Revive Therapeutics Ltd. — Annual Report 2020

Feb 9, 2021

FS

CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

62	Management's Responsibility
63	Independent Auditor's Report
66	Consolidated Balance Sheets
67	Consolidated Statements of Income
68	Consolidated Statements of Comprehensive Income (Loss)
69	Consolidated Statements of Changes in Equity
70	Consolidated Statements of Cash Flows
71	Notes to the Consolidated Financial Statements
71	1 Description of the Trust
71	2 Significant Accounting Policies
80	3 Investment Properties
84	4 Investment in Joint Ventures
85	5 Hotel Property
86	6 Loans, Mortgages and Other Assets
87	7 Amounts Receivable
87	8 Other Assets
88	9 Capital Management
89	10 Mortgages and Credit Facilities
91	11 Senior Unsecured Debentures
92	12 Accounts Payable and Other Liabilities
92	13 Exchangeable Units
93	14 Unitholders' Equity
94	15 Unit-based Compensation Plans
97	16 Net Operating Income
98	17 Interest and Other Income
98	18 Interest Expense
99	19 Corporate Expenses
99	20 Other Gains (Losses) and (Expenses)
100	21 Income Taxes
101	22 Risk Management
103	23 Fair Value Measurement
105	24 Subsidiaries with Non-controlling Interest
106	25 Co-ownership Interests
107	26 Supplemental Other Comprehensive Income (Loss) Information
108	27 Supplemental Cash Flow Information
109	28 Commitments and Contingencies
109	29 Related Party Transactions
110	30 Subsequent Events

Management's Responsibility

First Capital Real Estate Investment Trust’s consolidated financial statements and Management’s Discussion and Analysis (“MD&A”) are the responsibility of Management and have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

The preparation of consolidated financial statements and the MD&A necessarily involves the use of estimates based on Management’s judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. In addition, in preparing this financial information, Management must make determinations as to the relevancy of information to be included, and estimates and assumptions that affect the reported information. The MD&A also includes information regarding the impact of current transactions and events, sources of liquidity and capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from the present assessment of this information because future events and circumstances may not occur as expected. The consolidated financial statements have been properly prepared within reasonable limits of materiality and in light of information available up to February 9, 2021.

Management is also responsible for the maintenance of financial and operating systems, which include effective controls to provide reasonable assurance that First Capital's assets are safeguarded, transactions are properly authorized and recorded, and that reliable financial information is produced.

The Board of Trustees is responsible for ensuring that Management fulfills its responsibilities, including the preparation and presentation of the consolidated financial statements and all of the information in the MD&A, and the maintenance of financial and operating systems, through its Audit Committee, that is comprised of independent Trustees who are not involved in the day-to-day operations of First Capital. Each quarter, the Audit Committee meets with Management and, as necessary, with the independent auditor, Ernst & Young LLP, to satisfy itself that Management’s responsibilities are properly discharged and to review and report to the Board of Trustees on the consolidated financial statements.

In accordance with generally accepted auditing standards, the independent auditor conducts an examination each year in order to express a professional opinion on the consolidated financial statements.

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Adam E. Paul President and Chief Executive Officer

Kay Brekken Executive Vice President and Chief Financial Officer

Toronto, Ontario February 9, 2021

FIRST CAPITAL REIT ANNUAL REPORT 2020 62

Independent Auditor's Report

To the Unitholders of First Capital Real Estate Investment Trust

Opinion

We have audited the consolidated financial statements of First Capital Real Estate Investment Trust and its subsidiaries ("the Trust"), which comprise the consolidated balance sheets as at December 31, 2020 and 2019, and the consolidated statements of income, consolidated statements of comprehensive income (loss), consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects the consolidated financial position of the Trust as at December 31, 2020 and 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRSs").

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements.The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Key Audit Matter

How our audit addressed the key audit matter

Valuation of Investment Properties The Trust’s investment property portfolio is comprised primarily of income-producing properties and properties under development with a fair value of $9.5 billion which represents 94.5% of total assets at December 31, 2020. With the assistance of our real estate valuation specialists, we evaluated the appropriateness of the underlying valuation methodology, and performed the following audit procedures, among others: The Trust employs a certified staff appraiser to value the investment property portfolio. The valuation methodology for these investment properties is primarily based on an income approach, utilizing the direct capitalization method and/or the discounted cash flow method. We assessed the competence and objectivity of management’s valuation department, including the certified staff appraiser, by reviewing the qualifications and expertise of the individuals involved in the preparation and review of the valuations.

63 FIRST CAPITAL REIT ANNUAL REPORT 2020

Independent Auditor's Report

Key Audit Matter

How our audit addressed the key audit matter

The valuation of the Trust’s investment property portfolio is a key audit matter given the inherently subjective nature of significant assumptions including discount rates, stabilized capitalization rates, terminal capitalization rates, and stabilized cash flows or net operating income which are based on vacancy and leasing assumptions, as applicable. These assumptions are influenced by property-specific characteristics including location, type and quality of the properties and tenancy agreements. For properties under development, depending on the complexity and stage of completion, costs to complete, leasing and construction risk are additional significant assumptions that impact the final valuation. We selected a sample of properties where either the fair value change from prior year or significant assumptions, fell outside our expectations, based on our understanding of the geographical real estate market for the specific asset type. For this sample of investment properties, we evaluated the significant assumptions by comparison to the expected real estate market benchmark range for similar assets and tenancies, in similar locations. We also considered whether there were any additional asset-specific characteristics that may impact the significant assumptions utilized and that these were appropriately considered in the overall assessment of fair value. Note 2(h) of the consolidated financial statements describes the accounting policy for investment properties, including the valuation method and valuation inputs. 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. For properties under development, in addition to the procedures performed above, we compared construction budgets to actual expenditures and evaluated estimated costs to complete by reference to third party data, as applicable, on a sample basis. We also evaluated whether the discount rate used to value properties under development considered the complexity of the development and stage of completion. We evaluated the Trust’s critical accounting policies and related disclosures in the consolidated financial statements to assess appropriateness and conformitywith IFRS.

Other information

Management is responsible for the other information. The other information comprises:

• Management’s Discussion and Analysis; and

• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of other information, we are required to report that fact to those charged with governance.

Responsibilities of Management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, Management is responsible for assessing the Trust’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Trust or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Trust’s financial reporting process.

FIRST CAPITAL REIT ANNUAL REPORT 2020 64

Independent Auditor's Report

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.

• Conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Trust’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Trust to cease to continue as a going concern.

• Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Kim Tang.

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Toronto, Canada February 9, 2021

65 FIRST CAPITAL REIT ANNUAL REPORT 2020

Consolidated Balance Sheets

As at
(thousands of dollars)	Note	December 31, 2020		December 31, 2019
ASSETS
Non-current Assets
Real Estate Investments
Investment properties	3	**$ **	9,328,792	$	9,593,530
Investment in joint ventures	4		52,570		59,498
Hotel property	5		88,000		62,199
Loans, mortgages and other assets	6		52,160		95,968
Total real estate investments			9,521,522		9,811,195
Other non-current assets	8		28,555		36,105
Total non-current assets			9,550,077		9,847,300
Current Assets
Cash and cash equivalents	27(d)		100,444		25,503
Loans, mortgages and other assets	6		77,269		70,065
Residential development inventory			74,190		10,205
Amounts receivable	7		46,296		31,521
Other assets	8		22,338		18,166
			320,537		155,460
Investmentproperties classified as held for sale	3(d)		161,849		158,600
Total current assets			482,386		314,060
Total assets		**$ **	10,032,463	$	10,161,360
LIABILITIES
Non-current Liabilities
Mortgages	10	**$ **	1,256,333	$	1,242,055
Credit facilities	10		854,661		869,256
Senior unsecured debentures	11		2,347,170		2,322,214
Exchangeable Units	13		1,399		25,010
Other liabilities	12		65,998		24,844
Deferred tax liabilities	21		698,528		701,549
Total non-current liabilities			5,224,089		5,184,928
Current Liabilities
Bank indebtedness	10		238		60
Mortgages	10		90,304		84,966
Credit facilities	10		61,267		29,909
Senior unsecured debentures	11		174,965		174,999
Accountspayable and other liabilities	12		225,173		210,992
Total current liabilities			551,947		500,926
Total liabilities			5,776,036		5,685,854
EQUITY
Unitholders' equity	14		4,227,164		4,426,592
Non-controllinginterest	24		29,263		48,914
Total equity			4,256,427		4,475,506
Total liabilities and equity		**$ **	10,032,463	$	10,161,360

Refer to accompanying notes to the consolidated financial statements.

Approved by the Board of Trustees:

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Al Mawani Trustee

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Adam E. Paul Trustee

FIRST CAPITAL REIT ANNUAL REPORT 2020 66

Consolidated Statements of Income

			Year ended	Year ended	December 31
(thousands of dollars)	Note		2020		2019
Property rental revenue		$	672,890	$	746,773
Propertyoperatingcosts			273,858		286,376
Net operating income	16		399,032		460,397
Other income and expenses
Interest and other income	17		12,248		33,049
Interest expense	18		(157,711)		(171,834)
Corporate expenses	19		(33,238)		(38,559)
Abandoned transaction costs			(90)		(677)
Amortization expense			(5,589)		(4,511)
Share of profit (loss) from joint ventures	4		(7,835)		1,699
Other gains (losses) and (expenses)	20		858		(8,759)
(Increase) decrease in value of unit-based compensation liability	15		11,459		81
(Increase) decrease in value of Exchangeable Units	13		7,404		230
Increase (decrease) in value of hotel property	5		(9,432)		—
Increase(decrease)in value of investmentproperties, net	3		(185,700)		61,037
			(367,626)		(128,244)
Income before income taxes			31,406		332,153
Deferred income tax expense(recovery)	21		23,924		(82,187)
Net income		$	7,482	$	414,340
Net income attributable to:
Unitholders	14	$	2,702	$	401,345
Non-controllinginterest	24		4,780		12,995
		$	7,482	$	414,340

Refer to accompanying notes to the consolidated financial statements.

67 FIRST CAPITAL REIT ANNUAL REPORT 2020

Consolidated Statements of Comprehensive Income (Loss)

(Loss)
			Year	ended	December 31
(thousands of dollars)	Note		2020		2019
Net income		$	7,482	$	414,340
Other comprehensive income (loss)
Unrealized gain (loss) on revaluation of hotel property	5		(2,910)		2,910
Unrealized gain (loss) on cash flow hedges(1)			(56,012)		(12,967)
Reclassification of net losses on cash flow hedges to net income			2,203		1,687
			(56,719)		(8,370)
Deferred tax expense(recovery)	21		(20,941)		(5,056)
Other comprehensive income(loss)			(35,778)		(3,314)
Comprehensive income(loss)		$	(28,296)	$	411,026
Comprehensive income (loss) attributable to:
Unitholders	14	$	(33,076)	$	398,031
Non-controllinginterest	24		4,780		12,995
		$	(28,296)	$	411,026

(1) Items that may subsequently be reclassified to net income (loss).

Refer to accompanying notes to the consolidated financial statements.

FIRST CAPITAL REIT ANNUAL REPORT 2020 68

Consolidated Statements of Changes in Equity

				Accumulated
				Other						Total			Non-
(thousands of dollars)			Retained Earnings	Comprehensive Income (Loss)		Trust	Units		Unitholders' Equity			Controlling Interest			Total Equity
						(Note 14(a))
December 31, 2019	$	1,561,487 $		(7,802)	$	2,872,907		$	4,426,592		$		48,914	$	4,475,506
Changes during the year:
Net income			2,702	—			—			2,702			4,780		7,482
Conversion of Exchangeable Units			—	—		16,207				16,207			—		16,207
Options, deferred units,			—	—		5,468				5,468			—		5,468
restricted units, and performance units,
net
Other comprehensive income (loss)			—	(35,778)			—		(35,778)				—		(35,778)
Contributions from (distributions to) non-			—	—			—			—			(24,431)		(24,431)
controlling interest, net
Distributions_(Note 14(b))_			(188,027)	—			—		(188,027)				—		(188,027)
December 31, 2020	$	1,376,162 $		(43,580)	$	2,894,582		$	4,227,164		$		29,263	$	4,256,427
			Accumulated				Contributed
			Other					Surplus and			Total		Non-
(thousands of dollars)	Retained Earnings	Comprehensive Income (Loss)		Share Capital		Trust Units	Other Equity Items			Shareholders’ Equity			Controlling Interest		Total Equity
				(Note 14(a))	(Note 14(a))		(Note 14(c))
December 31, 2018	$ 1,573,588	$	(4,488) $	3,364,948 $		—	$	44,194		$ 4,978,242		$	29,830 $ 5,008,072
Changes during the year:
Net income	401,345		—	—		—			—	401,345			12,995		414,340
Dividends	(149,604)		—	—		—			—	(149,604)				—	(149,604)
Repurchase of common shares	(241,137)		—	(475,560)		—		(24,903)		(741,600)				—	(741,600)
Share repurchase costs, net of	—		—	(8,850)		—			—	(8,850)				—	(8,850)
tax effect
Options, deferred share units,	—		—	6,553		—			2,450		9,003			—	9,003
restricted share units, and
performance share units, net
Other comprehensive income	—		(3,314)	—		—			—	(3,314)				—	(3,314)
(loss)
Contributions from	—		—	—		—			—		—		6,089		6,089
(distributions to) non-
controlling interest, net
REIT conversion	(7,085)		—	(2,887,091)	2,872,907			(21,741)		(43,010)				—	(43,010)
Distributions_(Note 14(b))_	(15,620)		—	—		—			—	(15,620)				—	(15,620)
December 31, 2019	$ 1,561,487	$	(7,802) $	— $	2,872,907		$		—	$ 4,426,592		$	48,914 $ 4,475,506

Refer to accompanying notes to the consolidated financial statements.

69 FIRST CAPITAL REIT ANNUAL REPORT 2020

Consolidated Statements of Cash Flows

			Year	ended	December 31
(thousands of dollars)	Note		2020		2019
OPERATING ACTIVITIES
Net income		$	7,482	$	414,340
Adjustments for:
(Increase) decrease in value of investment properties, net	3		185,700		(61,037)
(Increase) decrease in value of hotel property	5		9,432		—
Interest expense	18		157,711		171,834
Amortization expense			5,589		4,511
Share of (profit) loss of joint ventures	4		7,835		(1,699)
Cash interest paid associated with operating activities	18		(151,235)		(168,078)
Items not affecting cash and other items	27(a)		8,213		(78,153)
Net change in non-cash operatingitems	27(b)		(11,222)		(12,571)
Cashprovided by(used in) operatingactivities			219,505		269,147
FINANCING ACTIVITIES
Mortgage borrowings, net of financing costs	10		115,236		390,533
Mortgage principal instalment payments	10		(28,404)		(27,117)
Mortgage repayments	10		(67,724)		(222,740)
Credit facilities, net advances (repayments)	10		18,730		(572,585)
Unsecured term loans, net advances (repayments)	10		—		747,287
Issuance of senior unsecured debentures, net of issue costs	11		198,870		198,921
Repayment of senior unsecured debentures	11		(175,000)		(150,000)
Settlement of hedges			(6,964)		(7,269)
Repurchase of common shares			—		(741,600)
Transaction costs related to share repurchase			—		(13,727)
Issuance of trust units / common shares, net of issue costs			2,826		4,241
Payment of distributions / dividends			(187,929)		(203,830)
Net contributions from (distributions to) non-controlling interest	24		(24,431)		6,089
Cashprovided by(used in) financingactivities			(154,790)		(591,797)
INVESTING ACTIVITIES
Acquisition of investment properties	3(c)		(20,248)		(251,642)
Acquisition of Hotel property (net settled with loan repayment)	5		(11,769)		—
Net proceeds from property dispositions	3(d)		232,453		700,437
Distributions from joint ventures	4		2,982		25,648
Contributions to joint ventures	4		(3,889)		(17,481)
Capital expenditures on investment properties	3(a)		(205,033)		(228,190)
Changes in investing-related prepaid expenses and other liabilities			(11,228)		(41,607)
Changes in loans, mortgages and other assets	27(c)		26,958		145,454
Cashprovided by(used in) investingactivities			10,226		332,619
Net increase (decrease) in cash and cash equivalents			74,941		9,969
Cash and cash equivalents, beginning of year			25,503		15,534
Cash and cash equivalents, end ofyear	27(d)	$	100,444	$	25,503

Refer to accompanying notes to the consolidated financial statements.

FIRST CAPITAL REIT ANNUAL REPORT 2020 70

Notes to the Consolidated Financial Statements

1. DESCRIPTION OF THE TRUST

First Capital Real Estate Investment Trust ("First Capital", "FCR", or the “Trust”) is an unincorporated, open-ended mutual fund trust governed by the laws of Ontario, Canada, and established pursuant to a declaration of trust dated October 16, 2019, as may be amended from time to time (the "Declaration of Trust"). First Capital engages in the business of acquiring, developing, redeveloping, owning and managing well-located, mixed-use urban real estate in Canada's most densely populated neighbourhoods. The Trust is listed on the Toronto Stock Exchange (“TSX”) under the symbol “FCR.UN”, and its head office is located at 85 Hanna Avenue, Suite 400, Toronto, Ontario, M6K 3S3.

Effective December 30, 2019, First Capital Realty Inc. (the "Company") completed its Plan of Arrangement (the "Arrangement") to convert into a real estate investment trust ("REIT"). Under the Arrangement, Shareholders of the Company received one trust unit ("Trust Unit") or one Class B Limited Partnership Unit ("Exchangeable Unit") of a controlled limited partnership of the Trust, for each common share of the Company held. Consequently, any references to common shares, Shareholders and per share amounts relate to periods prior to the conversion on December 30, 2019 and any references to Trust Units, Unitholders and per unit amounts relate to periods subsequent to December 30, 2019. Since the Trust is a continuation of First Capital Realty Inc., the prior year comparatives included in these audited annual consolidated financial statements refer to activities of the Company.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

(b) Basis of presentation

The audited annual consolidated financial statements are prepared on a going concern basis and have been presented in Canadian dollars rounded to the nearest thousand, unless otherwise indicated. The accounting policies set out below have been applied consistently in all material respects.

Additionally, Management, in measuring the Trust's performance or making operating decisions, distinguishes its operations on a geographical basis. First Capital operates in Canada and has three operating segments: Eastern, which includes operations primarily in Quebec and Ottawa; Central, which includes the Trust’s Ontario operations excluding Ottawa; and Western, which includes operations in Alberta and British Columbia. Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker, who is the President and Chief Executive Officer.

These audited annual consolidated financial statements were approved by the Board of Trustees and authorized for issue on February 9, 2021.

(c) Basis of Consolidation

The consolidated financial statements include the financial statements of the Trust as well as the entities that are controlled by the Trust (subsidiaries). The Trust controls an entity when the Trust is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Trust. They are deconsolidated from the date that control ceases. Inter-company transactions, balances and other transactions between consolidated entities are eliminated.

(d) Trust Units

First Capital's Trust Units are redeemable at the option of the holder, and, therefore, are considered puttable instruments in accordance with IAS 32, "Financial Instruments – Presentation" ("IAS 32"). Puttable instruments are required to be

71 FIRST CAPITAL REIT ANNUAL REPORT 2020

accounted for as financial liabilities, except where certain conditions are met in accordance with IAS 32, in which case, the puttable instruments may be presented as equity.

To be presented as equity, a puttable instrument must meet all of the following conditions: (i) it must entitle the holder to a pro-rata share of the entity's net assets in the event of the entity's dissolution; (ii) it must be in the class of instruments that is subordinate to all other instruments; (iii) all instruments in the class in (ii) above must have identical features; (iv) other than the redemption feature, there can be no other contractual obligations that meet the definition of a liability; and (v) the expected cash flows for the instrument must be based substantially on the profit or loss of the entity or change in the fair value of the instrument.

The Trust Units meet the conditions of IAS 32 and, accordingly, are presented as equity in the consolidated financial statements.

Earnings per Unit

As First Capital's Trust Units are puttable instruments and, therefore, financial liabilities, they may not be considered as equity for the purposes of calculating net income on a per unit basis under IAS 33, "Earnings per Share". Consequently, the Trust has not reported earnings per unit.

(e) Exchangeable Units

The Class B Limited Partnership Units of First Capital REIT Limited Partnership, a subsidiary of the Trust, are exchangeable, at the option of the holder, into Trust Units. The Exchangeable Units are considered a financial liability as there is a contractual obligation for First Capital to deliver Trust Units (which as noted in Note 2(d) are puttable instruments) upon exchange. Exchangeable Units are required to be classified as financial liabilities at fair value through profit or loss ("FVTPL"). The distributions declared on the Exchangeable Units are accounted for as interest expense.

(f) Business combinations

At the time of acquisition of property, First Capital considers whether the acquisition represents the acquisition of a business. The Trust accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property.

The cost of a business combination is measured as the aggregate of the consideration transferred at acquisition date fair value. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the acquisition date. The Trust recognizes any contingent consideration to be transferred by the Trust at its acquisition date fair value. Goodwill is initially measured at cost, being the excess of the purchase price over the fair value of the net identifiable assets acquired and liabilities assumed. Acquisition-related costs are expensed in the period incurred.

When the acquisition of property does not represent a business, it is accounted for as an acquisition of a group of assets and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair values, and no goodwill is recognized. Acquisition-related costs are capitalized to investment property at the time the acquisition is completed.

(g) Investments in joint arrangements

First Capital accounts for its investment in joint ventures using the equity method and accounts for investments in joint operations by recognizing the Trust’s direct rights to assets, obligations for liabilities, revenues and expenses. Under the equity method, the interest in the joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Trust’s share of the net assets of the joint ventures, less distributions received and less any impairment in the value of individual investments. First Capital's income statement reflects its share of the results of operations of the joint ventures after tax, if applicable.

FIRST CAPITAL REIT ANNUAL REPORT 2020 72

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

(h) Investment properties

Investment properties consist of income-producing properties and development land that are held to earn rental income or for capital appreciation, or both. Investment properties also include properties that are being constructed or developed for future use, as well as ground leases to which the Trust is the lessee. The Trust classifies its investment properties on its consolidated balance sheets as follows:

(i) Investment properties

Investment properties include First Capital's income producing portfolio, properties currently under development or redevelopment, and any adjacent land parcels available for expansion but not currently under development. Also included in investment properties is development land, which includes land parcels at various stages of development planning, primarily for future retail or mixed-use occupancy.

(ii) Investment properties classified as held for sale

Investment property is classified as held for sale when it is expected that the carrying amount will be recovered principally through sale rather than from continuing use. For this to be the case, the property must be available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such property, and its sale must be highly probable, generally within one year. Upon designation as held for sale, the investment property continues to be measured at fair value and is presented separately on the consolidated balance sheets.

Valuation method

Investment properties are recorded at fair value, which reflects current market conditions, at each balance sheet date. Gains and losses from changes in fair values are recorded in net income in the period in which they arise.

The determination of fair values requires Management to make estimates and assumptions that affect the values presented, such that actual values in sales transactions may differ from those presented.

First Capital's policy in determining the fair value of its investment properties at the end of each reporting period, includes the following approaches:

1. Internal valuations – by a certified staff appraiser employed by the Trust, in accordance with professional appraisal standards and IFRS. Every investment property has an internal valuation completed at least once a year.

2. Value updates – primarily consisting of Management's review of the key assumptions from previous internal valuations and updating the value for changes in the property cash flow, physical condition and changes in market conditions.

External appraisals are obtained periodically by Management. These appraisals are used as data points, together with other market information accumulated by Management, in arriving at its conclusions on key assumptions and values. External appraisals are completed by an independent appraisal firm, in accordance with professional appraisal standards and IFRS.

The selection of the approach for each property is made based upon the following criteria:

• Property type – this includes an evaluation of a property's complexity, stage of development, time since acquisition, and other specific opportunities or risks associated with the property. Stable properties and recently acquired properties will generally receive a value update, while properties under development will typically be valued using internal valuations until completion.

• Market risks – specific risks in a region or a trade area may warrant an internal valuation for certain properties.

• Changes in overall economic conditions – significant changes in overall economic conditions may increase the number of external or internal appraisals performed.

• Business needs – financings or acquisitions and dispositions may require an external appraisal.

Valuation Inputs

First Capital's investment property is measured using Level 3 inputs (in accordance with the IFRS fair value hierarchy), as not all significant inputs are based on observable market data (unobservable inputs). These unobservable inputs reflect

73 FIRST CAPITAL REIT ANNUAL REPORT 2020

the Trust’s own assumptions of how market participants would price investment property, and are developed based on the best information available, including the Trust’s own data. These significant unobservable inputs include:

• Stabilized cash flows or net operating income, which is based on the location, type and quality of the properties and supported by the terms of any existing lease, other contracts, or external evidence such as current market rents for similar properties, adjusted for estimated vacancy rates based on current and expected future market conditions after expiry of any current lease and expected maintenance costs.

• Stabilized capitalization rates, discount rates and terminal capitalization rates, which are based on location, size and quality of the properties and taking into account market data at the valuation date. Stabilized capitalization rates are used for the direct capitalization method and discount and terminal capitalization rates are used in the discounted cash flow method described below.

• Costs to complete for properties under development.

(i) Investment properties

Investment properties that are income producing are appraised primarily based on an income approach that reflects stabilized cash flows or net operating income from existing tenants with the property in its existing state, since purchasers typically focus on expected income. Internal valuations are conducted using and placing reliance on both the direct capitalization method and the discounted cash flow method (including the estimated proceeds from a potential future disposition).

(ii) Properties under development

Properties undergoing development, redevelopment or expansion are valued either (i) using the discounted cash flow method, with a deduction for costs to complete the project, or (ii) at cost, when cost approximates fair value. Stabilized capitalization rates, discount rates and terminal capitalization rates, as applicable, are adjusted to reflect lease-up assumptions and construction risk, when appropriate. Adjacent land parcels held for future development are valued based on comparable sales of commercial land.

The primary method of appraisal for development land is the comparable sales approach, which considers recent sales activity for similar land parcels in the same or similar markets to estimate a value on either a per acre basis or on a basis of per square foot buildable. Such values are applied to First Capital’s properties after adjusting for factors specific to the site, including its location, zoning, servicing and configuration.

The cost of development properties includes direct development costs, including internal development costs, realty taxes and borrowing costs attributable to the development. Borrowing costs associated with expenditures on properties under development or redevelopment are capitalized. Borrowing costs are also capitalized on land or properties acquired specifically for development or redevelopment when activities necessary to prepare the asset for development or redevelopment are in progress. The amount of borrowing costs capitalized is determined first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other specific developments. Where borrowings are associated with specific developments, the amount capitalized is the gross cost incurred on those borrowings, less any interest income earned on funds not yet employed in construction funding.

Capitalization of borrowing costs and all other costs commences when the activities necessary to prepare an asset for development or redevelopment begin, and continue until the date that construction is complete and all necessary occupancy and related permits have been received, whether or not the space is leased. If the Trust is required as a condition of a lease to construct tenant improvements that enhance the value of the property, then capitalization of costs continues until such improvements are completed. Capitalization ceases if there are prolonged periods when development activity is interrupted.

As required by IFRS in determining investment property fair value, the Trust makes no adjustments for portfolio premiums and discounts, nor for any value attributable to the Trust's management platform.

FIRST CAPITAL REIT ANNUAL REPORT 2020 74

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

(i) Hotel property

First Capital accounts for its hotel property as property, plant and equipment under the revaluation model. Hotel property is recognized initially at fair value if acquired in a business combination and is subsequently carried at fair value at the revaluation date less any accumulated impairment and subsequent accumulated amortization. The Trust amortizes these assets on a straight-line basis over their relevant estimated useful lives. The estimated useful lives of the assets range from 3 to 40 years. The fair value of the hotel property is based on an income approach and determined using a discounted cash flow model.

Revaluation of the hotel property is typically performed annually, unless market conditions arise which would require quarterly revaluations. Where the carrying amount of an asset is increased as a result of a revaluation, the increase is recognized in other comprehensive income (loss) ("OCI") and accumulated in equity within revaluation surplus, unless the increase reverses a previously recognized revaluation loss recorded through prior period net income, in which case that portion of the increase is recognized in net income. Where the carrying amount of an asset is decreased, the decrease is recognized in OCI to the extent of any balance existing in revaluation surplus in respect of the asset, with the remainder recognized in net income. Revaluation gains are recognized in OCI, and are not subsequently recycled into profit or loss. The cumulative revaluation surplus is transferred directly to retained earnings when the asset is derecognized.

The revenue and operating expenses of the hotel property are included within net operating income in First Capital's consolidated statements of income.

(j) Residential development inventory

Residential development inventory which is developed for sale is recorded at the lower of cost and estimated net realizable value. Residential development inventory is reviewed for impairment at each reporting date. An impairment loss is recognized in net income when the carrying value of the property exceeds its net realizable value. Net realizable value is based on projections of future cash flows which take into account the development plans for each project and Management’s best estimate of the most probable set of anticipated economic conditions.

The cost of residential development inventory includes borrowing costs directly attributable to projects under active development. The amount of borrowing costs capitalized is determined first by reference to borrowings specific to the project, where relevant, and otherwise by applying a weighted average capitalization rate for the Trust’s other borrowings to eligible expenditures. Borrowing costs are not capitalized on residential development inventory where no development activity is taking place.

Transfers into residential inventory are based on a change in use, evidenced by the commencement of development activities with a view to sell, at which point an investment property would be transferred to inventory. Transfers from residential inventory to investment property are based on a change in used evidenced by Management's commitment to use the property for rental income purposes and the establishment of an operating lease.

(k) Taxation

First Capital qualifies as a mutual fund trust under the Income Tax Act (Canada)(the "Act"). The Trust qualifies for the REIT Exemption and, as such, the Trust itself will not be subject to income taxes provided it continues to qualify as a REIT for purposes of the Act. A REIT is not taxable and not considered to be a Specified Investment Flow-Through Trust provided it complies with certain tests and distributes all of its taxable income in a taxation year to its Unitholders. The Trust is a flow-through vehicle and accounts only for income taxes pertaining to its corporate subsidiaries. The Trust's most significant corporate subsidiary, First Capital Realty Inc., is a mutual fund corporation ("MFC").

Current income tax assets and liabilities are measured at the amount expected to be received from or paid to tax authorities based on the tax rates and laws enacted or substantively enacted at the consolidated balance sheet dates.

Deferred tax liabilities are measured by applying the appropriate tax rate to temporary differences between the carrying amounts of assets and liabilities, and their respective tax basis. The appropriate tax rate is determined by reference to the rates that are expected to apply to the year and the jurisdiction in which the assets are expected to be realized or the liabilities settled.

75 FIRST CAPITAL REIT ANNUAL REPORT 2020

Deferred tax assets are recorded for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax credits and unused tax losses can be utilized. For the determination of deferred tax assets and liabilities where investment property is measured using the fair value model, the presumption is that the carrying amount of an investment property is recovered through sale, as opposed to presuming that the economic benefits of the investment property will be substantially consumed through use over time.

Current and deferred income taxes are recognized in correlation to the underlying transaction either in OCI or directly in equity.

(l) Provisions

A provision is a liability of uncertain timing or amount. First Capital records provisions, including asset retirement obligations, when it has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Provisions are remeasured at each consolidated balance sheet date using the current discount rate. The increase in the provision due to passage of time is recognized as interest expense.

(m) Unit-based Compensation Plans

Unit Options, Restricted Units (“RUs”), Performance Units (“PUs”), and Trustee Deferred Units (“DUs”) are issued by First Capital from time to time as non-cash compensation. These unit-based compensation plans are measured at fair value at the grant date and compensation expense is recognized in the consolidated statements of income consistent with the vesting features of each plan. The unit-based compensation plans are accounted for as cash-settled awards as the Trust is an open-ended trust making its units redeemable, and thus requiring outstanding Unit Options, RUs, PUs and DUs to be recognized as a liability and carried at fair value. The liability is adjusted for changes in fair value with such adjustments being recognized as compensation expense in the consolidated statements of income in the period in which they occur. The liability balance is reduced as Unit Options are exercised or RUs, PUs and DUs are settled for Trust Units and recorded in equity.

(n) Revenue recognition

First Capital has not transferred substantially all of the risks and benefits of ownership of its investment properties and, therefore, accounts for leases with its tenants as operating leases.

Revenue recognition under a lease commences when the tenant has a right to use the leased asset, which is typically when the space is turned over to the tenant to begin fixturing. Where the Trust is required to make additions to the property in the form of tenant improvements that enhance the value of the property, revenue recognition begins upon substantial completion of those improvements.

First Capital's revenues are earned from lease contracts with tenants and include both a lease component and a nonlease component.

Base rent, straight-line rent, realty tax recoveries, lease termination fees and percentage rent are considered lease components and are in the scope of IFRS 16, "Leases" ("IFRS 16").

The total amount of contractual base rent to be received from operating leases is recognized on a straight-line basis over the term of the lease, including any fixturing period. A receivable, which is included in the carrying amount of an investment property, is recorded for the difference between the straight-line rental revenue recorded and the contractual amount received.

Realty tax recoveries are variable recoveries relating to the leased property and do not transfer a good or service to the lessee and as a result are recognized as costs are incurred and chargeable to tenants.

FIRST CAPITAL REIT ANNUAL REPORT 2020 76

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

Lease termination fees are earned from tenants in connection with the cancellation or early termination of their remaining lease obligations, and is recognized when a lease termination agreement is signed and collection is reasonably assured.

Percentage rents are recognized when the sales thresholds set out in the leases have been met.

Operating cost recoveries relate to the property management services provided to maintain the property and are considered non-lease components subject to the guidance in IFRS 15, " Revenue from Contracts with Customers " ("IFRS 15") . The property management services are considered a performance obligation, meeting the criteria for over time recognition and are recognized in the period that recoverable costs are incurred or services are performed.

(o) Financial instruments and derivatives

In accordance with IFRS 9, “Financial Instruments” (“IFRS 9”) all financial instruments are required to be measured at fair value on initial recognition. Measurement in subsequent periods depends on whether the financial instrument has been classified as FVTPL, fair value through other comprehensive income (“FVOCI”) or amortized cost.

Derivative instruments are recorded in the consolidated balance sheets at fair value, including those derivatives that are embedded in financial or non-financial contracts.

First Capital enters into forward contracts, interest rate swaps, and cross currency swaps to hedge its risks associated with movements in interest rates and the movement in the Canadian to U.S. dollar exchange rate. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Hedge accounting is discontinued prospectively when the hedging relationship is terminated, when the instrument no longer qualifies as a hedge, or when the hedged item is sold or terminated. In cash flow hedging relationships, the portion of the change in the fair value of the hedging derivative that is considered to be effective is recognized in OCI while the portion considered to be ineffective is recognized in net income. Unrealized hedging gains and losses in accumulated other comprehensive income (“AOCI”) are reclassified to net income in the periods when the hedged item affects net income. Gains and losses on derivatives are immediately reclassified to net income when the hedged item is sold or terminated or when it is determined that a hedged forecasted transaction is no longer probable.

Changes in the fair value of derivative instruments, including embedded derivatives, that are not designated as hedges for accounting purposes, are recognized in other gains (losses) and (expenses).

77 FIRST CAPITAL REIT ANNUAL REPORT 2020

The following summarizes the Trust’s classification and measurement of financial assets and liabilities for the years ended December 31, 2020 and 2019:

December 31, 2020 and 2019:
	Classification &
	Measurement
Financial assets
Other investments	FVTPL
Derivative assets	FVTPL
Loans and mortgages receivable	Amortized Cost
Loans and mortgages receivable(1)	FVTPL
Equity securities designated as FVTPL	FVTPL
Amounts receivable	Amortized Cost
Cash and cash equivalents	Amortized Cost
Restricted cash	Amortized Cost
Bond asset	Amortized Cost
Financial liabilities
Bank indebtedness	Amortized Cost
Mortgages	Amortized Cost
Credit facilities	Amortized Cost
Senior unsecured debentures	Amortized Cost
Exchangeable Units	FVTPL
Accounts payable and other liabilities	Amortized Cost
Unit-based compensation plans	FVTPL
Derivative liabilities	FVTPL

(1) The Loans whose cash flows are not solely payments of principal or interest are classified as FVTPL.

In determining fair values, the Trust evaluates counterparty credit risks and makes adjustments to fair values and credit spreads based upon changes in these risks.

Fair value measurements recognized in the consolidated balance sheets are categorized using a fair value hierarchy that reflects the significance of inputs used in determining the fair values as follows:

• (i) Level 1 Inputs – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Trust has the ability to access at the measurement date. The Trust’s investments in equity securities are measured using Level 1 inputs;

• (ii) Level 2 Inputs – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). The Trust’s derivative assets and liabilities are measured using Level 2 inputs; and

• (iii) Level 3 Inputs – inputs for the asset or liability that are not based on observable market data (unobservable inputs). These unobservable inputs reflect the Trust's own assumptions about the data that market participants would use in pricing the asset or liability, and are developed based on the best information available, including the Trust’s own data. The Trust's loans and mortgages receivable classified as FVTPL and other investments are measured using Level 3 inputs.

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Trust determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

(p) Cash and cash equivalents

Cash and cash equivalents include cash and short-term investments with original maturities at the time of acquisition of three months or less.

FIRST CAPITAL REIT ANNUAL REPORT 2020 78

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

(q) Critical judgments in applying accounting policies

The following are the critical judgments that have been made in applying First Capital's accounting policies and that have the most significant effect on the amounts in the consolidated financial statements:

(i) Investment properties

In applying the Trust’s policy with respect to investment properties, judgment is applied in determining whether certain costs are additions to the carrying amount of the property and, for properties under development, identifying the point at which capitalization of borrowing and other costs ceases.

(ii) Hedge accounting

Where the Trust undertakes to apply cash flow hedge accounting, it must determine whether such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the reporting periods for which they were designated.

(iii) Income taxes

First Capital retains its REIT status if it meets the prescribed conditions under the Act. Management uses judgment in its interpretation and application of these conditions. First Capital determined that it qualifies as a REIT for the current period and expects to meet the prescribed conditions going forward. However, should the Trust no longer meet the REIT conditions, substantial adverse tax consequences may result.

With respect to its corporate subsidiaries, the Trust exercises judgment in estimating deferred tax assets and liabilities. Income tax laws may be subject to different interpretations, and the income tax expense recorded by the Trust reflects the Trust's interpretation of the relevant tax laws. The Trust is also required to estimate the timing of reversals of temporary differences between accounting and taxable income in determining the appropriate rate to apply in calculating deferred taxes.

(r) Critical accounting estimates and assumptions

First Capital makes estimates and assumptions that affect the carrying amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amount of earnings for the reporting periods.

The outbreak of coronavirus (“COVID-19”), which the World Health Organization has declared a global pandemic, and government related action to shutdown large parts of the economy has impacted global commercial activity and contributed to significant volatility in certain equity and debt markets. The extent and duration of the impact of COVID-19 on communities and the economy remains unclear. In the preparation of these audited annual consolidated financial statements, the Trust has incorporated the potential impact of COVID-19 into its estimates and assumptions that affect the carrying amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amount of earnings for the reporting periods using the best available information as of December 31, 2020. Actual results could differ from those estimates. The estimates and assumptions that the Trust considers critical and/or could be impacted by COVID-19 include those underlying the valuation of investment properties, the valuation of its hotel property, the net realizable value of residential inventory, the carrying amount of its investment in joint ventures, the estimate of any expected credit losses on amounts receivable or loans and mortgages receivable and determining the values of financial instruments for disclosure purposes (Note 23).

Additional critical accounting estimates and assumptions include those used for estimating deferred taxes (Note 21), and estimating the fair value of unit-based compensation arrangements (Note 15).

(s) Impacts of COVID-19

Rent Abatements

FCR accounts for rental abatements, in connection with tenants experiencing financial hardship as a result of COVID-19 and qualify under the Canada Emergency Commercial Rent Assistance ("CECRA") program, under the derecognition rules of IFRS 9, "Financial Instruments". Financial assets, such as trade receivables, are derecognized when all or a portion of outstanding amounts will be forgiven or abated and no further collection activities will be pursued. The forgiveness or abatement of the tenant receivable is recognized in the period First Capital forgoes the contractual right to all or a

79 FIRST CAPITAL REIT ANNUAL REPORT 2020

portion of the outstanding receivable and is recognized as a loss in the consolidated statement of income, under property operating costs.

Government Assistance

First Capital recognizes government assistance, in the form of grants or forgivable loans, when there is reasonable assurance that the Trust will be able to comply with the conditions attached to the assistance and that the assistance will be received. Government assistance that compensates FCR for expenses incurred is recognized in the consolidated statements of income, as a reduction of the related expense, in the periods in which the expenses are recognized.

3. INVESTMENT PROPERTIES

(a) Activity

The following tables summarize the changes in First Capital’s investment properties for the year ended December 31, 2020 and year ended December 31, 2019:

31, 2020 and year ended December 31, 2019:
				Year ended	December 31, 2020
		Central	Eastern	Western
		Region	Region	Region		Total
Balance at beginning of year	$	5,146,534 $	1,535,433 $	3,070,163	$	9,752,130
Acquisitions		18,559	1,689	—		20,248
Capital expenditures		151,694	24,524	28,815		205,033
Reclassification to residential development		(57,519)	—	—		(57,519)
inventory
Increase (decrease) in value of investment		(83,050)	(411)	(102,239)		(185,700)
properties, net
Straight-line rent and other changes		5,868	1,112	837		7,817
Dispositions		(57,363)	(149,099)	(44,906)		(251,368)
Balance at end ofyear	$	5,124,723 $	1,413,248 $	2,952,670	$	9,490,641
Investment properties(1)					$	9,328,792
Investmentproperties classified as held for sale						161,849
Total					$	9,490,641

(1) Investment properties include income producing properties, development land as well as properties under development.

FIRST CAPITAL REIT ANNUAL REPORT 2020 80

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

				Year ended	December 31, 2019	December 31, 2019
		Central	Eastern	Western
		Region	Region	Region		Total
Balance at beginning of year	$	4,489,359 $	2,037,411 $	3,241,505	$	9,768,275
Acquisitions		376,700	—	15,410		392,110
Capital expenditures		157,955	26,678	43,557		228,190
Consolidation of equity accounted joint venture		131,480	—	—		131,480
Increase (decrease) in value of investment		83,274	(5,486)	(16,751)		61,037
properties, net
Straight-line rent and other changes		4,193	1,212	607		6,012
Dispositions		(96,427)	(524,382)	(214,165)		(834,974)
Balance at end ofyear	$	5,146,534 $	1,535,433 $	3,070,163	$	9,752,130
Investment properties(1)					$	9,593,530
Investmentproperties classified as held for sale						158,600
Total					$	9,752,130

(1) Investment properties include income producing properties, development land as well as properties under development.

Investment properties with a fair value of $2.8 billion (December 31, 2019 – $2.8 billion) are pledged as security for $1.5 billion (December 31, 2019 – $1.5 billion) in mortgages and secured credit facilities.

(b) Investment property valuation

Stabilized overall capitalization, terminal, and discount rates by region for investment properties valued under the Income Approach are set out in the table below:

As at			December	31, 2020			December	31, 2019
		Weighted	Average			Weighted	Average
	Central	Eastern	Western		Central	Eastern	Western
	Region	Region	Region	Total	Region	Region	Region	Total
Overall Capitalization Rate	4.7%	5.7%	5.1%	5.0%	4.7%	5.8%	5.1%	5.0%
Terminal Capitalization Rate	4.9%	6.0%	5.4%	5.2%	5.0%	6.1%	5.4%	5.3%
Discount Rate	5.5%	6.5%	5.9%	5.8%	5.5%	6.6%	5.9%	5.8%

The majority of the Trust's portfolio is valued under the Income Approach using the DCF method. As at December 31, 2020, the weighted average valuation yields (stabilized overall capitalization, terminal, and discount rates) used in valuing those investment properties under the Income Approach remained largely unchanged from December 31, 2019. Slight decreases in the weighted average terminal capitalization rates in the Eastern and Central regions were due to dispositions of properties that were inconsistent with the Trust's Super Urban Strategy. Over the past 24 months, the Trust's disposition program has been focused on disposing of lower quality assets with higher capitalization rates which has resulted in a reduction in the weighted average in-place overall capitalization rate for the portfolio.

Due to the continuing risk created by the COVID-19 pandemic that has resulted in an economic slowdown, greater volatility in the capital markets, limited investment transactions, and a lower interest rate environment, the Trust has been closely monitoring valuation yields. The Trust has not observed a change to valuation yields for its properties at this time and as such, has not adjusted valuation yields in the valuation models used to determine the fair value of investment properties. To reflect the potential impact of COVID-19 on the cash flows in the valuation models, a comprehensive portfolio review was undertaken, on a property by property basis to identify properties with greater exposure to tenants deemed nonessential under government directives and therefore potentially subject to prolonged closures. The short-term cash flows in the 10 year valuation models for each of these properties was adjusted for increased vacancy, lower rental rate growth and other market leasing assumptions such as slower lease up of existing vacancy. In addition, as part of its normal course

81 FIRST CAPITAL REIT ANNUAL REPORT 2020

internal valuations, the Trust made revisions to overall capitalization rates or stabilized NOI. As a result, an overall decrease in the value of investment properties was recorded for the year ended December 31, 2020 for $185.7 million.

The sensitivity of the fair values of investment properties to stabilized overall capitalization rates as at December 31, 2020 is set out in the table below:

As at December 31, 2020	(millions of dollars)	(millions of dollars)
	Resulting increase (decrease) in fair
(Decrease)Increase in stabilized overall capitalization rate	value of investmentproperties
(1.00%)	$	2,301
(0.75%)	$	1,624
(0.50%)	$	1,023
(0.25%)	$	484
0.25%	$	(438)
0.50%	$	(837)
0.75%	$	(1,200)
1.00%	$	(1,534)

Additionally, a 1% increase or decrease in stabilized net operating income ("SNOI") would result in a $92 million increase or a $92 million decrease, respectively, in the fair value of investment properties. SNOI is not a measure defined by IFRS. SNOI reflects stable property operations, assuming a certain level of vacancy, capital and operating expenditures required to maintain a stable occupancy rate. The average vacancy rates used in determining SNOI for non-anchor tenants generally range from 2% to 5%. A 1% increase in SNOI coupled with a 0.25% decrease in the stabilized capitalization rate would result in an increase in the fair value of investment properties of $581 million, and a 1% decrease in SNOI coupled with a 0.25% increase in the stabilized capitalization rate would result in a decrease in the fair value of investment properties of $526 million.

(c) Investment properties – Acquisitions

For the years ended December 31, 2020 and 2019, First Capital acquired investment properties as follows:

Year ended December 31		2020		2019
Total purchase price, including acquisition costs(1)	$	20,248	$	392,110
Debt assumption on acquisition		—		(50,646)
Settlement of loans receivable on acquisition		—		(89,822)
Total cashpaid	$	20,248	$	251,642

(1) During the first quarter of 2020, one of the Trust’s wholly owned subsidiaries purchased a property from another consolidated subsidiary, that is subject to a non-controlling interest. The Trust’s net effective ownership in the asset increased by 15.5% to 100%. The Trust’s acquisition cost for its incremental 15.5% interest was $25.4 million which is reflected as a distribution to the non-controlling interest partner in the audited annual consolidated financial statements.

(d) Investment properties classified as held for sale

First Capital has certain investment properties classified as held for sale. These properties are considered to be non-core assets and are as follows:

assets and are as follows:
As at		December 31, 2020	December 31, 2019
Aggregate fair value	$	161,849$	158,600

The increase of $3.2 million in investment properties classified as held for sale from December 31, 2019, primarily arose from new investment properties classified as held for sale, in line with First Capital's super urban strategy, offset by dispositions completed in the period and changes in fair value.

FIRST CAPITAL REIT ANNUAL REPORT 2020 82

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

For the years ended December 31, 2020 and 2019, First Capital sold investment properties as follows:

Year ended December 31		2020	2019
Total selling price	$	251,368$	834,974
Mortgages assumed and vendor take-back mortgage on sale		(15,000)	(128,156)
Propertysellingcosts		**(3,915) **	(6,381)
Net cashproceeds	$	232,453$	700,437

(e) Reconciliation of investment properties to total assets

Investment properties by region and a reconciliation to total assets are set out in the tables below:

		Central		Eastern		Western
As at December 31, 2020		Region		Region		Region		Total
Total investmentproperties(1)	$	5,124,723	$	1,413,248	$	2,952,670	$	9,490,641
Cash and cash equivalents								100,444
Loans, mortgages and other assets								129,429
Other assets								50,893
Amounts receivable								46,296
Investment in joint ventures								52,570
Hotel property								88,000
Residential development inventory								74,190
Total assets							$	10,032,463
(1) Includes investment properties classified as held for sale.
		Central		Eastern		Western
As at December 31, 2019		Region		Region		Region		Total
Total investmentproperties(1)	$	5,146,534	$	1,535,433	$	3,070,163	$	9,752,130
Cash and cash equivalents								25,503
Loans, mortgages and other assets								166,033
Other assets								54,271
Amounts receivable								31,521
Investment in joint ventures								59,498
Hotel property								62,199
Residential development inventory								10,205
Total assets							$	10,161,360

(1) Includes investment properties classified as held for sale.

83 FIRST CAPITAL REIT ANNUAL REPORT 2020

4. INVESTMENT IN JOINT VENTURES

As at December 31, 2020, First Capital had interests in six joint ventures that it accounts for using the equity method. First Capital's joint ventures are as follows:

			Effective Ownership	Effective Ownership
Name of Entity	Name of Property/Business Activity	Location	December 31, 2020	December	31, 2019
College Square General Partnership	College Square	Ottawa, ON	50.0%		50.0%
Green Capital Limited Partnership	Royal Orchard	Markham, ON	50.0%		50.0%
Stackt Properties LP	Shipping Container marketplace	Toronto, ON	94.0%		94.0%
Fashion Media Group GP Ltd.	Toronto Fashion Week events	Toronto, ON	78.0%		78.0%
FC Access LP	Whitby Mall (self storage operation)	Whitby, ON	25.0%		25.0%
Edenbridge Kingsway (Humbertown)	Humbertown Condos(Phase 1)	Toronto, ON	50.0%		50.0%

First Capital has determined that these investments are joint ventures as all decisions regarding their activities are made unanimously between First Capital and its partners.

During the third quarter of 2019, First Capital, together with its partner in Main and Main Developments LP ("MMLP") acquired the remaining 46.9% interest in four remaining Main and Main Urban Realty LP ("MMUR") assets for approximately $116.0 million. As a result, FCR now controls MMUR through its direct and indirect interests, requiring the consolidation of the assets, liabilities, revenues and expenses of MMUR from the date of acquisition.

Summarized financial information of the joint ventures’ financial position and performance is set out below:

As at	December	31, 2020	December	31, 2019
Total assets	$	206,891	$	200,631
Total liabilities		(83,339)		(64,553)
Net assets at 100%		123,552		136,078
First Capital's investment in equity accountedjoint ventures	$	52,570	$	59,498
For theyear ended	December	31, 2020	December	31, 2019
Property revenue	$	15,429	$	16,496
Property expenses		(8,660)		(8,338)
Increase (decrease) in value of investment properties, net		(10,965)		532
Other income and(expenses)		(8,355)		235
Income(loss)before income taxes		(12,551)		8,925
Net income and total comprehensive income at 100%	$	(12,551)	$	8,925
First Capital's share of income in equity accountedjoint ventures	$	(7,835)	$	1,699

During 2020, First Capital received distributions from its joint ventures of $3.0 million (2019 – $25.6 million) and made contributions to its joint ventures of $3.9 million (2019 – $17.5 million).

As at December 31, 2020, there were no outstanding commitments or contingent liabilities for the six equity accounted joint ventures.

As of December 31, 2020, none of the Trust's investments in joint ventures were determined to be impaired taking into account the COVID-19 environment.

FIRST CAPITAL REIT ANNUAL REPORT 2020 84

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

5. HOTEL PROPERTY

On October 1, 2020, First Capital acquired the remaining 40% interest in the Hazelton Hotel ("hotel property") located in Toronto, Ontario. The hotel property is a mixed-use luxury hotel located in Yorkville Village. Subsequent to the acquisition, First Capital owns a 100% interest in the hotel property (December 31, 2019 - 60%). The total purchase price before closing costs was $30.6 million.

The transaction was accounted for as a business combination under IFRS 3 "Business Combinations". First Capital recognized a gain on the purchase of the hotel property of $7.4 million and incurred transaction costs of $1.1 million, which have been expensed in 'Other gains (losses) and (expenses)' in the consolidated statements of income.

The purchase price was based on a fixed price formula that resulted in a discount to the fair value on acquisition date. The purchase price was satisfied primarily through the settlement of a loan in the amount of $20.0 million advanced from First Capital to the co-owner.

The following table summarizes the allocation of the purchase price to the fair value of each major asset acquired and net liability assumed as at the acquisition date.

Land and Building	$	34,604
Furniture, Fixtures & Equipment		2,476
Workingcapital, net		78
Identifiable assets acquired		37,158
Deferred tax asset		778
Purchaseprice for net assets acquired(1)		(30,551)
Gain on below marketpurchase	$	7,385

(1) Includes purchase price of $29.8 million and closing adjustments of $0.8 million.

The following table summarizes the changes in the net book value of the hotel property for the years ended December 31, 2020 and 2019.

	December	31, 2020	December	31, 2019
Balance at beginning of year	$	62,199	$	58,604
Acquisition		37,080		—
Revaluation of hotel property(1)		(12,342)		2,910
Additions		2,495		1,378
Amortization		(1,432)		(693)
Balance at end ofyear	$	88,000	$	62,199

(1) The revaluation loss of $12.3 million was recognized partly through other comprehensive income (loss) to reverse previously recognized gains on the hotel property of $2.9 million in accordance with the revaluation model accounting for the hotel. The remaining $9.4 million revaluation loss was recognized in the consolidated statements of income.

Due to the on-going impact of COVID-19 on the hospitality industry, the hotel property was revalued on a quarterly basis and a $12.3 million reduction in value was recognized for the year.

85 FIRST CAPITAL REIT ANNUAL REPORT 2020

6. LOANS, MORTGAGES AND OTHER ASSETS

6. LOANS, MORTGAGES AND OTHER ASSETS
As at	December		31, 2020	December		31, 2019
Non-current
Loans and mortgages receivable classified as FVTPL (a)	$		1,968	$		20,726
Loans and mortgages receivable classified as amortized cost (a)			37,612			58,940
Other investments			12,580			16,302
Total non-current			52,160			95,968
Current
Loans and mortgages receivable classified as FVTPL (a)			6			132
Loans and mortgages receivable classified as amortized cost (a)			73,548			65,984
FVTPL investments in securities(b)			3,715			3,949
Total current			77,269			70,065
Total	$	129,429		$	166,033

(a) Loans and mortgages receivable are secured by interests in investment properties or shares of entities owning investment properties. As at December 31, 2020, these receivables bear interest at weighted average effective interest rates of 6.3% (December 31, 2019 – 6.6%) and mature between 2021 and 2024. As of December 31, 2020, none of the Trust's loans and mortgages receivable classified as amortized cost required a provision or were determined to be impaired taking into account the COVID-19 environment.

(b) From time to time, First Capital invests in publicly traded real estate and related securities. These securities are recorded at market value. Realized and unrealized gains and losses on FVTPL securities are recorded in other gains (losses) and (expenses).

Scheduled principal receipts of loans and mortgages receivable and the weighted average effective floating or fixed interest rates as at December 31, 2020 are as follows:

			Weighted Average
		Scheduled	Effective Interest
		Receipts	Rate
2021	$	71,617	6.7 %
2022		32,358	5.6 %
2023		1,836	5.3 %
2024		5,000	5.0 %
		110,811	6.3 %
Unamortized deferred financingfees and accrued interest		2,323
	$	113,134
Current	$	73,554	6.7 %
Non-current		39,580	5.6 %
Total	$	113,134	6.3 %

FIRST CAPITAL REIT ANNUAL REPORT 2020 86

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

7. AMOUNTS RECEIVABLE

7. AMOUNTS RECEIVABLE
As at	December	31, 2020	December	31, 2019
Tenant receivables (net of allowances for doubtful accounts of $11.4 million;	$	45,439	$	25,356
December 31, 2019 – $3.0 million)
Corporate and other amounts receivable		857		6,165
Total	$	46,296	$	31,521

First Capital determines its allowance for doubtful accounts on a tenant-by-tenant basis considering lease terms, industry conditions, and the status of the tenant’s account as well as the impact of COVID-19 on tenant's ability to pay any trade receivables outstanding at December 31, 2020.

During the second and third quarters, the Trust provided rental abatements for 75% of gross rent to qualifying tenants participating in the CECRA program. As a result, the qualifying tenant’s outstanding receivable was reduced and recorded as a charge to bad debt expense. Concurrently, the Trust recognized the benefit of the government’s forgivable loan covering 50% of gross rent as a reduction of bad debt expense. As such, the net charge to bad debt expense included in property operating costs totaled $13.2 million for the year ended December 31, 2020, related to the CECRA program.

First Capital determines its allowance for doubtful accounts on a tenant-by-tenant basis considering lease terms, industry conditions, and the status of the tenant's account as well as the impact of COVID-19 on tenant's ability to pay any trade receivables outstanding at December 31, 2020. The Trust has increased its provision for doubtful accounts for the year ended December 31, 2020 by $8.4 million as a result of the COVID-19 environment.

8. OTHER ASSETS

8. OTHER ASSETS
As at	Note	December	31, 2020	December	31, 2019
Non-current
Fixtures, equipment and computer hardware and software (net of accumulated		$	9,958	$	11,670
amortization of $18.2 million; December 31, 2019 – $15.6 million)
Deferred financing costs on credit facilities (net of accumulated amortization of $6.3			3,021		3,886
million; December 31, 2019 – $5.3 million)
Environmental indemnity and insurance proceeds receivable	12(a)		1,611		3,105
Bond asset			13,965		14,513
Derivatives at fair value	23		—		2,931
Total non-current			28,555		36,105
Current
Deposits and costs on investment properties under option			10,450		5,691
Prepaid expenses			10,679		9,088
Other deposits			250		250
Restricted cash			959		765
Derivatives at fair value	23		—		2,372
Total current			22,338		18,166
Total		$	50,893	$	54,271

87 FIRST CAPITAL REIT ANNUAL REPORT 2020

9. CAPITAL MANAGEMENT

First Capital manages its capital, taking into account the long-term business objectives of the Trust, to provide stability and reduce risk while generating an acceptable return on investment to Unitholders over the long term. The Trust’s capital structure currently includes Trust Units, Exchangeable Units, senior unsecured debentures, mortgages, credit facilities, bank term loans and bank indebtedness, which together provide First Capital with financing flexibility to meet its capital needs. Primary uses of capital include development activities, acquisitions, capital improvements and leasing costs. The actual level and type of future financings to fund these capital requirements will be determined based on prevailing interest rates, various costs of debt and/or equity capital, property and capital market conditions and Management’s general view of the required leverage in the business.

Components of the Trust’s capital are set out in the table below:

As at		December 31, 2020	December 31, 2020	December 31, 2019	December 31, 2019
Liabilities (principal amounts outstanding)
Bank indebtedness		$	238	$	60
Mortgages			1,351,291		1,331,219
Credit facilities			915,928		899,165
Mortgages under equity accounted joint ventures (at	the Trust’s interest)		39,175		40,144
Exchangeable Units (based on a closing per unit price	of $13.55; December 31, 2019 - $20.67)		1,399		25,010
Senior unsecured debentures			2,525,000		2,500,000
Equity Capitalization
Trust Units(based on closing per unitprice of $13.55; December 31, 2019 - $20.67)			2,971,723		4,505,107
Total capital employed		$	7,804,754	$	9,300,705

First Capital is subject to financial covenants in agreements governing its senior unsecured debentures and its credit facilities. In accordance with the terms of the Trust's credit agreements, all ratios are calculated with joint ventures proportionately consolidated. As at December 31, 2020, First Capital remains in compliance with all of its applicable financial covenants.

The following table summarizes a number of First Capital's key ratios:

	Measure/
As at	Covenant	December	31, 2020	December	31, 2019
Net debt to total assets			47.2%		46.7%
Unencumbered aggregate assets to unsecured debt, using 10 quarter average capitalization rate(1)	≥1.3		2.0		2.0
Unitholders' equity, using four quarter average (billions)(1)	>$2.0B	$	4.3	$	4.5
Secured indebtedness to total assets(1)	<35%		15.2%		14.5%
For the rolling four quarters ended
Interest coverage (Adjusted EBITDA to interest expense)(1)	>1.65		2.2		2.4
Fixed charge coverage(Adjusted EBITDA to debt service) (1)	>1.50		1.9		2.1

(1) Calculations required under the Trust's credit facility agreements or indentures governing the senior unsecured debentures.

The above ratios include measures not specifically defined in IFRS. Certain calculations are required pursuant to debt covenants and are meaningful measures for this reason. Measures used in these ratios are defined below:

• Debt consists of principal amounts outstanding on credit facilities and mortgages, and the par value of senior unsecured debentures;

• Net debt is calculated as Debt, as defined above, reduced by cash balances at the end of the period;

• Secured indebtedness includes mortgages and any draws under the secured facilities that are collateralized against investment property;

FIRST CAPITAL REIT ANNUAL REPORT 2020 88

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

• Adjusted EBITDA, is calculated as net income, adding back income tax expense; interest expense; and amortization and excluding the increase or decrease in the fair value of investment properties, hotel property, Exchangeable Units and unit-based compensation; other gains (losses) and (expenses); and other non-cash or non-recurring items. The Trust also adjusts for incremental leasing costs, which is a recognized adjustment to Funds from Operations, in accordance with the recommendations of the Real Property Association of Canada;

• Fixed charges include regular principal and interest payments and capitalized interest in the calculation of interest expense;

• Unencumbered assets include the value of assets that have not been pledged as security under any credit agreement or mortgage. The unencumbered asset value ratio is calculated as unencumbered assets divided by the principal amount of the unsecured debt, which consists of the bank indebtedness, unsecured bank term loans, unsecured credit facilities and senior unsecured debentures.

10. MORTGAGES AND CREDIT FACILITIES

As at	December 31, 2020	December 31, 2020	December 31, 2019	December 31, 2019
Fixed rate mortgages	$	1,346,637	$	1,327,021
Unsecured facilities		745,054		772,030
Secured facilities		170,874		127,135
Mortgages and credit facilities	$	2,262,565	$	2,226,186
Current	$	151,571	$	114,875
Non-current		2,110,994		2,111,311
Total	$	2,262,565	$	2,226,186

Mortgages and secured facilities are secured by First Capital's investment properties. As at December 31, 2020, approximately $2.8 billion (December 31, 2019 – $2.8 billion) of investment properties out of $9.5 billion (December 31, 2019 – $9.8 billion) (Note 3(a)) had been pledged as security under the mortgages and the secured facilities.

As at December 31, 2020, mortgages bear coupon interest at a weighted average coupon rate of 3.5% (December 31, 2019 – 3.7%) and mature in the years ranging from 2021 to 2031. The weighted average effective interest rate on all mortgages as at December 31, 2020 is 3.6% (December 31, 2019 – 3.7%).

Principal repayments of mortgages outstanding as at December 31, 2020 are as follows:

						Weighted
		Scheduled	Payments on			Average Effective
		Amortization	Maturity		Total	Interest Rate
2021	$	28,385 $	62,623	$	91,008	4.9 %
2022		31,981	95,522		127,503	4.0 %
2023		32,597	—		32,597	N/A
2024		31,945	108,478		140,423	3.8 %
2025		29,642	55,895		85,537	3.5 %
2026 to2031		93,066	781,157		874,223	3.5 %
	$	247,616 $	1,103,675	$	1,351,291	3.6 %
Unamortized deferred financing costs and premiums, net					(4,654)
Total				$	1,346,637

89 FIRST CAPITAL REIT ANNUAL REPORT 2020

First Capital’s credit facilities as at December 31, 2020 are summarized in the table below:

					Bank
				Indebtedness and
		Borrowing	Amounts		Outstanding	Available to be
As at December 31, 2020		Capacity	Drawn		Letters of Credit		Drawn	Interest Rates	Maturity Date
Unsecured Operating Facilities
Revolving facility maturing	$	550,000 $	—	$	(25,142)	$	524,858	BA + 1.45% or	June 30, 2023
2023								Prime + 0.45% or
								US$ LIBOR + 1.45%
Revolving facility maturing		250,000	—		—		250,000	BA + 1.10% or	September 29, 2022
2022								Prime + 0.25% or
								US$ LIBOR + 1.10%
Floating rate unsecured term loan maturing 2023(1)		200,000	(195,054)		—		—	BA + 1.20%	April 15, 2023
Fixed rate unsecured term		550,000	(550,000)		—		—	3.29%	March 28, 2024
loans maturing2024 - 2026									- April 14, 2026
Secured Construction Facilities
Maturing 2021		20,000	(19,984)		—		16	BA + 2.50% or	June 1, 2021
								Prime + 1.00%
Maturing 2021		33,333	(33,333)		—		—	2.79%	August 26, 2021
Maturing 2022		138,000	(98,539)		(1,592)		37,869	BA + 1.350% or	October 26, 2022
								Prime + 0.350%
Secured Facilities
Maturing 2021(2)		19,734	(7,950)		(1,320)		10,464	BA + 1.20% or	December 30, 2021
								Prime + 0.20%
Maturing 2022		4,313	(4,313)		—		—	BA + 1.20% or	September 28, 2022
								Prime + 0.20%
Maturing 2022		6,755	(6,755)		—		—	BA + 1.20% or	December 19, 2022
								Prime + 0.20%
Total	$	1,772,135 $	(915,928)	$	(28,054)	$	823,207

(1) The Trust had drawn in U.S. dollars the equivalent of CAD$200.0 million which was revalued at CAD$195.1 million as at December 31, 2020.

(2) Borrowing capacity decreased by $1.0 million to $19.7 million in the fourth quarter of 2020.

First Capital has the ability under its unsecured credit facilities to draw funds based on Canadian bank prime rates and Canadian bankers’ acceptances (“BA rates”) for Canadian dollar-denominated borrowings, and LIBOR rates or U.S. prime rates for U.S. dollar-denominated borrowings. Concurrently with the U.S. dollar draws, the Trust enters into cross currency swaps to exchange its U.S. dollar borrowings into Canadian dollar borrowings.

On April 16, 2019, the Company completed the share repurchase of 36,000,000 common shares from a subsidiary of GazitGlobe Ltd. ("Gazit") at a price of $20.60 per share for gross proceeds to Gazit of $741.6 million. To fund the share repurchase and other operational needs, FCR entered into $850 million of senior unsecured bank term loans with maturities ranging from 4 - 7 years. Concurrent with funding, the majority of the unsecured bank term loans were swapped to fixed rates bearing a weighted average interest rate of 3.3% with a weighted average term to maturity of 5.8 years. The remaining debt bears interest at a floating rate and can be repaid with no prepayment penalty. In the fourth quarter of 2019, First Capital repaid $100 million of floating rate unsecured term loans.

During the first quarter of 2020, First Capital extended the maturity of its $11.9 million secured facility and $20.0 million secured construction facility to April 30, 2020 and July 31, 2020, respectively. During the second quarter of 2020, First Capital repaid its $11.9 million secured facility. During the third quarter of 2020, First Capital increased the borrowing capacity for one of its secured construction facilities to $20.0 million and extended the maturity date to June 1, 2021. During the fourth quarter of 2020, FCR extended the maturity of its $19.7 million secured facility to December 30, 2021.

FIRST CAPITAL REIT ANNUAL REPORT 2020 90

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

11. SENIOR UNSECURED DEBENTURES

As at	December 31, 2020 December 31, 2019
Series Maturity Date	Interest Rate Coupon Effective Principal Outstanding Liability Liability
M April 30, 2020 N March 1, 2021 O January 31, 2022 P December 5, 2022 Q October 30, 2023 R August 30, 2024 S July 31, 2025 T May 6, 2026 U July 12, 2027 V January 22, 2027 A March 1, 2028	5.60% 5.60% $ — $ —$ 174,999 4.50% 4.63% 175,000 174,965 174,754 4.43% 4.59% 200,000 199,667 199,372 3.95% 4.18% 250,000 248,966 248,461 3.90% 3.97% 300,000 299,460 299,284 4.79% 4.72% 300,000 300,684 300,853 4.32% 4.24% 300,000 301,008 301,208 3.60% 3.56% 300,000 300,585 300,683 3.75% 3.82% 300,000 298,783 298,622 3.46% 3.54% 200,000 199,129 198,977 3.45% 3.54% 200,000 198,888 —
Weighted Average or Total	4.02% 4.07% $ 2,525,000 $ 2,522,135$ 2,497,213
Current Non-current	$ 175,000 $ 174,965$ 174,999 2,350,000 2,347,170 2,322,214
Total	$ 2,525,000 $ 2,522,135$ 2,497,213

Interest on the senior unsecured debentures is payable semi-annually and principal is payable on maturity.

On April 16, 2020, First Capital redeemed its remaining 5.60% Series M Senior Unsecured Debentures for $175.0 million. The full redemption price and any accrued interest owing on the senior unsecured debentures was satisfied in cash.

On September 1, 2020, the Trust completed the issuance of $200 million principal amount of Series A senior unsecured debentures due March 1, 2028. These debentures bear interest at a coupon rate of 3.45% per annum, payable semiannually commencing March 1, 2021.

91 FIRST CAPITAL REIT ANNUAL REPORT 2020

12. ACCOUNTS PAYABLE AND OTHER LIABILITIES

As at	Note	December 31, 2020	December 31, 2020	December 31, 2019	December 31, 2019
Non-current
Asset retirement obligations (a)		$	1,476	$	1,980
Ground leases payable			9,444		10,035
Derivatives at fair value	23		45,422		1,677
Unit-based compensation plans	15(c)		2,541		4,447
Deferred purchase price of investment property			4,275		5,700
Other liabilities			2,840		1,005
Total non-current			65,998		24,844
Current
Trade payables and accruals			74,334		57,978
Construction and development payables			46,196		45,722
Unit-based compensation plans	15(c)		9,627		14,740
Distributions payable	14(b)		15,718		15,620
Interest payable			36,826		35,960
Tenant deposits			37,509		37,955
Derivatives at fair value	23		4,946		3,009
Other liabilities			17		8
Total current			225,173		210,992
Total		$	291,171	$	235,836

(a) First Capital has obligations for environmental remediation at certain sites within its property portfolio. FCR has also recognized a related environmental indemnity and insurance proceeds receivable totaling $1.6 million (December 31, 2019 - $3.1 million) in other assets (Note 8).

13. EXCHANGEABLE UNITS

The Exchangeable Units are non-transferable, but are exchangeable, on a one-for-one basis, into First Capital Trust Units at the option of the holder. Any Exchangeable Units outstanding on December 29, 2023 will be automatically exchanged for Trust Units. Prior to such exchange, Exchangeable Units will, in all material respects, be economically equivalent to Trust Units on a per unit basis. Distributions will be made on these Exchangeable Units in an amount equivalent to the distributions that would have been made had the units been exchanged for Trust Units. Holders of Exchangeable Units will receive special voting units that will entitle the holder to one vote at Unitholder meetings (Note 14).

The following table sets forth the particulars of First Capital's Exchangeable Units issued and outstanding:

As at		December	31, 2020		December	31, 2019
	Number of			Number of
	Exchangeable			Exchangeable
	Units		Value	Units		Value
Balance at beginning of year	1,210	$	25,010	—	$	—
Issued on conversion to REIT structure	—		—	1,210		25,240
Converted to Trust Units	(1,107)		(16,207)	—		—
Fair value adjustment	—		(7,404)	—		(230)
Balance at end ofyear	103	$	1,399	1,210	$	25,010

FIRST CAPITAL REIT ANNUAL REPORT 2020 92

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

14. UNITHOLDERS’ EQUITY

Upon conversion of First Capital from a corporation to a real estate investment trust, on December 30, 2019, the former Shareholders of the Company received Trust Units or Exchangeable Units which are accompanied by special voting units.

The Declaration of Trust authorizes the issuance of an unlimited number of Trust Units and special voting units:

Trust Units: Each Trust Unit is transferable and represents an equal, undivided beneficial interest in the Trust and any distributions from the Trust and entitles the holder to one vote at a meeting of Unitholders. With certain restrictions, a Unitholder has the right to require First Capital to redeem its Trust Units on demand. Upon receipt of a redemption notice by First Capital, all rights to and under the Trust Units tendered for redemption shall be surrendered and the holder thereof shall be entitled to receive a price per unit as determined by a market formula and shall be paid in accordance with the conditions provided for in the Declaration of Trust.

Special Voting Units: Each Exchangeable Unit (Note 13) is accompanied by one special voting unit which provides the holder thereof with a right to vote on matters respecting the Trust.

(a) Trust Units / Common Shares

The following table sets forth the particulars of First Capital's Trust Units / Common Shares issued and outstanding:

Year ended December 31		2020				2019
	Number of	Value of	Number of	Value of	Number of	Value of
	Trust	Trust	Trust	Trust	Common	Common
	Units	Units	Units	Units	Shares	Shares
Balance at beginning of year	217,954 $ 2,872,907		— $	—	254,828 $	3,364,948
Repurchase of common shares	—	—	—	—	(36,000)	(475,560)
Exercise of options, and settlement of any	254	5,468	—	—	336	6,553
restricted, performance and deferred trust /
share units
Conversion of Exchangeable Units	1,107	16,207	—	—	—	—
Share repurchase costs, net of tax effect	—	—	—	—	—	(8,850)
REIT Conversion	—		217,954	2,872,907	(219,164)	(2,887,091)
Balance at end ofyear	219,315 $ 2,894,582		217,954 $	2,872,907	— $	—

(b) Distributions / Dividends

First Capital declared monthly distributions totaling $0.860 per Trust Unit for the year ended December 31, 2020.

Prior to the REIT conversion, the Company declared quarterly dividends of $0.645 per common share for the nine months ended September 30, 2019. For the three months ended December 31, 2019, First Capital declared an initial monthly distribution of $0.072 per Trust Unit to Unitholders of record on December 31, 2019.

93 FIRST CAPITAL REIT ANNUAL REPORT 2020

(c) Contributed surplus and other equity items

Contributed surplus and other equity items comprise the following:

Year ended December 31					2020				2019
				Stock-based				Stock-based
		Contributed	Compensation			Contributed	Compensation
		Surplus		Plan Awards	Total	Surplus		Plan Awards	Total
Balance at beginning of year	$	—	$	— $	—$	24,903	$	19,291 $	44,194
Repurchase of common shares		—		—	—	(24,903)		—	(24,903)
Options vested		—		—	—	—		1,238	1,238
Exercise of options		—		—	—	—		(269)	(269)
Deferred units		—		—	—	—		864	864
Restricted units		—		—	—	—		1,647	1,647
Performance units		—		—	—	—		3,179	3,179
Settlement of any restricted, performance and deferred units		—		—	—	—		(4,209)	(4,209)
REIT Conversion		—		—	—	—		(21,741)	(21,741)
Balance at end ofyear	$	—	$	— $	—$	—	$	— $	—

All unit-based compensation plans are accounted for as cash-settled awards as the Trust is an open-ended trust making its units redeemable, and thus requiring outstanding Unit Options, RUs, PUs, and DUs to be recognized as a liability and carried at fair value. As a result, the entire balance in other equity items related to stock-based compensation plan awards was reclassified to liabilities on the consolidated balance sheet upon REIT conversion on December 30, 2019.

15. UNIT-BASED COMPENSATION PLANS

REIT Conversion

Upon completion of the REIT conversion on December 30, 2019, all grants outstanding under the common stock option plan and share unit plans were transferred on a one-to-one basis to unit-based compensation plans.

(a) Unit Option Plan

As of December 31, 2020, First Capital is authorized to grant up to 19.7 million (December 31, 2019 – 19.7 million) Trust Unit options to the employees, officers and Trustees. As of December 31, 2020, 4.6 million (December 31, 2019 – 6.1 million) unit options are available to be granted to the employees, officers and Trustees. In addition, as at December 31, 2020, 7.1 million unit options were outstanding (December 31, 2019 - 5.6 million). Options granted by First Capital expire 10 years from the date of grant and vest over five years.

The outstanding options as at December 31, 2020 have exercise prices ranging from $15.70 - $21.24 (December 31, 2019 – $13.91 - $21.14).

As at			December 31, 2020	December 31, 2020				December 31, 2019
	Outstanding	Options	Vested Options			Outstanding	Options	Vested Options
	Weighted	Weighted		Weighted		Weighted	Weighted	Weighted
	Number of Average	Average	Number of	Average	Number of	Average	Average	Number of Average
Exercise Price Range ($)	Trust Units Issuable (in thousands) Exercise Price per Trust Unit	Remaining Life (years)	Trust Units Issuable (in thousands) Exercise Price per Trust Units		Common Trust Units (in thousands)	Exercise Price per Trust Units	Remaining Life (years)	Common Trust Units (in thousands) Exercise Price per Trust Units
15.70 - 19.78	1,953 $ 18.81	4.0	1,800 $	18.75	1,434 $	18.05	4.0	1,335 $ 18.02
19.79 - 20.16	2,000 $ 20.04	6.7	1,013 $	20.04	886 $	19.61	5.9	556 $ 19.59
20.17 - 21.19	1,346 $ 21.04	7.9	356 $	20.85	1,918 $	20.05	7.8	547 $ 20.05
21.20 - 21.24	1,804 $ 21.24	9.2	— $	—	1,346 $	21.04	8.9	87 $ 20.24
15.70 - 21.24	7,103 $ 20.20	6.8	3,169 $	19.40	5,584 $	19.70	6.8	2,525 $ 18.89

FIRST CAPITAL REIT ANNUAL REPORT 2020 94

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

During the year ended December 31, 2020, $1.1 million (year ended December 31, 2019 – $1.2 million) was recorded as an expense related to stock options.

Year ended December 31			2020			2019
	Number of			Number of
	Trust Units		Weighted	Trust Units		Weighted
	Issuable		Average	Issuable		Average
	(in thousands)		Exercise Price	(in thousands)		Exercise Price
Outstanding at beginning of year	5,584	$	19.70	4,736	$	19.27
Granted (a)	1,804		21.24	1,201		21.14
Exercised (b)	(162)		17.48	(233)		18.17
Forfeited	(19)		17.43	(120)		19.74
Expired	(104)		16.44	—		—
Outstandingat end ofyear	7,103	$	20.20	5,584	$	19.70

(a) The fair value associated with the options issued was calculated using the Black-Scholes model for option valuation based on the assumptions in the following table.

Year ended December 31	2020	2019
Grant date	February 28, 2020	March 6, 2019
Unit / Share options granted (thousands)	1,804	1,201
Term to expiry	10 years	10 years
Exercise price	$21.24	$21.14
Weighted average volatility rate	13.7 %	14.0 %
Weighted average expected option life	6.6 years	5.8 years
Weighted average distribution / dividend yield	4.30 %	4.08 %
Weighted average risk free interest rate	1.08 %	1.71 %
Fair value(thousands)	$1,373	$1,617

(b) The weighted average market price at which options were exercised for the year ended December 31, 2020 was $21.71 (year ended December 31, 2019 – $21.34).

The assumptions used to measure the fair value of the unit options under the Black-Scholes model (level 2) as at December 31, 2020 were as follows:

Year ended December 31	2020	2019
Expected Trust Unit price volatility	22.93% - 50.12%	12.06% - 14.35%
Expected life of options	0.2 - 6.5 years	0.2 - 5.7 years
Expected distribution yield	6.30%	4.16%
Risk free interest rate	0.07% - 0.44%	1.65% - 1.73%

(b) Trust Unit arrangements

First Capital’s Trust Unit plans include a Trustees' Deferred Unit ("DU")(formerly "DSU") plan and a Restricted Unit ("RU")(formerly "RSU") plan that provides for the issuance of Restricted Units and Performance Units ("PU")(formerly "PSU"). Under the DU and RU arrangements, a participant is entitled to receive one Trust Unit, or equivalent cash value for RU arrangements only, at First Capital’s option, (i) in the case of a DU, upon redemption by the holder after the date that the holder ceases to be a Trustee of FCR and any of its subsidiaries (the “Retirement Date”) but no later than December 15 of the first calendar year commencing after the Retirement Date, and (ii) in the case of an RU, on the third anniversary of the grant date. Under the PU arrangement, a participant is entitled to receive 0.5 – 1.5 Trust Units per PU granted, or equivalent cash value at First Capital's option, on the third anniversary of the grant date. Holders of units granted under each plan receive distributions in the form of additional units when First Capital declares distributions on its Trust Units.

95 FIRST CAPITAL REIT ANNUAL REPORT 2020

Year ended December 31		2020		2019
(in thousands)	DUs	RUs / PUs	DSUs	RSUs / PSUs
Outstanding at beginning of year	289	663	289	588
Granted (a) (b)	59	295	31	244
Distributions / Dividends reinvested	20	44	10	22
Exercised	—	(189)	(41)	(179)
Forfeited	—	**(24) **	—	(12)
Outstandingat end ofyear	368	789	289	663
Expense recorded for theyear	$1,084	$5,830	$581	$4,290

(a) The fair value of the DUs granted during the year ended December 31, 2020 was $0.8 million (year ended December 31, 2019 – $0.7 million), measured based on First Capital’s prevailing Trust Unit / common share price on the date of grant. The fair value of the RUs granted during the year ended December 31, 2020 was $3.5 million (year ended December 31, 2019 – $1.9 million), measured based on First Capital’s Trust Unit / share price on the date of grant.

(b) The fair value of the PUs granted during the year ended December 31, 2020 was $2.6 million (year ended December 31, 2019 – $3.4 million). The fair value is calculated using the Monte-Carlo simulation model based on the assumptions below as well as a market adjustment factor based on the total Unitholder return of First Capital's Trust Units relative to the S&P/TSX Capped REIT Index.

Year ended December 31	2020	2019
Grant date	February 28, 2020	March 6, 2019
PUs granted (thousands)	131	154
Term to expiry	3 years	3 years
Weighted average volatility rate	13.8%	14.0%
Weighted average correlation	35.0%	30.8%
Weighted average total Unitholder / Shareholder return	(4.0%)	9.1%
Weighted average risk free interest rate	1.11%	1.68%
Fair value(thousands)	$2,573	$3,399

(c) Increase (decrease) in the value of unit-based compensation

First Capital’s unit-based compensation plans are accounted for as cash-settled awards. Therefore, outstanding Unit Options, Deferred Units, Restricted Units and Performance Units are recognized as a liability and carried at fair value through profit and loss. As at December 31, 2020, the carrying value of the unit-based compensation liability was $12,168 (December 31, 2019 – $19,187)(Note 12). For the year ended December 31, 2020, FCR recognized a decline in the value of the unit-based compensation plans which resulted in a gain of $11.5 million due to a decrease in the Trust's unit price as a result of equity market volatility in light of COVID-19.

FIRST CAPITAL REIT ANNUAL REPORT 2020 96

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

16. NET OPERATING INCOME

Net Operating Income by Component

First Capital’s net operating income by component is presented below:

		Year ended	December 31
	**% change **	2020	2019
Property rental revenue
Base rent(1)		$ 426,845	$ 457,200
Operating cost recoveries		97,265	110,284
Realty tax recoveries		122,326	137,388
Lease termination fees		1,811	5,265
Percentage rent		3,502	4,798
Straight-line rent adjustment		2,711	5,824
Prior year operating cost and tax recovery adjustments		27	(933)
Temporary tenants, storage, parking and other(2)		18,403	26,947
Total Propertyrental revenue	(9.9%)	672,890	746,773
Property operating costs
Recoverable operating expenses		107,408	124,080
Recoverable realty tax expense		139,238	155,010
Prior year realty tax expense		(284)	(1,215)
Other operatingcosts and adjustments(3)		27,496	8,501
Total Propertyoperatingcosts		273,858	286,376
Total NOI	(13.3%)	$ 399,032	$ 460,397
NOI margin		59.3%	61.7%

(1) Includes residential revenue.

(2) Includes hotel property revenue.

(3) Includes residential operating costs, hotel property operating costs and bad debt expense.

Included in other operating costs and adjustments is bad debt expense for the year ended December 31, 2020 of $22.8 million (December 31, 2019 - $0.6 million) comprised of $13.2 million of net rental abatements related to the CECRA program and additional provisions of $9.6 million in light of COVID-19.

Net Operating Income by Segment

Net operating income is presented by segment as follows:

		Central	Eastern	Western
Year ended December 31, 2020		Region	Region	Region	Subtotal	Other(1)	Total
Property rental revenue	$	321,828 $	134,502 $	219,064 $	675,394 $	(2,504) $	672,890
Propertyoperatingcosts		137,885	62,212	79,751	279,848	(5,990)	273,858
Net operatingincome	$	183,943 $	72,290 $	139,313 $	395,546 $	3,486 $	399,032

97 FIRST CAPITAL REIT ANNUAL REPORT 2020

		Central	Eastern	Western
Year ended December 31, 2019		Region	Region	Region	Subtotal	Other(1)	Total
Property rental revenue	$	326,491 $	180,194 $	242,390 $	749,075 $	(2,302) $	746,773
Property operating costs		129,947	80,248	81,578	291,773	(5,397)	286,376
Net operating income	$	196,544 $	99,946 $	160,812 $	457,302 $	3,095 $	460,397

(1) Other items principally consist of inter-company eliminations.

For the year ended December 31, 2020, property operating costs include $16.4 million (year ended December 31, 2019 – $21.0 million) related to employee compensation. Employee compensation is presented net of subsidies received under the Canada Emergency Wage Subsidy ("CEWS") program for the year ended December 31, 2020 of $4.5 million related to property operations personnel. A portion of this wage subsidy will be passed on to tenants through lower operating cost recoveries.

17. INTEREST AND OTHER INCOME

17. INTEREST AND OTHER INCOME
			Year ended		December 31
	Note		2020		2019
Interest, dividend and distribution income from marketable securities and other investments	6	$	1,082	$	4,473
Interest income from loans and mortgages receivable classified as FVTPL	6		922		2,767
Interest income from loans and mortgages receivable at amortized cost	6		6,791		15,517
Fees and other income			3,453		10,292
Total		$	12,248	$	33,049

18. INTEREST EXPENSE

Total 18. INTEREST EXPENSE		$	12,248 $	12,248 $	33,049
			Year ended		December 31
	Note		2020		2019
Mortgages	10	$	52,142	$	53,920
Credit facilities	10		28,796		34,163
Senior unsecured debentures	11		100,854		106,326
Distributions on Exchangeable Units(1)	13		650		86
Total interest expense			182,442		194,495
Interest capitalized to investmentproperties under development			(24,731)		(22,661)
Interest expense		$	157,711	$	171,834
Change in accrued interest			(1,524)		97
Coupon interest rate in excess of effective interest rate on senior unsecured debentures			1,203		1,303
Coupon interest rate in excess of effective interest rate on assumed mortgages			401		1,272
Amortization of deferred financingcosts			(6,556)		(6,428)
Cash interest paid associated with operating activities		$	151,235	$	168,078

(1) Effective December 30, 2019, 1.2 million Exchangeable Units were issued upon REIT conversion. As at December 31, 2020, 0.1 million Exchangeable Units were outstanding. The distributions declared on the Exchangeable Units are accounted for as interest expense.

FIRST CAPITAL REIT ANNUAL REPORT 2020 98

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

19. CORPORATE EXPENSES

19. CORPORATE EXPENSES
		Year ended		December 31
		2020		2019
Salaries, wages and benefits	$	22,985	$	28,743
Unit-based compensation		7,673		5,740
Other corporate costs		10,277		12,385
Total corporate expenses		40,935		46,868
Amounts capitalized to investment properties under development		(7,697)		(8,309)
Corporate expenses	$	33,238	$	38,559

For the year ended December 31, 2020, salaries, wages and benefits include $3.8 million of wage subsidies received under the CEWS program.

20. OTHER GAINS (LOSSES) AND (EXPENSES)

		Year ended	Year ended	December 31
		2020		2019
Realized gain on sale of marketable securities	$	—	$	1,164
Unrealized gain (loss) on marketable securities		(234)		474
Net gain (loss) on prepayments of debt		(282)		—
Gain on below market purchase(1)		7,385		—
Hotel acquisition transaction costs(1)		(1,121)		—
Gain on Investment (a)		—		4,022
Proceeds from Target(2)		—		692
Pre-selling costs of residential inventory		(142)		—
Investment properties selling costs		(3,915)		(6,381)
REIT conversion costs		(906)		(5,013)
Transaction costs (b)		—		(3,414)
Other		73		(303)
Total	$	858	$	(8,759)

(1) In connection with acquisition of hotel property - Refer to Note 5.

(2) In connection with proceeds recognized under Target Canada's CCAA plan of arrangement related to the closure of two Target stores in FCR's portfolio in 2015.

(a) During the third quarter of 2019, one of First Capital's other investments in which FCR was a minority Shareholder was acquired for cash and share consideration resulting in the recognition of a $4.0 million gain on investment.

(b) During the first quarter of 2019, the Company paid $9.0 million or 50% of the underwriters’ commission as part of the secondary offering by Gazit of 22 million of the FCR shares. Given the cross-conditional nature of the secondary offering and the share repurchase transaction, the $9.0 million was allocated to both the share repurchase ($5.6 million) and the secondary offering ($3.4 million). The amount allocated to the secondary offering was recorded in other gains (losses) and (expenses) during the first quarter of 2019.

99 FIRST CAPITAL REIT ANNUAL REPORT 2020

21. INCOME TAXES

The Trust qualifies for the REIT Exemption and as such the Trust itself will not be subject to income taxes provided it continues to qualify as a REIT for purposes of the Act. A REIT is not taxable and not considered to be a Specified Investment Flow-Through Trust provided it complies with certain tests and distributes all of its taxable income in a taxation year to its Unitholders. The Trust is a flow-through vehicle and accounts only for income taxes pertaining to its corporate subsidiaries. The Trust's most significant corporate subsidiary, First Capital Realty Inc., is a Mutual Fund Corporation.

The sources of deferred tax balances and movements are as follows:

	December 31, 2019	December 31, 2019	Net income	Recognized in OCI	Equity and other	December 31, 2020	December 31, 2020
Deferred taxes related to non-capital losses	$	— $	(35,442) $	(2,716) $	(2,032)	$	(40,190)
Deferred tax liabilities related to difference		701,549	59,366	(18,225)	(3,972)		738,718
in tax and book basis primarily related to
real estate, net
Net deferred taxes	$	701,549 $	23,924 $	(20,941)$	(6,004)	$	698,528

As at December 31, 2020, the corporate subsidiaries of the Trust had approximately $103.0 million of non-capital losses which expire between 2028 and 2040.

	December 31, 2018	December 31, 2018	Net income	Recognized in OCI	Equity and other	December 31, 2019	December 31, 2019
Deferred taxes related to non-capital losses	$	(13,046) $	17,012 $	(2,360) $	(1,606)	$	—
Deferred tax liabilities related to difference		806,346	(99,199)	(2,696)	(2,902)		701,549
in tax and book basis primarily related to
real estate, net
Net deferred taxes	$	793,300 $	(82,187)$	(5,056)$	(4,508)	$	701,549

As at December 31, 2019, the corporate subsidiaries of the Trust had approximately Nil of non-capital losses.

The following reconciles the expected tax expense computed at the statutory tax rate to the actual tax expense for the years ended December 31, 2020 and 2019 relating to the Trust.

		Year ended	December 31
		2020	2019
Income tax computed at the Canadian statutory rate of Nil applicable to the Trust at December	$	—$	—
31, 2020 and December 31, 2019
Increase (decrease) in income taxes due to:
Derecognition of deferred income tax liability on REIT conversion		—	(160,940)
Deferred income taxes applicable to corporate subsidiaries		22,481	98,184
Impact of change in provincial income tax rate		481	(20,848)
Other		962	1,417
Deferred income taxes	$	23,924$	(82,187)

FIRST CAPITAL REIT ANNUAL REPORT 2020 100

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

22. RISK MANAGEMENT

In the normal course of its business, First Capital is exposed to a number of risks that can affect its operating performance. Certain of these risks, and the actions taken to manage them, are as follows:

(a) Interest rate risk

First Capital structures its financings so as to stagger the maturities of its debt, thereby mitigating its exposure to interest rate and other credit market fluctuations. A portion of FCR’s mortgages, loans and credit facilities are floating rate instruments. From time to time, FCR may enter into interest rate swap contracts, bond forwards or other financial instruments to modify the interest rate profile of its outstanding debt or highly probable future debt issuances without an exchange of the underlying principal amount.

Interest represents a significant cost in financing the ownership of real property. As at December 31, 2020, First Capital has a total of $332.6 million of outstanding debt bearing interest at variable rates. If the average variable interest rate was 100 basis points higher or lower than the existing rate, FCR’s annual interest cost would increase or decrease, respectively, by $3.3 million.

First Capital has a total of $1.2 billion principal amount of fixed rate interest-bearing instruments outstanding including mortgages, senior unsecured debentures and secured credit facilities maturing between January 1, 2021 and December 31, 2023 at a weighted average coupon interest rate of 4.1%. If these amounts were refinanced at an average interest rate that was 100 basis points higher or lower than the existing rate, FCR’s annual interest cost would increase or decrease, respectively, by $12.1 million.

As at December 31, 2020, First Capital’s loans and mortgages receivable that earn interest at variable rates total $75.1 million. If the average variable interest rate was 100 basis points higher than the existing rate, FCR’s annual interest income would increase by approximately $0.8 million, and if the variable interest rate were 100 basis points lower, FCR’s annual interest income would decrease by approximately $0.1 million.

First Capital’s loans and mortgages receivable that earn interest at fixed rates total $35.8 million. If the loans were refinanced at 100 basis points higher or lower than the existing rate, FCR’s annual interest income would increase or decrease by approximately $0.4 million.

(b) Credit risk

Credit risk arises from the possibility that tenants and/or debtors may experience financial difficulty and be unable or unwilling to fulfill their lease commitments or loan obligations. First Capital mitigates the risk of credit loss from debtors by undertaking a number of activities typical in lending arrangements including obtaining registered mortgages on the real estate properties. First Capital mitigates the risk of credit loss from tenants by investing in well-located properties in urban markets that attract high quality tenants, ensuring that its tenant mix is diversified, and by limiting its exposure to any one tenant. As at December 31, 2020, Loblaw Companies Limited (“Loblaw”) is FCR's largest tenant and accounts for 10.5% of FCR’s annualized minimum rent and has an investment grade credit rating. Other than Loblaw, no other tenant accounts for more than 10% of the annualized minimum rent. A tenant’s success over the term of its lease and its ability to fulfill its lease obligations is subject to many factors. There can be no assurance that a tenant will be able to fulfill all of its existing commitments and leases up to the expiry date.

First Capital’s leases typically have lease terms between 5 and 20 years and may include clauses to enable periodic upward revision of the rental rates, and lease contract extension at the option of the lessee.

Future minimum rentals receivable under non-cancellable operating leases as at December 31 are as follows:

(thousands of Canadian dollars)		2020
Within 1 year	$	397,377
After 1 year, but not more than 5 years		1,100,187
More than 5years		751,421
	$	2,248,985

101 FIRST CAPITAL REIT ANNUAL REPORT 2020

(c) Liquidity risk

Real estate investments are relatively illiquid. This tends to limit First Capital’s ability to sell components of its portfolio promptly in response to changing economic or investment conditions. If FCR were required to quickly liquidate its assets, there is a risk that it would realize sale proceeds of less than the current value of its real estate investments.

An analysis of First Capital’s contractual maturities of its material financial liabilities and other contractual commitments as at December 31, 2020 is set out below:

as at December 31, 2020 is set out below:
As at December 31, 2020			Payments Due by Period
		2021	2022 to 2023	2024 to 2025	Thereafter	Total
Scheduled mortgage principal amortization	$	28,385 $	64,578 $	61,587 $	93,066 $	247,616
Mortgage principal repayments on maturity		62,623	95,522	164,373	781,157	1,103,675
Credit facilities and bank indebtedness		61,267	304,899	375,000	175,000	916,166
Senior unsecured debentures		175,000	750,000	600,000	1,000,000	2,525,000
Interest obligations(1)		165,761	280,001	185,252	131,023	762,037
Land leases (expiring between 2023 and 2061)		1,189	2,076	1,238	16,203	20,706
Contractually committed costs to complete current		33,764	—	—	—	33,764
development projects
Other committed costs		7,125	—	—	—	7,125
Total contractual obligations	$	535,114 $	1,497,076 $	1,387,450 $	2,196,449 $	5,616,089

(1) Interest obligations include expected interest payments on mortgages and credit facilities as at December 31, 2020 (assuming balances remain outstanding through to maturity), and senior unsecured debentures, as well as standby credit facility fees.

First Capital manages its liquidity risk by staggering debt maturities; renegotiating expiring credit arrangements proactively; using secured and unsecured credit facilities, mortgages and unsecured debentures; and issuing equity when considered appropriate. As at December 31, 2020, there was $0.7 billion (December 31, 2019 – $0.8 billion) of cash advances drawn against First Capital’s unsecured credit facilities.

In addition, as at December 31, 2020, First Capital had $49.2 million (December 31, 2019 – $33.3 million) of outstanding letters of credit issued by financial institutions primarily to support certain of FCR’s contractual obligations and $0.2 million (December 31, 2019 – $0.1 million) of bank overdrafts.

(d) Unit price risk

First Capital is exposed to Trust Unit price risk as a result of the issuance of Exchangeable Units, which are economically equivalent to and exchangeable for Trust Units, as well as the issuance of unit-based compensation. Exchangeable Units and unit-based compensation liabilities are recorded at their fair value based on market trading prices. Exchangeable Units and unit-based compensation negatively impact operating income when the Trust Unit price rises and positively impact operating income when the Trust Unit price declines. An increase of $1 dollar in the underlying price of First Capital's Trust Units would result in an increase to liabilities, and a decrease to net income as follows:

(i) Exchangeable Units $0.1 million (December 31, 2019 – $1.2 million); and

(ii) Unit-based compensation liabilities $2.3 million (December 31, 2019 – $3.2 million)

FIRST CAPITAL REIT ANNUAL REPORT 2020 102

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

23. FAIR VALUE MEASUREMENT

A comparison of the carrying amounts and fair values, by class, of First Capital’s financial instruments, other than those whose carrying amounts approximate their fair values, is as follows:

			Carrying Amount	Carrying Amount		Fair Value
	Notes		2020	2019	2020	2019
Financial assets
FVTPL investments in securities	6	$	3,715$	3,949$	3,715$	3,949
Loans and mortgages receivable classified as FVTPL	6		1,974	20,858	1,974	20,858
Loans and mortgages receivable classified as amortized cost	6		111,160	124,924	110,045	124,740
Bond asset	8		13,965	14,513	13,965	14,513
Other investments	6		12,580	12,302	12,580	12,302
Derivatives at fair value	8		—	5,303	—	5,303
Financial liabilities
Mortgages	10	$	1,346,637$	1,327,021$	1,446,711$	1,346,852
Credit facilities	10		915,928	899,165	915,928	899,165
Senior unsecured debentures	11		2,522,135	2,497,213	2,693,223	2,580,365
Exchangeable Units	13		1,399	25,010	1,399	25,010
Unit-based compensation plans	15		12,168	19,187	12,168	19,187
Derivatives at fair value	12		50,368	4,686	50,368	4,686

The fair values of First Capital’s FVTPL investments in securities are based on quoted market prices. First Capital has other investments in certain funds and a private entity classified as Level 3, for which the fair values are based on the fair value of the properties held in the funds. The private entity fair value approximates its cost.

The fair value of First Capital’s loans and mortgages receivable classified as Level 3, are calculated based on current market rates plus borrower level risk-adjusted spreads on discounted cash flows, adjusted for allowances for non-payment and collateral related risk. As at December 31, 2020, the risk-adjusted interest rates ranged from 1.2% to 10.4% (December 31, 2019 – 3.5% to 11.4%).

The fair value of First Capital’s mortgages and credit facilities payable are calculated based on current market rates plus risk-adjusted spreads on discounted cash flows. As at December 31, 2020, these rates ranged from 1.5% to 2.3% (December 31, 2019 – 3.2% to 3.4%).

The fair value of the senior unsecured debentures are based on closing bid risk-adjusted spreads and current underlying Government of Canada bond yields on discounted cash flows. For the purpose of this calculation, the Trust uses, among others, interest rate quotations provided by financial institutions. As at December 31, 2020, these rates ranged from 0.8% to 2.6% (December 31, 2019 – 2.3% to 3.6%).

The fair value of the Exchangeable Units are based on the Trust's closing price as of December 31, 2020.

The fair value of the unit-based compensation plans are based on the following:

Unit Option Plan: Fair value of each tranche is valued separately using a Black-Scholes option pricing model. Deferred Units/Restricted Units: Fair value is based on the Trust's closing price as of December 31, 2020. Performance Units: Fair value is calculated using a Monte-Carlo simulation model.

103 FIRST CAPITAL REIT ANNUAL REPORT 2020

The fair value hierarchy of financial instruments in the audited annual consolidated balance sheets is as follows:

As at			December 31, 2020	December 31, 2020				December	31, 2019
		Level 1	Level 2	Level 3		Level 1		Level 2	Level 3
Fair value of financial instruments measured at fair value
Financial Assets
FVTPL investments in securities	$	3,715 $	— $	—	$	3,949	$	— $	—
Loans and mortgages receivable		—	—	1,974		—		—	20,858
Other investments		—	—	12,580		—		—	12,302
Derivatives at fair value – assets		—	—	—		—		5,303	—
Financial Liabilities
Exchangeable Units		—	1,399	—		—		25,010	—
Unit-based compensation plans		—	12,168	—		—		19,187	—
Derivatives at fair value – liabilities		—	50,368	—		—		4,686	—
Fair value of financial instruments measured at amortized cost
Financial Assets
Loans and mortgages receivable	$	— $	— $	110,045	$	—	$	— $	124,740
Bond asset		—	13,965	—		—		14,513	—
Financial Liabilities
Mortgages		—	1,446,711	—		—	1,346,852		—
Credit facilities		—	915,928	—		—	899,165		—
Senior unsecured debentures		—	2,693,223	—		—	2,580,365		—
First Capital enters into derivative instruments including bond forward contracts, interest rate swaps and cross currency
swaps as part of its strategy for managing certain interest rate risks as well as				currency risk in relation to				movements in
the Canadian to U.S. exchange rate. For those derivative instruments to which First Capital has applied hedge accounting,
the change in fair value for the effective portion of the derivative is recorded in OCI from the date of designation. For
those derivative instruments to which First Capital		does not apply hedge accounting, the change in					fair value is
recognized in other gains (losses) and (expenses).
The fair value of derivative instruments is determined using present value forward pricing and swap calculations at
interest rates that reflect current market conditions. The models also take into consideration the credit quality of
counterparties, interest rate curves and forward rate curves. As			at December	31, 2020, the interest rates ranged from
1.7% to 2.5% (December 31, 2019 – 1.7% to 3.7%). The fair values of First Capital's asset (liability) hedging instruments
are as follows:
	Designated as
	HedgingInstrument	Maturityas at December 31, 2020			December 31, 2020			December	31, 2019
Derivative assets
Bond forward contracts	Yes	N/A			$		—	$	2,372
Interest rate swaps	Yes	N/A					—		2,931
Cross currencyswaps	No	N/A					—		—
Total					$		—	$	5,303
Derivative liabilities
Bond forward contracts	Yes	N/A			$		—	$	—
Interest rate swaps	Yes	April 2024 - March 2027				45,422			1,677
Cross currencyswaps	No	February2021					4,946		3,009
Total					$	50,368		$	4,686

As at December 31, 2020, the $45.7 million increase in the fair value of outstanding derivative liabilities is primarily due to significant fluctuations in market rates (Canadian Bankers' Acceptance rate and Government of Canada bond rate) relative to the market rates locked-in at inception of outstanding interest rate swaps.

FIRST CAPITAL REIT ANNUAL REPORT 2020 104

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

24. SUBSIDIARIES WITH NON-CONTROLLING INTEREST

As at December 31, 2020, First Capital has interests in two entities that it controls and consolidates 100% of the assets, liabilities, revenues and expenses of each entity subject to a non-controlling interest.

		Effective Ownership	Effective Ownership
Name of Entity	PrimaryInvestment	December 31, 2020	December	31, 2019
Main and Main Developments LP	46.875% Interest in MMUR(1)	67.0%		67.0%
Maincore Equities Inc.(2)	46.875% Interest in MMUR(1)	70.9%		90.0%

(1) FCR has owned a 6.25% direct interest in MMUR since 2014.

(2) FCR's ownership in Maincore Equities Inc. decreased due to the redemption of its Class B common shares.

First Capital controls MMLP, a subsidiary in which it holds a 67% ownership interest.

During the third quarter of 2019, First Capital, together with its partner acquired the remaining 46.9% interest in MMUR from the exiting partner by acquiring the shares of Maincore Equities Inc.

During the first quarter of 2020, one of the Trust's wholly owned subsidiaries purchased a property from MMUR, which is also a consolidated subsidiary. The entire proceeds from the sale were distributed to the limited partners, including $24.4 million to the non-controlling interest partner.

Non-controlling interest in the equity and the results of these subsidiaries, before any inter-company eliminations, are as follows:

As at	December	31, 2020	December 31, 2019	December 31, 2019
Non-current assets	$	95,319	$	213,183
Current assets		1,170		25
Total assets		96,489		213,208
Current liabilities		23		69
Total liabilities		23		69
Net assets	$	96,466	$	213,139
Non-controlling interest	$	29,263	$	48,914
		Year ended December 31
		2020		2019
Revenue	$	4	$	6,113
Share of profit from joint ventures		32,360		40,209
Expenses		(5,497)		(1,571)
Net income	$	26,867	$	44,751
Non-controlling interest	$	4,780	$	12,995
		Year ended		December 31
		2020		2019
Cash provided by (used in) operating activities	$	(5,745)	$	8,153
Cash provided by financing activities		361		—
Cashprovided by (used in)investingactivities		5,291		(9,265)
Net increase(decrease) in cash and cash equivalents	$	(93)	$	(1,112)

105 FIRST CAPITAL REIT ANNUAL REPORT 2020

25. CO-OWNERSHIP INTERESTS

First Capital has co-ownership interests in several properties, as listed below, that are subject to joint control and represent joint operations under IFRS 11, "Joint Arrangements" . First Capital recognizes its share of the direct rights to the assets and obligations for the liabilities of these co-ownerships in the consolidated financial statements.

		Ownership	Interest
Property	Location	December 31, 2020	December 31, 2019
101 Yorkville Avenue	Toronto, ON	50%	50%
2150 Lake Shore Blvd. West (Christie Cookie)	Toronto, ON	50%	50%
816-838 11th Ave. (Glenbow)	Calgary, AB	50%	50%
738-11th Avenue SW (Glenbow)	Calgary, AB	50%	50%
Gloucester City Centre	Ottawa, ON	50%	50%
Carrefour du Plateau	Gatineau, QC	50%	50%
Merivale Mall	Ottawa, ON	50%	50%
Galeries de Repentigny	Repentigny, QC	50%	50%
Galeries Brien Ouest/Est	Repentigny, QC	50%	50%
Gateway Village	St. Albert, AB	50%	50%
King High Line - Residential	Toronto, ON	66.6%	66.6%
261 Queens Quay East (Bayside Village)	Toronto, ON	50%	—%
Midland (land)	Midland, ON	50%	50%
Rutherford Marketplace (Residential Inventory)	Vaughan, ON	50%	50%
Hunt Club – Petrocan	Ottawa, ON	50%	50%
Gatineau Portfolio(1)	Gatineau, QC	50%	—%
Hunt Club Marketplace	Ottawa, ON	66.6%	66.6%
Lachenaie Properties	Lachenaie, QC	50%	50%
South Oakville Properties(2)	Oakville, ON	50%	50%
Whitby Mall	Whitby, ON	50%	50%
Thickson Mall	Whitby, ON	50%	50%
St. Hubert Portfolio(3)	St. Hubert, QC	50%	50%
Ottawa Portfolio(3)	Ottawa, ON	50%	50%
West Island Portfolio(4)	Beaconsfield, QC / Kirkland, QC	50%	50%
Burlington Portfolio(5)	Burlington, ON	50%	—%
Seton Gateway	Calgary, AB	50%	50%
Sherwood Park	Sherwood Park, AB	50%	50%
The Edmonton Brewery District	Edmonton, AB	50%	50%
138 Yorkville Avenue	Toronto, ON	33.3%	33.3%
Meadowbrook Centre	Edmonton, AB	50%	—%
Lakeview Plaza	Calgary, AB	50%	—%

(1) Gatineau Portfolio includes Place Cite des Jeunes, Place Nelligan, and Carrefour du Versant Ouest/Est.

(2) South Oakville Properties includes one property at 50% interest, with the remaining properties held at 100% interest.

(3) St. Hubert Portfolio includes Carrefour St-Hubert, Plaza Actuel, and Promenades du Parc. Ottawa Portfolio includes Loblaws Plaza, Eagleson Place, and Strandherd Crossing.

(4) West Island Portfolio includes Centre Commercial Beaconsfield, Plaza Beaconsfield, Centre St-Charles, Centre Kirkland, and Place Kirkland.

(5) Burlington Portfolio includes Burlingwood Shopping Centre and Beacon Hill Plaza.

FIRST CAPITAL REIT ANNUAL REPORT 2020 106

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

		Ownership	Interest
Property	Location	December 31, 2020	December 31, 2019
West Springs Village	Calgary, AB	50%	50%
216 Elgin Street	Ottawa, ON	50%	50%
221 - 227 Sterling	Toronto, ON	35%	35%
London Portfolio(1)	London, ON	49.5%	49.5%
Molson's Building	Calgary, AB	75%	75%
1071 King Street West	Toronto, ON	66.6%	66.6%
200 Esplanade (Empire Theatres)	North Vancouver, BC	50%	50%
400 King Street West(2)	Toronto, ON	50%	50%
1120 Kingston Road(2)	Toronto, ON	60%	60%

(1) London Portfolio includes Wellington Corners, Sunningdale Village, Byron Village, Hyde Park Plaza, Stoneybrook Plaza, and Adelaide Shoppers.

(2) Co-ownership interests held by MMUR.

26. SUPPLEMENTAL OTHER COMPREHENSIVE INCOME (LOSS) INFORMATION

(a) Accumulated other comprehensive income (loss)

Year ended December 31				2020			2019
		Opening	Net Change	Closing	Opening	Net Change	Closing
		Balance	During	Balance	Balance	During	Balance
		January 1	the Year	December 31	January 1	the Year	December 31
Unrealized gains (losses) on cash flow		(10,712)	(32,868)	(43,580)	(4,488)	(6,224)	(10,712)
hedges
Unrealized gains (losses) on		2,910	(2,910)	—	—	2,910	2,910
revaluation of hotelproperty
Accumulated other comprehensive	$	(7,802) $	(35,778) $	(43,580)$	(4,488) $	(3,314) $	(7,802)
income(loss)

(b) Tax effects relating to each component of other comprehensive income (loss)

Year ended December 31				2020			2019
		Before-Tax	Tax (Expense)	Net of Tax	Before-Tax	Tax (Expense)	Net of Tax
		Amount	Recovery	Amount	Amount	Recovery	Amount
Unrealized gains (losses) on cash flow	$	(56,012) $	21,798 $	(34,214)$	(12,967) $	5,812 $	(7,155)
hedges
Reclassification of losses on cash flow		2,203	(857)	1,346	1,687	(756)	931
hedges to net income
Unrealized gains (losses) on		(2,910)	—	(2,910)	2,910	—	2,910
revaluation of hotelproperty
Other comprehensive income (loss)	$	(56,719) $	20,941 $	(35,778)$	(8,370) $	5,056 $	(3,314)

107 FIRST CAPITAL REIT ANNUAL REPORT 2020

27. SUPPLEMENTAL CASH FLOW INFORMATION

(a) Items not affecting cash and other items

(a) Items not affecting cash and other items
			Year ended	December 31
	Note		2020	2019
Straight-line rent adjustment	16	$	(2,711)$	(5,824)
Investment properties selling costs	20		3,915	6,381
Realized (gain) loss on sale of marketable securities	20		—	(1,164)
Unrealized (gain) loss on marketable securities classified as FVTPL	20		234	(474)
Gain on below market purchase(1)	20		(7,385)	—
Hotel transaction costs(1)	20		1,121	—
Transaction costs(2)	20		—	3,414
Gain on Investment	20		—	(4,022)
Unit-based compensation expense	15		8,019	5,696
Increase (decrease) in value of Exchangeable Units	13		(7,404)	(230)
Increase (decrease) in value of unit-based compensation	15		(11,459)	(81)
Deferred income taxes (recovery)	21		23,924	(82,187)
Other non-cash items			**(41) **	338
Total		$	8,213$	(78,153)

(1) In connection with acquisition of hotel property - Refer to Note 5.

(2) Transaction costs incurred relate to the secondary offering by Gazit of 22 million of the Company's common shares.

(b) Net change in non-cash operating items

The net change in non-cash operating assets and liabilities consists of the following:

		Year ended	December 31
		2020	2019
Amounts receivable	$	(14,775)$	4,870
Prepaid expenses		(1,303)	(1,517)
Trade payables and accruals		12,228	(12,459)
Tenant security and other deposits		(602)	570
Other workingcapital changes		**(6,770) **	(4,035)
Total	$	(11,222) $	(12,571)

(c) Changes in loans, mortgages and other assets

(c) Changes in loans, mortgages and other assets
		Year ended	December 31
		2020	2019
Advances of loans and mortgages receivable	$	(18,083)$	(62,545)
Repayments of loans and mortgages receivable		45,319	183,194
Other investments, net		(278)	3,554
Investment in marketable securities, net		—	(5,000)
Proceeds from disposition of marketable securities		—	26,251
Total	$	26,958$	145,454

FIRST CAPITAL REIT ANNUAL REPORT 2020 108

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – continued

(d) Cash and cash equivalents

(d) Cash and cash equivalents
As at		December 31, 2020		December 31, 2019
Cash and cash equivalents	$	100,444	$	25,503

28. COMMITMENTS AND CONTINGENCIES

• (a) First Capital is involved in litigation and claims which arise from time to time in the normal course of business. None of these contingencies, individually or in aggregate, would result in a liability that would have a significant adverse effect on the financial position of FCR.

• (b) First Capital is contingently liable, jointly and severally or as guarantor, for approximately $70.5 million (December 31, 2019 – $77.5 million) to various lenders in connection with certain third-party obligations, including, without limitation, loans advanced to its joint arrangement partners secured by the partners’ interest in the joint arrangements and underlying assets.

• (c) First Capital is contingently liable by way of letters of credit in the amount of $49.2 million (December 31, 2019 – $33.3 million), issued by financial institutions on FCR's behalf in the ordinary course of business.

• (d) First Capital has obligations as lessee under long-term leases for land. Annual commitments under these ground leases are approximately $1.2 million (December 31, 2019 – $1.2 million) with a total obligation of $20.7 million (December 31, 2019 – $21.9 million).

29. RELATED PARTY TRANSACTIONS

(a) Gazit-Globe

During the first quarter of 2020, Gazit sold its remaining 6.7% interest in FCR and is no longer a related party.

(b) Joint ventures

During the year ended December 31, 2020, First Capital earned fee income of nil (year ended December 31, 2019 – $1.9 million) from its joint ventures.

During the year ended December 31, 2020, First Capital also advanced nil (year ended December 31, 2019 – $1.2 million) to one of its joint ventures.

(c) Subsidiaries of the Trust

These audited annual consolidated financial statements include the financial statements of First Capital Real Estate Investment Trust and all of its subsidiaries, including First Capital Realty Inc., First Capital REIT Limited Partnership and First Capital Holdings Trust. First Capital Realty Inc. and First Capital Holdings Trust are the significant subsidiaries of the Trust and are wholly owned.

(d) Compensation of Key Management Personnel

Aggregate compensation for Trustees and the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer included in corporate expenses is as follows:

included in corporate expenses is as follows:
		Year ended	December 31
		2020		2019
Salaries and short-term employee benefits	$	4,390	$	4,724
Unit-based compensation(non-cash compensation expense)		6,108		4,362
	**$ **	10,498	$	9,086

109 FIRST CAPITAL REIT ANNUAL REPORT 2020

30. SUBSEQUENT EVENTS

Reduction in Distributions to Unitholders

On January 12, 2021, First Capital announced the temporary reduction of its monthly distribution to Unitholders from $0.0716 per unit to $0.036 to provide the Trust with additional retained cash flow of approximately $95 million per annum.

Monthly Distributions

On January 12, 2021, First Capital announced that it will pay a distribution, for the month of January, of $0.036 per Trust Unit on February 15, 2021 to Unitholders of record as at January 31, 2021.

Collection of January 2021 Rent

As of February 9, 2021, First Capital has collected approximately 91% of the gross rents payable from tenants for the month of January.

FIRST CAPITAL REIT ANNUAL REPORT 2020 110

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