 63,853 198,617 2,076 (366,732) (117,500) 8,769,927 $ 8,691,027 $ 78,900 — — — 16,021 $ 16,021 $ — — — (156,000) 340,891 $ 268,491 $ 72,400 2,076 (366,732) (273,500) 9,126,839 8,975,539 151,300 8,769,927 $ 16,021 $ 340,891 $ 9,126,839 (1) In the third quarter of 2021, two properties were reclassified to investment in joint ventures as the legal ownership of these two properties changed or was restructured as part of disposition transactions. The two properties are now beneficially owned in separate limited partnerships owned 50/50 by the Trust and their respective partners. See Note 4 for further information. Income Producing Properties Properties under Construction Density & Development Land Total Year ended December 31, 2020 Balance at beginning of year $ 8,973,501 $ 264,577 $ 514,052 $ 9,752,130 Acquisitions Capital expenditures Developments transferred offline / online, net 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 Investment properties classified as held for sale Total $ $ $ 20,248 74,336 123,709 — (198,679) 7,817 (214,783) 8,786,149 $ 8,695,350 $ 90,799 — 90,782 (134,286) — 43 — — 221,116 $ 221,116 $ — — 39,915 10,577 (57,519) 20,248 205,033 — (57,519) 12,936 (185,700) — (36,585) 483,376 $ 412,326 $ 71,050 7,817 (251,368) 9,490,641 9,328,792 161,849 8,786,149 $ 221,116 $ 483,376 $ 9,490,641 Investment properties with a fair value of $2.5 billion (December 31, 2020 – $2.8 billion) are pledged as security for $1.2 billion (December 31, 2020 – $1.5 billion) in mortgages and secured credit facilities. 79 FIRST CAPITAL REIT ANNUAL REPORT 2021 (b) Investment property valuation Stabilized overall capitalization, terminal, and discount rates for investment properties valued under the Income Approach are set out in the table below: As at Weighted Average Total Overall Capitalization Rate Terminal Capitalization Rate Discount Rate December 31, 2021 December 31, 2020 5.0% 5.2% 5.7% 5.0% 5.2% 5.8% The majority of the Trust's portfolio is valued under the Income Approach using the discounted cash flow ("DCF") method. As at December 31, 2021, the weighted average valuation yields (stabilized overall capitalization, terminal, and discount rates) used in valuing those investment properties under the Income Approach remained substantially unchanged from December 31, 2020. Throughout 2021, as part of its normal course internal valuations, the Trust adjusted the fair value of certain properties to reflect the contractual sale price prior to disposition, as well as revaluations of development land. In addition, the Trust made revisions to capitalization and discount rates for certain properties. As a result, an overall increase in the value of investment properties was recorded in the amount of $198.6 million ($181.5 million at FCR's share) for the year ended December 31, 2021. At the onset of the pandemic which arose in the first quarter of 2020, an overall decrease in the value of investment properties was recorded in the amount of $185.7 million ($195.8 million at FCR's share) for the year ended December 31, 2020. The decrease reflected the potential impact of COVID-19 on the cash flows in the valuation models. As part of a comprehensive portfolio review, properties with greater exposure to tenants deemed non-essential under government directives, and therefore potentially subject to prolonged closures, were identified. The short term cash flows in the 10 year valuation models for each of these properties were adjusted for increased vacancy, lower rental rate growth, and other market leasing assumptions such as slower lease up of existing vacancy. The sensitivity of the fair values of investment properties to stabilized overall capitalization rates as at December 31, 2021 is set out in the table below: As at December 31, 2021 (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 2,290 1,615 1,017 481 (435) (831) (1,191) (1,522) $ $ $ $ $ $ $ $ Additionally, a 1% increase or decrease in stabilized net operating income ("SNOI") would result in a $91 million increase or a $91 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 $577 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 $522 million. FIRST CAPITAL REIT ANNUAL REPORT 2021 80  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (c) Investment properties – Acquisitions For the years ended December 31, 2021 and 2020, First Capital acquired investment properties as follows: Year ended December 31 Total purchase price, including acquisition costs (1) Total cash paid $ $ 2021 14,504 $ 14,504 $ 2020 20,248 20,248 (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 consolidated financial statements. (d) Investment properties classified as held for sale and dispositions 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 December 31 Aggregate fair value $ 2021 151,300 $ 2020 161,849 The decrease of $10.5 million in investment properties classified as held for sale from December 31, 2020, primarily arose from the disposition of investment properties, offset by fair value adjustments on certain properties as well as the addition of new investment properties classified as held for sale, in line with First Capital's super urban strategy. For the years ended December 31, 2021 and 2020, First Capital sold investment properties as follows: Year ended December 31 Total selling price Vendor take-back mortgage on sale Property selling costs Net cash proceeds $ $ 2021 366,732 $ (40,531) (7,133) 319,068 $ 2020 251,368 (15,000) (3,915) 232,453 4. INVESTMENT IN JOINT VENTURES As at December 31, 2021, First Capital had interests in nine joint ventures that it accounts for using the equity method. First Capital's joint ventures are as follows: Effective Ownership Location December 31, 2021 Name of Property/Business Activity Name of Entity Aukland and Main Developments LP (1) Station Place College Square General Partnership Edenbridge Kingsway (Humbertown) Fashion Media Group GP Ltd. FC Access LP (2) FC Urban Properties, LP Green Capital Limited Partnership Lakeshore Development LP Stackt Properties LP (1) As at December 31, 2020, Aukland and Main Developments LP was a consolidated subsidiary subject to a non-controlling interest of 29.1%, resulting in the Trust's effective Toronto, ON Ottawa, ON College Square Toronto, ON Humbertown Condos (Phase 1) Toronto Fashion Week events Toronto, ON Whitby Mall (self storage operation) Whitby, ON Toronto, ON 199 Avenue Road Markham, ON Royal Orchard Toronto, ON 2150 Lake Shore Blvd. W. Toronto, ON Shipping Container marketplace 35.4% 50.0% 50.0% 78.0% 25.0% 20.0% 50.0% 50.0% 94.0% 70.9% 50.0% 50.0% 78.0% 25.0% N/A 50.0% N/A 94.0% December 31, 2020 ownership of 70.9%. In the third quarter of 2021, the Trust's new partner in Station Place subscribed to 50% of the limited partnership units of Aukland and Main Developments LP, reducing the Trust's effective ownership to 35.4%. (2) During the third quarter of 2021, FC Access LP disposed of its self storage operations at Whitby Mall. The joint venture is in the process of being legally wound up. 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. On September 1, 2021, the Trust's new 50% partner in Station Place subscribed to 50% of the limited partnership units in Aukland and Main Developments LP, the beneficial owner of the property, for $117.5 million. 81 FIRST CAPITAL REIT ANNUAL REPORT 2021 On September 17, 2021, the Trust's new 50% partner in 2150 Lake Shore Boulevard West subscribed to 50% of the limited partnership units in the newly formed Lakeshore Development LP for $156 million by way of $56 million in cash and $100 million in notes receivable. Concurrent with the subscription, the Trust's 50% interest in the Christie Cookie lands was transferred into the new joint venture as well as the purchase of the former partner's 50% interest which was conveyed to Lakeshore Development LP on closing. On November 26, 2021, the Trust contributed 100% of the lands to the Edenbridge Kingsway (Humbertown) joint venture which was previously classified as residential inventory for $24.7 million. The Trust’s joint venture partner contributed $12.3 million to the partnership, to pay for its portion of the land which was subsequently distributed to the Trust. 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 Current income tax expense (recovery) Net income (loss) and total comprehensive income (loss) at 100% First Capital's share of income in equity accounted joint ventures December 31, 2021 December 31, 2020 $ 921,985 $ 206,891 (201,255) 720,730 (83,339) 123,552 $ 349,488 $ 52,570 December 31, 2021 December 31, 2020 $ 17,369 $ 15,429 (9,507) (4,145) (3,061) 656 — 656 (1,460) $ $ (8,660) (10,965) (8,355) (12,551) — $ $ (12,551) (7,835) During 2021, First Capital received distributions from its joint ventures of $16.9 million (2020 – $3.0 million) and made contributions to its joint ventures of $17.1 million (2020 – $3.9 million). As at December 31, 2021, there were no outstanding commitments or contingent liabilities for the nine equity accounted joint ventures. Additionally, none of the Trust’s investments in joint ventures were determined to be impaired. 5. HOTEL PROPERTY First Capital owns a 100% interest in the Hazelton Hotel ("hotel property") located in Toronto, Ontario. The hotel property is a mixed-use luxury hotel located in Yorkville Village. On October 1, 2020, First Capital acquired the remaining 40% interest in the hotel property. Prior to the acquisition, First Capital owned a 60% interest in the hotel property. 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 were expensed in 'Other gains (losses) and (expenses)' in the consolidated statements of income (loss) for the year ended December 31, 2020. 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 82  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 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, 2021 and 2020. Balance at beginning of year Acquisition Amortization Additions Revaluation of hotel property (1) Balance at end of year December 31, 2021 December 31, 2020 $ $ 88,000 $ — (1,937) 459 (1,122) 85,400 $ 62,199 37,080 (1,432) 2,495 (12,342) 88,000 (1) The revaluation loss of $12.3 million, for the year ended December 31, 2020, 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 (loss). 6. LOANS, MORTGAGES AND OTHER ASSETS As at Non-current December 31, 2021 December 31, 2020 Loans and mortgages receivable classified as FVTPL (a) $ 1,486 $ Loans and mortgages receivable classified as amortized cost (a)(b) Other investments Total non-current Current Loans and mortgages receivable classified as FVTPL (a) Loans and mortgages receivable classified as amortized cost (a)(b) FVTPL investments in securities (c) Total current Total 122,321 5,801 129,608 6 116,152 25,976 142,134 1,968 37,612 12,580 52,160 6 73,548 3,715 77,269 $ 271,742 $ 129,429 (a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning investment properties. As at December 31, 2021, these receivables bear interest at weighted average effective interest rates of 5.4% (December 31, 2020 – 6.3%) and mature between 2022 and 2026. As of December 31, 2021, 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) On September 17, 2021, the Trust's partner in 2150 Lake Shore Boulevard West subscribed to 50% of the units in the newly formed Lakeshore Development LP for $156 million. The subscription price was satisfied through the payment 83 FIRST CAPITAL REIT ANNUAL REPORT 2021 of $56 million in cash and $100 million in loans receivable. One half of the loan, or $50 million, is due on or before December 31, 2022, and the remainder is due on or before September 17, 2026. The loan bears no interest until December 31, 2022 and thereafter bears interest at the greater of prime plus 2.5% or 5%. At inception, a discount in the amount of $6.5 million was recognized and netted against the principal amount of the loan. This discount will be accreted into interest income over the interest free period of the loan. (c) From time to time, First Capital invests in publicly traded real estate and related securities. These securities are recorded at market value. Realized and unrealized gains and losses on FVTPL securities are recorded in other gains (losses) and (expenses). Scheduled principal receipts of loans and mortgages receivable and the weighted average effective floating or fixed interest rates as at December 31, 2021 are as follows: 2022 2023 2024 2025 2026 Sub-Total Unamortized deferred financing fees and accrued interest Total scheduled principal receipts of loans and mortgages receivable Current Non-current Total Scheduled Receipts $ 113,421 9,572 39,095 25,000 50,000 $ 237,088 2,877 $ 239,965 $ 116,158 123,807 $ 239,965 Weighted Average Effective Interest Rate 5.6 % 6.3 % 3.3 % 7.8 % 5.2 % 5.4 % 5.6 % 5.2 % 5.4 % 7. AMOUNTS RECEIVABLE As at Tenant receivables (net of allowance for expected credit losses of $17.2 million; December 31, 2020 – $11.4 million) Corporate and other amounts receivable Total December 31, 2021 December 31, 2020 $ $ 27,032 752 27,784 $ $ 45,439 857 46,296 First Capital determines its allowance for expected credit losses on a tenant-by-tenant basis considering lease terms, credit risk, 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, 2021. The change in the allowance for expected credit losses is summarized below: As at and for the twelve months ended Allowance for expected credit losses, beginning of year Receivables written off during the year Additional provision recorded during the year Allowance for expected credit losses, end of year December 31, 2021 December 31, 2020 $ $ 11,440 (4,232) 10,005 17,213 $ 3,003 (1,367) 9,804 $ 11,440 During the second and third quarters of 2020, 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 REIT ANNUAL REPORT 2021 84  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 8. OTHER ASSETS As at Non-current Fixtures, equipment and computer hardware and software (net of accumulated amortization of $22.3 million; December 31, 2020 – $18.2 million) Deferred financing costs on credit facilities (net of accumulated amortization of $7.5 million; December 31, 2020 – $6.3 million) Environmental indemnity and insurance proceeds receivable Bond asset Derivatives at fair value Total non-current Current Deposits and costs on investment properties under option Prepaid expenses Bond asset Other deposits Restricted cash Derivatives at fair value Total current Total 9. CAPITAL MANAGEMENT Note December 31, 2021 December 31, 2020 $ 7,671 $ 9,958 12(a) 23 23 $ 2,960 1,244 — 299 12,174 8,358 11,364 13,388 250 5,538 6,011 44,909 57,083 3,021 1,611 13,965 — 28,555 10,450 10,679 — 250 959 — 22,338 50,893 $ 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) Senior unsecured debentures Exchangeable Units Equity market capitalization (1) Total capital employed Trust Units outstanding (000's) Closing market price (1) Equity market capitalization is the market value of FCR's units outstanding at a point in time. 85 FIRST CAPITAL REIT ANNUAL REPORT 2021 December 31, 2021 December 31, 2020 $ 2,476 1,177,064 899,777 39,808 2,350,000 4,469,125 1,947 4,140,551 $ 238 1,351,291 915,928 39,175 2,525,000 4,831,632 1,399 2,971,723 $ 8,611,623 $ 7,804,754 219,541 219,315 $ 18.86 $ 13.55 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, 2021, 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 (1) Unencumbered aggregate assets to unsecured debt, using 10 quarter average capitalization rate (1) Unitholders' equity, using four quarter average (billions) (2) Secured indebtedness to total assets (2) For the rolling four quarters ended Interest coverage (Adjusted EBITDA to interest expense) (2) Fixed charge coverage (Adjusted EBITDA to debt service) (2) Measure/ Covenant ≥1.3 >$2.0B <35% >1.65 >1.50 December 31, 2021 December 31, 2020 $ 43.9% 2.3 4.5 12.7% 2.3 2.0 $ 47.3% 2.0 4.3 15.2% 2.1 1.8 (1) Total assets excludes cash balances. (2) 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; • Adjusted EBITDA, is calculated as net income, adding back income tax expense; interest expense; and amortization and excluding the increase or decrease in the fair value of investment properties, Exchangeable Units and unit-based compensation; other gains (losses) and (expenses); and other non-cash or non-recurring items. The Trust also adjusts for incremental leasing costs, which is a recognized adjustment to Funds from Operations, in accordance with the recommendations of the Real Property Association of Canada; • Fixed charges include regular principal and interest payments and capitalized interest in the calculation of interest expense; and • 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. FIRST CAPITAL REIT ANNUAL REPORT 2021 86  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 10. MORTGAGES AND CREDIT FACILITIES As at Fixed rate mortgages Unsecured facilities Secured facilities Mortgages and credit facilities Current Non-current Total December 31, 2021 December 31, 2020 $ 1,173,175 $ 1,346,637 824,792 74,985 2,072,952 118,660 1,954,292 $ $ 745,054 170,874 2,262,565 151,571 2,110,994 $ $ $ 2,072,952 $ 2,262,565 Mortgages and secured facilities are secured by First Capital's investment properties. As at December 31, 2021, approximately $2.5 billion (December 31, 2020 – $2.8 billion) of investment properties out of $9.1 billion (December 31, 2020 – $9.5 billion) (Note 3(a)) had been pledged as security under the mortgages and the secured facilities. As at December 31, 2021, mortgages bear coupon interest at a weighted average coupon rate of 3.4% (December 31, 2020 – 3.5%) and mature in the years ranging from 2022 to 2031. The weighted average effective interest rate on all mortgages as at December 31, 2021 is 3.5% (December 31, 2020 – 3.6%). Principal repayments of mortgages outstanding as at December 31, 2021 are as follows: 2022 2023 2024 2025 2026 2027 to 2031 Scheduled Amortization Payments on Maturity $ 30,947 $ 13,338 $ 32,597 31,944 29,641 25,886 67,181 — 108,478 55,895 94,360 686,797 Total 44,285 32,597 140,422 85,536 120,246 753,978 $ 218,196 $ 958,868 $ 1,177,064 Weighted Average Effective Interest Rate 3.7 % N/A 3.8 % 3.4 % 3.2 % 3.5 % 3.5 % Unamortized deferred financing costs and premiums, net Total (3,889) $ 1,173,175 87 FIRST CAPITAL REIT ANNUAL REPORT 2021 2022 Floating rate unsecured term loan maturing 2023 (2) Fixed rate unsecured term loans maturing 2024 - 2026 Secured Construction Facilities Maturing 2022 Maturing 2022 Secured Facilities Maturing 2022 Maturing 2022 Maturing 2022 First Capital’s credit facilities as at December 31, 2021 are summarized in the table below: As at December 31, 2021 Unsecured Operating Facilities Revolving facility maturing 2026 Revolving facility maturing 2024 (1) Borrowing Capacity Amounts Drawn Bank Indebtedness and Outstanding Letters of Credit Available to be Drawn $ 450,000 $ — $ (8,593) $ 441,407 100,000 (69,535) — 30,465 Revolving facility maturing 250,000 — — 250,000 200,000 (205,257) 550,000 (550,000) 20,000 (19,984) 33,333 (33,333) — — — — — — 16 — 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% BA + 1.10% or Prime + 0.25% or US$ LIBOR + 1.10% June 30, 2026 August 31, 2024 September 29, 2022 BA + 1.20% April 15, 2023 3.29% March 28, 2024 - April 15, 2026 BA + 2.50% or Prime + 1.00% January 20, 2022 2.79% February 25, 2022 14,234 (10,600) (1,320) 2,314 4,313 (4,313) 6,755 (6,755) — — — — BA + 1.20% or Prime + 0.20% BA + 1.20% or Prime + 0.20% BA + 1.20% or Prime + 0.20% May 31, 2022 September 28, 2022 December 19, 2022 Total $ 1,628,635 $ (899,777) $ (9,913) $ 724,202 (1) The Trust had drawn in U.S. dollars the equivalent of CAD$70.0 million which was revalued at CAD$69.5 million as at December 31, 2021. (2) The Trust had drawn in U.S. dollars the equivalent of CAD$200.0 million which was revalued at CAD$205.3 million as at December 31, 2021. 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 September 1, 2021, First Capital extended and amended its $450.0 million unsecured revolving credit facilities while also transitioning them into "Sustainability-Linked Credit facilities ("SLCs"). FIRST CAPITAL REIT ANNUAL REPORT 2021 88  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 11. SENIOR UNSECURED DEBENTURES As at Series Maturity Date N March 1, 2021 O P Q R S T U V A 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 Current Non-current Total Interest Rate Coupon Effective 4.50% 4.43% 3.95% 3.90% 4.79% 4.32% 3.60% 3.75% 3.46% 3.45% 3.99% 4.63% 4.59% 4.18% 3.97% 4.72% 4.24% 3.56% 3.82% 3.54% 3.54% 4.03% December 31, 2021 December 31, 2020 Principal Outstanding $ — $ 200,000 250,000 300,000 300,000 300,000 300,000 300,000 200,000 200,000 2,350,000 $ 450,000 $ 1,900,000 2,350,000 $ $ $ $ Liability — $ 199,975 249,493 299,644 300,507 300,801 300,487 298,950 199,261 199,027 2,348,145 $ 449,468 $ 1,898,677 2,348,145 $ Liability 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 Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity. On March 1, 2021, upon maturity, First Capital repaid its 4.50% Series N Senior Unsecured Debentures in the amount of $175.0 million. 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 89 FIRST CAPITAL REIT ANNUAL REPORT 2021 Note December 31, 2021 December 31, 2020 23 15(c) 15(c) 14(b) 23 $ 1,755 8,811 8,990 6,802 2,850 24,289 53,497 75,900 44,696 17,815 7,903 33,641 40,236 464 11 220,666 $ 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 $ 274,163 $ 291,171 (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 $1.2 million (December 31, 2020 - $1.6 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, 2021 December 31, 2020 Balance at beginning of year Converted to Trust Units Fair value adjustment Balance at end of year 14. UNITHOLDERS’ EQUITY Number of Exchangeable Units 103 $ — — 103 $ Number of Exchangeable Units 1,210 $ (1,107) — 103 $ Value 1,399 — 548 1,947 Value 25,010 (16,207) (7,404) 1,399 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 The following table sets forth the particulars of First Capital's Trust Units outstanding: As at December 31, 2021 Value of Trust Units Number of Trust Units December 31, 2020 Value of Trust Units Number of Trust Units Balance at beginning of year 219,315 $ 2,894,582 217,954 $ 2,872,907 Exercise of options, and settlement of any restricted, performance and deferred trust units Conversion of Exchangeable Units Balance at end of year 226 — 3,689 — 254 5,468 1,107 16,207 219,541 $ 2,898,271 219,315 $ 2,894,582 FIRST CAPITAL REIT ANNUAL REPORT 2021 90  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (b) Distributions On January 12, 2021, First Capital announced the 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. First Capital declared monthly distributions totaling $0.432 per Trust Unit for the year ended December 31, 2021 (year ended December 31, 2020 - $0.860 per Trust Unit). 15. UNIT-BASED COMPENSATION PLANS (a) Unit Option Plan As of December 31, 2021, First Capital is authorized to grant up to 19.7 million (December 31, 2020 – 19.7 million) Trust Unit options to employees and officers. As of December 31, 2021, 6.6 million (December 31, 2020 – 4.6 million) unit options are available to be granted to employees and officers. In addition, as at December 31, 2021, 6.3 million unit options were outstanding (December 31, 2020 - 7.1 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, 2021 have exercise prices ranging from $15.53 - $21.24 (December 31, 2020 – $15.70 - $21.24). As at Exercise Price Range ($) 15.53 - 19.29 19.30 - 20.05 20.06 - 21.19 21.20 - 21.24 15.53 - 21.24 Outstanding Options December 31, 2021 Vested Options Outstanding Options December 31, 2020 Vested Options Number of Trust Units Issuable (in thousands) 1,609 $ 1,515 $ 1,749 $ 1,464 $ 6,337 $ Weighted Average Exercise Price per Trust Unit 17.27 19.86 20.67 21.24 19.75 Weighted Average Remaining Life (years) 5.2 5.3 6.2 8.2 6.2 Number of Trust Units Issuable (in thousands) Weighted Average Exercise Price per Trust Units 965 $ 18.43 1,167 $ 19.81 1,043 $ 20.49 293 $ 21.24 3,468 $ 19.75 Number of Trust Units Issuable (in thousands) 1,213 $ 1,925 $ 2,161 $ 1,804 $ 7,103 $ Weighted Average Exercise Price per Trust Unit 18.33 19.86 20.68 21.24 20.20 Weighted Average Remaining Life (years) 3.0 5.1 5.9 7.5 5.6 Number of Trust Units Issuable (in thousands) Weighted Average Exercise Price per Trust Units 1,213 $ 18.33 1,110 $ 19.80 846 $ 20.40 — 3,169 $ 19.40 — $ During the year ended December 31, 2021, $1.0 million (year ended December 31, 2020 – $1.1 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) 7,103 644 (60) (545) (805) $ 2021 Weighted Average Exercise Price 20.20 15.53 16.41 20.59 20.05 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 6,337 $ 19.75 7,103 $ 20.20 91 FIRST CAPITAL REIT ANNUAL REPORT 2021 (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 options granted (thousands) Term to expiry Exercise price Weighted average volatility rate Weighted average expected option life Weighted average distribution yield Weighted average risk free interest rate Fair value (thousands) 2021 March 1, 2021 644 10 years $15.53 22.0 % 7.3 years 4.70 % 1.10 % $1,114 2020 February 28, 2020 1,804 10 years $21.24 13.7 % 6.6 years 4.30 % 1.08 % $1,373 (b) The weighted average market price at which options were exercised for the year ended December 31, 2021 was $16.72 (year ended December 31, 2020 – $21.71). The assumptions used to measure the fair value of the unit options under the Black-Scholes model (level 2) as at December 31, 2021 and 2020 were as follows: As at December 31 Expected Trust Unit price volatility Expected life of options Expected distribution yield Risk free interest rate (b) Trust Unit arrangements 2021 2020 17.92% - 35.17% 22.93% - 50.12% 0.2 - 6.5 years 6.30% 0.07% - 0.44% 0.2 - 6.5 years 4.25% 0.16% - 1.28% First Capital’s Trust Unit plans include a Trustees' Deferred Unit ("DU") plan and a Restricted Unit ("RU") plan that provides for the issuance of Restricted Units and Performance Units ("PU"). 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 Nil – 2.0 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. Year ended December 31 (in thousands) Outstanding at beginning of year Granted (a) (b) Distributions reinvested Exercised Forfeited Outstanding at end of year Expense recorded for the year DUs 368 65 8 (121) — 320 $1,299 2021 RUs / PUs 789 355 22 (244) (25) 897 $5,365 DUs 289 59 20 — — 368 $1,084 2020 RUs / PUs 663 295 44 (189) (24) 789 $5,830 (a) The fair value of the DUs granted during the year ended December 31, 2021 was $1.1 million (year ended December 31, 2020 – $0.8 million), measured based on First Capital’s prevailing Trust Unit price on the date of grant. The fair value of the RUs granted during the year ended December 31, 2021 was $3.1 million (year ended December 31, 2020 – $3.5 million), measured based on First Capital’s Trust Unit price on the date of grant. FIRST CAPITAL REIT ANNUAL REPORT 2021 92  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued (b) The fair value of the PUs granted during the year ended December 31, 2021 was $2.8 million (year ended December 31, 2020 – $2.6 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 and relative to a customized index of publicly-listed peers. Year ended December 31 Grant date PUs granted (thousands) Term to expiry Weighted average volatility rate Weighted average correlation Weighted average total Unitholder return Weighted average risk free interest rate Fair value (thousands) 2021 2020 March 1, 2021 February 28, 2020 131 3 years 13.8% 35.0% (4.0%) 146 3 years 30.1% 72.4% 10.4% 0.34% $2,771 1.11% $2,573 (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, 2021, the carrying value of the unit-based compensation liability was $24.6 million (December 31, 2020 – $12.2 million)(Note 12). For the year ended December 31, 2021, FCR recognized an increase in the value of the unit-based compensation plans which resulted in a loss of $9.3 million in the consolidated statements of income (loss) due to an increase in the Trust Unit's price year-over-year. 93 FIRST CAPITAL REIT ANNUAL REPORT 2021 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 (1) (2) (3) Includes residential revenue. Includes hotel property revenue. Includes residential operating costs, hotel property operating costs and bad debt expense. Year ended December 31 % change 2021 2020 $ 426,146 $ 426,845 100,865 118,842 1,541 2,528 2,082 (2,308) 25,194 0.3% 674,890 111,951 134,899 (1,877) 17,379 262,352 97,265 122,326 1,811 3,502 2,711 27 18,403 672,890 107,408 139,238 (284) 27,496 273,858 3.4% $ 412,538 $ 399,032 61.1% 59.3% Included in other operating costs and adjustments is bad debt expense for the year ended December 31, 2021 of $8.5 million (year ended December 31, 2020 - $22.8 million). For the year ended December 31, 2021, property operating costs include $20.8 million (year ended December 31, 2020 – $16.4 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, 2021 of $0.6 million related to property operations personnel (year ended December 31, 2020 - $4.5 million). A portion of this wage subsidy will be passed on to tenants through lower operating cost recoveries. 17. INTEREST AND OTHER INCOME Interest, dividend and distribution income from marketable securities and other investments Interest income from loans and mortgages receivable classified as FVTPL Interest income from loans and mortgages receivable at amortized cost Fees and other income Total $ Note 6 6 6 Year ended December 31 $ 2021 499 100 5,809 4,472 2020 1,082 922 6,791 3,453 $ 10,880 $ 12,248 FIRST CAPITAL REIT ANNUAL REPORT 2021 94  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 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 (1) The distributions declared on the Exchangeable Units are accounted for as interest expense. 19. CORPORATE EXPENSES Salaries, wages and benefits Unit-based compensation Other corporate costs Total corporate expenses Amounts capitalized to investment properties under development Corporate expenses Note 10 10 11 13 $ $ $ $ $ $ Year ended December 31 2020 2021 52,142 49,912 28,796 26,260 100,854 95,961 650 45 182,442 172,178 (19,508) 152,670 3,148 1,169 133 (7,630) 149,490 $ (24,731) 157,711 (1,524) 1,203 401 (6,556) $ 151,235 $ Year ended December 31 2020 2021 22,985 27,675 7,673 7,155 10,277 10,611 40,935 45,441 (7,697) (7,234) 33,238 38,207 $ For the year ended December 31, 2021, salaries, wages and benefits include $0.3 million of wage subsidies received under the CEWS program (year ended December 31, 2020 - $3.8 million). 20. OTHER GAINS (LOSSES) AND (EXPENSES) Unrealized gain (loss) on marketable securities Net gain (loss) on prepayments of debt Gain on below market purchase (1) Hotel acquisition transaction costs (1) Pre-selling costs of residential inventory Investment properties selling costs REIT conversion costs Gain on Option Other Total (1) In connection with acquisition of hotel property - Refer to Note 5. Year ended December 31 2020 2021 $ $ 14,786 (1,139) — — (238) (7,133) — 80,822 (9) 87,089 $ $ (234) (282) 7,385 (1,121) (142) (3,915) (906) — 73 858 In the third quarter of 2021, the Trust exercised its option to buy its former partner's 50% interest in 2150 Lake Shore Boulevard West for $55.5 million. Concurrent with closing, the Trust entered into a new partnership and conveyed 50% of 95 FIRST CAPITAL REIT ANNUAL REPORT 2021 the property to a new partner for $156 million. The gain on the option of $100.5 million was reduced by the derecognition of $13.2 million in previously capitalized option costs and the discount recognized on the loans receivable of $6.5 million (Note 6 (b)). 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, 2020 Net income Recognized in OCI Equity and other December 31, 2021 Deferred taxes related to non-capital losses $ (40,190) $ 2,264 $ — $ Deferred tax liabilities related to difference in tax and book basis primarily related to real estate, net 738,718 23,665 15,866 8,713 $ (8,727) (29,213) 769,522 Net deferred taxes $ 698,528 $ 25,929 $ 15,866 $ (14) $ 740,309 As at December 31, 2021, the corporate subsidiaries of the Trust had approximately $80.8 million of non-capital losses which expire between 2028 and 2041. December 31, 2019 Net income Recognized in OCI Equity and other December 31, 2020 Deferred taxes related to non-capital losses $ — $ (35,442) $ (2,716) $ Deferred tax liabilities related to difference in tax and book basis primarily related to real estate, net 701,549 59,366 (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. The following reconciles the expected tax expense computed at the statutory tax rate to the actual tax expense for the years ended December 31, 2021 and 2020. Income tax computed at the Canadian statutory rate of Nil applicable to the Trust at December 31, 2021 and 2020 Increase (decrease) in income taxes due to: Deferred income taxes (recoveries) applicable to corporate subsidiaries Deferred income tax recovery related to temporary differences associated with investment property applicable to corporate subsidiaries (1) Impact of change in provincial income tax rate Other Deferred income taxes expense (recovery) (1) Adjustment to rate differential applied to temporary differences. Year ended December 31 2021 $ — $ 67,265 (45,001) — 3,665 2020 — 22,481 — 481 962 $ 25,929 $ 23,924 FIRST CAPITAL REIT ANNUAL REPORT 2021 96  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, 2021, First Capital has a total of $316.4 million of outstanding debt bearing interest at variable rates. If the average variable interest rate was 100 basis points higher or lower than the existing rate, FCR’s annual interest cost would increase or decrease, respectively, by $3.2 million. First Capital has a total of $1.5 billion principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured debentures and secured credit facilities maturing between January 1, 2022 and December 31, 2024 at a weighted average coupon interest rate of 4.0%. 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 $14.9 million. As at December 31, 2021, First Capital’s loans and mortgages receivable that earn interest at variable rates total $75.2 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 $0.3 million. First Capital’s loans and mortgages receivable that earn interest at fixed rates total $67.0 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 $0.7 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 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, 2021, Loblaw Companies Limited (“Loblaw”) is FCR's largest tenant and accounts for 10.4% of FCR’s annualized minimum rent and has an investment grade credit rating. Other than Loblaw, no other tenant accounts for more than 10% of the annualized minimum rent. A tenant’s success over the term of its lease and its ability to fulfill its lease obligations is subject to many factors. There can be no assurance that a tenant will be able to fulfill all of its existing commitments and leases up to the expiry date. First Capital mitigates the risk of credit loss from debtors by undertaking a number of activities typical in lending arrangements including obtaining registered mortgages on the real estate properties. First Capital’s leases typically have lease terms between 5 and 20 years and may include clauses to enable periodic upward revision of the rental rates, and lease contract extension at the option of the lessee. Future minimum rentals receivable under non-cancellable operating leases as at December 31 are as follows: (thousands of dollars) Within 1 year After 1 year, but not more than 5 years More than 5 years 97 FIRST CAPITAL REIT ANNUAL REPORT 2021 2021 $ 398,664 1,002,965 611,965 $ 2,013,594 (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, 2021 is set out below: As at December 31, 2021 Payments due by period 2022 2023 to 2024 2025 to 2026 Thereafter Total Scheduled mortgage principal amortization $ 30,947 $ 64,541 $ 55,527 $ 67,181 $ 218,196 Mortgage principal repayments on maturity 13,338 108,478 150,255 686,797 958,868 Credit facilities and bank indebtedness 77,461 474,792 350,000 — 902,253 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 450,000 600,000 600,000 700,000 2,350,000 147,647 240,576 144,296 73,943 606,462 1,208 1,486 1,245 15,512 19,451 9,337 39,365 — — — — — — 9,337 39,365 $ 769,303 $ 1,489,873 $ 1,301,323 $ 1,543,433 $ 5,103,932 (1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2021 (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, 2021, there was $0.8 billion (December 31, 2020 – $0.7 billion) of cash advances drawn against First Capital’s unsecured credit facilities. In addition, as at December 31, 2021, First Capital had $29.7 million (December 31, 2020 – $49.2 million) of outstanding letters of credit issued by financial institutions primarily to support certain of FCR’s contractual obligations and $2.5 million (December 31, 2020 – $0.2 million) of bank overdrafts. (d) Unit price risk First Capital is exposed to Trust Unit price risk as a result of the issuance of Exchangeable Units, which are economically equivalent to and exchangeable for Trust Units, as well as the issuance of unit-based compensation. Exchangeable Units and unit-based compensation liabilities are recorded at their fair value based on market trading prices. Exchangeable Units and unit-based compensation negatively impact operating income when the Trust Unit price rises and positively impact operating income when the Trust Unit price declines. An increase of $1 dollar in the underlying price of First Capital's Trust Units would result in an increase to liabilities, and a decrease to net income as follows: (i) Exchangeable Units $0.1 million (December 31, 2020 – $0.1 million); and (ii) Unit-based compensation liabilities $3.5 million (December 31, 2020 – $2.3 million) FIRST CAPITAL REIT ANNUAL REPORT 2021 98  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: 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 Carrying Amount Fair Value Notes 2021 2020 2021 2020 6 6 6 8 6 8 10 10 11 13 15 12 $ 25,976 $ 3,715 $ 25,976 $ 1,492 1,974 1,492 3,715 1,974 238,473 111,160 239,135 110,045 13,388 13,965 13,388 5,801 6,310 12,580 — 5,801 6,310 13,965 12,580 — $ 1,173,175 $ 1,346,637 $ 1,219,703 $ 1,446,711 899,777 915,928 899,777 915,928 2,348,145 2,522,135 2,437,878 2,693,223 1,947 24,617 9,454 1,399 1,947 12,168 24,617 50,368 9,454 1,399 12,168 50,368 The fair values of First Capital’s FVTPL investments in securities are based on quoted market prices. First Capital has an investment in certain funds classified as Level 3, for which the fair values are based on the fair value of the properties held in the funds. 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, 2021, the risk-adjusted interest rates ranged from 1.6% to 10.9% (December 31, 2020 – 1.2% to 10.4%). 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, 2021, these rates ranged from 1.4% to 2.8% (December 31, 2020 – 1.5% to 2.3%). The fair value of the senior unsecured debentures are based on closing bid risk-adjusted spreads and current underlying Government of Canada bond yields on discounted cash flows. For the purpose of this calculation, the Trust uses, among others, interest rate quotations provided by financial institutions. As at December 31, 2021, these rates ranged from 0.9% to 3.0% (December 31, 2020 – 0.8% to 2.6%). The fair value of the Exchangeable Units are based on the Trust's closing price as of December 31, 2021. 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, 2021. • Performance Units: Fair Value is calculated using a Monte-Carlo simulation model. 99 FIRST CAPITAL REIT ANNUAL REPORT 2021 The fair value hierarchy of financial instruments in the consolidated balance sheets is as follows: As at December 31, 2021 December 31, 2020 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 25,976 $ — — — — — — $ 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 $ — $ — — 6,310 1,947 24,617 9,454 — $ 1,492 5,801 — 3,715 $ — — — — $ — — — — 1,974 12,580 — — — — — — — 1,399 12,168 50,368 — — — — $ — 13,388 — $ 239,135 $ — — — 1,219,703 899,777 2,437,878 — — — — — $ — — $ 13,965 110,045 — — — — 1,446,711 915,928 2,693,223 — — — 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, 2021, the interest rates ranged from 1.6% to 3.4% (December 31, 2020 – 1.7% to 2.5%). The fair values of First Capital's asset (liability) hedging instruments are as follows: Designated as Hedging Instrument Maturity as at December 31, 2021 December 31, 2021 December 31, 2020 Derivative assets Bond forward contracts Interest rate swaps Cross currency swaps Total Derivative liabilities Interest rate swaps Cross currency swaps Total Yes Yes No Yes No March 2022 August 2024 - January 2026 January 2022 April 2024 - March 2027 January 2022 $ $ $ $ 754 299 5,257 6,310 8,990 464 9,454 $ $ $ $ $ — — — — 45,422 4,946 50,368 As at December 31, 2021, the $40.9 million decrease in the fair value of outstanding derivative liabilities year-over-year 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 2021 100  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 24. SUBSIDIARIES WITH NON-CONTROLLING INTEREST As at December 31, 2021, 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 ("MMLP") Maincore Equities Inc. Primary Investment 46.875% Interest in MMUR (1) 46.875% Interest in MMUR (1) (1) FCR has owned a 6.25% direct interest in M+M Realty LP ("MMUR") since 2014. First Capital controls MMLP, a subsidiary in which it holds a 67% ownership interest. Effective Ownership December 31, 2021 December 31, 2020 67.0% 70.9% 67.0% 70.9% 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, 2021 December 31, 2020 $ 160,145 $ 95,319 1,170 96,489 — 23 23 377 160,522 3,860 483 4,343 156,179 48,140 $ $ $ $ $ $ $ $ $ 96,466 29,263 Year ended December 31 2021 1 $ 48,004 (4,649) 43,356 13,505 $ $ 2020 4 32,360 (5,497) 26,867 4,780 Year ended December 31 2021 (331) 8,769 (8,509) $ (71) $ 2020 (5,745) 361 5,291 (93) As at Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Net assets Non-controlling interests Revenue Share of profit from joint ventures Expenses Net income Non-controlling interests Cash provided by (used in) operating activities Cash provided by (used in) financing activities Cash provided by (used in) investing activities Net increase (decrease) in cash and cash equivalents 101 FIRST CAPITAL REIT ANNUAL REPORT 2021 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. Location Property Toronto, ON 101 Yorkville Avenue 2150 Lake Shore Blvd. West (Christie Cookie) (1) Toronto, ON Toronto, ON 897-901 Eglinton Avenue West Calgary, AB 802, 812, 816-838 11th Avenue South West (Glenbow) 731-739 10th Avenue South West (Five Roses Building) Calgary, AB Calgary, AB 738 11th Avenue South West (Sherwin Block) Ottawa, ON Gloucester City Centre Gatineau, QC Carrefour du Plateau Ottawa, ON Merivale Mall Repentigny, QC Galeries de Repentigny Repentigny, QC Galeries Brien Ouest/Est St. Albert, AB Gateway Village Toronto, ON King High Line - Residential Toronto, ON 261 Queens Quay East (Bayside Village) Midland, ON Midland (land) Vaughan, ON Rutherford Marketplace (Residential Inventory) Ottawa, ON Hunt Club – Petrocan Gatineau Portfolio (2) Gatineau, QC Ottawa, ON Hunt Club Marketplace Lachenaie, QC Lachenaie Properties South Oakville Properties (3) Oakville, ON Whitby, ON Whitby Mall Whitby, ON Thickson Mall St. Hubert Portfolio (4) St. Hubert, QC Ottawa Portfolio (4) Ottawa, ON West Island Portfolio (5) Burlington Portfolio (6) Seton Gateway Sherwood Park (7) The Edmonton Brewery District 138 Yorkville Avenue Meadowbrook Centre Lakeview Plaza Beaconsfield, QC / Kirkland, QC Burlington, ON Calgary, AB Sherwood Park, AB Edmonton, AB Toronto, ON Edmonton, AB Calgary, AB Ownership Interest December 31, 2021 50% —% 50% —% —% —% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 66.6% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 33.3% 50% 50% December 31, 2020 50% 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% 50% 50% 50% 50% 50% 33.3% 50% 50% (1) On September 17, 2021, the Trust's new 50% partner in 2150 Lake Shore Boulevard West subscribed to 50% of the limited partnership units in the newly formed Lakeshore Development LP. Concurrent with the subscription, the Trust's 50% interest in the Christie Cookie lands was transferred into the new joint venture and is now included under investments in joint ventures, see Note 4. (2) Gatineau Portfolio includes Place Cite des Jeunes, Place Nelligan, and Carrefour du Versant Ouest/Est. (3) South Oakville Properties includes one property at 50% interest, with the remaining properties held at 100% interest. (4) St. Hubert Portfolio includes Carrefour St-Hubert, Plaza Actuel, and Promenades du Parc. Ottawa Portfolio includes Loblaws Plaza, Eagleson Place, and Strandherd Crossing. (5) West Island Portfolio includes Centre Commercial Beaconsfield, Plaza Beaconsfield, Centre St-Charles, Centre Kirkland, and Place Kirkland. (6) Burlington Portfolio includes Burlingwood Shopping Centre and Beacon Hill Plaza. (7) Sherwood Park includes Sherwood Centre, Sherwood Towne Square, Village Market, and Sherwood Centre 1000 Alder Avenue. FIRST CAPITAL REIT ANNUAL REPORT 2021 102  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued Property West Springs Village 216 Elgin Street 221 - 227 Sterling London Portfolio (1) 906-1st Avenue North East (Molson 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, 2021 December 31, 2020 50% 50% 35% 49.5% 75% 66.6% 50% 50% 60% 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 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 2021 Closing Balance December 31 Opening Balance January 1 Net Change During the Year 2020 Closing Balance December 31 (43,580) 24,762 (18,818) (10,712) (32,868) (43,580) — — — 2,910 (2,910) — $ (43,580) $ 24,762 $ (18,818) $ (7,802) $ (35,778) $ (43,580) (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 2021 Net of Tax Amount Before-Tax Amount Tax (Expense) Recovery 2020 Net of Tax Amount $ 37,485 $ (14,639) $ 22,846 $ (56,012) $ 21,798 $ (34,214) 3,143 (1,227) 1,916 2,203 (857) 1,346 — — — (2,910) — (2,910) Other comprehensive income (loss) $ 40,628 $ (15,866) $ 24,762 $ (56,719) $ 20,941 $ (35,778) 103 FIRST CAPITAL REIT ANNUAL REPORT 2021 27. SUPPLEMENTAL CASH FLOW INFORMATION (a) Items not affecting cash and other items Straight-line rent adjustment Investment properties selling costs Unrealized (gain) loss on marketable securities classified as FVTPL Gain on below market purchase (1) Hotel transaction costs (1) Gain on Option Unit-based compensation expense Increase (decrease) in value of Exchangeable Units Increase (decrease) in value of unit-based compensation Deferred income taxes expense (recovery) Other non-cash items Total (1) In connection with acquisition of hotel property - Refer to Note 5. (b) Net change in non-cash operating items The net change in non-cash operating assets and liabilities consists of the following: Year ended December 31 Note 2021 16 20 20 20 20 20 15 13 15 21 $ (2,082) $ 7,133 (14,786) — — (80,822) 7,676 548 9,286 25,929 — $ (47,118) $ 2020 (2,711) 3,915 234 (7,385) 1,121 — 8,019 (7,404) (11,459) 23,924 (41) 8,213 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 Total (d) Cash and cash equivalents As at Cash and cash equivalents Year ended December 31 2021 2020 $ 18,512 $ (14,775) (686) 5,327 2,727 (15,948) (1,303) 12,228 (602) (6,770) $ 9,932 $ (11,222) Year ended December 31 2020 2021 $ $ (45,275) $ 54,455 (695) 8,485 $ (18,083) 45,319 (278) 26,958 December 31, 2021 December 31, 2020 $ 34,699 $ 100,444 FIRST CAPITAL REIT ANNUAL REPORT 2021 104  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued 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 $73.2 million (December 31, 2020 – $70.5 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 $29.7 million (December 31, 2020 – $49.2 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, 2020 – $1.2 million) with a total obligation of $19.5 million (December 31, 2020 – $20.7 million). 29. RELATED PARTY TRANSACTIONS (a) 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. (b) 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) $ $ 30. SUBSEQUENT EVENTS Redemption of $200 million of 4.43% Series O Senior Unsecured Debentures Year ended December 31 2020 2021 4,390 4,574 6,108 5,188 10,498 9,762 $ $ On January 31, 2022, upon maturity, First Capital repaid its 4.43% Series O Senior Unsecured Debentures in the amount of $200.0 million. 105 FIRST CAPITAL REIT ANNUAL REPORT 2021 

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