H&R REIT AND H&R FINANCE TRUST - MD&A - December 31, 2010  USE OF PROCEEDS FROM FINANCING ISSUED DURING 2010  Unitholders’ Equity  EQUITY  LIQUIDITY AND CAPITAL RESOURCES  Funds from Operations, Normalized Funds from Operations and Adjusted Funds from Operations  Page 24 of 45  The use of FFO, NFFO and AFFO, combined with the required GAAP presentations, have been presented for the purpose of  improving the understanding of operating results of the Trusts by the investing public. Funds from operations (“FFO”), normalized funds from operations (“NFFO”) and adjusted funds from operations (“AFFO”) are not  measures recognized under GAAP and do not have standardized meanings prescribed by GAAP. FFO, NFFO and AFFO should not  be construed as alternatives to net earnings or cash provided by operations determined in accordance with GAAP as an indicator of  the Trusts’ performance (see also “Non-GAAP Financial Measures”). However, FFO and AFFO are operating performance  measures which are widely used by the real estate industry (and in particular, by a number of other Canadian real estate investment  trusts). The Trusts have calculated FFO in accordance with the recommendations of the Real Property Association of Canada which  does not include any adjustment for realized or unrealized losses on foreign exchange or derivative instruments in the calculation of  FFO. The Trusts’ method of calculating FFO, NFFO and AFFO may differ from other issuers’ methods and accordingly may not be  comparable to similar measures presented by other issuers. The majority of the accumulated other comprehensive loss is made up of the net adjustment to the equity invested in U.S. Holdco  with the REIT’s debt being held in U.S. dollars currently acting as a natural hedge against its total investment in U.S. dollars. Unitholders’ equity increased by $93.0 million between December 31, 2009 and December 31, 2010. $29.1 million was from  proceeds received from the issuance of Stapled Units and the balance of the increase is due primarily to net earnings offset by the  distributions paid to unitholders.  Financing  Disclosed Use of Proceeds  Actual Use of Proceeds  Public offering of $230 million of unsecured  senior debentures on February 3, 2010.  To fund the repurchase of the Non-Convertible Debentures.  The entire net proceeds were  used to fund the repurchase of the  Non-Convertible Debentures.  Public offering of $100 million of convertible  debentures completed on July 27, 2010.  Proceeds intended to repay debt (including debt incurred to  finance acquisitions and development of properties) for  potential acquisitions and for general trust purposes.  The entire net proceeds were  used to fund the Bow.  Public offering of $125 million of unsecured  senior debentures completed on September  14, 2010.  Proceeds intended to repay indebtedness, fund future  acquisitions and development of the Bow and for general  trust purposes.  The entire net proceeds were  used to fund the Bow and for  general trust purposes. 