H&R REIT AND H&R FINANCE TRUST - MD&A - December 31, 2010  Rentals from Income Properties Rentals from income properties (“rentals”) include all amounts earned from tenants related to lease agreements, including basic rent,  parking income, operating cost recoveries and realty tax recoveries. Rentals from properties sold or where an asset meets the held- for-sale criteria have been recorded under net earnings from discontinued operations during the year ended December 31, 2010 and  2009. The increase in same-asset current rentals of $3.9 million for Q4 2010 as compared to Q4 2009 is primarily due to the following  items:  The increase in same-asset current rentals of $7.7 million for the year ended December 31, 2010 as compared to the same 2009  period is primarily due to the following items:  The increase of $2.3 million in the same-asset straight lining of contractual rent for the three months ended December 31, 2010 was  due to a calculation correction of $2.4 million. Without this one-time adjustment, straight lining of contractual rent for the three  months and year ended December 31, 2010 would have been $2.4 million and $8.6 million, respectively.  an increase of $8.8 million of additional rent recoverable from tenants in accordance with their leases for items which were  capitalized to building improvements; an increase of $4.0 million from rent escalations during the term of tenant leases; an increase of $1.5 million in tenant recoveries due to higher regular property operating expenses;  an increase of $2.3 million due to lease terminations and higher recoveries in 2010 as compared to 2009 relating to the final  reconciliation of tenant billings for the prior year; offset by  same-asset current rentals from properties in the United States which have decreased by $9.6 million primarily due to the  weakening of the U.S. dollar when converted into Canadian dollars. The average exchange rate for the year ended December  31, 2010 was $1.03 Canadian for each $1.00 U.S. (December 31, 2009 - $1.14). same-asset current rentals from properties in the United States which have decreased by $1.1 million primarily due to the  weakening of the U.S. dollar when converted into Canadian dollars. The average exchange rate for the three months ended  December 31, 2010 was $1.00 Canadian for each $1.00 U.S. (Q4 2009 - $1.05).  an increase of $2.4 million in tenant recoveries due to higher regular property operating expenses; offset by  an increase of $0.2 million from rent escalations during the term of tenant leases;  an increase of $2.3 million of additional rent recoverable from tenants in accordance with their leases for items which were  capitalized to building improvements;  Rentals from Income Properties  Three months ended December 31  Year ended December 31  (in thousands of dollars) 2010  2009 Change 2010  2009 Change Same-asset – current rentals  $153,503  $149,612 $3,891 $599,965  $592,299 $7,666 Same-asset – straight-lining of contractual rent 4,759  2,504 2,255 11,019  12,608 (1,589) Same-asset rent amortization (890)  (1,064) 174 (4,037)  (3,796) (241) Acquisitions – current rentals, rent amortization  and straight-lining of contractual rent 2,808  -  2,808  6,396  -  6,396  Terminated leases due to U.S. bankruptcies  82  616 (534) 2,229  4,054 (1,825) Total rentals  $160,262  $151,668 $8,594 $615,572  $605,165 $10,407 Page 10 of 45 