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## INDEPENDENT AUDITORS' REPORT 

To the Unitholders of H&R Real Estate Investment Trust and H&R Finance Trust 

## KPMG LLP Chartered Accountants 

Bay Adelaide Centre 333 Bay Street Suite 4600 Toronto ON M5H 2S5 Canada 

Telephone (416) 777-8500 Fax (416) 777-8818 Internet www.kpmg.ca 

We have audited the accompanying combined financial statements of H&R Real Estate Investment Trust and H&R Finance Trust, which comprise the combined balance sheets as at December 31, 2010 and 2009, the combined statements of earnings, unitholders' equity and comprehensive income and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. 

Management's Responsibility for the Combined Financial Statements 

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of combined financial statements that are free from material misstatement, whether due to fraud or error. 

Auditors' Responsibility 

Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the combined financial statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. 

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. 

Opinion 

In our opinion, the combined financial statements present fairly, in all material respects, the financial position of H&R Real Estate Investment Trust and H&R Finance Trust as at December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. 

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