Press Releases

First Capital Realty announces continued solid Q2 financial results

August 14, 2009

Toronto, Ontario (August 14, 2009) - First Capital Realty Inc. (“First Capital Realty’) (TSX:FCR) Canadas leading owner, developer and operator of supermarket and drugstore-anchored neighbourhood and community shopping centres, located predominantly in growing metropolitan areas, announced today solid financial results for the second quarter ended June 30, 2009.

SECOND QUARTER 2009 HIGHLIGHTS:

($ millions, except per share amounts) 30 June 2009 30 June 2008 Percentage Change

Property rental revenue

$

109.7

$

101.9

7.7%

Net operating income (NOI)

$

71.6

$

64.4 (2)

11.2%

Funds from operations (FFO) excluding dilution loss on Equity One investment (1)

$

39.1

$

34.7 (2)

12.7%

FFO per diluted share excluding dilution loss on Equity One investment (1)

$

0.42

$

0.40 (2)

5.0%

Weighted average diluted shares for FFO (000’s)

92,622

87,269

6.1%

Adjusted funds from operations (AFFO)

$

38.8

$

35.0 (2)

10.9%

AFFO per diluted share

$

0.38

$

0.37 (2)

2.7%

Weighted average diluted shares for AFFO (000’s)

101,020

95,899

5.3%

Enterprise value

$

4,060

$

4,328

 

Debt to aggregate assets

54.8%

53.6%

 

Debt to total market capitalization

56.4%

46.8%

 

(1) See Funds from Operations section of this press release.

(2) Comparative amounts have been restatedfor a change in accounting standards. See “FinancialHighlights".

 

OPERATIONS

  • Invested $67 million in acquisitions, development activities and property improvements.
  • Completed 219,000 square feet of gross leasable area from acquisitions, development and redevelopment.
  • Acquired two income-producing properties totalling 53,000 square feet and one property comprising 8.4 acres of land held for future development.
  • 9.3% same property NOI growth; 5.0% same property NOI growth excluding redevelopment and expansion.
  • 13.1% increase on rate per square foot on 343,000 square feet of renewal leases.
  • Occupancy of 96.1% which compares to 96.4% at December 31, 2008. Vacancy includes 1.0% of space held for redevelopment.
  • Gross new leasing totalled 317,000 square feet including development and redevelopment coming on line; lease closures totalled 120,000 square feet and closures for redevelopment totalled 11,000 square feet.
  • Average lease rate per occupied square foot increased by 3.9% to $15.37 at June 30, 2009 compared to $14.80 in the prior year second quarter.
  • Completed new leasing on existing space totalling 151,000 square feet at an average rate of $21.70 per square foot.

 

SIX MONTHS HIGHLIGHTS:

($ millions, except per share amounts) 30 June 2009 30 June 2008 Percentage Change

Property rental revenue

$

220.1

$

203.7

8.1%

Net operating income (NOI)

$

139.9

$

127.7 (2)

9.6%

Funds from operations (FFO) excluding dilution loss on Equity One investment (1)

$

77.3

$

69.2 (2)

11.7%

FFO per diluted share excluding dilution loss on Equity One investment (1)

$

0.84

$

0.82 (2)

2.4%

Weighted average diluted shares for FFO (000’s)

91,901

84,316

9.0%

Adjusted funds from operations (AFFO)

$

75.7

$

66.6 (2)

13.7%

AFFO per diluted share

$

0.75

$

0.72 (2)

4.2%

Weighted average diluted shares for AFFO (000’s)

100,606

92,793

8.4%

(1) See Funds from Operations section of this press release.

(2) Comparative amounts have been restated for a change in accounting standards. See Financial Highlights .

  • Invested $112 million in acquisitions, development activities and property improvements.
  • 377,000 square feet of gross leasable area coming on line from development and redevelopment activities and acquisitions.
  • Acquired three income-producing properties totalling 80,000 square feet, one property held for future development and two land parcels adjacent to existing properties comprising a total of 9.12 acres of land held for future development.
  • 7.3% same property NOI growth; 3.4% excluding redevelopment and expansion space.
  • 11.7% increase on 612,000 square feet of renewal leases.
  • Gross new leasing totalled 591,000 square feet including development and redevelopment coming on line; lease closures totalled 401,000 square feet and closures for redevelopment totalled 97,000 square feet.
  • Lease rates on openings and redevelopment coming on line increased by 24.8% versus all lease closures.
  • Completed new leasing on existing space totalling 301,000 square feet at an average rate of $19.54 per square foot.

“W^re pleased with the continuing strong performance of our portfolio and believe it’s the result of the quality of our properties and our well executed asset and property management strategies’, said Dori J. Segal, President & C.E.O., “We have taken advantage of a number of acquisition opportunities so far this year and we are carefully looking at a few more.’ ’

FINANCIAL HIGHLIGHTS

FFO and AFFO presented herein are key financial measures used by the real estate industry to measure and compare the operating performance of real estate organizations. FFO and AFFO are supplemental non-GAAP financial measures and a complete reconciliation containing adjustments from GAAP net income to FFO and AFFO is included in this press release.

Comparative amounts have been restated for a change in accounting standards with respect to goodwill and intangible assets. This change resulted in an increase in FFO for the second quarter of 2008 of $0.2 million.

Funds from Operations

Funds from operations excluding the dilution loss on Equity One investment totalled $39.1 million or $0.42 per diluted common share for the three months ended June 30, 2009 compared to $34.7 million or $0.40 per diluted common share in the same period for the prior year. FFO excluding the dilution loss on Equity One investment for the six months ended June 30, 2009 totalled $77.3 million or $0.84 per diluted common share, and increased from $69.2 million or $0.82 per diluted common share in the same period in 2008.

The Company's funds from operations including the dilution loss on Equity One investment totalled $38.4 million or $0.41 per diluted common share for the three months ended June 30, 2009. FFO for the six months ended June 30, 2009 totalled $76.7 million or $0.83 per diluted common share.

The increase in FFO for the quarter and year-to-date was primarily due to an increase in net operating income resulting from same property NOI growth as well as acquisitions and development coming on line partially offset by increased interest expense and decreased interest and other income.

Adjusted Funds from Operations

Management views AFFO as an effective measure of cash generated from operations. AFFO for the three months ended June 30, 2009 totalled $38.8 million or $0.38 per diluted common share compared to $35.0 million or $0.37 per diluted common share in the prior year. AFFO is calculated by adjusting FFO for straight-line and market rent adjustments, non-cash compensation expenses, interest payable in shares, non-cash gains or losses on debt, hedges and land sales and actual costs incurred for capital expenditures and leasing costs for maintaining shopping centre infrastructure and current lease revenues. The Company s proportionate share of Equity One FFO is excluded and only the regular cash dividends received are included in AFFO. The weighted average diluted shares outstanding for AFFO is adjusted to assume conversion of the outstanding convertible debentures.

Net Income

($ thousands, except per share amounts) Three months ended June 30 Six months ended June 30
  2009 2008 2009 2008

Net income

$ 9,093

$ 10,158(1)

$ 18,175

$ 18,540(1)

Earnings per share (basic and diluted)

$0.10

$0.12(1)

$0.20

$0.22(1)

Weighted average common shares - diluted (000’s)

92,622

87,269

91,901

84,316

(1) Comparative amounts have been restated for a change in accounting standards.

Net income for the three and six months ended June 30, 2009 was $9.1 million or $0.10 per share (basic and diluted) and $18.2 million or $0.20 per share (basic and diluted). This compares to $10.2 million or $0.12 per share (basic and diluted) and $18.5 million or $0.22 per share (basic and diluted), respectively, for the three and six months ended June 30, 2008. The decrease in net income is primarily due to increased amortization expense, decreased interest and other income, and decreased income from Equity One offset by an increase in NOI resulting from development projects coming on line and same property NOI growth.

Interest and other income for the six months ended June 30, 2008 included $1.3 million in gains on the sale of land. In addition, there was an increase in the basic and weighted average diluted shares outstanding compared to the same prior year period.

DEVELOPMENT AND ACQUISITION HIGHLIGHTS

During the second quarter of 2009, the Company invested $47 million in active development projects and improvements to existing properties bringing the six month total investment to $85 million. Development of 147,400 square feet was turned over to tenants for fixturing in the second quarter of 2009 and leased at an average rate of $19.77 per square foot. The Company also turned over to tenants for fixturing 18,500 square feet of redeveloped space at an average rate of $33.00 per square foot. Year-to-date, development of 234,600 square feet was brought on line with 228,900 square feet leased at an average rate of $19.55 per square foot. Year-to-date the Company completed 61,400 square feet of redeveloped space at an average rate of $21.27 per square feet.

During the second quarter of 2009, the Company acquired an 11,000 square foot retail property in Montreal, Quebec, a 42,000 square foot retail property in Edmonton, Alberta and a property held for future development on 8.4 acres of land in Toronto, Ontario.. Total investment in the retail properties and property held for development amounted to $20.0 million. Through the first six months of 2009, the Company invested $27 million in the acquisition of three income-producing shopping centres comprising 80,400 square feet and one property held for development and two land parcels adjacent to existing properties comprising a total of 9.1 acres of commercial land for future development.

OPERATING HIGHLIGHTS

Net operating income for the three months ended June 30, 2009 totalled $71.6 million, compared to $64.4 million in the second quarter of 2008, an increase of $7.2 million or 11.2%. Same property NOI increased by 9.3 %, generating growth in NOI of $5.6 million during the second quarter of 2009, primarily attributed to redevelopment and expansion space coming on-line, increases in lease rates and occupancy, a lease termination payment from a tenant of $1.8 million and prior year operating cost and tax recovery adjustments booked in the quarter.

Excluding the lease termination fee, same property NOI growth for the three months ended June 30, 2009 would have been 6.3%. Same property NOI for the second quarter of 2009, excluding expansion and redevelopment space increased by $2.9 million or 5.0% over the same prior year period.

Net operating income for the six months ended June 30, 2009 totalled $139.9 million, compared to $127.7 million for the same period in 2008, an increase of $12.2 million or 9.6%. Same property NOI increased by 7.3 %, generating growth in NOI of $8.8 million, primarily attributed to redevelopment and expansion space coming on-line, increases in lease rates and occupancy, a lease termination payment and prior year operating cost and tax recovery adjustments booked in Q2, 2009.

Excluding the lease termination fee, same property NOI growth for the six month period ended June 30, 2009 would have been 5.8%. Same property NOI for the six months ended June 30, 2009, excluding expansion and redevelopment space increased by $4.0 million or 3.4% over the same prior year period. Excluding expansion and redevelopment and the lease termination fee, same property NOI growth for the six month period ended June 30, 2009 would have been 1.9%.

Year-to-date, acquisitions completed in 2009 and 2008 contributed $2.0 million to NOI, while greenfield development activities contributed a further $5.1 million.

Gross new leasing in the second quarter totalled 317,000 square feet including development and redevelopment coming on line. The Company achieved a 13.1% increase on 343,000 square feet of renewal leases over the expiring lease rates. For the six months ended June 30, 2009, gross new leasing totalled 591,000 square feet. Renewal leasing totalled 612,000 square feet with an 11.7% increase over expiring rates.

The average rate per occupied square foot at June 30, 2009 increased to $15.37. This compares to an average rate of $15.24 per square foot at March 31, 2009.

Portfolio occupancy at June 30, 2009 of 96.1% compares to 96.0% at March 31, 2009 and 95.5% at June 30, 2008.

FINANCING AND CAPITAL MARKET HIGHLIGHTS

For the three months ending June 30, 2009, First Capital Realty closed on the following financings:

  • Four secured financing transactions for gross proceeds of $54.8 million at a weighted average interest rate of 6.7% and a weighted average term to maturity of 10 years.

For the six months ending June 30, 2009, First Capital Realty closed on the following financings:

  • Nine secured financing transactions for gross proceeds of $135.3 million at a weighted average interest rate of 6.3% and a weighted average term to maturity of 8 years.
  • A three year, $450 million secured revolving credit facility with a syndicate of ten banks jointly led by RBC Capital Markets, TD Securities, and BMO Capital Markets. The new facility was used to replace the Company’s existing three year $350 million Senior Unsecured Revolving Credit Facility, which had a maturity date of March 2010.
  • A three year, $75 million secured revolving credit facility with the Bank of Nova Scotia maturing January 2012.

First Capital Realty issued 2.1 million common shares for net proceeds of $35.9 million in the first two quarters of 2009 primarily from the following activities:

  • On February 17, 2009 the Company issued 1.4 million common shares to acquire 1.8 million shares of Allied Properties REIT;
  • On March 31, 2009, the Company issued 434,000 common shares at a net price of $14.66 as payment of the interest due to holders of the 5.50% convertible debentures.
  • Convertible debentures totalling $6.3 million in principal were converted at the option of the holder resulting in the issuance of approximately 231,000 common shares

SUBSEQUENT EVENT HIGHLIGHTS

Issuance of Shares

On August 5, 2009 the Company completed a bought deal common share issue generating total gross proceeds of $59.0 million from the issuance of 3,450,000 common shares at a price of $17.10 per common share. Each Unit issued consists of one common share of First Capital Realty, and two-thirds of a common share purchase warrant expiring October 2010 at an exercise price equal to $17.53.

Dividend-In-Kind

On August 14, 2009, First Capital Realty completed its previously announced special dividend-in-kind of the Company’s interest in Gazit America Inc. (formerly known as First Capital America Holding Corp.) (“Gazit America’). Gazit America is a Canadian company that, indirectly, owns the Company’s shares in Equity One (approximately 14.1 million shares), the debt secured by the Equity One shares (approximately US$100 million) and certain other liabilities, including subordinated debt owing to First Capital Realty in the amount of approximately US$36 million. As a result of this special dividend, First Capital Realty no longer has any interest in Gazit America, or the shares in Equity One owned by it.

With the closing of the spin-off, Gary Samuel currently a director with First Capital Realty, will be resigning. Mr. Samuel is joining the Board of Gazit America.

“Gary has been one of the longest serving independent directors on our Board/’ said Chaim Katzman, Chairman, First Capital Realty, “We thank Gary for his outstanding dedication, experience and competence, as well as his overall contribution to the success of our Company. We wish him all the best in his future endeavours.”

Acquisitions

On July 15, 2009 the Company acquired Langford Centre, a 60,000 square foot shopping centre and a 0.5 acre adjacent land parcel located on Goldstream Avenue, in Victoria, BC. The purchase price of $10.3 million, including closing costs, was satisfied in cash and the assumption of $5.6 million of debt at a rate of 4.4% maturing November 2010.

Payment of Interest in Shares

The Company will pay the interest due on September 30, 2009 to holders of both classes of its 5.50% convertible unsecured subordinated debentures due September 30, 2017 (FCR.DB.A and FCR.DB.B) by the issuance of common shares. The number of common shares to be issued per $1000 principal amount of debentures will be calculated by dividing the dollar amount of interest payable by an amount equal to 97% of the volume-weighted average trading price of the common shares of First Capital Realty on the Toronto Stock Exchange calculated for the 20 consecutive trading days ending on September 23, 2009. The interest payment is approximately $6.25 million, plus any accrued and unpaid interest on debentures which are converted after the date hereof and on or before September 23, 2009.

It is the current intention of First Capital Realty to satisfy its obligations to pay principal and interest on its 5.50% convertible unsecured subordinated debentures by issuance of common shares.

Quarterly Dividend

The Company announced that it will pay a third quarter dividend of $ 0.32 per common share on October 14, 2009 to shareholders of record on September 29, 2009.

OUTLOOK

Over the past several years First Capital Realty has made significant progress in growing its business and generating accretive growth in funds from operations while enhancing the quality of its portfolio.

The current environment remains extremely competitive; however the competition seems to have shifted to the capital side of the Company’s business. Both debt and equity markets are accessible but continue to be challenging relative to pricing currently being asked by property vendors. The Company will continue to selectively acquire properties that are well-located and of high quality, where they add strategic value and/or operating synergies provided they will be accretive to FFO over the long term, and equity and debt capital can be priced and committed to maintain conservative leverage.

Development and redevelopment activities continue to provide the Company with opportunities to grow within its existing portfolio of assets. Once completed, these activities typically generate higher returns on investment.

With respect to acquisitions of both income-producing and development properties, the Company will continue to focus on maintaining the sustainability and growth potential of rental income to ensure that among other things, refinancing risk is minimized. This is particularly important given the current cost of capital.

Specifically, Management will focus on the following four areas to achieve its objectives in 2009:

  • same property net operating income growth, taking into account maintaining high occupancy;
  • development and redevelopment activities;
  • selective acquisitions
  • increasing efficiency and productivity of operations; and
  • careful capital allocation to decrease dependence on capital markets.

Overall, Management is confident that the quality of the Company’s balance sheet, the defensive nature of its assets and operations will continue to serve it well in the current environment.

2009 GUIDANCE

Projections involve numerous assumptions such as rental income (including assumptions on timing of lease-up, development coming on line and levels of percentage rent), interest rates, tenant defaults, the U.S. - Canadian foreign currency exchange rate, corporate expenses, level and timing of acquisitions of income-producing properties, the Company’s share price, number of shares outstanding and numerous other factors. Not all factors which affect our range of projected funds from operations and adjusted funds from operations are determinable at this time and actual results may vary from the projected results in a material respect, and may be above or below the range presented in a material respect.

(per share amounts, except for projected FFO and shares outstanding) Q2 Q1 Variance
FFO Guidance
  Low High Low High Low High

Projected diluted net income

$0.41

$0.43

$0.41

$0.43

-

-

Adjustments

 

 

 

 

 

 

Projected FFO from Equity One

0.15

0.16

0.22

0.24

(0.07)

(0.08)

Projected equity income from Equity One

(0.09)

(0.09)

(0.14)

(0.16)

0.05

0.07

Projected amortization and future income taxes

1.16

1.18

1.14

1.19

0.02

(0.01)

Projected FFO per share(1)

$1.63

$1.68

$1.63

$1.70

-

(0.02)

Projected FFO (1)

$152.7M

$158.0M

$150.2M

$156.8M

$2.5M

$1.2M

Projected weighted average shares outstanding for per share FFO calculations

93.9M

92.4M

1.5M

 
AFFO Guidance

Projected FFO(1)

$152.7M

$158.0M

$150.2M

$156.8M

$2.5M

$1.2M

Projected weighted average shares outstanding for per share AFFO calculations (including conversion of convertible debentures)

102.2M

100.8M

1.4M

Projected FFO (using weighted average AFFO shares outstanding) (1)

$1.50

$1.54

$1.49

$1.56

$0.01

$(0.02)

Projected dividend income - return of capital portion

0.02

0.03

0.03

0.03

(0.01)

-

Projected dividends from Equity One net of FFO from Equity One

(0.01)

(0.02)

0.01

(0.01)

(0.02)

(0.01)

Projected revenue sustaining capital expenditures

(0.11)

(0.10)

(0.12)

(0.10)

0.01

-

Projected non cash items, net

0.09

0.09

0.08

0.09

0.01

-

Projected AFFO(1)

$1.49

$1.54

$1.49

$1.57

-

$(0.03)

(1) See Funds from Operations section of this press release.

 

The variance between Q1 and Q2 FFO and AFFO guidance is primarily associated with the Dividend-In­Kind transaction that was finalized on August 14, 2009 and the specific assumptions noted below.

In addition, the variance in the projected weighted average shares outstanding for per share FFO and AFFO calculations is due to the equity issuance completed on August 5, 2009, excluding the warrants.

Q2 Guidance is based on specific assumptions including:

  • Same property NOI growth of 2 - 3% (excluding redevelopment and expansion), an increase from 1.5 - 2.25% in Q1 2009;
  • Development, redevelopment and expansion coming on-line of 600,000 - 650,000 square feet with approximate gross book value of $175 to $200 million;
  • Income-producing property acquisitions totalling $27 million;
  • Equity One FFO is based on year-to-date actual results and publicly available information and guidance adjusted to Canadian GAAP through to the dividend-in-kind payment date;
  • Current dividend income from securities held is based on publicly available information;
  • Current interest rate environment in Canada and the United States;
  • Current income tax rates;
  • Non-cash items adjusted based on year-to-date actual amounts.

The ranges presented represent Management’s estimate of results based upon these assumptions as of the date of this press release. The purpose of the Company’s guidance is to provide readers with Management’s view as to the expected financial performance of the Company for 2009, using factors that are commonly accepted and viewed as meaningful indicators of financial performance in the real estate industry. For year-to-date financial information and analysis please refer to the Company’s Management’s Discussion and Analysis of financial position and Results of Operations for the second quarter of 2009 and 2008 and for the six month periods ended June 30, 2009 and 2008.

Readers should refer to the section below titled “Forward Looking Statements” for important information relating to our guidance, including risk factors.

MANAGEMENT CONFERENCE CALL AND WEBCAST

Management will hold a conference call on Friday, August 14th, 2009 at 1:00 p.m. EST. Second quarter financial results will be released prior to the call and made available on First Capital Realty’s website in the News section. The Supplemental Package link will be on our Home Page at www.firstcapitalrealtv.ca or click on Investor Relations, Downloads. To access the webcast, go to First Capital Realty’s website at www.firstcapitalrealty.ca, and click on the link for the webcast at the bottom of our Home Page. The webcast will be archived on our Home Page for 30 days and can be accessed, thereafter, in our Conference Calls section of our website.

You may participate in the live conference toll free at 866-299-6657 or at 416-641-6135. To ensure your participation, please call five minutes prior to the scheduled start of the call. The call will be archived through August 21, 2009 and can be accessed by dialing toll free 800-408-3053 or 416-695-5800 with access code 5670824.

Management’s presentation will be followed by a question and answer period. To ask a question, press *

1 on a touch-tone phone. The conference call coordinator is immediately notified of all requests in the order in which they are made, and will introduce each questioner. To cancel your request, press the pound key ‘#’. If you hang up, you can reconnect by dialing 866-299-6657 or 416-641-6135. For assistance at any point during the call, press ‘*0.

ABOUT FIRST CAPITAL REALTY (TSX:FCR)

First Capital Realty is Canadas leading owner, developer and operator of supermarket and drugstore- anchored neighbourhood and community shopping centres, located predominantly in growing metropolitan areas. The Company currently owns interests in 175 properties, including four under development, totalling approximately 20.4 million square feet of gross leasable area and 7 land sites in the planning stage for future retail development.

* * * *

Forward Looking Statements

This press release and in particular the “Outlooksection, contains forward-looking statements and information within the meaning of applicable securities legislation. Forward-looking statements can generally be identified by the expressions “anticipate’, “believe’, "plan”, ‘‘estimate’, “expect”, ‘‘intend’, “outlook”, “objective’, “may”, “will”, “should’, “plan”,

continue ” and similar expressions. The forward-looking statements are not historical facts but reflect the Company’s current expectations regarding future results or events and are based on information currently available to Management. Certain material factors and assumptions were applied in providing these forward-looking statements. All forward-looking statements in this press release are qualified by these cautionary statements.

Management believes that the expectations reflected in forward-looking statements are based upon reasonable assumptions; however, Management can give no assurance that actual results will be consistent with these forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the matters discussed under "Risks and Uncertainties” in the Company’s MD&A for the year ended December 31st, 2008.

Factors that could cause actual results or events to differ materially from those expressed, implied or projected by forward­looking statements in addition to those described in the "Risk and Uncertainties ” section include, but are not limited to, general economic conditions, the availability of new competitive supply of retail properties which may become available either through construction or sublease, First Capital Realty’s ability to maintain occupancy and to lease or re-lease space at current or anticipated rents, tenant bankruptcies, the relative illiquidity of real-property, unexpected costs or liabilities related to acquisitions, construction, environmental matters, legal matters, reliance on key personnel, financial difficulties and defaults, changes in interest rates and credit spreads, changes in the U.S.-Canadian foreign currency exchange rate, changes in operating costs, First Capital Realty’s ability to obtain insurance coverage at a reasonable cost and the availability of financing. The assumptions underlying the Company’s forward-looking statements contained in the “Outlook ” section of this press release include that consumer demand will remain stable, demographic trends will continue and there will continue to be barriers to entry in the markets in which the Company operates. The assumptions used in developing the Company’s guidance are set out in the “Outlook ” section of this press release.

Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made. First Capital Realty undertakes no obligation to publicly update any such statement or to reflect new information or the occurrence of future events or circumstances except as required by security laws.

These forward-looking statements are made as of August 14, 2009.

For further information:

Dori J. Segal, President & C.E.O., or Karen H. Weaver, E.V.P. & C.F.O.

First Capital Realty Inc.

85 Hanna Avenue, Suite 400 Toronto, Ontario, Canada M6K 3S3 Tel: (416) 504-4114

Fax: (416) 941-1655

www.firstcapitalrealtv.ca

NON-GAAP SUPPLEMENTAL FINANCIAL MEASURES

Funds from Operations and Adjusted Funds from Operations

In Management’s view, funds from operations (“FFO’j and adjusted funds from operations (“AFFO”) are commonly accepted and meaningful indicators of financial performance in the real estate industry. First Capital Realty believes that financial analysts, investors and shareholders are better served when the clear presentation of comparable period operating results generated from FFO and AFFO disclosures supplement Canadian generally accepted accounting principles (“GAAP”) disclosure. These measures are the primary methods used in analyzing real estate organizations in Canada. The Company’s method of calculating FFO and AFFO may be different from methods used by other corporations or REITs (real estate investment trusts) and accordingly, may not be comparable to such other corporations or REITs. FFO and AFFO are presented to assist investors in analyzing the Companys performance. FFO and AFFO: (i) do not represent cash flow from operating activities as defined by GAAP, (ii) are not indicative of cash available to fund all liquidity requirements, including payment of dividends and capital for growth and (iii) are not to be considered as alternatives to GAAP net income for the purpose of evaluating operating performance.

Funds from OperationsRealPac Recommendations

First Capital Realty calculates FFO in accordance with the recommendations of the Real Property Association of Canada (“RealPac”). The definition is meant to standardize the calculation and disclosure of FFO across real estate entities in Canada, modelled on the definition adopted by the National Association of Real Estate Investment Trusts (“NAREIT”) in the United States. FFO as defined by RealPac differs in two respects from the definition adopted by NAREIT. Under the RealPac definition, future income taxes are excluded from FFO, whereas under the NAREIT definition, they are included. In addition, impairment losses on depreciable assets are excluded from the RealPac FFO definition, whereas the NAREIT definition includes them. As a result, when calculating FFO, the Company adjusts the FFO reported by Equity One to comply with the RealPac definition, when appropriate.

FFO is considered a meaningful additional measure of operating performance, as it excludes amortization of real estate assets. Amortization expense assumes that the value of real estate assets diminishes predictably over time, which is clearly not a valid assumption. FFO also adjusts for certain items included in GAAP net income that may not be the most appropriate determinants of the long-term operating performance of the Company including gains and losses on depreciable real estate assets.

Net Operating Income

Net operating income (“NOI”) is defined as property rental revenue less property operating costs. In Management's opinion, net operating income is useful in analyzing the operating performance of the Company’s shopping centre portfolio. Net operating income is not a measure defined by GAAP and there is no standard definition of net operating income. As a result, net operating income may not be comparable with similar measures presented by other entities. Net operating income is not to be construed as an alternative to net income or cash flow from operating activities determined in accordance with GAAP.

CONSOLIDATED BALANCE SHEETS

(unaudited) (thousands of dollars)   June 30 2009   December 31 2008 (1)
        (restated)
ASSETS        
Real Estate Investments $  3,087,517 $ 3,040,257
Shopping centres   304,245   281,959
Land and shopping centres under development   16,563   16,146

Deferred leasing costs Intangible assets

 

25,225

 

29,312

 

 

3,433,550

 

3,367,674

Investment in Equity One, Inc.

 

219,060

 

227,259

Loans, mortgages and other real estate assets

 

57,445

 

32,480

 

 

3,710,055

 

3,627,413

Other assets

 

32,550

 

27,448

Amounts receivable

 

50,419

 

45,501

Cash and cash equivalents

 

8,477

 

7,263

Future income tax assets

 

11,941

 

11,977

 

$

3,813,442

$

3,719,602

LIABILITIES

 

 

 

 

Mortgages, loans and credit facilities

$

1,703,274

$

1,573,530

Accounts payable and other liabilities

 

114,960

 

166,507

Intangible liabilities

 

15,987

 

17,264

Senior unsecured debentures

 

592,552

 

593,288

Convertible debentures

 

213,013

 

218,247

Future income tax liabilities

 

66,870

 

55,620

 

 

2,706,656

 

2,624,456

SHAREHOLDERS' EQUITY

 

1,106,786

 

1,095,146

 

$

3,813,442

$

3,719,602

(1) Prior year comparative figures have been restated for a change in accounting standards.

 

CONSOLIDATED STATEMENTS OF EARNINGS

  Three months ended Six months ended
(unaudited)(thousands of dollars, except per share amounts)   June 30 2009   June 30 2008 (1)   June 30 2009   June 30 2008 (1)
        (restated)       (restated)

REVENUE

 

 

 

 

 

 

 

 

Property rental revenue

$

109,727

$

101,905

$

220,070

$

203,667

Interest and other income (expense)

 

146

 

(18)

 

898

 

1,645

 

 

109,873

 

101,887

 

220,968

 

205,312

EXPENSES

 

 

 

 

 

 

 

 

Property operating costs

 

38,170

 

37,530

 

80,213

 

75,993

Interest expense

 

31,431

 

27,587

 

61,710

 

57,202

Amortization

 

 

 

 

 

 

 

 

Shopping centres

 

20,501

 

18,836

 

41,051

 

3 6 , 949

Deferred leasing costs

 

853

 

925

 

1,782

 

1 , 7 74

Intangible assets

 

1,847

 

2,061

 

3,954

 

4 , 2 74

Deferred financing fees

 

607

 

202

 

935

 

406

Other assets

 

422

 

341

 

818

 

614

Corporate expenses

 

5,552

 

5,357

 

11,001

 

11,232

 

 

99,383

 

92,839

 

201,464

 

188,444

Equity income from Equity One, Inc.

 

3,369

 

5,007

 

7,399

 

8,817

Income before income taxes

 

13,859

 

14,055

 

26,903

 

25,685

Income taxes

 

 

 

 

 

 

 

 

Current

 

862

 

687

 

1,877

 

1 , 3 29

Future

 

3,904

 

3,210

 

6,851

 

5,816

 

 

4,766

 

3,897

 

8,728

 

7,145

Net income

$

9,093

$

10,158

$

18,175

$

18,540

Earnings per common share, basic and diluted

$

0.10

$

0.12

$

0.20

$

0.22

(1) Prior year comparative figures have been restated for a change in accounting standards.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

  Three months ended Six months ended
(unaudited) June 30 Jme 30 June 30 June 30
(thousands df dollars) 2009 2008 (1) 2009 2008 (1)
    (restated)   (restated)

NET INCOME

$ 9,093

$10,158

$ 18,175

$ 18,540

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

Unrealized foreign currency (losses) gains on translating self-sustaining foreign operations

 

 

 

 

(Losses) gains arising during the period

(4,668)

(326)

(3,010)

1,268

Reclassification adjustment for dilution loss on investment in Equity One, Inc.

1,669

-

1,669

-

 

(2,999)

(326)

(1,341)

1,268

Other comprehensive income (losses) of Equity One, Inc.

 

 

 

 

Gains (losses) arising during the period

981

(613)

4,346

(1,887)

Reclassification adjustment for dilution loss included in net income

29

-

29

-

 

1,010

(613)

4,375

(1,887)

Unrealized gains (losses) on cash flow hedges of interest rates

 

 

 

 

Unrealized gains (losses) arising during the period

8,463

1,457

8,884

(418)

Reclassification adjustments for gains included in net income

(14)

-

(14)

-

 

8,449

1,457

8,870

(418)

Change in cumulative unrealized gain on available-for-sale marketable securities

 

 

 

 

Unrealized gains (losses) arising during the period

9,131

(244)

6,822

(347)

Reclassification adjustments for losses included in net income

198

-

198

52

 

9,329

(244)

7,020

(295)

Other comprehensive income (loss) before income taxes

15,789

274

18,924

(1,332)

Future income tax expense (recovery)

4,436

381

4,203

(295)

Other comprehensive income (loss)

11,353

(107)

14,721

(1,037)

COMPREHENSIVE INCOME

$ 20,446

$ 10,051

$ 32,896

$ 17,503

(1) Prior year comparative figures have been restated for a change in accounting standards.

 

CONSOLIDATED STATEMENTS OF FUNDS FROM OPERATIONS

    Three months ended   Six months ended
(unaudited)   June 30   June 30   June 30   June 30
(thousands of dollars, except per share amounts)   2009   2008   2009   2008 (l)

 

 

 

 

(restated)

 

 

 

(restated)

Net income for the period

$

9,093

$

10,158

$

18,175

$

18,540

Add (deduct):

 

 

 

 

 

 

 

 

Amortization of shopping centres, deferred costs and intangibe assets

 

23,201

 

21,822

 

46,787

 

42,997

Gain on disposition of income-producing shopping centres

 

-

 

-

 

(211)

 

-

Equity income from Equity One

 

(3,369)

 

(5,007)

 

(7,399)

 

(8,817)

Funds from operations from Equity One

 

5,587

 

4,519

 

12,456

 

1 0 ,701

Future income taxes

 

3,904

 

3,210

 

6,851

 

5,816

Funds from operations ("FFO")

 

38,416

 

34,702

 

76,659

 

69,237

Add: dilution loss on Equity One investment

 

676

 

-

 

676

 

-

FFO excluding dilution loss on Equity One investment

$

39,092

$

34,702

$

77,335

$

69,237

FFO per diluted share

$

0.41

$

0.40

$

0.83

$

0.82

Add: dilution loss on Equity One investment

 

0.01

 

-

 

0.01

 

-

FFO per diluted share excluding dilution loss on Equity One investment

$

0.42

$

0.40

$

0.84

$

0.82

Weighted average diluted shares - FFO

 

92,622,290

 

87,269,113

 

91,901,234

 

84,315,976

 

CONSOLIDATED STATEMENTS OF ADJUSTED FUNDS FROM OPERATIONS

  Three months ended Six months ended
(unaudited) June 30 June 30 June 30   June 30
(thousands of dollars, except per share amounts) 2009 2008 (1) 2009   2008 (1)
    (restated)     (restated)

FFO excluding dilution loss on Equity One investment

$ 39,092

$ 34,702

$ 77,335

$

69,237

Add / (deduct):

 

 

 

 

 

Rental revenue recorded on a straight-line basis and market rent adjustments

(1,534)

(2,006)

(3,224)

 

(3,892)

Non-cash compensation expense

941

1,102

1,813

 

2 , 0 67

Interest expense payable in shares

3,423

3,486

6,881

 

6 , 9 66

Change in cumulative unrealized gain on marketable securities

(369)

268

(1,638)

 

2 5 9

Dividend income - return of capital portion

646

-

1,282

 

-

Non-cash (gain) loss on extinguishment of debt

(50)

-

688

 

-

Funds from operations from Equity One

(5,587)

(4,519)

(12,456)

 

(10,701)

Dividends from Equity One (regular)

4,913

4,278

10,241

 

8 , 5 84

Gain on termination of hedge

(14)

-

(14)

 

-

Gain on disposition of land

-

-

(118)

 

(1, 275)

Revenue sustaining capital expenditures and leasing costs

(2,682)

(2,318)

(5,109)

 

(4,651)

Adjusted funds from operations ("AFFO")

$ 38,779

$ 34,993

$ 75,681

$

66,594

AFFO per diluted share

$ 0.38

$ 0.37

$ 0.75

$

0.72

Weighted average diluted shares for AFFO

101,020,439

95,898,743

100,605,649

 

92,793,235

(1) Prior year comparative figures have been restated for a change in accounting standards.
(2) Includes the weighted average outstanding shares that would result from the conversion of the convertible debentures.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

  Three months ended Six months ended
(unaudited)   June 30   June 30   June 30   June 30
(thousands of dollars)   2009   2008 (l)   2009   2008 'u
        (restated)       (restated)

CASH FLOW PROVIDED BY (USED IN):

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

$

9,093

$

10,158

$

18,175

$

18,540

Items not affecting cash

 

 

 

 

 

 

 

 

Amortization

 

24,230

 

22,365

 

48,540

 

44,017

Amortization of above- and belcw-market leases

 

(430)

 

(543)

 

(1,143)

 

(1,087)

Rent revenue recognized on a straight-line basis

 

(1,104)

 

(1,463)

 

(2,081)

 

(2,805)

Gain on disposition of income-producing property

 

-

 

-

 

(211)

 

-

Gains on disposition of land

 

-

 

-

 

(118)

 

(1,275)

Realized losses on sale of marketable securities

 

276

 

-

 

973

 

52

Change in cumulative unrealized losses (gains)

 

 

 

 

 

 

 

 

on marketable securities held-for-trading

 

(369)

 

268

 

(1,638)

 

259

(Gain) loss on settlement of debt

 

(50)

 

-

 

688

 

-

Non-cash compensation expense

 

941

 

1,102

 

1,813

 

2,067

Interest paid in excess of efective interest on assumed mortgages

 

(291)

 

(384)

 

(611)

 

(849)

Effective interest rate in excess of coupon rate on senior unsecured and convertible debentures

 

224

 

215

 

442

 

422

Convertible debenture interest paid in common shares

 

-

 

-

 

6,360

 

6,483

Other non-cash interest expense

 

691

 

605

 

1,343

 

1,261

Equity income from Equity One, Inc.

 

(3,369)

 

(5,007)

 

(7,399)

 

(8,817)

Dilution loss on Equity One, Inc. investment

 

676

 

-

 

676

 

-

Future income taxes

 

3,904

 

3,210

 

6,851

 

5,816

Deferred leasing costs

 

(1,176)

 

(626)

 

(2,201)

 

(1,584)

Dividends received from Equity One, Inc.

 

4,913

 

4,278

 

10,241

 

8,584

Net change in non-cash operating items

 

(2,358)

 

(9,773)

 

(20,769)

 

(24,831)

Cash provided by operating activities

 

35,801

 

24,405

 

59,931

 

46,253

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Acquisition of shopping centres

 

(12,357)

 

-

 

(18,042)

 

(6,648)

Acquisition of land and shopping centres held for development

 

(7,960)

 

(90)

 

(9,359)

 

(11,107)

Proceeds from disposition of land held for development

 

-

 

1,826

 

70

 

1,826

Expenditures on shopping centres

 

(5,877)

 

(4,348)

 

(12,060)

 

(8,539)

Expenditures on land and shopping centres under development

 

(40,397)

 

(65,074)

 

(71,230)

 

(91,587)

Changes in accounts payable and accrued liabilities related to investing activities

 

(984)

 

21,669

 

(24,438)

 

23,570

Increase in loans and mortgages receivable

 

(333)

 

(81)

 

(1,026)

 

(300)

Investment in marketable securities

 

(58)

 

(9,016)

 

(2,745)

 

(9,188)

Return of capital from investments in marketable securities

 

645

 

74

 

1,282

 

74

Proceeds from disposition of marketable securities

 

5,309

 

2,130

 

8,603

 

2,130

Cash used in investing activities

 

(62,012)

 

(52,910)

 

(128,945)

 

(99,769)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Mortgage financings, loans and credit facilities

 

 

 

 

 

 

 

 

Borrowings, net of financing costs

 

218,066

 

136,237

 

485,909

 

223,627

Principal instalment payments

 

(10,157)

 

(9,380)

 

(20,235)

 

(18,741)

Other repayments on maturity

 

(149,209)

 

(130,321)

 

(335,395)

 

(248,682)

Issuance of common shares, net of issue costs

 

98

 

838

 

38

 

105,500

Purchase of senior unsecured debentures

 

(1,145)

 

-

 

(1,145)

 

-

Payment of dividends

 

(29,649)

 

(7,517)

 

(58,752)

 

(13,366)

Cash provided by financing activities

 

28,004

 

(10,143)

 

70,420

 

48,338

Effect of currency rate movement on cash balances

 

(1,396)

 

(40)

 

(192)

 

(65)

Increase in cash and cash equivalents

 

397

 

(38,688)

 

1,214

 

(5,243)

Cash and cash equivalents, beginning of the period

 

8,080

 

43,896

 

7,263

 

10,451

Cash and cash equivalents, end of the period

$

8,477

$

5,208

$

8,477

$

5,208

SUPPLEMENTARY INFORMATION

 

 

 

 

 

 

 

 

Cash income taxes paid

$

891

$

613

$

1,349

$

926

Cash interest paid

$

32,157

$

29,586

$

62,744

$

59,981

(1) Prior year comparative figures have been restated for a change in accounting standards.

 

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