H&R REIT AND H&R FINANCE TRUST - MD&A - December 31, 2010  Cash and cash equivalents  LIABILITIES  Mortgages Payable  Page 22 of 45  Debt related to certain Canadian properties is held by separate legal entities, where the rent received from each property is first used  to satisfy the related debt obligations with any balance then available to satisfy the cash flow requirements of the REIT.  The mortgages bear interest at a weighted average rate of 6.2% (December 31, 2009 – 6.2%) and mature between 2011 and 2035. The weighted average term to maturity of the REIT’s mortgages is 8.2 years (December 31, 2009 - 8.3 years). Going forward, based  on current market conditions and current lenders, the REIT anticipates being able to refinance all its debt as it matures. Notwithstanding this, the REIT may choose to repay some of its mortgages upon maturity. Of the total mortgages (excluding  mortgages due on demand), 6.5% will mature in 2011 and 13.8% will mature in 2012. The mortgages coming due before the end of  2011 bear interest at a weighted average rate on maturity of 6.4% while mortgages coming due during 2012 bear interest at a  weighted average rate on maturity of 6.7%. For a further discussion of interest rate risk, please see “Risks and Uncertainties”.  There were no material changes in the debt ratios above. The high percentage of non-recourse debt in the REIT’s portfolio is a  deliberate strategy adopted by the REIT to reduce risk within the property portfolio.  The REIT’s Declaration of Trust limits the indebtedness of the REIT (subject to certain exceptions) to a maximum of 65% of the  gross book value (“GBV”) of the REIT. Cash and cash equivalents decreased to $10.7 million at December 31, 2010 from $109.2 million at December 31, 2009 primarily  due to the continued funding of properties under development and the purchase of income properties.  (1) Total debt per the REIT’s Declaration of Trust is based on GBV of the REIT and excludes all convertible debentures and the U.S. Holdco Notes payable to  Finance Trust. At the annual general meeting of the REIT in June 2010, the REIT’s Declaration of Trust was amended to exclude 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 from the REIT’s calculation of debt to GBV as per the Declaration of Trust. In December 2010, the  amount of these guarantees was $116.4 million. The REIT’s calculation of total debt to GBV is not recognized under GAAP and therefore does not have a  standardized meaning prescribed by GAAP.  Opening balance - December 31, 2009  $2,818,476  Principal payments  (96,028)  Mortgage repaid upon maturity  (11,245)  New mortgages 136,326  Mortgages payable released upon lender taking title to properties  (89,484)  Foreign exchange difference  (51,338)  Closing balance - December 31, 2010  $2,706,707  December 31, 2010 December 31, 2009  Total debt to GBV (per the REIT’s Declaration of Trust (1) ) 50.3% 52.5%  Total debt to GBV of the combined financial statements  57.9%  56.8%  Non-recourse debt as a percentage of total debt 39.9%  44.9%  Floating rate debt as a percentage of total debt 2.5%  0.4%  Canadian properties total debt to GBV  56.4%  56.6%  U.S. properties total debt to GBV  63.8%  66.5% 