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## Property Operating Costs 

Property operating costs include costs relating to such items as cleaning, interior and exterior building repairs and maintenance, elevator, HVAC and insurance (collectively “building operating costs”); realty taxes, utilities and property management fees among other items. For Q4 2010, building operating costs, realty taxes, utilities and property management fees represented 26.0%, 46.9%, 11.3%, and 6.0%, respectively, of total property operating costs (Q4 2009 - 22.2%, 51.3%, 12.3% and 4.2%). For the year ended December 31, 2010, these costs represented 20.6%, 51.7% 12.3% and 6.0%, respectively, of total property operating costs (December 31, 2009 - 19.6%, 54.2%, 11.8% and 4.5%). 

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The increase in same-asset property operating costs of $5.1 million for Q4 2010 as compared to Q4 2009 is due primarily to the following reasons: 

 higher regular property operating expenses of $2.8 million; 

 higher major repair expenditures of $1.7 million; 

 higher management fees of $0.6 million due to an incentive fee of $0.6 million (Q4 2009 - $nil) payable to H&R Property Management Ltd. (the “Property Manager”). In 2009, the incentive fee was waived by the Property Manager; and 

 lower expenses related to the REIT’s U.S. properties of $0.2 million due primarily to the change in foreign exchange rates. 

The increase in same-asset property operating costs of $8.2 million for the year ended December 31, 2010 as compared to the year ended December 31, 2009 is due primarily to the following reasons: 

 higher regular property operating expenses of $1.8 million; 

 higher major repair expenditures of $5.3 million; 

 higher management fees of $2.5 million due to an incentive fee of $2.5 million (December 31, 2009 - $nil) payable to the Property Manager. In 2009, the incentive fee was waived by the Property Manager; and 

 lower expenses related to the REIT’s U.S. properties of $1.4 million due primarily to the change in foreign exchange rates. 

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