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  8.  Debentures payable (continued):  On redemption or maturity of the 2020 Convertible Debentures, the REIT may, at its option and subject to certain  conditions, elect to satisfy its obligation to repay all or any portion of the principal amount of the 2020 Convertible  Debentures that are to be redeemed or that are to mature through the issuance of Stapled Units by way of issuing (or  causing to be issued) a variable number of Stapled Units equal to the principal amount of the 2020 Convertible  Debentures that are to be redeemed or that are to mature divided by 95% of the then fair market value of the Stapled  Units. The 2020 Convertible Debentures may not be redeemed by the REIT on or before June 30, 2014. Thereafter, but  prior to June 30, 2016, the 2020 Convertible Debentures may be redeemed, in whole or in part, only if the current market  price of a Stapled Unit is at least 125% of the conversion price. On or after June 30, 2016 and prior to the maturity date,  the 2020 Convertible Debentures may be redeemed by the REIT, in whole or in part, at a price equal to the principal  amount plus accrued interest. Upon a change in control, the holders of the 2020 Convertible Debentures have the right  to require the REIT to purchase the 2020 Convertible Debentures at 101% of the principal amount plus accrued and  unpaid interest.  The REIT accounted for the 2020 Convertible Debentures by discounting the stream of future payments of interest and  principal at the prevailing market rate for a similar liability and classifying such value as debt. The remaining value of the  2020 Convertible Debentures is classified as equity.  On issuance, the REIT recorded a liability of $88,893, net of issue costs of $4,223, and equity, which represents the  holders’ option to convert the 2020 Convertible Debentures into Stapled Units, of $6,572, net of issue costs of $312. Interest expense is recorded as a charge to income and is calculated at an effective rate with the difference between the  coupon rate and the effective rate being credited to the debt component of the 2020 Convertible Debentures such that, at  maturity, the debt component is equal to the face value of the then outstanding 2020 Convertible Debentures.  In February 2010, the REIT issued $115,000 Series A unsecured senior debentures (the “Series A Senior Debentures”),  bearing interest at the annual contractual rate of 5.20% and an effective interest rate of 5.40%. The Series A Senior  Debentures mature on February 3, 2015, and interest is paid semi-annually on February 3 and August 3. On issuance,  the REIT recorded a liability of $113,981, net of issue costs of $1,019.  (e) Series A Senior Debentures, Series B Senior Debentures and Series C Senior Debentures:  In February 2010, the REIT issued $115,000 Series B unsecured senior debentures (the “Series B Senior Debentures”),  bearing interest at the annual contractual rate of 5.90% and an effective interest rate of 6.06%. The Series B Senior  Debentures mature on February 3, 2017, and interest is paid semi-annually on February 3 and August 3. On issuance,  the REIT recorded a liability of $113,953, net of issue costs of $1,047.  In September 2010, the REIT issued $125,000 Series C unsecured senior debentures (the “Series C Senior  Debentures”), bearing interest at the annual contractual rate of 5.00% and an effective interest rate of 5.30%. The Series  C Senior Debentures mature on December 1, 2018, and interest is paid semi-annually on June 1 and December 1. On  issuance, the REIT recorded a liability of $122,525, net of issue costs of $2,475.  Interest expense is recorded as a charge to income and is calculated at an effective interest rate with the difference  between the coupon rate and the effective rate being credited to the carrying value such that, at maturity, the carrying  value is equal to the face value of the then outstanding Series A Senior Debentures, Series B Senior Debentures and  Series C Senior Debentures, (collectively “Senior Debentures”).  18 