On redemption or maturity of the 2014 Convertible Debentures, the REIT may, at its option and subject to certain  conditions, elect to satisfy its obligation to repay all or any portion of the principal amount of the 2014 Convertible  Debentures that are to be redeemed or that are to mature through the issuance of Stapled Units by way of issuing (or  causing it to be issued) a variable number of Stapled Units equal to the principal amount of the 2014 Convertible  Debentures that are to be redeemed or that are to mature divided by 95% of the then fair market value of the Stapled  Units. The 2014 Convertible Debentures may not be redeemed by the REIT on or before July 30, 2012. Thereafter, but  prior to July 30, 2013, the 2014 Convertible Debentures may be redeemed, in whole or in part, only if the current market  price of a Stapled Unit is at least 125% of the conversion price. On or after July 30, 2013 and prior to the maturity date,  the 2014 Convertible Debentures may be redeemed by the REIT, in whole or in part, at a price equal to the principal  amount plus accrued interest. Upon a change of control, the holders of the 2014 Convertible Debentures have the right  to require the REIT to purchase the 2014 Convertible Debentures at 101% of the principal amount plus accrued and  unpaid interest. The REIT accounted for the 2014 Convertible Debentures by valuing the holders’ option to convert into Stapled Units and  classifying such value as equity. The remaining value of the 2014 Convertible Debentures is classified as debt.  On issuance, the REIT recorded a liability of $117,579, net of issue costs of $5,015, and equity, which represents the  holders’ option to convert the 2014 Convertible Debentures into Stapled Units, of $26,305, net of issue costs of $1,101. Interest expense is recorded as a charge to income and is calculated at an effective rate with the difference between the  coupon rate and the effective rate being credited to the debt component of the 2014 Convertible Debentures such that, at  maturity, the debt component is equal to the face value of the then outstanding 2014 Convertible Debentures.  During the year ended December 31, 2010, holders of $4,973 (2009 - $nil) 2014 Convertible Debentures at face value  exercised their option to convert the 2014 Convertible Debentures to Stapled Units. Of the $4,973, $908 was recorded  as a reduction of the original equity component and $4,065 was recorded as a reduction of the debt component. This  allocation is consistent with the original equity and debt allocation.  In December 2009, the REIT completed a public offering of $175,000 Series C convertible unsecured subordinated  debentures (the “2017 Convertible Debentures”), bearing interest at the annual contractual rate of 6.00% and an effective  interest rate of 8.60% (2009 - 8.60%). The 2017 Convertible Debentures mature on June 30, 2017, and interest is  payable semi-annually on June 30 and December 31. Each 2017 Convertible Debenture is convertible into freely  tradeable Stapled Units at the holder’s option at (i) any time prior to the maturity date and (ii) the business day  immediately preceding the date specified by the REIT for redemption of the 2017 Convertible Debentures, at a  conversion price of $19.00 per Stapled Unit, being a conversion rate of approximately 52.6316 Stapled Units per $1  principal amount, subject to adjustment upon the occurrence of certain events in accordance with the indenture  governing the 2017 Convertible Debentures. 16  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  8.  Debentures payable (continued):  (c) 2017 Convertible Debentures: 