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  18. Capital risk management: The REIT’s primary objectives when managing capital are:  (a) to provide unitholders with stable and growing distributions generated by revenue it derives from investments  in income-producing real estate properties; and  (b) to maximize unit value through the ongoing active management of the REIT’s assets, the acquisition of  additional properties and the development and construction of projects which are pre-leased to creditworthy  tenants.  The REIT considers its capital to be its unitholders’ equity, non-controlling interest, mortgages payable, debentures  payable and bank indebtedness. As long as the REIT complies with its investment and debt restrictions set out in its  Declaration of Trust, it is free to determine the appropriate level of capital in context with its cash flow requirements,  overall business risks and potential business opportunities. As a result of this, the REIT will make adjustments to its  capital based on its investment strategies and changes in economic conditions. Finance Trust's primary objective when managing capital is to provide unitholders with a cash distribution from the  interest income it earns on its notes receivable and cash. Finance Trust manages its capital by adhering to the  investment restrictions outlined in its Declaration of Trust.  The REIT’s level of indebtedness is subject to the limitations set out in its Declaration of Trust. The REIT is limited to a  total indebtedness to gross book value ratio of 65% (provided that for this purpose “indebtedness” excludes the 2013  Convertible Debentures, 2014 Convertible Debentures, 2017 Convertible Debentures and 2020 Convertible Debentures. In June 2010, the Declaration of Trust was amended to exclude from “indebtedness” certain guarantees provided by the  REIT of debt assumed by purchasers on a primary obligor basis, in connection with past dispositions of properties, and  for which the purchaser has provided the REIT an indemnity or similar arrangement. As at December 31, 2010, this ratio  was 50.3% (2009 - 52.5%). Management uses this ratio as a key indicator in managing the REIT’s capital.  In addition to the above key ratio, the REIT’s general operating facility (note 9(a)) has the following covenants which are  required to be calculated based on the REIT’s and Finance Trust’s combined financial statements:  Covenant 2010 2009 (a) Max imum indebtedness to gross book v alue 65% 50.4% 50.5% (b) Minimum debt serv ice cov erage ratio 1.20 : 1 1.43 : 1 1.55 : 1 (c) Minimum equity $1,300,000 plus 75% of net cash  proceeds from future equity offerings $1,606,652 $1,513,666 The REIT has various other covenants with respect to its debt. The REIT is in compliance with the covenants as at  December 31, 2010 and 2009.  30 