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## H&R REIT AND H&R FINANCE TRUST - MD&A - December 31, 2010 

The significant IFRS differences that will potentially have an impact on the Trusts’ financial statements include the following: 

1) Under Canadian GAAP, issued units of the Trusts are presented as equity in the combined balance sheet. A Trust unit is a financial instrument for both Canadian GAAP and IFRS purposes. Under IFRS if there is a mandatory requirement to distribute taxable income or distributable cash (a “contractual requirement to deliver cash”), this would result in Trust units being considered as a liability. At the June 2010 annual meeting of unitholders of the REIT, an amendment was made to the Declaration of Trust whereby distributions are no longer mandatory, rather they are now to be made at the discretion of the trustees, thereby eliminating this potential issue under IFRS. Finance Trust is still reviewing this issue. 

2) IFRS defines investment property as property held by the REIT to earn rental income, capital appreciation or both. Assets classified as income properties on the balance sheet of the REIT qualify as investment property under IFRS. 

Under IFRS, the REIT has a choice of measuring an investment property using the historical cost model or the fair value model. The cost model is generally consistent with Canadian GAAP and would require that the fair value be disclosed in the notes to the financial statements. Under the fair value model, investment property is measured at fair value, and changes in fair value are recorded through earnings each reporting period, which could lead to income statement volatility in future periods. Under the fair value model there are no charges for depreciation as there are under the cost model. 

