Environmental Risk  Management believes that the Company’s shopping centres are generally less susceptible to economic downturns, as they cater to the basic needs of the retail customer. Economic Conditions Effects of Inflation 41 First Capital Realty Annual Report 2003 The economic conditions in the markets in which the Company operates can have a significant impact on the Company’s financial success. Adverse changes in general or local economic conditions can result in some retailers being unable to sustain viable businesses and meet their lease obligations to the Company, and may also limit the Company’s ability to attract new or replacement tenants. Management believes that First Capital Realty’s shopping centres are generally less susceptible to economic downturns, as they cater to the basic needs of the retail customer by having food supermarkets, drug stores, financial services, and discount department stores as tenants. In addition, the impact of economic conditions on the overall First Capital Realty portfolio has been mitigated through the long-term nature of its existing leases, the strength of its tenants and through geographic diversification. Inflation has remained relatively low since First Capital Realty commenced operations in March 1994. As a result, inflation has had a minimal impact on the Company’s operating performance to date. Nevertheless, most of First Capital Realty’s long-term leases contain provisions designed to mitigate the adverse impact of inflation. These provisions include a pass-through of operating costs, including realty taxes and most management expenses, which insulates the Company from inflationary price increases. In addition, some leases include clauses that allow the Company to receive percentage rents based on tenants’ gross sales, which generally increase as prices rise. Many of the Company’s long-term leases include rent escalation clauses, which increase rental rates over the term of the lease at either pre-negotiated levels or levels determined by reference to increases in the Consumer Price Index. Many of the Company’s non-anchor leases are for terms of five years or less, providing the Company with the opportunity to achieve rent increases on renewal or when re-leasing the space.  Shopping centres generally pose minimal environmental risk as very few tenants manufacture, process or store substances that would be considered environmentally unsafe. The major exceptions to this general rule can be gas stations situated on out-parcels adjacent to shopping centre properties and some dry cleaning establishments. The primary responsibility for any environmental remediation rests with the party responsible for creating the contamination, although the Company may also be liable. First Capital Realty maintains a program of periodically reviewing and testing its properties to determine if environmental problems exist and includes, as a standard covenant in its leases, a prohibition against environmentally unsound activities. The Company undertakes a professionally conducted environmental audit before it completes the acquisition of any property in order to help mitigate environmental risk. Under various federal and provincial laws, the Company as an owner, and potentially as a person in control or management of real property, could become liable for costs of investigation, remediation and monitoring of certain contaminants, hazardous or toxic substances present at or released from its properties. The failure to address such matters, if any, may adversely affect the ability to sell such real estate or to borrow using such real estate as collateral, and could potentially also result in claims, including proceedings by government regulators or third party lawsuits, against the owner of the property. 