The Company has not traditionally fully hedged its net U.S. dollar asset position. Given that the Company may not have sufficient access to borrowings denominated in U.S. dollars, it is subject to fluctuations in currency exchange rates or regulations, or the costs of currency conversion, which may, from time to time, adversely impact its financial position and results of operations. The book value of U.S. dollar assets, net of U.S. dollar-denominated debt, is approximately US$60 million at December 31, 2003. A 1% strengthening of the Canadian dollar against the U.S. dollar would result in a $1.0 million decrease in the net book value of the Company’s net assets in the United States and a decrease in cash flow of approximately $0.1 million. 

## Acquisition, Expansion and Development Risk 

The key to the Company’s ongoing success will be its ability to create and enhance value through the skill, creativity and energy of its management team and the opportunities which the market presents. First Capital Realty will continue to seek out acquisition, expansion and selective development opportunities that offer acceptable risk-adjusted rates of return. The Company’s acquisition criteria are stringent and its due diligence procedures are rigorous. First Capital Realty uses a team of professionals, including lawyers, engineers, accountants and architects, to thoroughly analyze each proposed acquisition prior to its completion. The Company’s senior management team performs a detailed analysis and a personal inspection for each acquisition. First Capital Realty believes that acquisitions should be undertaken only if there is the potential for long-term growth in operating cash flow. Distressed properties are acquired only if the Company is satisfied that the property can become economically viable in a short, predictable period of time. 

Integral to this strategy is the Company’s ability to identify suitable acquisition or investment opportunities that meet its criteria and are consistent with its growth strategy. In the future the Company may not be successful in identifying suitable real estate assets or other businesses that meet its acquisition criteria, or completing acquisitions or investments on satisfactory terms. Failure to identify or complete acquisitions could reduce the number of acquisitions and may slow the Company’s growth. 

In addition, the Company competes for suitable real property investments with individuals, corporations, real estate investment companies, trusts and other institutions (both Canadian and foreign) which may seek real property investments similar to those desired by the Company. Many of these investors may also have financial resources, which are comparable to, or greater than, those of the Company. An increase in the availability of investment funds, and an increase of interest in real property investments, would tend to increase competition for real property investments thereby increasing purchase prices and reducing the yield thereon. 

Further, the Company’s development commitments are subject to those risks usually attributable to construction projects, which include (i) construction or other unforeseeable delays; (ii) cost overruns; (iii) the failure of tenants to occupy and pay rent in accordance with existing lease agreements, some of which are conditional; and (iv) increase in interest rates during the life of the development. 

