H&R REIT AND H&R FINANCE TRUST - MD&A - December 31, 2010  increase in 2010 as compared to 2009 are due to increased stock-based compensation expense and costs associated with the  upcoming implementation of IFRS and the specified investment flow-through (“SIFT”) restructuring.  Income Tax Recovery (Expense) Three months ended December 31  Year ended December 31  (in thousands of dollars)  2010  2009 Change 2010  2009 Change Current income tax expense  ($45)  ($85) 40 ($458)  ($364) (94) Future income tax recovery  -  17,480 (17,480) 123,303  9,613 113,690 Total income tax recovery (expense)  ($45)  $17,395 ($17,440) $122,845  $9,249 $113,596 The REIT is generally subject to tax in Canada under the Tax Act with respect to its taxable income each year, except to the extent  such taxable income is paid or made payable to unitholders and deducted by the REIT for tax purposes.  During the second quarter of 2010, the REIT completed the necessary restructuring to qualify for the SIFT Exemption (as defined  herein) under the SIFT rules commencing January 1, 2011. See the “Tax Risk” section for further discussion. Accordingly, the net  future income tax liability has been reversed into earnings. This impact on earnings was $nil for the three months ended December  31, 2010 and $123.3 million for the year ended December 31, 2010. When the REIT decides to sell an asset that no longer fits its investment strategy and re-distribute the proceeds towards more  attractive opportunities or when a tenant exercises an option under the terms of its lease to purchase a property, or when the REIT  initiates the sale of an asset, the net property operating income, any gain or loss as a result of the sale and the attributable portion of  non-controlling interest for those properties are presented on the combined statement of earnings in net earnings from discontinued  operations as summarized below:  During the three months ended December 31, 2010, the REIT sold no income properties (Q4 2009 - one) for gross proceeds of $nil  (Q4 2009 - $140.0 million). For the year ended December 31, 2010, the REIT sold two income properties (December 31, 2009 -  seven) for gross proceeds of $23.3 million (December 31, 2009 - $216.6 million). The net earnings from discontinued operations  include the results from these properties. The REIT currently has no properties held for sale.  Net Earnings (Loss) from Discontinued Operations  Dispositions from January 1, 2010 to December 31, 2010  Net Earnings (Loss) from Discontinued  Operations  Three months ended December 31  Year ended December 31  (in thousands of dollars)  2010  2009 Change 2010  2009 Change Net property operating income $436  $1,439 ($1,003) $517  $6,200 (5,683) Gain (loss) on sale of income properties  (40)  (3,118) 3,078 3,576  10,649 (7,073) Non-controlling interest  (15)  61 (76) (149)  (621) 472 Net earnings (loss) from discontinued operations  $381  ($1,618) $1,999 $3,944  $16,228 ($12,284) Property  Property Type  Date Sold  Square  Footage  Gross  Proceeds ($ Millions)  Ownership  Interest disposed  2390 Argentia Rd., Mississauga, ON  Industrial  Jan 12, 2010  179,054  $12.3  100%  110 Sheppard Ave., E., Toronto, ON  Office  Mar 1, 2010  154,022  11.0  50%  Total 333,076 $23.3 Page 15 of 45 