redevelopment of shopping centres coming on line, and use of the sinking fund method of depreciation in which amortization expense on buildings increases by 5% per year. Income and Other Taxes (thousands of dollars) 2003 2002 Canadian federal large corporations tax $ 1,950 $ 1,850 United States current income and withholding taxes 2,967 3,424 Total $ 4,917 $ 5,274 The increase in the Canadian federal large corporations tax results from the increase in the size of the Company’s capital base. The United States current income and withholding taxes of $3.0 million arises from net income earned by the Company’s U.S. subsidiaries. The $0.5 million decrease in the U.S. current income and withholding taxes is due to a reduction in the average foreign exchange rate from $1.57 to $1.40 as well as a reduction in the taxable portion of the Equity One dividend. The Company has tax-loss carryforwards for Canadian income tax purposes of approximately $32 million available to reduce future Canadian taxable income. In addition, the Company has deductible temporary differences which can be used to shelter future income, for which no future tax asset has been recognized. Net Income (thousands of dollars) 2003 2002 Net income before the following: $ 32,831 $ 27,578 Dilution gain on investment in Equity One, Inc. 17,911 3,290 Income tax on above (6,716) (1,234) Net income $ 44,026 $ 29,634 Net income per diluted share $ 0.91 $ 0.74 Net income for the year ended December 31, 2003 was $44.0 million, or 91 cents per share basic and diluted, compared to $29.6 million, or 74 cents per share basic and diluted, in the prior year. Net income increased in 2003 by the $17.9 million dilution gain on the Company’s investment in Equity One compared to $3.3 million in the prior year. The dilution gains on the Company’s investment in Equity One arose as a result of an increase in Equity One’s number of common shares outstanding from 34.2 million to 68.7 million during 2003, causing a reduction of the Company’s ownership interest in Equity One from 33% to 18%. Excluding dilution gains and the related tax impact, net income increased by approximately 19% from $27.6 million to $32.8 million. The real estate business is capital-intensive by nature. First Capital Realty focuses on its capital structure to finance growth and to provide cash dividends to shareholders over the long term. In the real estate industry, financial leverage is used to enhance rates of return on invested capital. Management believes that First Capital Realty’s blend of debt and equity in its capital base provides stability and reduces risks while generating acceptable equity returns, taking into account the long- term business objectives of the Company.  CAPITAL STRUCTURE  The Company’s capital base is comprised of mortgages and credit facilities, convertible debentures and common share equity. First Capital Realty Annual Report 2003 27