Management’s Discussion and Analysis  continued Convertible debentures have been issued by First Capital Realty as a tax-effective method of financing a portion of the equity component of its shopping centre portfolio expansion. Accordingly, a large portion of the Company’s capital is in the form of convertible debentures that mature between 2007 and 2008. The debentures require interest payable semi-annually at rates ranging from 7.0% to 7.875%.  Holders of these debentures have the right to convert them into an aggregate total of 16,966,038 common shares at share prices that range from $16.43 to $24.40 per share on or before maturity.  If the holders of the debentures do not exercise their conversion rights, the Company has the option of repaying the debentures on maturity by way of the issuance of common shares at 95% of a weighted average trading price of the Company’s common stock.  The 7.0% and 7.25% convertible debenture series also provide the Company with the option to pay semi-annual interest through the issue of common stock.  Holders of the Company’s 8.5% convertible debentures converted $3.4 million of principal into 227,854 common shares during 2003. The remaining $54.0 million principal of the 8.5% convertible debentures was redeemed in 2003 by the Company through the issuance of 3,647,388 common shares. Shareholders’ equity amounted to $665 million as at December 31, 2003, as compared to $508 million at the end of 2002. Shareholders’ equity as at December 31, 2003 included $337.6 million (2002 – $371.3 million) that represents the equity component of convertible debentures as discussed above. As at December 31, 2003, the Company had 35,109,754 (2002 – 19,142,717) issued and outstanding common shares with a stated capital of $422.9 million (2002 – $200.2 million). During fiscal 2003, a total of 15,967,037 common shares were issued adding $222.7 million to shareholders’ equity: 202,535 shares in lieu of cash on acquisitions of real property; 1,372,476 shares for four interest payments on the 7.0% and 7.25% convertible debentures; 4,651,784 shares from the exercise of share purchase warrants; 5,753,000 shares as a result of private placements; 3,875,242 common shares were issued in connection with the redemption and conversion of convertible debentures and 112,000 shares from the exercise of common share options.  Shareholders’ equity as at December 31, 2003 includes a net cumulative, unrealized currency translation adjustment in the negative amount of $8.3 million (2002 – positive amount of $11.7 million). This amount represents the difference between the U.S. dollar exchange rate in effect at the date of the acquisition of the Company’s U.S. net assets, and the U.S. dollar exchange rate as at December 31, 2003 and 2002, respectively. The U.S. dollar exchange rate in effect at December 31, 2003 decreased to US$1.00 = Cdn$1.30 from the exchange rate at December 31, 2002 of US$1.00 = Cdn$1.58. The impact of the decrease in the foreign exchange rate on the net assets held in the United States resulted in a $20 million change in the unrealized currency translation adjustment. Shareholders’ equity as at December 31, 2003 includes a deficit of $94.1 million (2002 – $85.8 million). The Company has historically paid dividends, consistent with general industry practice, based on cash flow from operations as opposed to net income. Shareholders’ Equity 30 First Capital Realty Annual Report 2003