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## H&R REAL ESTATE INVESTMENT TRUST H&R FINANCE TRUST 

Notes to Combined Financial Statements 

 (In thousands of dollars, except unit and per unit amounts) 

Years ended December 31, 2010 and 2009 

## 3. Income properties: 

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During the year ended December 31, 2010, the REIT recorded an impairment charge of $14,862 on two of its U.S. income properties (2009 - $14,764 on four of its U.S. income properties). Each impairment was triggered by the tenant vacating the premises following their bankruptcy announcement. 

During the year ended December 31, 2010, the lenders accepted title to five U.S. income properties, one previously occupied by Circuit City and four previously occupied by Boscov’s Department Stores, thereby releasing the REIT from any further obligation with respect to the mortgages on such properties. The REIT recorded a gain on the extinguishment of this debt of $17,296 for the year ended December 31, 2010 (2009 - $nil). 

Legal title to each of the United States properties is held by a separate legal entity which is 100% owned, directly or indirectly, by U.S. Holdco. The assets of each such separate entity are not available to satisfy the debts or obligations of any other person or entity. Each such separate entity maintains separate books and records. The identity of the owner of a particular United States property is available from U.S. Holdco. This structure does not prevent distributions to the entity owners provided there are no conditions of default. 

