H&R REIT AND H&R FINANCE TRUST - MD&A - December 31, 2010  the budgeted soft costs. In light of the expected delay, certain subcontractors may look for additional billings for cost overruns, which  should be covered by the contingency. The REIT believes that as at December 31, 2010, through the amount undrawn under the construction facility of $398.6 million and  the available cash and undrawn credit facility of $188.1 million, it has enough funds to complete the Bow. However, there is no  assurance that such funds will be available to the REIT as the availability of any such funds will be subject to market conditions and  other factors beyond the REIT’s control. Please see "Forward-Looking Disclaimer" and "Risks and Uncertainties". The REIT’s capacity to fund future acquisitions, capital expenditures and commitments was in excess of $2.6 billion as at December  31, 2010. This represents the amount by which the REIT can increase its debt, subject to market availability, before the REIT  reaches its maximum debt limitation of 65% of debt to its GBV of assets under the Declaration of Trust. The following summarizes term debt maturities for existing mortgages:  Based on the low percentage of the projected loan to values of the maturing mortgages, the REIT is confident it will be able to  replace these mortgages as they mature.  The REIT has certain co-owners or partners in various projects. As a rule the REIT does not provide guarantees or indemnities for  these co-owners pursuant to property acquisitions because should such guarantees be provided, recourse would be available  against the REIT in the event of a default of the borrowers, in which case the REIT would have a claim against the underlying real  estate investment. However, in certain circumstances, where absolutely required but subject to compliance with the REIT’s  Declaration of Trust and also, when management has determined that the fair value of the borrower’s investment in the real estate  investment is greater than the mortgages payable for which the REIT has provided guarantees, such guarantees will be provided.  At December 31, 2010, such guarantees amounted to $41.3 million (December 31, 2009 - $43.3 million), expiring between 2011 and  2016 and no amount has been provided for in the combined financial statements of the Trusts for these items. These amounts arise  where the REIT has guaranteed a co-owner’s share of the mortgage liability. The REIT, however, customarily guarantees or  indemnifies the obligations of its nominee companies which hold separate title to each of its properties owned.  In addition, the REIT continued to guarantee certain debt assumed by purchasers in connection with past dispositions of properties,  and will remain liable thereunder until such debts are extinguished or the lenders agree to release the REIT’s covenants. At  December 31, 2010, the estimated amount of debt subject to such guarantees, and therefore the maximum exposure to credit risk is  approximately $116.4 million (December 31, 2009 - $119.2 million) with expiries between 2013 and 2018. There have been no  defaults by the primary obligor for debts on which the REIT has provided its guarantees, and as a result, no contingent loss on these  guarantees has been recognized in the financial statements. Where appropriate, the REIT uses forward contracts to lock in lending rates on certain anticipated mortgages. This strategy provides  certainty to the rate of interest on borrowings when the REIT is involved in transactions that close further into the future than during  the normal timeframe of a transaction. At December 31, 2010, the REIT had no forward contracts in place. FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS  OFF-BALANCE SHEET ITEMS  (1) Converting U.S. dollars to Canadian dollars at an exchange rate of 0.99.  (2) Using a 7.25% capitalization rate  (3) Excludes $18 million vendor takeback mortgage on land held for development.  Year  Mortgage Debt due on Maturity ($000’s)  Number of Properties  2011 Estimated Property  Operating Income ($000’s) (1)  Loan to Value (2) 2011 70,246 11 17,368 29% 2012 263,881 21 48,132 40% 2013 107,821 10 23,163 34% 2014 182,632 8 26,892 49% 2015 207,538 (3) 18 27,413 55% $832,118 68 $142,968 42% Page 31 of 45 