H&R REIT
Annual Report 2023

Plain-text annual report

H&R REIT 2023 ANNUAL REPORT 1 | H&R REIT Annual Report 2022 ABOUT THE COVER 145 Wellington St. W. is located at the interface between Toronto’s Financial District and Entertainment District. The redevelopment contemplates the demolition of an existing 13 storey office building and the construction of an architecturally significant, 60 storey tower with 512 residential rental units, 155,000 square feet of office space and 1,000 square feet of retail space. Of these residences, approximately 57% will be larger, family- oriented two or three-bedroom units. The proximity to adjacent employment, entertainment, sports and numerous transportation options results in an unrivalled place to live, work and play. The tower will provide residents with spectacular views of the downtown core and Lake Ontario and will become a notable address to live and work. A B O U T F O R W A R D - L O O K I N G S T A T E M E N T S D I S C L A I M E R : This document includes statements that are forward-looking because they are based on management’s expectations about the future –they are not historical facts. Forward-looking statements include statements regarding H&R REIT’s future plans, including the REIT's transformational strategic repositioning plan, including the objectives thereof, advancing rezoning of existing properties, the continued recycling of non-core office and retail properties and the exit over time from office retail, H&R REIT's positioning for 2023, and other statements. Forward- looking statements generally can be identified by words such as “outlook”, “Objective”, “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans”, “project”, “budget”, or “continue” or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect H&R REIT’s current beliefs and are based on information currently available to management. For more information and a caution about using forward-looking information, see Section I, “Forward Looking Disclaimer” in the Management’s Discussion and Analysis for the year ended December 31, 2023. 145 Wellington Street Toronto, ON ABOUT H&R REIT H&R REIT is one of Canada’s largest real estate investment trusts with total assets of approximately $10.8 billion as at December 31, 2023. H&R REIT has ownership interests in a North American portfolio comprised of high-quality residential, industrial, office and retail properties comprising over 26.9 million square feet. H&R’s strategy is to create a simplified, growth- oriented business focused on residential and industrial properties in order to create sustainable long term value for unitholders. H&R plans to sell its office and retail properties as market conditions permit. H&R’s target is to be a leading owner, operator and developer of residential and industrial properties, creating value through redevelopment and greenfield development in prime locations within Toronto, Montreal, Vancouver, and high growth U.S. sunbelt and gateway cities. . 2 | H&R REIT Annual Report 2022 2 | H&R REIT 2023 Annual Report TOM HOFSTEDTER Executive Chairman & CEO FEBRUARY 13, 2024 FELLOW UNITHOLDERS, H&R continued to successfully execute on its 5-year strategic plan (as articulated in late 2021) to a more simplified and growth-oriented REIT, as was highlighted in our February 13 press release announcing our fourth quarter and year ended December 31, 2023 results. Our strategy is focused on recycling capital out of primarily office and retail properties through (1) disposition, (2) by unlocking value through rezoning to residential and industrial uses, and (3) by redeploying capital into repurchasing our units and by growing our class A residential and industrial properties, all while remaining mindful by protecting the quality and strength of our balance sheet. After having successfully spun off Primaris to unitholders with approximately $2.4 billion of value and having sold approximately $2.0 billion and $463 million in non-core properties in 2021 and 2022, respectively, we continued our disposition program in 2023, with the sale of a further $433 million of properties. Proceeds from these sales were used to continue repurchasing our units, to pay down debt, and to fund our development program. We accomplished this even though 2023 was a very difficult year to dispose of assets, especially office assets, due to volatile debt, equity and real estate markets. As we enter 2024, we fully expect to continue this momentum, starting with the expected sale in April 2024 of 25 Dockside Drive, a 479,437 square foot office building in downtown Toronto, for $233 million, further advancing our strategic repositioning plan. While we improved our growth profile, we also improved our financial condition as we ended the year with approximately $950 million in liquidity, a debt to total asset ratio at the REIT’s proportionate share1 of 44%, and a $4.2 billion unencumbered pool of assets, providing significant financial capacity and flexibility. Same-Property net operating income (cash basis)1 increased by 10.3% compared to 2022, while cash distributions increased by 18.6% and our overall occupancy was 96.5% as at December 31, 2023. Importantly, as at year end 2023, class A residential and industrial properties represented 61% of our portfolio and our total office exposure was reduced to 17% of our real estate assets. In addition, we have nine office properties representing a further 7% of our real estate assets that are advancing through the rezoning and intensification process to be redeveloped into predominately residential properties. On the development front, our two industrial properties under construction in Mississauga, Ontario, are expected to be completed on budget and on time, in Q1 2024, and are both fully leased. We expect to commence construction later this year, on three industrial properties in Mississauga, Ontario representing a total of 431,000 square feet, at H&R’s ownership interest. Our two residential development properties in Dallas, Texas, are expected to be ready for occupancy in the latter half of this year, and we are planning the construction of two multi-residential developments comprising 601 units, in Orlando and Tampa, later this year. Our equity multiple ended 2023 at approximately 9x AFFO which does not appear to reflect the significant percentage (61%) of our portfolio that is class A residential and industrial properties. As we continue to simplify our portfolio into these high growth areas, we believe our equity multiple should eventually align with our residential and industrial peers rather than trade as if we are still primarily an office and retail REIT. As one of Canada’s largest real estate investment trusts, H&R strives to lead by example and be a part of the ever-changing journey to a more sustainable future. 3 | H&R REIT Annual Report 2022 3 | H&R REIT 2023 Annual Report The REIT considers sustainability as its responsibility to its unitholders in terms of transparency, to its employees in terms of communication, collaboration and opportunity, to its tenants in terms of providing healthy working and living environments and to the greatest extent, to the communities in which the REIT’s employees live and the REIT does business. H&R is committed to investing responsibly, monitoring its use of resources and associated emissions, reducing consumption and pollution, increasing energy efficiency and integrating sustainability into the REIT’s business. Our recent board additions, including Independent Lead Trustee Donald Clow, Lindsay Brand, and Leonard Abramsky, underscore our dedication to effective governance, strategic advancement, diversity, equity and inclusion. We look forward to working with them and we are confident that they will make meaningful contributions to help us achieve our strategic objectives. Stubbornly high interest rates, work from home, a fragile economy, and global conflict will all create challenges over the balance of 2024, but with it will also come opportunities. Our strong balance sheet, access to both secured and unsecured debt, as well as our capital recycling program will give us the financial capacity and flexibility to help us through these tumultuous times. Lastly and most importantly, trustees, and the support and confidence of our unitholders that will enable us to thrive. it is the dedication and creativity of our team of devoted employees, Thank you all for your support and confidence. Respectfully, TOM HOFSTEDTER Executive Chairman & Chief Executive Officer 4 | H&R REIT Annual Report 2022 4 | H&R REIT Annual Report 2022 4 | H&R REIT 2023 Annual Report EXPERIENCED AND TENURED EXECUTIVE TEAM A RESULTS-ORIENTED LEADERSHIP TEAM TOM HOFSTEDTER Executive Chairman & CEO LARRY FROOM, CPA/CA CFO ROBYN KESTENBERG EVP, Office & Industrial EMILY WATSON COO, Lantower Residential COLLEEN GRAHN President, Property Management Lantower Residential HUNTER WEBB EVP, Development Lantower Residential TONY DUPLISSE EVP, Portfolio Management Lantower Residential CHERYL FRIED CPA/CA EVP, Finance BLAIR KUNDELL EVP, Operations MATT KINGSTON EVP, Development & Construction AUDREY CRAIG EVP, Accounting, Lantower Residential TERRESA PORIZEK EVP, Organization Development Lantower Residential 5 | H&R REIT 2023 ANNUAL REPORT 5 | H&R REIT Annual Report 2022 TRANSFORMATIONAL STRATEGIC REPOSITIONING PLAN REPOSITIONING FOR GROWTH REPOSITION • Advance the rezoning for redevelopment of approximately $703 million of office properties into predominantly upscale residential properties within growing markets • Exit Office Over Time • Exit Retail Over Time GROWTH • Grow class A residential property exposure through acquisitions and developments in high growth U.S. gateway and sun belt cities • Build and expand the institutional-quality distribution-focused industrial platform through acquisition and development DIVERSIFIED TO SIMPLIFIED • Greater exposure to higher growth asset classes • Greater exposure to higher-growth markets • Stronger and flexible balance sheet to support growth Supported by a strong, flexible balance sheet with an investment-grade credit rating 6 | H&R REIT 2023 ANNUAL REPORT 6 | H&R REIT Annual Report 2022 MANAGEMENT’S DISCUSSION AND ANALYSIS OF H&R REAL ESTATE INVESTMENT TRUST For the year ended December 31, 2023 Dated: February 13, 2024 TABLE OF CONTENTS SECTION I ...................................................................................................................................................................................... 1 Basis Of Presentation ................................................................................................................................................................. 1 Forward-Looking Disclaimer ....................................................................................................................................................... 1 Overview and Strategy ............................................................................................................................................................... 2 Strategic Repositioning Highlights During The Last 30 Months ................................................................................................. 4 Environmental, Social and Governance ..................................................................................................................................... 5 SECTION II ..................................................................................................................................................................................... 8 Summary of Significant 2023 Activity ......................................................................................................................................... 8 Portfolio Summary ..................................................................................................................................................................... 13 Key Performance Drivers ............................................................................................................................................................ 14 Portfolio Overview ...................................................................................................................................................................... 14 Lease Maturity Profile ................................................................................................................................................................ 15 Top Twenty Sources of Revenue by Tenant ............................................................................................................................... 16 Financial Highlights ..................................................................................................................................................................... 17 SECTION III .................................................................................................................................................................................... 18 Financial Position ........................................................................................................................................................................ 18 Investment Properties ................................................................................................................................................................ 19 Valuation of Investment Properties ........................................................................................................................................... 21 Properties Under Development ................................................................................................................................................. 23 Future Intensification Opportunities .......................................................................................................................................... 24 Equity Accounted Investments ................................................................................................................................................... 25 Debt ............................................................................................................................................................................................ 27 Other Liabilities .......................................................................................................................................................................... 29 Unitholders’ Equity ..................................................................................................................................................................... 32 Results of Operations ................................................................................................................................................................. 34 Net Operating Income ................................................................................................................................................................ 36 Segment Information ................................................................................................................................................................. 37 Net Income, FFO And AFFO From Equity Accounted Investments ............................................................................................ 40 Income and Expense Items ......................................................................................................................................................... 41 Funds From Operations and Adjusted Funds From Operations ................................................................................................. 44 Liquidity and Capital Resources .................................................................................................................................................. 46 Off-Balance Sheet Items ............................................................................................................................................................. 50 Derivative Instruments ............................................................................................................................................................... 51 Selected Financial Information ................................................................................................................................................... 51 SECTION IV .................................................................................................................................................................................... 52 Non-GAAP Measures and Non-GAAP Ratios .............................................................................................................................. 52 Critical Accounting Estimates and Judgements .......................................................................................................................... 55 Disclosure Controls and Procedures and Internal Control over Financial Reporting ................................................................ 56 Risks and Uncertainties .............................................................................................................................................................. 57 Outstanding Unit Data ................................................................................................................................................................ 69 Additional Information ............................................................................................................................................................... 70 Subsequent Events ..................................................................................................................................................................... 70 H&R REIT - MD&A - December 31, 2023 SECTION I BASIS OF PRESENTATION Management’s Discussion and Analysis (“MD&A”) of the results of operations and financial position of H&R Real Estate Investment Trust (“H&R” or “the REIT”) for the year ended December 31, 2023 includes material information up to February 13, 2024. Financial data for the years ended December 31, 2023 and 2022 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. This MD&A should be read in conjunction with the audited consolidated financial statements of the REIT and related notes for the year ended December 31, 2023 (“REIT’s Financial Statements”). The REIT’s Financial Statements are defined to refer to the financial statements for the REIT for the applicable period. All amounts in this MD&A are in thousands of Canadian dollars, except where otherwise stated. Historical results, including trends which might appear, should not be taken as indicative of future operations or results. The Bow office property in Calgary, AB (the “Bow”) was legally disposed of in October 2021. The 100 Wynford office property in Toronto, ON (“100 Wynford”) was legally disposed of in August 2022. These transactions did not meet the criteria of a transfer of control under IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) as the REIT has an option to repurchase 100% of both of these properties for a fixed price in 2038 and 2036, respectively, or earlier under certain circumstances. As such, the REIT continues to recognize these income producing properties in the REIT’s Financial Statements and MD&A. Certain operating metrics within this MD&A have been adjusted to exclude the impact of the Bow and 100 Wynford and H&R has identified these disclosures accordingly. Refer to the “Other Liabilities - Deferred Revenue” section of this MD&A for further information. FORWARD-LOOKING DISCLAIMER Certain information in this MD&A contains forward-looking information within the meaning of applicable securities laws (also known as forward-looking statements) including, among others, statements made or implied under the headings “Investment Properties”, “Future Intensification Opportunities”, “Other Liabilities”, “Segment Information”, “Income and Expense Items”, “Liquidity and Capital Resources”, “Environmental, Social and Governance” and “Subsequent Events” relating to H&R’s objectives, beliefs, plans, estimates, targets, projections and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts, including the statements made under the headings “Summary of Significant 2023 Activity” including with respect to H&R’s future plans and targets, H&R's intention to continue disposing of office and retail properties, H&R's strategy to grow its exposure to residential assets in U.S. sun belt and gateway cities, the ability of H&R to capture potential upside in the Calgary office market, expected Unit repurchases and their potential impact on unitholders, significant development projects, leasing of the REIT's investment properties and the termination of existing leases, H&R’s expectation with respect to the future developments and activities of its development properties, including the acquisition, development and use of new properties, the expected yield on cost from the REIT’s development properties, the timing of construction and completion, expected construction costs, anticipated number of units and square footage, expected timing of approvals, H&R’s expectations and intentions with respect to zoning and rezoning requests, the impact of the REIT’s commitment to sustainability on its portfolio, the value of assets and liabilities held for sale, capitalization rates and cash flow models used to estimate fair values, expectations regarding future operating fundamentals, management’s expectations regarding future distributions by the REIT, and management’s expectation to be able to meet all of the REIT’s ongoing obligations. Forward-looking statements generally can be identified by words such as “outlook”, “objective”, “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans”, “project”, “budget” or “continue” or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect H&R’s current beliefs and are based on information currently available to management. Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future, and readers are cautioned that such statements may not be appropriate for other purposes. These statements are not guarantees of future performance and are based on H&R’s estimates and assumptions that are subject to risks, uncertainties and other factors including those risks and uncertainties described below under “Risks and Uncertainties” and those discussed in H&R’s materials filed with the Canadian securities regulatory authorities from time to time, which could cause the actual results, performance or achievements of H&R to differ materially from the forward-looking statements contained in this MD&A. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward- looking statements include assumptions relating to the general economy, including the effects of increased inflation; debt markets continuing to provide access to capital at a reasonable cost, notwithstanding the current interest rate environment; and assumptions concerning currency exchange and interest rates. Additional risks and uncertainties include, among other things, those related to: Page 1 of 70 H&R REIT - MD&A - December 31, 2023 real property ownership; the current economic environment; credit risk and tenant concentration; lease rollover risk; interest rate and other debt-related risks; development risks; residential rental risk; capital expenditure risk; currency risk; liquidity risk; cyber security risk; risks associated with disease outbreaks; financing credit risk; ESG and climate change risk; co-ownership interest in properties; general uninsured losses; joint arrangement and investment risks; dependence on key personnel and succession planning; potential acquisition, investment and disposition opportunities and joint venture arrangements; potential undisclosed liabilities associated with acquisitions; competition for real property investments; potential conflicts of interest; Unit prices; availability of cash for distributions; credit ratings; ability to access capital markets; dilution; unitholder liability; redemption right; investment eligibility; debentures; statutory remedies; tax risk; and additional tax risks applicable to unitholders. H&R cautions that these lists of factors, risks and uncertainties are not exhaustive. Although the forward-looking statements contained in this MD&A are based upon what H&R believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Readers are also urged to examine H&R’s materials filed with the Canadian securities regulatory authorities from time to time as they may contain discussions on risks and uncertainties which could cause the actual results and performance of H&R to differ materially from the forward-looking statements contained in this MD&A. All forward-looking statements in this MD&A are qualified by these cautionary statements. These forward-looking statements are made as of February 13, 2024 and the REIT, except as required by applicable Canadian law, assumes no obligation to update or revise them to reflect new information or the occurrence of future events or circumstances. OVERVIEW AND STRATEGY H&R is one of Canada’s largest real estate investment trusts with total assets of approximately $10.8 billion as at December 31, 2023. H&R has ownership interests in a North American portfolio comprised of high-quality residential (operating as Lantower Residential), industrial, office and retail properties totalling approximately 26.9 million square feet. H&R is an unincorporated open- ended trust created by a declaration of trust (“H&R’s Declaration of Trust”) and governed by the laws of the Province of Ontario. H&R’s units (“Units”) are listed and posted for trading on the Toronto Stock Exchange (“TSX”) under the symbol HR.UN. H&R’s objective is to maximize net asset value (“NAV”) per Unit through ongoing active management of H&R’s assets and the development and construction of projects. H&R’s strategy is to create a simplified, growth-oriented business focused on residential and industrial properties in order to create sustainable long-term value for unitholders. H&R is currently undergoing a repositioning plan and intends to sell its office and retail properties as market conditions permit. H&R’s vision is to be a leading owner, operator and developer of residential and industrial properties, creating value through redevelopment and greenfield development in prime locations within Toronto, Montreal, Vancouver, and high growth U.S. sun belt and gateway cities. Page 2 of 70 H&R REIT - MD&A - December 31, 2023 Since the announcement of H&R’s Strategic Repositioning Plan on October 27, 2021, H&R’s residential and industrial portfolios have grown in aggregate from 35% to 61% of total real estate assets as at December 31, 2023. Real Estate Assets1 (1) (2) (3) (4) At the REIT’s proportionate share, including assets classified as held for sale. Refer to the “Non-GAAP Measures” section of this MD&A. Q2 2021 has been used as a benchmark since H&R’s Strategic Repositioning Plan was announced prior to the release of Q3 2021 results. Excludes the Bow and 100 Wynford. Includes nine properties advancing through the rezoning and intensification process to be converted into predominantly residential properties. Page 3 of 70 Q2 2021²Residential25%Industrial10%Office36%Retail29%Q4 2023³Residential43%Industrial18%Rezoning⁴7%Office17%Retail15% H&R REIT - MD&A - December 31, 2023 STRATEGIC REPOSITIONING HIGHLIGHTS DURING THE LAST 30 MONTHS • • • • • • • • • • • • • Completed a spin off, on a tax-free basis, of 27 properties including all of the REIT’s enclosed shopping centres to a new publicly-traded REIT, Primaris REIT, valued at approximately $2.4 billion; 45 investment properties totaling approximately $2.4 billion were sold including the Bow and 100 Wynford; H&R to date has contracted to sell a further $293.2 million of properties in 2024; H&R’s residential real estate assets at the REIT’s proportionate share(1) increased from approximately $3.4 billion as at June 30, 2021 to approximately $4.4 billion as at December 31, 2023; H&R’s industrial real estate assets at the REIT’s proportionate share(1) increased from approximately $1.3 billion as at June 30, 2021 to approximately $1.9 billion as at December 31, 2023; H&R’s office portfolio exposure at the REIT’s proportionate share(1) was reduced from approximately $5.1 billion at June 30, 2021 to approximately $2.5 billion at December 31, 2023 ($703.5 million are properties advancing through the rezoning process); H&R’s retail portfolio at the REIT’s proportionate share(1) decreased from approximately $4.0 billion as at June 30, 2021 to approximately $1.6 billion as at December 31, 2023; H&R’s portion of residential and industrial real estate assets at the REIT’s proportionate share(1) increased from 35% as at June 30, 2021 to 61% as at December 31, 2023; Debt per the REIT’s Financial Statements was reduced from approximately $6.1 billion as at June 30, 2021 to approximately $3.7 billion as at December 31, 2023; Debt to total assets at the REIT’s proportionate share(2)(3) improved from 50.0% at June 30, 2021 to 44.0% as at December 31, 2023; The unencumbered asset to unsecured debt coverage ratio improved from 1.65x as at June 30, 2021 to 2.16x as at December 31, 2023; Debt to Adjusted EBITDA (based on trailing 12 months) at the REIT’s proportionate share(2)(3)(5) improved from 10.4x at June 30, 2021 to 8.5x at December 31, 2023; The REIT repurchased 27.0 million Units totalling $339.8 million between June 30, 2021 and December 31, 2023; • Operating results improved with a 14.9% increase in Same-Property net operating income (cash basis)(1) in 2022 and a further 10.3% in 2023; • Overall Occupancy grew from 93.7 % at June 30, 2021 to 96.5% at December 31, 2023; • (1) (2) (3) (4) (5) H&R’s exposure to Alberta real estate assets, at the REIT’s proportionate share(1), was reduced from 16.9% at June 30, 2021 to only 4.5% at December 31, 2023. These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A. Debt includes mortgages payable, debentures payable, unsecured term loans, lines of credit and liabilities classified as held for sale. These are non-GAAP ratios. Refer to the “Non-GAAP Measures” section of this MD&A. Unencumbered assets are investment properties and properties under development without encumbrances for mortgages or lines of credit. Unsecured debt includes debentures payable, unsecured term loans and unsecured lines of credit. Adjusted EBITDA is defined in the “Debt” section of this MD&A. Page 4 of 70 H&R REIT - MD&A - December 31, 2023 ENVIRONMENTAL, SOCIAL AND GOVERNANCE As one of Canada’s largest real estate investment trusts, H&R strives to lead by example and be a part of the ever-changing journey to a more sustainable future. Having an integrated and forward-thinking sustainability program is of utmost importance. H&R formally implemented its Sustainability Policy and established its Sustainability Committee in 2019. The REIT views sustainability as its responsibility to its unitholders in terms of transparency, to its employees in terms of communication, collaboration and opportunity, to its tenants in terms of providing healthy working and living environments and to the greatest extent, to the communities in which the REIT’s employees live and the REIT does business. H&R is committed to, among other things, investing responsibly, monitoring its use of resources and associated emissions, reducing consumption and pollution, increasing energy efficiency and integrating sustainability into the REIT’s business, including the REIT’s decision-making processes. In the fall of 2022, H&R launched its Green Financing Framework, designed to support the REIT’s sustainability strategy as it continues to expand its building portfolio in an environmentally and socially responsible way. In support of H&R’s strategy, H&R has established a Green Financing Framework (“the Framework”) which aligns with the Green Bond Principles (the “GBP”) developed by the International Capital Markets Association as of June 2021 and the Green Loan Principles (the “GLP”) developed by the Loan Market Association as of February 2021. Morningstar Sustainalytics supplied a Second-Party Opinion confirming the Framework is credible, impactful and aligns with the four core components of the GBP and the GLP, each published in 2021. H&R published its 2022 Sustainability Report in October 2023, highlighting Environmental, Social and Governance (“ESG”) initiatives and accomplishments for the 2022 calendar year. This Sustainability Report outlines the REIT’s ESG framework and the REIT’s commitment to drive sustainable performance and improvement. H&R continues to work alongside Brightly Software Canada Inc., a global leader in intelligent asset management solutions, to benchmark the REIT’s performance within the real estate investment trust industry, ensuring transparency and continuous improvement year-over-year. The REIT’s Compensation, Environmental, Social & Governance and Nominating Committee (the “CESG&N Committee”), currently comprised of Brenna Haysom (Chair), Lindsay Brand, Donald Clow and S. Stephen Gross, is responsible for ESG oversight at the REIT level. Key programs and initiatives include: Environmental • • • • • • • H&R continues to implement programs to reduce carbon emissions, energy use, water use and waste; H&R has tracked and reported on investor grade utility data and emissions for the majority of H&R office properties since 2013; In 2020, H&R expanded its reporting boundary to report utility consumption and emissions wherever H&R has control over utility use and/or is able to access utility data; the result was an increase in data coverage from 22% of 2018 usage (Carbon Disclosure Project (“CDP”) 2019 Reporting) to 76% of 2022 usage (CDP 2023 Reporting); For the 2021 reporting period, H&R updated its reporting boundary to follow the ‘Operational Control’ approach, as defined by the Greenhouse Gas (“GHG”) Protocol, to align with recent industry trends and the latest reporting guidance for real estate organizations. Under the operational control approach, 100% of emissions are reported from operations in which H&R or one of its subsidiaries has operational control; H&R is reporting on select Global Reporting Initiative (GRI) indicators, as well as select Sustainability Accounting Standards Board (SASB) indicators. Both frameworks provide H&R the capacity to benchmark its performance within the REIT industry, ensuring transparency; H&R has reported to the CDP since 2016, reflecting 2015 performance onwards. In 2023 (based on 2022 data and performance), H&R scored third (tied) among 12 Canadian real estate investment trusts; H&R continues the drive to improve the environmental footprint of its assets. The COVID-19 pandemic has had a significant impact on GHG emissions for office and retail buildings since early 2020. As expected, despite continued progress in energy efficiency, emissions from office and retail properties increased in 2022, relative to 2021, as the impacts of the pandemic eased and occupants returned to work. This trend appears widespread across the commercial real estate market. Increased occupancy at a large multi-family property completed in 2021 led to an increase in 2022 emissions in the residential portfolio as well. Overall, H&R's like-for-like energy use increased by 2.7% in 2022 compared to 2021 and like-for-like market-based emissions increased by 8.3%. H&R is confident that as operations and occupancy stabilize, the efficiency improvements made will be reflected in the energy and utility performance in future years. Page 5 of 70 H&R REIT - MD&A - December 31, 2023 • • • • • • • H&R’s like-for-like water use decreased by 5.4% in 2022 compared to 2021; To further expand utility data coverage, H&R implemented waste tracking at H&R managed properties in 2021 wherever H&R manages waste collection and is able to access diversion reports. H&R engaged KPMG LLP (“KPMG”) to provide limited assurance over selected Scope 1, 2 and 3 data for GHG emissions included in the Sustainability Report for the year ended December 31, 2022. The scope of KPMG's engagement and their assurance report can be found in the Sustainability Supplement and in the Appendix of that report on pages 43 to 46, available on the REIT’s website; Green building certifications, such as LEED and BOMA BEST, provide third-party validation of property management, environmental programs and development practices within building portfolios. As at December 31, 2022, 74% of H&R's Office portfolio (based on net rentable area) was LEED, BOMA Best and/or ENERGY STAR Certified; H&R utilized ENERGY STAR® Portfolio Manager, a cloud-based software program utilized by Natural Resources Canada and the United States Environmental Protection Agency, to benchmark the energy performance of H&R’s properties. ENERGY STAR® Portfolio Manager provides each building with a score which allows our operations and management teams to visualize the energy performance of H&R buildings and identify areas of improvement. As at December 31, 2022, 80% of H&R’s Office Portfolio is actively tracked on ENERGY STAR® Portfolio Manager, and 90% of H&R’s Lantower Residential Division is actively tracked on ENERGY STAR® Portfolio Manager. GRESB is an independent organization providing validated ESG performance data and peer benchmarks for investors and managers to improve business intelligence, industry engagement and decision-making. H&R submitted to the GRESB Real Estate Assessment again in 2023 (based on 2022 performance and data), exemplifying the REIT’s continued commitment to embed sustainability in every facet of the REIT’s business and advance the REIT’s long-term ESG strategy; and H&R has well established governance structures such as the Board Investment Committee to oversee and approve acquisitions in line with the REIT's strategic plan. H&R conducts environmental due diligence prior to acquiring a property, obtains and/or peer reviews Phase I Environmental Site Assessment reports conducted by independent and experienced consultants, and if recommended, undertakes further remedial action and monitoring. Social • • • • • • • • As at December 31, 2023, 50% of H&R’s Tier 1 and 2 Executives and 46% of H&R’s Tier 3 Executives were women. Overall, 39% of H&R’s workforce were women. As well, 40% of the members of the REIT’s Board of Trustees (the “Board”) were women, achieving the 30% Club Canada’s aim for better gender balance at the board level; H&R is proud to have been recognized in 2023 by “Women Lead Here” highlighting the emphasis H&R places on diversity and inclusion and has been recognized for the fourth consecutive year; H&R’s corporate and on-site staff participate in employee and community charity initiatives and programs. In addition, H&R is proud to support the efforts of its Lantower Residential division with its Living to Giving program which works with several reputable charitable organizations to provide food, shelter and resources to local communities where Lantower Residential properties are located; Employee and professional advancement is encouraged with first consideration given to existing staff. This allows movement and growth within the organization, thus enabling our employees to acquire new skills and achieve personal development; H&R offers a Group Retirement Savings Program with a corporate match to encourage employee savings; H&R offers professional fee reimbursement and contributions to relevant professional development courses; H&R has assisted employees with time off, flexible hours and extended leaves of absence to promote good health and pursue their outside interests and goals; and H&R has a human rights policy and diversity policy which can be found on H&R's website. Governance • Use of a code of business conduct and ethics policy, whistle-blower policy, trading policy and disclosure, human rights and social media policy; • On an annual basis, each employee acknowledges that they have reviewed the REIT’s corporate policies and that they agree to comply with them; • H&R has established policies governing the tenure and constitution of its Board including that the tenure for all new trustees is limited to 10 years. Page 6 of 70 H&R REIT - MD&A - December 31, 2023 • • In March 2023, H&R appointed Donald Clow to the Board. Mr. Clow filled the vacancy left by Ronald Rutman, who resigned from the Board following a successful term as vice-chair and Independent Lead Trustee. Subsequent to his appointment, the Board appointed Mr. Clow as Independent Lead Trustee of the Board. In June 2023, Lindsay Brand and Leonard Abramsky were elected to the Board. The Board is comprised of 40% women. A non- binding advisory resolution, as set out in the management information circular dated April 25, 2023 for the annual meeting of unitholders of the REIT, was passed, with 89.2% of the total votes in favour of the REIT’s approach to executive compensation. • Majority independent Board, with 80% of the Board being fully independent as at December 31, 2023; • • • • Use of an independent Lead Trustee to encourage independent leadership among the trustees; Use of a “Say on Pay” vote and independent compensation consultants retained by the CESG&N Committee; Use of a minimum unit ownership requirement for Trustees and senior management; and Use of a clawback policy applicable to all incentive compensation. For more information on H&R’s Sustainability Policy and additional information about its Sustainability Committee, Sustainability Report and Sustainability Supplement as well as H&R’s Green Financing Framework and Second-Party Opinion of Green Financing Framework, visit H&R’s website under “Investor Relations - Sustainability”. The contents of the REIT’s website, including the REIT’s Sustainability Policy, Sustainability Report and Sustainability Supplement, Green Financing Framework and Second-Party Opinion of Green Financing Framework, are expressly not incorporated by reference into, and do not form part of, this MD&A. Page 7 of 70 H&R REIT - MD&A - December 31, 2023 SECTION II SUMMARY OF SIGNIFICANT 2023 ACTIVITY 2023 Net Operating Income Highlights: (in thousands of Canadian dollars) 2023 2022 % Change 2023 2022 % Change Three months ended December 31 Year ended December 31 Operating Segment: Same-Property net operating income (cash basis) - Residential(1) Same-Property net operating income (cash basis) - Industrial(1) Same-Property net operating income (cash basis) - Office(1) Same-Property net operating income (cash basis) - Retail(1) Same-Property net operating income (cash basis)(1) Net operating income (cash basis) from Transactions at the REIT's proportionate share(1)(2) Realty taxes in accordance with IFRIC 21 at the REIT's proportionate share(1)(3) Straight-lining of contractual rent at the REIT's proportionate share(1) Net operating income from equity accounted investments(1) Net operating income per the REIT's Financial Statements $41,606 $37,137 12.0 % $161,901 $136,341 17,377 44,536 24,180 15,839 43,741 24,697 9.7 % 68,130 60,566 1.8 % 183,227 174,224 (2.1) % 94,306 89,216 18.7 % 12.5 % 5.2 % 5.7 % 127,699 121,414 5.2 % 507,564 460,347 10.3 % 30,072 38,504 (21.9) % 136,609 159,794 (14.5) % 14,946 12,600 18.6 % — — — % 2,623 3,588 (26.9) % 12,100 6,890 75.6 % (27,980) (27,994) 0.1 % (109,669) (92,082) (19.1) % $147,360 $148,112 (0.5) % $546,604 $534,949 2.2 % (1) (2) (3) These are non-generally accepted accounting principles (“GAAP”) measures. Refer to the “Non-GAAP Measures” section of this MD&A. Transactions are defined in the “Net Operating Income” section of this MD&A. IFRIC 21 is defined in the “Non-GAAP Measures” section of this MD&A. Refer to the “Net Operating Income” section of this MD&A for further explanations on the net operating income changes for the three months and year ended December 31, 2023. 2023 Transaction Highlights Property Dispositions In January 2023, H&R sold its 50% ownership interest in a 95,225 square foot single tenanted office property in Calgary, AB for approximately $16.8 million, which was classified as held for sale as at December 31, 2022. The purchaser assumed H&R’s 50% share of the outstanding mortgage payable totalling approximately $6.3 million. In addition, H&R provided a vendor take-back mortgage to the purchaser for $7.0 million bearing interest at 5.5% per annum maturing September 1, 2029. In April 2023, H&R sold 160 Elgin Street, a 973,661 square foot office property in Ottawa, ON for $277.0 million. H&R received $67.0 million on closing and provided two vendor take-back mortgages (“VTB”) to the purchaser: (i) $30.0 million which is subordinate to the first mortgage on the property, bearing interest at 4.5% per annum, maturing April 20, 2028 and (i) $180.0 million secured by a first mortgage on the property, bearing interest at 6.5% per annum, which was repaid in Q3 2023. The VTB proceeds of $180.0 million were used to repay debt, including a $125.0 million unsecured term loan, originally scheduled to mature on November 30, 2024. In July 2023, H&R sold four single tenanted retail properties in Québec totalling 476,802 square feet for $68.0 million. The proceeds were used to repay debt and repurchase Units under the REIT’s normal course issuer bid (“NCIB”). In August 2023, H&R sold a 85,725 square foot single tenanted office property in Temple Terrace, FL for $17.7 million (U.S. $13.3 million). The tenant’s lease expired on June 30, 2023 and the property was vacant at closing. In August 2023, H&R sold a 13,510 square foot automotive-tenanted retail property in Roswell, GA for approximately $4.7 million (U.S. $3.6 million). The property was 37.5% occupied at closing. Page 8 of 70 H&R REIT - MD&A - December 31, 2023 In October 2023, H&R sold a 92,694 square foot single tenanted office property in Dallas, TX for approximately $7.0 million (U.S. $5.1 million). The tenant had relocated its operations to another property and given notice to H&R that it was not going to renew its lease, which was scheduled to expire on December 31, 2025. In October 2023, H&R sold a 163,936 square foot single tenanted industrial property in Philadelphia, PA for approximately $37.7 million (U.S. $27.5 million). H&R has ownership interests in two remaining industrial properties in the U.S. In December 2023, H&R announced it had entered into an agreement to sell 25 Dockside Drive for $232.5 million to George Brown College and Halmont Properties Corporation. The property is an office property located directly on the waterfront in downtown Toronto, comprising 479,437 square feet and is substantially leased to Corus Entertainment. The sale is expected to close in April 2024 and is subject to customary closing conditions. Including 25 Dockside Drive, H&R’s 2023 properties sold or under contract to be sold totalled $665.4 million, exceeding the disposition target of $600.0 million. H&R’s various property sales during 2023 (including properties under contract to be sold) are consistent with the REIT’s strategic repositioning plan to surface significant value for unitholders, by transforming into a simplified, growth-oriented company focused on residential and industrial properties. Properties Acquired for Future Development In April 2023, H&R acquired a 50% ownership interest in 27.0 acres of land in Orlando, FL (“West Town”) for $18.4 million (U.S. $13.8 million) at H&R’s ownership interest, which is expected to be developed into 541 residential rental units. The site is located in the Altamonte Springs submarket of Orlando and is close to Maitland, a large professional office submarket, as well as Cranes Roost Park, the Altamonte Mall and numerous retailers. In June 2023, H&R acquired a 33.3% non-managing ownership interest in 17.6 acres of land in Carlsbad, CA for $22.6 million (U.S. $17.0 million) at H&R’s ownership interest. This acquisition (“Sunny Creek”) will be accounted for as an equity accounted investment. The site is located in Carlsbad, a coastal city in northwest San Diego County, approximately four miles from Carlsbad State Beach and downtown Carlsbad, and is close to major highways and business parks, including the headquarters for TaylorMade and Callaway. The site is expected to include an apartment project consisting of 227 residential rental units and a townhome for sale project comprising 130 units. Proceeds on Disposal of Purchase Option H&R had a mortgage receivable of approximately $37.2 million (U.S. $27.6 million) secured against industrial land in North Las Vegas, NV. In addition, H&R had an option to purchase the land. H&R sold its option to purchase the land and received repayment of its mortgage receivable from the borrower. The combined proceeds from the repayment of the mortgage receivable and the sale of the option amounted to $67.8 million (U.S. $50.2 million), which were received in August 2023. As a result, H&R recorded $30.6 million (U.S. $22.6 million) as proceeds on disposal of purchase option. Leasing Highlights: In Q1 2023, H&R completed a 5-year lease renewal on a 132,735 square foot industrial property in Mississauga, ON, at H&R’s 50% ownership interest. The original lease expired in February 2023 and rent increased by $9.70 per square foot commencing in March 2023 with annual contractual rent escalations. The tenant had a free rent period for March and April 2023. In Q1 2023, H&R completed a 5-year lease renewal on a 37,600 square foot industrial property in Mississauga, ON, at H&R’s 94% ownership interest. The original lease expired in July 2023 and rent increased by $8.25 per square foot commencing in August 2023 with contractual rent escalations. The tenant has a free rent period for the months of August 2023, August 2024 and August 2025. In Q1 2023, H&R entered into a lease amendment with its tenant at 6900 Maritz Drive in Mississauga, ON to terminate their lease in December 2023. The terms of the rental payments to December 2023 did not change. The previous lease term would have ended in May 2031. H&R received a lease termination fee of approximately $0.9 million in Q1 2023 and received an additional $2.5 million in Q3 2023 (“6900 Maritz Lease Termination Payment”). IFRS 16, Leases (“IFRS 16”) requires revenue from leases to be recognized on a Page 9 of 70 H&R REIT - MD&A - December 31, 2023 straight-line basis over the contractual term of the lease. As a result of this lease amendment (“6900 Maritz Lease Amendment”), non-cash adjustments to straight-lining of contractual rent of nil, $0.8 million, ($1.8) million and $0.8 million were recorded in Q1 2023, Q2 2023, Q3 2023 and Q4 2023, respectively. Refer to the “Future Intensification” section below for further details regarding H&R’s plans to rezone this property from office to industrial use. In Q2 2023, H&R leased 74,689 vacant square feet at a multi-tenanted industrial property in Toronto, ON, at H&R’s 50% ownership interest for a 5.5 year term commencing September 1, 2023 at market rents with annual contractual rental escalations. Previous tenants occupying 37,717 and 36,798 square feet, respectively, both at H&R’s ownership interest, vacated in February 2023 and May 2023, respectively. On average, annual contractual rent increased by $12.94 per square foot. In addition, H&R completed a 5 year lease renewal on 49,535 square feet at the same property at H&R’s ownership interest. The original lease expired in March 2023 and annual contractual rent increased by $12.40 per square foot commencing in April 2023 with annual contractual rent escalations. With these new leases, occupancy at this property increased from 53.1% as at June 30, 2023 to 100.0% as at September 30, 2023. In Q4 2023, H&R completed a new 10-year lease for a 39,741 square foot industrial property in Whitby, ON, at H&R’s 50% ownership interest. The current tenant will be vacating in March 2024. The new tenant’s lease will commence in April 2024, and annual contractual rent will increase by $5.75 per square foot. The new tenant has a free rent period for the month of April 2024. In Q4 2023, H&R received a lease termination fee of approximately $1.8 million from Telus Communications, who vacated 114,989 square feet at H&R’s 50% ownership interest at 3777 Kingsway in Burnaby, BC as part of H&R’s plan to rezone this property from office to residential. Telus Communications continues to occupy 218,471 square feet at H&R’s ownership interest until April 2026. IFRS 16 requires revenue from leases to be recognized on a straight-line basis over the contractual term of the lease. As a result of this lease amendment (“3777 Kingsway Lease Amendment”), a non-cash adjustment to straight-lining of contractual rent of ($1.7) million at H&R’s ownership interest was recorded in Q4 2023. Refer to the “Future Intensification” section below for further details regarding H&R’s plans to rezone this property from office to residential use. Unitholder Activism and Severance Costs In April 2023, H&R entered into a support agreement (the “Support Agreement”) with the K2 Principal Fund L.P. and K2 & Associates Investment Management Inc. (collectively, “K2”). Among other stipulations in the Support Agreement, K2 withdrew its four nominees for election at the meeting of unitholders on June 15, 2023 (“Unitholder Meeting”). K2 also agreed with H&R to support the election of two additional, mutually agreed upon, independent trustees to the Board, Lindsay Brand and Leonard Abramsky, with the size of the Board increasing by two to 10 trustees, and also agreed to vote in favour of the balance of the trustees slated for re- election. Mr. Abramsky and Ms. Brand were elected to the Board at the Unitholder Meeting. In May 2023, Philippe Lapointe stepped down as President of H&R and as an officer of H&R’s subsidiary, Lantower Residential. Emily Watson, Lantower’s Chief Operating Officer, was appointed to lead the Lantower Residential division. Included in trust expenses for the year ended December 31, 2023 is $4.3 million relating to the Support Agreement with K2 and severance costs. Development Update Canadian Properties under Development The REIT currently has two industrial properties under development located at 1965 Meadowvale Boulevard and 1925 Meadowvale Boulevard in Mississauga, ON totalling 336,800 square feet, which are both expected to be completed in Q1 2024. The REIT expects the costs remaining to complete these two properties under development to be approximately $9.4 million as at December 31, 2023. In February 2023, H&R entered into a lease agreement to fully lease 1965 Meadowvale Boulevard, totalling 187,290 square feet, for a term of 10 years at market rents with annual contractual rental escalations. In March 2023, H&R entered into a lease agreement to fully lease 1925 Meadowvale Boulevard, totalling 149,510 square feet, for a term of 12.5 years at market rents with annual contractual rental escalations. Refer to the “Properties Under Development - Canadian Properties Under Development” section of this MD&A for further information. Page 10 of 70 H&R REIT - MD&A - December 31, 2023 U.S. Properties under Development The REIT commenced construction on two U.S. residential development properties in 2022. The total development budget for these two properties is approximately $276.9 million (U.S. $209.8 million) with costs remaining to complete of approximately $118.2 million (U.S. $89.5 million). Both properties are expected to be completed on budget in the latter half of 2024. Refer to the “Properties Under Development - U.S. Properties Under Development” section of this MD&A for further information. Future Intensification In February 2023, H&R attended a settlement hearing with the Ontario Land Tribunal (“OLT”) and received rezoning approval with conditions for 53 & 55 Yonge Street for a 66-storey mixed use tower, including approximately 511 residential units, 159,000 square feet of replacement office area and 13,000 square feet of retail area. Subsequently, H&R made re-submissions to clear the conditions set by the OLT. H&R expects to have rezoning approval in place by the end of Q1 2024. In July 2023, the final report recommending approval of the rezoning application for 310 Front Street West was adopted by Toronto City Council. The statutory appeal period for the passing of the zoning by-law was completed in August 2023, and the rezoning came into force and became binding. The rezoning approval is for a 65-storey mixed use tower including, 578 residential units, approximately 119,000 square feet of replacement office area and approximately 2,000 square feet of retail area. In October 2023, H&R submitted a Site Plan approval application for 6900 Maritz Drive to the City of Mississauga to replace the existing 104,689 square foot office building with a new 122,413 square foot industrial building. Demolition of the existing office building has commenced and Site Plan approval with conditions was received in January 2024. Construction is expected to commence in Spring 2024. NCIB During the year ended December 31, 2023, the REIT purchased and cancelled 4,147,200 Units at a weighted average price of $10.30 per Unit, for a total cost of $42.7 million, representing an approximate 50.4% discount to NAV per Unit (a non-GAAP ratio, refer to the “Non-GAAP Measures” section of this MD&A). 2023 Cash Distributions H&R’s cash distributions amounted to $0.70 per Unit during 2023 (2022 - $0.59 per Unit) which comprised: (i) monthly cash distributions in aggregate of $0.60 per Unit (2022 - $0.54 per Unit); and (ii) a special cash distribution of $0.10 per Unit, further described below (2022 - $0.05 per Unit). For the year ended December 31, 2023, H&R’s payout ratio as a % of Adjusted Funds from Operations (“AFFO”) (a non-GAAP ratio, refer to the “Non-GAAP Measures” section of this MD&A) was 63.0%. 2023 Taxation Consequences for Taxable Canadian Unitholders H&R's cash distributions amounted to $0.70 per Unit during 2023 (including a $0.10 per Unit special cash distribution to unitholders of record on December 29, 2023). The REIT also made a special distribution to unitholders of record on December 29, 2023 of $0.52 per Unit payable in additional Units, which were immediately consolidated such that there was no change in the number of outstanding Units. The cash portion of the special distribution was intended to provide liquidity to unitholders to cover all or part of an income tax obligation that may arise from the additional taxable income being distributed via the special distribution. The amount of the special distribution payable in Units ($0.52 per Unit) will increase the adjusted cost basis of unitholders’ consolidated Units. Debt & Liquidity Highlights Mortgages During the year ended December 31, 2023, H&R repaid eight mortgages totalling $103.6 million at a weighted average interest rate of 4.3%. Page 11 of 70 H&R REIT - MD&A - December 31, 2023 Debentures In January 2023, H&R redeemed all of its $250.0 million Series O Senior Debentures, which bore interest at 3.416% per annum. Subsequent to December 31, 2023, H&R redeemed all of its $350.0 million Series N Senior Debentures in January 2024, which bore interest at 3.369% per annum. Unsecured Term Loans In August 2023, H&R secured a one-year extension on a $250.0 million unsecured term loan which will now mature March 7, 2025. In August 2023, H&R repaid a $125.0 million unsecured term loan, originally scheduled to mature on November 30, 2024. Lines of Credit In March 2023, H&R and its co-owner obtained a new $275.0 million non-revolving secured credit facility, at H&R’s 50% ownership interest, secured by 42 industrial properties. Upon closing, the REIT and its co-owner repaid $12.5 million outstanding on its secured revolving $25.0 million line of credit facility, which matured as a part of closing this new facility, each at H&R’s ownership interest. In August 2023, H&R secured a one-year extension on its $150.0 million revolving unsecured line of credit which will now mature on September 20, 2024. In September 2023, H&R secured a one-year extension on its $750.0 million revolving unsecured line of credit which will now mature on December 14, 2027. As at December 31, 2023, debt to total assets per the REIT’s Financial Statements was 34.2% compared to 34.4% as at December 31, 2022. As at December 31, 2023, debt to total assets at the REIT’s proportionate share (a non-GAAP ratio, refer to the “Non-GAAP Measures” section of this MD&A) was 44.0%, which was the same as at December 31, 2022. As at December 31, 2023, H&R had cash and cash equivalents of $64.1 million, $886.5 million available under its unused lines of credit and an unencumbered property pool of approximately $4.2 billion. Page 12 of 70 H&R REIT - MD&A - December 31, 2023 PORTFOLIO SUMMARY (in thousands of Canadian dollars, except for statistics) (All periods exclude the Bow and 100 Wynford) Residential:(1) Number of properties Square feet Residential rental units Occupancy Contractual mortgages payable including liabilities classified as held for sale Investment properties including assets classified as held for sale Capitalization rate Rentals from investment properties Net operating income Same-Property net operating income (cash basis)(2) Industrial:(1) Number of properties Square feet Occupancy Average remaining term to maturity of commercial leases (in years) Contractual mortgages payable including liabilities classified as held for sale Investment properties including assets classified as held for sale Capitalization rate Rentals from investment properties Net operating income Same-Property net operating income (cash basis)(2) Office:(1) Number of properties Square feet Occupancy Average remaining term to maturity of commercial leases (in years) Contractual mortgages payable including liabilities classified as held for sale Investment Properties including assets classified as held for sale Capitalization rate Rentals from investment properties Net operating income Same-Property net operating income (cash basis)(2) Retail:(1) Number of properties Square feet Occupancy Average remaining term to maturity of commercial leases (in years) Contractual mortgages payable including liabilities classified as held for sale Investment properties including assets classified as held for sale(3) Capitalization rate Rentals from investment properties Net operating income Same-Property net operating income (cash basis)(2) Total:(1) Number of properties Square feet Occupancy Average remaining term to maturity of commercial leases (in years) Contractual mortgages payable including liabilities classified as held for sale Investment properties including assets classified as held for sale(3) Capitalization rate Rentals from investment properties Net operating income Same-Property net operating income (cash basis)(2) (1) Q4 2023 Q4 2022 24 7,499 8,166 94.3 % $1,698,031 $3,668,856 4.47 % $71,752 $50,483 $41,606 70 8,554 99.2 % 4.6 $258,015 $1,473,037 5.30 % $24,508 $19,005 $17,377 21 5,611 95.9 % 6.8 $230,683 $2,463,487 6.87 % $71,533 $50,935 $44,536 272 5,203 96.2 % 8.3 $111,145 $1,561,406 6.49 % $35,369 $27,683 $24,180 387 26,867 96.5 % 6.8 $2,297,874 $9,166,786 5.59 % $203,162 $148,106 $127,699 24 7,498 8,164 94.5 % $1,837,890 $3,877,344 4.20 % $69,651 $45,742 $37,137 74 8,759 97.9 % 5.5 $274,687 $1,490,939 5.16 % $22,012 $16,791 $15,839 25 6,803 98.6 % 7.5 $256,074 $3,007,995 6.43 % $86,984 $57,492 $43,741 281 5,711 95.3 % 8.6 $127,543 $1,718,371 6.40 % $36,346 $29,392 $24,697 404 28,771 96.6 % 7.4 $2,496,194 $10,094,649 5.37 % $214,993 $149,417 $121,414 (2) (3) All figures have been reported at the REIT’s proportionate share, which is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Same-Property net operating income (cash basis) is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Includes right-of-use assets in a leasehold interest for Q4 2023 and Q4 2022 of $31.3 million, and $35.6 million, respectively (included within equity accounted investments), which was measured at an amount equal to the corresponding lease liabilities. Page 13 of 70 H&R REIT - MD&A - December 31, 2023 KEY PERFORMANCE DRIVERS The following table is presented at the REIT’s proportionate share by H&R's reportable operating segments and includes investment properties classified as assets held for sale. OPERATIONS Occupancy as at December 31 Occupancy – Same-Property as at December 31(1) Average annual contractual rent per sq.ft. for the twelve months ended December 31-Canadian properties(2) Residential Industrial 2023 2022 2023 2022 2023 2022 94.3 % 94.5 % 94.6 % 94.9 % N/A N/A Average annual contractual rent per sq.ft. for the twelve months ended December 31-U.S. properties (USD)(2) 2023 $27.15 2022 $26.53 Average remaining term to maturity of leases as at December 31 (in years) Average remaining term to maturity of mortgages payable as at December 31 (in years) 2023 2022 2023 2022 N/A N/A 4.6 5.4 Office(3) 95.9 % 98.6 % 96.0 % 98.9 % $21.51 $21.47 $39.00 $35.32 6.8 7.5 2.3 5.2 Retail 96.2 % 95.3 % 96.2 % 95.0 % $12.92 $12.08 $19.21 $19.17 8.3 8.6 7.0 7.8 Total 96.5 % 96.6 % 96.6 % 97.2 % $12.97 $13.09 $25.61 $24.70 6.8 7.4 4.3 5.3 99.2 % 97.9 % 99.2 % 99.4 % $8.92 $8.14 $3.41 $4.16 4.6 5.5 3.0 3.6 (1) (2) (3) Same-Property refers to those properties owned by H&R for the two-year period ended December 31, 2023. Excludes properties sold in their respective year. The Bow and 100 Wynford have been excluded from the above statistics as they were legally sold in October 2021 and August 2022, respectively. Refer to the “Other Liabilities - Deferred Revenue” section of this MD&A for further information on the accounting treatment of these two dispositions. PORTFOLIO OVERVIEW The geographic diversification of the portfolio of investment properties in which the REIT has an interest and the related square footage is disclosed at the REIT’s proportionate share as at December 31, 2023 in the tables below: Number of Properties(1)(2) Canada Ontario Alberta Other Subtotal United States Total Residential(3) Industrial Office Retail Total — 36 13 30 79 — 16 1 1 18 — 16 4 3 23 — 68 18 34 120 24 2 3 238 267 Square Feet (in thousands)(1)(2) Canada Ontario Alberta Other Subtotal United States Residential(3) Industrial Office Retail Total — 4,967 2,642 1,469 9,078 — 1,923 466 150 2,539 — 1,128 893 231 — 8,018 4,001 1,850 7,499 536 1,610 3,353 2,252 13,869 12,998 26,867 (1) (2) (3) Excludes the Bow and 100 Wynford, as these properties were legally sold in October 2021 and August 2022, respectively. Excludes all properties held for development. Refer to the “Properties Under Development” section of this MD&A for further information on properties held for development. The residential properties contain 8,166 residential rental units. Page 14 of 70 24 70 21 272 387 Total 7,499 8,554 5,611 5,203 H&R REIT - MD&A - December 31, 2023 LEASE MATURITY PROFILE The following tables disclose H&R’s leases expiring in Canada and the United States as at December 31, 2023 at the REIT’s proportionate share, excluding the Residential segment where leases typically expire annually. Canadian Portfolio: Industrial Office Retail Rent per sq.ft. ($) Rent per sq.ft. ($) Rent per sq.ft. ($) Total % of Canadian Rent per sq.ft. ($) Lease Expiries Sq.ft. on expiry Sq.ft. on expiry Sq.ft. on expiry Sq.ft. sq. ft. on expiry 2024 2025 2026 2027 2028 U.S. Portfolio: Lease Expiries 2024 2025 2026 2027 2028 (1) U.S. dollars. 959,071 726,932 407,347 11.29 419,629 8.68 64,298 15.44 1,442,998 6.83 7.99 400,219 915,089 20.32 127,266 13.62 1,254,417 15.78 104,759 13.23 1,427,195 2,947,172 7.20 341,058 22.44 126,807 10.67 3,415,037 520,759 11.79 94,740 23.96 174,098 7.43 789,597 5,561,281 8.34 2,170,735 16.65 597,228 11.32 8,329,244 10.4% 9.1% 10.3% 24.6% 5.7% 60.1 % 10.72 11.82 13.37 8.85 12.29 10.72 Industrial Office Retail Total Rent per sq.ft. ($) on expiry(1) 9.70 22.02 31.05 16.61 18.16 20.31 5.2% 3.1% 8.2% 6.5% 6.3% Rent per sq.ft. ($) on expiry(1) 3.75 — — — — Sq.ft. 123,090 — — — — Rent per sq.ft. ($) on expiry(1) Rent per sq.ft. ($) on expiry(1) Sq.ft. % of U.S. sq. ft. Sq.ft. Sq.ft. 9,000 — 16.00 156,704 14.01 288,794 — 168,882 22.02 168,882 284,062 36.01 165,894 22.55 449,956 — 2,912 — 355,311 16.61 355,311 21.00 344,873 18.14 347,785 123,090 3.75 295,974 35.25 1,191,664 18.30 1,610,728 29.3 % Page 15 of 70 H&R REIT - MD&A - December 31, 2023 TOP TWENTY SOURCES OF REVENUE BY TENANT The following table discloses H&R’s top twenty tenants, based on rentals from investment properties, as at December 31, 2023 at the REIT’s proportionate share: Tenant Hess Corporation New York City Department of Health Giant Eagle, Inc. TC Energy Corporation Corus Entertainment Inc. Canadian Tire Corporation(3) Ovintiv Inc.(4) Toronto-Dominion Bank Royal Bank of Canada Lowe's Companies, Inc. Bell Canada Finning International Inc. Telus Communications Sobeys Inc. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Metro Inc. 16. Purolator Inc. 17. Miami-Dade County(5) Deutsche Post AG 18. Government of Ontario(6) Publix Super Markets, Inc. 20. 19. % of Rentals from Investment Properties(1) Number of Locations H&R owned sq.ft. (in 000’s) 8.5 % 6.5 % 5.2 % 3.0 % 2.9 % 2.4 % 1.8 % 1.6 % 1.3 % 1.2 % 1.1 % 0.9 % 0.9 % 0.9 % 0.9 % 0.7 % 0.6 % 0.6 % 0.6 % 0.6 % 1 1 195 1 1 3 — 3 2 7 2 10 1 9 11 12 1 1 3 9 845 660 1,634 466 472 2,110 — 270 227 650 438 366 218 331 369 535 93 343 114 162 Total 42.2 % 273 10,303 Average Lease Term to Maturity (in years)(2) 9.2 Credit Ratings (S&P) BBB- Watch Positive 6.9 8.9 7.3 9.2 3.1 14.4 3.9 1.7 10.1 3.0 6.0 2.3 7.3 4.6 5.7 13.8 7.1 7.1 12.8 7.9 A+ Stable Not Rated BBB+ Negative B+ Stable BBB Stable BBB- Stable AA- Stable AA- Stable BBB+ Stable BBB+ Stable BBB+ Stable BBB Stable BBB- Stable BBB Stable Not Rated AA Stable Not Rated A+ Positive Not Rated (1) (2) (3) The percentage of rentals from investment properties is based on estimated annualized gross revenue excluding straight-lining of contractual rent, rent amortization of tenant inducements and capital expenditure recoveries. Average lease term to maturity is weighted based on net rent. Canadian Tire Corporation includes Canadian Tire and Mark’s. Ovintiv Inc. includes 15% of the net rent payable under the Ovintiv lease (as defined in the “Other Liabilities - Deferred Revenue” section of this MD&A). (4) (5) Miami-Dade County includes The Public Health Trust and Offices for State Attorney. (6) Government of Ontario includes the Financial Services Regulatory Authority of Ontario and the Liquor Control Board of Ontario. Page 16 of 70 H&R REIT - MD&A - December 31, 2023 FINANCIAL HIGHLIGHTS (in thousands except for per Unit amounts) Total assets Debt to total assets per the REIT's Financial Statements(1) Debt to total assets at the REIT's proportionate share(1)(2) Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)(3) Unitholders' equity Units outstanding Exchangeable units outstanding Unitholders' equity per Unit NAV per Unit(2)(4) December 31 December 31 December 31 2023 2022 2021 $10,777,643 $11,412,603 $10,501,141 34.2 % 44.0 % 8.5 34.4 % 44.0 % 9.6 37.1 % 46.6 % 7.2 $5,192,375 $5,487,287 $4,773,833 261,868 265,885 288,440 17,974 $19.83 $20.75 17,974 $20.64 $21.80 13,344 $16.55 $17.70 (in thousands except for per Unit amounts) Rentals from investment properties Net operating income Same-Property net operating income (cash basis)(5) Net income from equity accounted investments Fair value adjustment on real estate assets Net income (loss) Funds from Operations (“FFO”)(5) AFFO(5) Weighted average number of Units and exchangeable units for FFO FFO per basic and diluted Unit(2) AFFO per basic and diluted Unit(2) Cash Distributions per Unit Payout ratio as a % of FFO(2) Payout ratio as a % of AFFO(2) Three months ended December 31 Year ended December 31 2023 $205,904 $147,360 $127,699 $145,320 ($197,587) ($11,313) $83,650 $68,677 279,842 $0.299 $0.245 $0.250 83.6 % 102.0 % 2022 $216,835 $148,112 $121,414 $53,473 ($224,480) ($116,129) $87,874 $62,483 283,859 $0.310 $0.220 $0.188 60.6 % 85.5 % 2023 $847,146 $546,604 $507,564 $145,459 ($486,104) $61,690 $373,351 $313,171 281,815 $1.325 $1.111 $0.700 52.8 % 63.0 % 2022 $834,640 $534,949 $460,347 $47,139 $546,081 $844,823 $341,183 $287,336 290,782 $1.173 $0.988 $0.590 50.3 % 59.7 % (1) (2) (3) (4) (5) Debt includes mortgages payable, debentures payable, unsecured term loans, lines of credit and liabilities classified as held for sale. These are non-GAAP ratios. Refer to the “Non-GAAP Measures” section of this MD&A. Adjusted EBITDA is defined in the “Debt” section of this MD&A. Refer to the “Unitholders’ Equity” section of this MD&A for a detailed calculation of NAV per Unit. These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A. Page 17 of 70 H&R REIT - MD&A - December 31, 2023 SECTION III FINANCIAL POSITION The following foreign exchange rates have been used in the statement of financial position when converting U.S. dollars to Canadian dollars except where otherwise noted: For each U.S. $1.00 December 31 December 31 2023 2022 $1.32 CAD $1.36 CAD The following table reconciles the REIT's Statement of Financial Position from the REIT’s Financial Statements to the REIT’s proportionate share: (in thousands of Canadian dollars) Assets Real estate assets Investment properties Properties under development December 31, 2023 December 31, 2022 REIT's Financial Statements Equity accounted investments REIT's proportionate share(1) REIT's Financial Statements Equity accounted investments REIT's proportionate share(1) $7,811,543 $2,148,012 $9,959,555 $8,799,317 $2,128,306 $10,927,623 1,074,819 8,886,362 135,635 1,210,454 880,778 89,912 970,690 2,283,647 11,170,009 9,680,095 2,218,218 11,898,313 Equity accounted investments 1,165,012 (1,165,012) — 1,060,268 (1,060,268) Assets classified as held for sale Other assets Cash and cash equivalents Liabilities and Unitholders’ Equity Liabilities Debt Exchangeable units Deferred Revenue Deferred tax liability Accounts payable and accrued liabilities Liabilities classified as held for sale Non-controlling interest Unitholders’ equity — 294,028 323,217 115,330 293,150 369,008 64,111 — 21,866 36,933 293,150 390,874 101,044 294,028 301,325 76,887 — 21,892 38,443 $10,777,643 $1,177,434 $11,955,077 $11,412,603 $1,218,285 $12,630,888 $3,686,833 $1,097,839 $4,784,672 $3,922,529 $1,137,210 $5,059,739 177,944 947,671 437,214 335,606 — — 5,585,268 5,192,375 — — — 60,176 — 19,419 177,944 947,671 437,214 395,782 — 19,419 217,668 986,243 483,048 309,505 6,323 — — — — 58,502 — 22,573 1,177,434 6,762,702 5,925,316 1,218,285 — 5,192,375 5,487,287 — 217,668 986,243 483,048 368,007 6,323 22,573 7,143,601 5,487,287 $10,777,643 $1,177,434 $11,955,077 $11,412,603 $1,218,285 $12,630,888 (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Page 18 of 70 H&R REIT - MD&A - December 31, 2023 INVESTMENT PROPERTIES 2023 Acquisitions H&R did not acquire any investment properties during the year ended December 31, 2023. 2022 Acquisitions Property 7-21, 23-31 Prince Andrew Pl., Toronto, ON(1) 2218 Bryan St., Dallas, TX(2) Total Year Built /Renovated Segment Date Acquired Square Feet Purchase Price ($ Millions) Ownership Interest Acquired 1964 Industrial Oct 14, 2022 1907/2017 Office Dec 19, 2022 36,999 92,818 129,817 $10.5 67.1 $77.6 50 % 100 % (1) (2) Square feet and purchase price are based on the ownership interest acquired. This U.S. acquisition has been translated to Canadian dollars using the exchange rate on the day the property was acquired. 2023 Dispositions Property 2611-3rd Ave. S.E., Calgary, AB(1)(2) 749 Douglas Fir Rd., Sparwood, BC(1)(2) 160 Elgin St., Ottawa, ON(1) 9331-48th St., Edmonton, AB(2) 225 Joseph Casavant Ave., Beauport, QC 1 Boul. Bouthillier, Rosemere, QC 7277 St. Jacques St., Montreal, QC 5035 Boul. Cousineau, Saint-Hubert, QC 5901 E. Fowler Ave., Temple Terrace, FL(3) 4845 & 4865 Alabama Rd., Roswell, GA(3) 7575 Brewster Ave., Philadelphia, PA(3) 9330 Amberton Pkwy., Dallas, TX(3) 10755 Finning Front., Fort St. John. BC(2) Total Segment Date Sold Office Jan 23, 2023 Industrial Jan 27, 2023 Office Apr 20, 2023 Industrial May 24, 2023 Retail Retail Retail Retail Office Retail Jul 6, 2023 Jul 6, 2023 Jul 6, 2023 Jul 6, 2023 Aug 1, 2023 Aug 2, 2023 Square Feet 47,613 15,892 973,661 14,916 124,182 124,851 110,004 117,765 85,725 13,510 Industrial Oct 3, 2023 163,936 Office Oct 12, 2023 Industrial Nov 20, 2023 92,694 10,630 Selling Price ($ Millions) Ownership Interest Sold $16.8 2.2 277.0 0.6 17.2 16.9 17.5 16.4 17.7 4.7 37.7 7.0 1.2 50 % 50 % 100 % 50 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 50 % 1,895,379 $432.9 (1) (2) (3) Classified as held for sale as at December 31, 2022. Square feet and selling price are based on the ownership interest sold, and H&R no longer holds any ownership interest in these assets. U.S. dispositions have been translated to Canadian dollars using the exchange rate on the day the property was sold. Page 19 of 70 2022 Dispositions(1) Property 16542 Keystone Blvd., Parker, CO(2) 3332 Arapahoe Rd., Erie, CO(2) 7520 Village Square Dr., Castle Rock, CO(2) 22994 E. Smoky Hill Rd., Aurora, CO(2) 593 Summit Blvd., Broomfield, CO(2) 901 Supermall Rd., Auburn, WA(2) 1546 E. Ray Rd., Gilbert, AZ(2) 327 W. Sunset Rd., San Antonio, TX(2)(3) 5321-11th St. N.E., Calgary, AB(4) 2767 2nd Ave., Calgary, AB 2665 32nd St., Calgary, AB 2342 Princess St., Kingston, ON 8237 & 8333 West Thunderbird Rd., Peoria, AZ(2) 1947 & 1959 South Greenfield Rd., Mesa, AZ(2) 649 North Service Rd., Burlington, ON 4901 & 4951 W. Eldorado Pkwy., McKinney, TX(2) Total H&R REIT - MD&A - December 31, 2023 Segment Retail Retail Retail Retail Retail Retail Retail Date Sold Jun 10, 2022 Jun 10, 2022 Jun 10, 2022 Jun 10, 2022 Jun 10, 2022 Jun 10, 2022 Jun 10, 2022 Square Feet 13,417 12,007 11,707 13,283 14,441 14,434 14,916 Residential Jun 23, 2022 259,951 Industrial Jun 23, 2022 Office Aug 31, 2022 Aug 31, 2022 21,493 69,793 89,438 Retail Retail Retail Retail Office Retail Aug 31, 2022 129,181 Oct 3, 2022 Oct 3, 2022 Oct 24, 2022 Dec 30, 2022 11,811 13,498 123,000 13,404 825,774 Selling Price ($ Millions) Ownership Interest Sold $12.5 7.4 10.2 12.0 11.8 8.4 12.1 90.1 3.5 18.7 14.1 14.2 11.3 12.0 26.0 6.7 $271.0 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 50 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % (1) Excludes the sale of 100 Wynford for $120.8 million. This transaction did not meet the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of 100 Wynford in 2036 or earlier under certain circumstances. As such, the REIT continues to recognize the income producing property. Refer to the “Other Liabilities - Deferred Revenue” section of this MD&A for further information. (2) U.S. dispositions have been translated to Canadian dollars using the exchange rate on the day the property was sold. (3) (4) Property consists of 312 residential rental units. Square feet and selling price are based on the ownership interest sold, and H&R no longer holds any ownership interest in this asset. Investment Properties and Properties under Development by Segment and Region The following tables disclose the fair values of the investment properties and properties under development by operating segment and geographic location, excluding assets held for sale for the periods indicated: REIT's Financial Statements Equity Accounted Investments December 31, 2023 Operating Segment (in thousands of Canadian dollars) Investment Properties Properties Under Development Investment Properties Properties Under Development REIT's Proportionate Share(1) The Bow and 100 Wynford Total % Residential Industrial Office Retail Total $2,399,491 $652,859 $1,269,365 $87,255 $4,408,970 $— $4,408,970 43.7% 1,391,722 410,930 20,665 19,168 1,842,485 — 1,842,485 18.3% 3,316,906 11,030 — — 3,327,936 (1,085,919) 2,242,017 22.2% 703,424 — 857,982 29,212 1,590,618 — 1,590,618 15.8% $7,811,543 $1,074,819 $2,148,012 $135,635 $11,170,009 ($1,085,919) $10,084,090 100.0% (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Page 20 of 70 H&R REIT - MD&A - December 31, 2023 REIT's Financial Statements Equity Accounted Investments December 31, 2023 Geographic Location (in thousands of Canadian dollars) Investment Properties Properties Under Development Investment Properties Properties Under Development REIT's Proportionate Share(1) The Bow and 100 Wynford Total % Ontario Alberta Other Canada United States Total $2,150,385 $410,930 $— $19,168 $2,580,483 ($108,968) $2,471,515 24.5% 1,390,283 — 429,680 11,030 3,970,348 421,960 — — — — — 1,390,283 (976,951) 413,332 4.1% 440,710 — 440,710 4.4% 19,168 4,411,476 (1,085,919) 3,325,557 33.0% 3,841,195 652,859 2,148,012 116,467 6,758,533 — 6,758,533 67.0% $7,811,543 $1,074,819 $2,148,012 $135,635 $11,170,009 ($1,085,919) $10,084,090 100.0% (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. REIT's Financial Statements Equity Accounted Investments December 31, 2022 Operating Segment (in thousands of Canadian dollars) Investment Properties Properties Under Development Investment Properties Properties Under Development REIT's Proportionate Share(1) The Bow and 100 Wynford Total % Residential Industrial Office Retail Total $2,691,961 $527,416 $1,185,383 $55,457 $4,460,217 $— $4,460,217 41.4% 1,468,147 344,233 20,604 19,824 1,852,808 — 1,852,808 17.2% 3,843,157 9,129 — — 3,852,286 (1,127,002) 2,725,284 25.3% 796,052 — 922,319 14,631 1,733,002 — 1,733,002 16.1% $8,799,317 $880,778 $2,128,306 $89,912 $11,898,313 ($1,127,002) $10,771,311 100.0% (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. REIT's Financial Statements Equity Accounted Investments December 31, 2022 Geographic Location (in thousands of Canadian dollars) Investment Properties Properties Under Development Investment Properties Properties Under Development REIT's Proportionate Share(1) The Bow and 100 Wynford Total % Ontario Alberta Other Canada United States Total $2,465,607 $344,233 $— $19,824 $2,829,664 ($116,367) $2,713,297 25.2% 1,427,477 — 552,760 9,128 4,445,844 353,361 — — — — — 1,427,477 (1,010,635) 416,842 3.9% 561,888 — 561,888 5.2% 19,824 4,819,029 (1,127,002) 3,692,027 34.3% 4,353,473 527,417 2,128,306 70,088 7,079,284 — 7,079,284 65.7% $8,799,317 $880,778 $2,128,306 $89,912 $11,898,313 ($1,127,002) $10,771,311 100.0% (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. VALUATION OF INVESTMENT PROPERTIES The estimated fair values of the REIT’s real estate assets are based on the following methods and significant assumptions: (i) Discounted cash flow analyses which are based upon, among other things, future cash inflows in respect of rental income from current leases and assumptions about rental income from future leases reflecting market conditions at the reporting period, less future cash outflows in respect of such leases and capital expenditures for the property utilizing appropriate discount rates and terminal capitalization rates, generally over a minimum term of 10 years; (ii) The direct capitalization method which calculates fair value by applying a capitalization rate to future cash flows based on stabilized net operating income; and Page 21 of 70 H&R REIT - MD&A - December 31, 2023 (iii) The comparable sales approach, which estimates fair value based on the market value per unit of measure which is established by recent sales activity in the same or similar markets. During the year ended December 31, 2023, certain properties were valued by professional external independent appraisers. When an external independent appraisal is obtained, the REIT's internal valuation team assesses the significant assumptions used in the appraisal and holds discussions with the external independent appraiser on the reasonableness of their assumptions. External independent appraisals received throughout the year per the REIT’s Financial Statements represent 16.5% of the fair value of investment properties as at December 31, 2023 (year ended December 31, 2022 - 21.4%). External independent appraisals received throughout the year per the REIT’s proportionate share (a non-GAAP measure, refer to the “Non-GAAP Measures” section of this MD&A) and excluding The Bow and 100 Wynford represent 27.4% of the fair value of investment properties as at December 31, 2023 (year ended December 31, 2022 - 29.7%). The REIT utilizes external industry sources to determine a range of capitalization, discount and terminal capitalization rates. To the extent that the ranges of these externally provided rates change from one reporting period to the next, the fair value of the investment properties is adjusted accordingly. The weighted average capitalization rates disclosed below are reported by segment and geographic location at the REIT’s proportionate share (a non-GAAP measure, refer to the “Non-GAAP Measures” section of this MD&A), including assets classified as held for sale which differs from the REIT’s Financial Statements. The Bow and 100 Wynford have been excluded from the Canada Office and Total capitalization rates for both periods below as these properties were legally sold in October 2021 and August 2022, respectively. December 31, 2023 Canada United States Total Residential Industrial — 4.47 % 4.47 % 5.24 % 8.49 % 5.30 % Office 6.22 % 7.68 % 6.87 % Retail 6.33 % 6.54 % 6.49 % Total 5.79 % 5.48 % 5.59 % As at December 31, 2023, the weighted average capitalization rate for residential properties in the U.S. sun belt states was 5.00%, resulting in an overall weighted average capitalization rate of 4.47% for the residential portfolio. As at December 31, 2023, the weighted average Canadian office capitalization rate was 6.22%, which was comprised of a 4.96% capitalization rate for 8 Canadian properties designated for future intensification and a 7.56% capitalization rate for 10 Canadian properties expected to be sold as part of H&R’s plan to sell office properties. December 31, 2022 Canada United States Total Residential Industrial — 4.20 % 4.20 % 5.09 % 6.72 % 5.16 % Office 6.11 % 6.86 % 6.43 % Retail 6.20 % 6.47 % 6.40 % Total 5.72 % 5.18 % 5.37 % As at December 31, 2022, the weighted average capitalization rate for the properties in the U.S. sun belt states increased to 4.35%, resulting in an overall weighted average capitalization rate of 4.20% for the residential portfolio. As at December 31, 2022, the weighted average Canadian office capitalization rate was 6.11%, which was comprised of a 4.83% capitalization rate for 8 Canadian properties designated for future intensification and a 7.13% capitalization rate for 12 Canadian properties expected to be sold as part of H&R’s plan to sell office properties. Page 22 of 70 H&R REIT - MD&A - December 31, 2023 PROPERTIES UNDER DEVELOPMENT Canadian Properties Under Development The Canadian properties currently held for development are: As at December 31, 2023 At H&R's Ownership Interest (in thousands of Canadian dollars) Current Developments:(1) 1965 Meadowvale Blvd., Mississauga, ON(2) 1925 Meadowvale Blvd., Mississauga, ON(3) Future Developments:(4) Industrial Lands (Remaining lands), Caledon, ON 3791 Kingsway, Burnaby, BC(5) Ownership Interest Square Feet Number of Acres Total Development Budget Costs Incurred to Date(6) Costs Remaining to Complete 100.0 % 100.0 % 100.0 % 50.0 % 187,290 149,510 336,800 336,800 7.5 8.0 15.5 117.6 0.3 117.9 133.4 $46,879 $42,333 38,682 85,561 33,793 76,126 $4,546 4,889 9,435 — — — 75,893 11,030 86,923 — — — $85,561 $163,049 $9,435 Expected Yield on Budgeted Cost Expected Completion Date 7.1% 6.7% Q1 2024 Q1 2024 (1) (2) (3) (4) (5) (6) Current Developments are projects under active construction or anticipated to commence active construction in the next three months whereby the REIT is committed to completing the development. In February 2023, H&R entered into a lease agreement to fully lease 1965 Meadowvale Blvd. for a term of 10 years at market rents with annual contractual rental escalations. In March 2023, H&R entered into a lease agreement to fully lease 1925 Meadowvale Blvd. for a term of 12.5 years at market rents with annual contractual rental escalations. Future Developments include sites advancing through zoning by-law applications, approvals, legal obligations, and clearing environmental encumbrances. These sites may be shovel ready but still require financial commitments and are not anticipated to commence active construction in the next three months. Excess land held for future redevelopment. This land is adjacent to the REIT’s 3777 Kingsway office tower of which H&R also has a 50% ownership interest. Excludes fair value adjustments to Canadian properties under development totalling $258.9 million as at December 31, 2023. U.S. Properties Under Development In April 2023, H&R acquired a 50% ownership interest in 27.0 acres of land in Orlando, FL (“West Town”) for $18.4 million (U.S. $13.8 million) at H&R’s ownership interest, which is expected to be developed into 541 residential rental units. The site is located in the Altamonte Springs submarket of Orlando and is close to Maitland, a large professional office submarket, as well as Cranes Roost Park, the Altamonte Mall and numerous retailers. The REIT’s U.S. development pipeline consists of the following: (i) two current residential developments and (ii) 14 land parcels held for future residential development: Page 23 of 70 H&R REIT - MD&A - December 31, 2023 As at December 31, 2023 At H&R's Ownership Interest (in thousands of U.S. dollars) Current Developments:(1) West Love, Dallas, TX Midtown, Dallas, TX Future Developments:(2) The Cove, Jersey City, NJ 12 Remaining Future Developments West Town, Orlando, FL Ownership Interest Number of Acres Number of Residential Rental Units Total Development Budget Costs Incurred to Date Costs Remaining to Complete Expected Yield on Budgeted Cost Expected Completion Date 100.0 % 100.0 % 100.0 % 100.0 % 50.0 % 5.4 4.2 9.6 12.4 107.8 13.5 133.7 143.3 413 350 763 2,840 4,559 271 7,670 8,433 $105,692 $69,256 $36,436 104,113 209,805 51,021 120,277 53,092 89,528 5.7% 5.7% Q3 2024 Q4 2024 — — — — 177,502 182,640 14,171 374,313 — $209,805 $494,590 $89,528 (1) (2) Current Developments are projects under active construction or anticipated to commence active construction in the next three months whereby the REIT is committed to completing the development. Future Developments include sites advancing through zoning by-law applications, approvals, legal obligations, and clearing environmental encumbrances. These sites may be shovel ready but still require financial commitments and are not anticipated to commence active construction in the next three months. FUTURE INTENSIFICATION OPPORTUNITIES As at December 31, 2023, H&R is advancing the following properties through the process of rezoning into their highest and best use (figures below are shown at H&R’s ownership interest). Geography Ownership Future Use Current Square Feet Anticipated Residential Units Anticipated Square Feet Approval Status(3) Municipal Approval Date Property(1)(2) 145 Wellington St. W. 310 Front St. W. 6900 Maritz Dr. 69 Yonge St. 53 & 55 Yonge St. Toronto, ON Toronto, ON 200 Bouchard Blvd. 3777 & 3791 Kingsway(4) Burnaby, BC Toronto, ON 77 Union St. Dorval, QC Toronto, ON Toronto, ON 100% 100% Residential 160,098 Residential 122,486 Mississauga, ON 100% Industrial 104,689 100% 100% 100% 50% 100% Residential 88,006 Residential 171,758 Residential 437,157 Residential 335,778 Residential 195,000 1,614,972 512 578 — 125 511 850 1,250 1,400 5,226 555,687 ZBA Approved & SPA Submitted August 2022 541,784 ZBA Approved & SPA Submitted August 2023 122,413 SPA Approved (with conditions) January 2024 135,000 ZBA & SPA Submitted 552,925 ZBA & SPA Submitted 990,000 Submission Pending 1,230,000 SPoD Submitted 1,100,000 ZBA & SPA Submitted 5,227,809 March 2024 Q1 2024 2024 2024 2024 (1) (2) (3) (4) These properties are currently included in H&R’s Office segment, except 77 Union St. which is included in H&R’s Industrial segment. Excludes 100 Wynford which was sold in August 2022, however the REIT will continue to advance the rezoning process for redevelopment as it has an option to repurchase 100% of the property for approximately $159.7 million in 2036 or earlier under certain circumstances. Zoning By-Law Amendment is referred to as “ZBA”, Site Plan Control Application is referred to as “SPA” and Suitable Plan of Development is referred to as “SPoD” in the table above. 3777 & 3791 Kingsway figures for current square feet, anticipated residential units and anticipated commercial square feet have been shown at H&R’s ownership interest. In February 2023, H&R attended a settlement hearing with the Ontario Land Tribunal (“OLT”) and received rezoning approval with conditions for 53 & 55 Yonge Street for a 66-storey mixed use tower, including approximately 511 residential units, 159,000 square feet of replacement office area and 13,000 square feet of retail area. Subsequently, H&R made re-submissions to clear the conditions set by the OLT. H&R expects to have rezoning approval in place by the end of Q1 2024. In July 2023, the final report recommending approval of the rezoning application for 310 Front Street West was adopted by Toronto City Council. The statutory appeal period for the passing of the zoning by-law was completed in August 2023, and the rezoning came into force and became binding. The rezoning approval is for a 65-storey mixed use tower including, 578 residential units, approximately 119,000 square feet of replacement office area and approximately 2,000 square feet of retail area. Page 24 of 70 H&R REIT - MD&A - December 31, 2023 In Q1 2023, H&R entered into a lease amendment with its tenant at 6900 Maritz Drive in Mississauga, ON to terminate their lease in December 2023. The terms of the rental payments to December 2023 did not change. In October 2023, H&R submitted a Site Plan approval application for 6900 Maritz Drive to the City of Mississauga to replace the existing 104,689 square foot office building with a new 122,413 square foot industrial building. Demolition of the existing office building has commenced and Site Plan approval with conditions was received in January 2024. Construction is expected to commence in Spring 2024. EQUITY ACCOUNTED INVESTMENTS (in thousands of Canadian dollars) Investment properties Properties under development Other assets Cash and cash equivalents Debt Accounts payable and accrued liabilities Non-controlling interest December 31, 2023 December 31, 2022 ------- Associates-------- Joint Ventures(1) ECHO Jackson Park $857,982 $1,138,845 29,212 17,668 9,733 (342,410) (48,348) (19,419) $504,418 — 1,905 5,311 (654,336) (7,802) — $151,185 106,423 2,293 21,889 Total(2) $2,148,012 135,635 21,866 36,933 (101,093) (1,097,839) (4,026) — (60,176) (19,419) $483,923 $176,671 $1,165,012 $537,106 $355,503 $167,659 $1,060,268 (1) (2) Joint ventures include Slate Drive, one industrial property, Hercules Project, Shoreline, Central Pointe and Sunny Creek. Each of these line items represent the REIT’s proportionate share of equity accounted investments, which are reconciled to the total equity accounted investments per the REIT’s Financial Statements. This is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Jackson Park H&R owns a 50% interest in Jackson Park, a 1,871 luxury residential rental unit development in Long Island City, NY. ECHO H&R owns a 33.1% interest in Echo Realty LP (“ECHO”), a privately held real estate and development company that focuses on developing and owning a core portfolio of grocery anchored shopping centres, primarily in Pennsylvania and Ohio. ECHO reports its financial results to H&R one month in arrears. ECHO’s financial information has been disclosed as at November 30, 2023 and November 30, 2022, respectively. As at November 30, 2023, H&R’s interest in ECHO consisted of 233 investment properties totalling approximately 2.8 million square feet and 13 properties under development. Giant Eagle, Inc., a supermarket chain in the United States, is ECHO’s largest tenant with 195 locations totalling approximately 1.6 million square feet at H&R’s ownership interest with an average lease term to maturity of 8.9 years. Giant Eagle represents approximately 55.6% of revenue earned by ECHO. During the twelve months ended November 30, 2023, ECHO acquired eight properties under development for $6.8 million (U.S. $5.0 million), at H&R’s ownership interest. During this period, ECHO sold two investment properties totalling 1,398 square feet for $0.4 million (U.S. $0.3 million) and had four ground leases expire which ECHO did not renew totalling 3,745 square feet, all at H&R’s ownership interest. ECHO also transferred two properties under development to investment properties totalling 2,775 square feet for a total value of $2.9 million (U.S. $2.2 million), at H&R’s ownership interest. Slate Drive In November 2020, H&R acquired a 50% ownership interest in 24.6 acres of land in Mississauga, ON, which is expected to be developed into two industrial buildings totalling 249,260 square feet at H&R’s ownership interest. Construction is expected to commence on both buildings in 2024. One industrial property H&R owns a 50.5% interest in 170 Butts St., South Hill, VA through a joint venture with its partners. Page 25 of 70 H&R REIT - MD&A - December 31, 2023 Hercules Project H&R has a 31.7% non-managing ownership interest in 24.1 acres of land located in Hercules, CA, adjacent to San Pablo Bay, northeast of San Francisco, for the future development of residential rental units. This waterfront, multi-phase, master-planned, in- fill mixed use development surrounds a future intermodal transit centre, including train and ferry service, and is adjacent to an 11- acre future waterfront regional park. The initial investment to purchase the land was approximately $13.1 million (U.S. $10.0 million), at H&R’s ownership interest. As at December 31, 2023, H&R’s equity investment was approximately $20.7 million (U.S. $15.7 million). Phase 2 of the Hercules Project, known as “The Grand at Bayfront”, consists of 232 residential rental units including a state-of-the- art fitness centre, bike shop, residents lounge and sporting club. It is situated on 3.0 acres of land and is located north/northeast of Phase 1 of the Hercules Project, which was disposed of by H&R in September 2021. Construction commenced in March 2019 and substantial completion was achieved in June 2022, resulting in the REIT transferring this property from properties under development to investment properties within equity accounted investments. The remaining land parcels totalling 21.1 acres are secured against a $4.9 million (U.S. $3.7 million) land loan at H&R’s ownership interest. Future phases will be announced as further development information becomes available. Shoreline H&R has a 31.2% non-managing ownership interest in Shoreline, a residential development site, which consists of a 315 luxury residential rental unit tower with 6,643 square feet of retail space. Located in Long Beach, CA, Shoreline is the tallest residential tower in Long Beach with 35 floors enjoying views overlooking the Pacific Ocean. Construction commenced in November 2018 and substantial completion was achieved in June 2022, resulting in the REIT transferring this property from properties under development to investment properties within equity accounted investments. Central Pointe In September 2022, H&R acquired a non-managing 50% ownership interest in 8.4 acres of land in Santa Ana, CA for $34.7 million (U.S. $26.3 million) and obtained a variable rate land loan for $17.3 million (U.S. $13.1 million) for an 18-month term at H&R’s ownership interest. The site is expected to consist of two buildings totalling 325 residential rental units and 319 residential rental units, respectively, as well as 15,131 square feet of retail space. The site is located within one block off the I-5 freeway and within several miles of Downtown Santa Ana, South Coast Metro, Irvine, Anaheim and Orange County. Sunny Creek In June 2023, H&R acquired a 33.3% non-managing ownership interest in 17.6 acres of land in Carlsbad, CA for $22.6 million (U.S. $17.0 million) at H&R’s ownership interest. The site is located in Carlsbad, a coastal city in northwest San Diego County, approximately four miles from Carlsbad State Beach and downtown Carlsbad, and is close to major highways and business parks, including the headquarters for TaylorMade and Callaway. The site is expected to include an apartment project consisting of 227 residential rental units and a for sale townhome project comprising 130 units for sale. Assets and Liabilities Classified as Held for Sale As at December 31, 2023, H&R had one Canadian office property and a 50% interest in one Canadian industrial property classified as held for sale with an aggregate fair value of $293.2 million. As at December 31, 2022, H&R had one Canadian office property, a 50% interest in one Canadian office property and a 50% interest in one Canadian industrial property with an aggregate fair value of $294.0 million and liabilities of $6.3 million classified as held for sale. Page 26 of 70 H&R REIT - MD&A - December 31, 2023 Other Assets (in thousands of Canadian dollars) Mortgages receivable Prepaid expenses and sundry assets Accounts receivable - net of provision for expected credit loss of $3,556 (2022 - $4,946) Restricted cash Derivative instruments December 31, 2023 December 31, 2022 $166,077 $169,190 70,482 5,905 96,625 29,919 61,212 5,318 27,444 38,161 $369,008 $301,325 Restricted cash increased by approximately $69.2 million from approximately $27.4 million as at December 31, 2022 to approximately $96.6 million as at December 31, 2023, primarily due to proceeds from the sale of U.S. properties and proceeds on disposal of purchase option held in escrow for property exchanges under Section 1031 of the U.S. Internal Revenue Code. DEBT Debt to total assets per the REIT's Financial Statements(1) Debt to total assets at the REIT's proportionate share(1)(2) Unencumbered assets(3) (in thousands of Canadian dollars) Unsecured debt(3) (in thousands of Canadian dollars) Unencumbered asset to unsecured debt coverage ratio(3) Debt to Adjusted EBITDA at the REIT's proportionate share(1)(2)(4) Non-recourse mortgages to total mortgages ratio Weighted average interest rate of debt(1) Weighted average term to maturity of debt (in years)(1) Weighted average interest rate of debt at the REIT's proportionate share(1)(2) Weighted average term to maturity of debt (in years) at the REIT's proportionate share(1)(2) December 31, 2023 December 31, 2022 34.2 % 44.0 % $4,223,082 $1,953,440 2.16 8.5 59.8 % 4.0 % 2.5 4.1 % 3.0 34.4 % 44.0 % $4,852,067 $2,296,668 2.11 9.6 59.2 % 3.8 % 3.2 3.9 % 3.8 (1) (2) (3) Debt includes mortgages payable, debentures payable, unsecured term loans, lines of credit and liabilities classified as held for sale. These are non-GAAP measures and/or non-GAAP ratios. Refer to the “Non-GAAP Measures” section of this MD&A. Unencumbered assets are investment properties and properties under development without encumbrances for mortgages or lines of credit. Unsecured debt includes debentures payable, unsecured term loans and unsecured lines of credit. Debt Breakdown H&R’s debt consists of the following items: (in thousands of Canadian dollars) Mortgages payable Debentures payable Unsecured term loans Lines of credit December 31, 2023 December 31, 2022 REIT’s Financial Statements $1,459,163 1,297,960 625,000 304,710 Equity Accounted Investments $825,152 REIT’s Proportionate Share(1) $2,284,315 REIT’s Financial Statements $1,613,361 Equity Accounted Investments $859,167 REIT’s Proportionate Share(1) $2,472,528 — — 272,687 1,297,960 1,546,668 625,000 577,397 750,000 12,500 — — 278,043 1,546,668 750,000 290,543 $3,686,833 $1,097,839 $4,784,672 $3,922,529 $1,137,210 $5,059,739 (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Debentures payable per the REIT’s Financial Statements decreased by approximately $248.7 million from approximately $1,546.7 million as at December 31, 2022 to approximately $1,298.0 million as at December 31, 2023, primarily due to the REIT redeeming all of its $250.0 million outstanding 3.416% Series O Senior Debentures in January 2023. Page 27 of 70 H&R REIT - MD&A - December 31, 2023 Unsecured term loans per the REIT’s Financial Statements decreased by $125.0 million from $750.0 million as at December 31, 2022 to $625.0 million as at December 31, 2023, primarily due to the REIT repaying a $125.0 million unsecured term loan in August 2023, originally scheduled to mature on November 30, 2024. Lines of credit per the REIT’s Financial Statements increased by $292.2 million from approximately $12.5 million as at December 31, 2022 to approximately $304.7 million as at December 31, 2023, primarily due to the REIT and CrestPSP securing a new $275.0 million non-revolving secured line of credit in March 2023, at the REIT’s ownership interest, for a three year term. The REIT and CrestPSP terminated the previous revolving secured line of credit and H&R used these new proceeds to repay unsecured lines of credit. Refer to the “Liquidity and Capital Resources” section of this MD&A for further information on H&R’s debt breakdown. Debt by Operating Segment The following table discloses H&R’s debt by operating segment: December 31, 2023 December 31, 2022 (in thousands of Canadian dollars) Residential Industrial Office Retail Corporate REIT’s Financial Statements Equity Accounted Investments $955,964 $755,429 REIT’s Proportionate Share(1) $1,711,393 531,782 230,237 15,410 1,953,440 — — 342,410 531,782 230,237 357,820 REIT’s Financial Statements $1,071,711 286,711 249,185 18,254 Equity Accounted Investments $779,951 REIT’s Proportionate Share(1) $1,851,662 — — 357,259 286,711 249,185 375,513 — 1,953,440 2,296,668 — 2,296,668 (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. $3,686,833 $1,097,839 $4,784,672 $3,922,529 $1,137,210 $5,059,739 Page 28 of 70 H&R REIT - MD&A - December 31, 2023 Debt to Adjusted EBITDA at the REIT’s Proportionate Share The following table provides a reconciliation of Debt to Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) at the REIT’s proportionate share. This is a non-GAAP ratio. Refer to the “Non-GAAP Measures” section of this MD&A. Debt per the REIT's Financial Statements Debt - REIT's proportionate share of equity accounted investments Debt at the REIT's proportionate share Years ended December 31 Net income per the REIT's Financial Statements Net income from equity accounted investments (within equity accounted investments) Finance costs - operations Fair value adjustments on financial instruments and real estate assets (Gain) loss on sale of real estate assets, net of related costs Income tax (recovery) expense Non-controlling interest Adjustments: The Bow and 100 Wynford non-cash rental income adjustments Straight-lining of contractual rent Fair value adjustment to unit-based compensation Adjusted EBITDA at the REIT's proportionate share Debt to Adjusted EBITDA at the REIT's proportionate share December 31 2023 December 31 2022 $3,686,833 $3,928,852 1,097,839 4,784,672 1,137,210 5,066,062 2023 61,690 (426) 266,795 363,547 9,420 (30,484) 1,254 (92,920) (12,100) (5,134) 2022 844,823 (1,132) 260,288 (582,538) (7,493) 101,634 967 (86,555) (6,890) 2,172 $561,642 $525,276 8.5 9.6 Debt to Adjusted EBITDA at the REIT’s proportionate share has decreased to 8.5x as at December 31, 2023 compared to 9.6x as at December 31, 2022, primarily due to the proceeds on disposal of purchase option as well as proceeds from property dispositions used to repay debt. OTHER LIABILITIES Exchangeable Units As at December 31, 2023, certain of the REIT’s subsidiaries had in aggregate 17,974,186 (December 31, 2022 - 17,974,186) exchangeable units outstanding which are puttable instruments where, upon redemption, the REIT has a contractual obligation to issue Units. Holders of all exchangeable units are entitled to receive the economic equivalence of distributions on a per unit amount equal to a per Unit amount provided to holders of Units. These puttable instruments are classified as a liability under IFRS and are measured at fair value through profit and loss. At the end of each reporting period, the fair value is determined by using the quoted price of Units on the TSX as the exchangeable units are exchangeable into Units at the option of the holder. The quoted price as at December 31, 2023 was $9.90 (December 31, 2022 - $12.11) per Unit. The following number of exchangeable units are issued and outstanding: As at December 31, 2023 As at December 31, 2022 Number of Exchangeable Units 17,974,186 17,974,186 Quoted Price of Units Amounts per the REIT's Financial Statements ($000’s) $9.90 $12.11 $177,944 $217,668 The REIT has entered into various exchange agreements that provide, among other things, the mechanics whereby exchangeable units may be exchanged for Units. Page 29 of 70 H&R REIT - MD&A - December 31, 2023 Deferred Revenue (a) Bow deferred revenue (i) Sale of the Bow property and 40% interest in the Ovintiv lease In October 2021, the REIT sold its interest in the Bow including 40% of the future income stream derived from the Ovintiv lease (“Ovintiv lease”) until the end of the lease term in May 2038 to an arm’s length third party, Oak Street Real Estate Capital (“Oak Street”), for approximately $528.0 million. Subsequent to the maturity of the Ovintiv lease, Oak Street will receive all future lease revenue earned by the Bow. Although the REIT sold the Bow, the transaction did not meet the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of the Bow for approximately $737.0 million ($368 per sq. ft.) in 2038 or earlier under certain circumstances. This option is substantially below the aggregate sale proceeds of $946.0 million and it provides H&R the ability to capture potential upside in the Calgary office market over an extended time frame of approximately 14 years. As such, the REIT continues to recognize the income producing property whereby the fair value will be adjusted over the remaining life of the Ovintiv lease bringing the value of the real estate asset to nil by the lease maturity. The net proceeds received by the REIT on disposition were $496.1 million. These proceeds were recorded as deferred revenue (classified as a liability) and will be amortized over the remaining term of the Ovintiv lease (40% of the rental income remitted to Oak Street will consist of principal and interest). (ii) Sale of 45% interest in the Ovintiv lease In a separate transaction, in October 2021, the REIT sold 45% of its residual 60% interest in the future income stream derived from the Ovintiv lease to an arm’s length third party that was financed by Deutsche Bank Credit Solutions and Direct Lending (“Deutsche Bank”). The REIT received a lump-sum cash payment of $418.0 million as consideration. The net proceeds received of $408.3 million were also recorded as deferred revenue (classified as a liability) and will be amortized over the remaining term of the Ovintiv lease as the 45% lease payments are made to Deutsche Bank and will consist of principal and interest. As a result of the above transactions, H&R is legally only entitled to 15% of the lease revenue from the Ovintiv lease until the end of the lease term in May 2038. (b) 100 Wynford deferred revenue On August 31, 2022, the REIT sold its interest in 100 Wynford to an arm’s length third party, Blue Owl Capital, formerly Oak Street (“Blue Owl”) for approximately $120.8 million. Although the REIT sold 100 Wynford, the transaction did not meet the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of 100 Wynford for approximately $159.7 million in 2036 or earlier under certain circumstances. As such, the REIT continues to recognize the income producing property whereby the fair value will be adjusted over the remaining life of the Bell lease bringing the value of the real estate asset to nil by the lease maturity in April 2036. The net proceeds received by the REIT on disposition were $118.6 million. These proceeds were recorded as deferred revenue (classified as a liability) and will be amortized over the remaining term of the Bell lease and will consist of principal and interest. The following is a summary of the Bow and 100 Wynford in the consolidated statements of financial position in the REIT’s Financial Statements: Income producing property - fair value(1) Deferred revenue - net of amortization of $75,314 (2022 - $36,742) December 31, 2023 December 31 The Bow 100 Wynford Total 2022 $976,951 $108,968 $1,085,919 $1,127,002 838,861 108,810 947,671 986,243 (1) The fair value of the income producing properties will be reduced as the remaining financial benefit from these income producing properties diminishes over the term of their respective leases. Page 30 of 70 H&R REIT - MD&A - December 31, 2023 The following is a summary of the financial results for the Bow and 100 Wynford included in the consolidated statements of comprehensive income (loss) as well as a reconciliation of the Bow and 100 Wynford's contribution to FFO and AFFO: Rental income earned Rental income earned - non-cash Revenue reimbursement for property operating costs Property operating costs Net operating income Accretion finance expense on deferred revenue - non-cash Fair value adjustment on real estate assets - non-cash Net income (loss) Fair value adjustment on real estate assets Non-cash rental income and accretion adjustment FFO(1) Capital expenditures AFFO(1) Three months ended December 31 The Bow 100 Wynford $3,938 21,169 13,268 (13,266) 25,109 (13,139) (9,040) 2,930 9,040 (8,030) 3,940 — $3,940 $— 2,125 681 (681) 2,125 (275) (1,863) (13) 1,863 (1,850) — (6) ($6) 2023 $3,938 23,294 13,949 (13,947) 27,234 (13,414) (10,903) 2,917 10,903 (9,880) 3,940 (6) $3,934 (1) These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A. Rental income earned Rental income earned - non-cash Straight-lining of contractual rent Revenue reimbursement for property operating costs Property operating costs Net operating income Accretion finance expense on deferred revenue - non-cash Fair value adjustment on real estate assets - non-cash Net income (loss) Fair value adjustment on real estate assets Non-cash rental income and accretion adjustment FFO(1) Straight-lining of contractual rent Capital expenditures AFFO(1) Year ended December 31 The Bow 100 Wynford $15,656 84,423 — 50,646 (50,790) 99,935 (53,225) (35,001) 11,709 35,001 (31,198) 15,512 — — $15,512 $— 8,497 — 2,780 (2,813) 8,464 (1,123) (8,442) (1,101) 8,442 (7,374) (33) — (1,042) ($1,075) 2023 $15,656 92,920 — 53,426 (53,603) 108,399 (54,348) (43,443) 10,608 43,443 (38,572) 15,479 — (1,042) $14,437 2022 $3,709 23,091 12,513 (12,624) 26,689 (13,868) (10,723) 2,098 10,723 (9,223) 3,598 (626) $2,972 2022 $20,401 86,555 265 47,739 (47,864) 107,096 (57,389) (37,429) 12,278 37,429 (29,166) 20,541 (265) (3,349) $16,927 (1) These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A. Excluding the non-cash rental income adjustment under IFRS 15, net operating income from the Bow for the three months and year ended December 31, 2023 was $3.9 million and $15.5 million, respectively. Excluding the non-cash rental income adjustment under IFRS 15, net operating income from 100 Wynford for the three months and year ended December 31, 2023 was nil. Page 31 of 70 H&R REIT - MD&A - December 31, 2023 Deferred Tax Liability H&R has certain subsidiaries in the United States that are subject to tax on their taxable income at a combined federal and state tax rate of approximately 24.0% in 2023 (2022 - 23.8%). The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: (in thousands of Canadian dollars) Deferred tax assets: Net operating losses Accounts payable and accrued liabilities Deferred tax liabilities: Investment properties Equity accounted investments Other assets December 31 December 31 2023 2022 $93,622 2,732 96,354 362,581 170,263 724 533,568 $84,420 1,386 85,806 427,149 141,705 — 568,854 Deferred tax liability ($437,214) ($483,048) The deferred tax liability relating to the investment properties is derived on the basis that the U.S. investment properties will be sold at their current fair value. The tax liability will only be realized upon an actual disposition of a property that is not subject to a property exchange under Section 1031 of the U.S. Internal Revenue Code. Deferred tax liability decreased by approximately $45.8 million from $483.0 million as at December 31, 2022 to $437.2 million as at December 31, 2023 primarily due to fair value adjustments on real estate assets and the weakening of the U.S. dollar. Unitholders’ Equity Unitholders’ equity decreased by $294.9 million from approximately $5,487.3 million as at December 31, 2022 to approximately $5,192.4 million as at December 31, 2023, primarily due to distributions to unitholders, other comprehensive loss and Units repurchased and cancelled. This was partially offset by net income during the year ended December 31, 2023. NCIB On February 9, 2023, the REIT received approval from the TSX for the renewal of its NCIB allowing the REIT to purchase for cancellation up to a maximum of 26,028,249 Units on the open market until the earlier of February 15, 2024 and the date on which the REIT has purchased the maximum number of Units permitted under the NCIB. During the year ended December 31, 2023 the REIT purchased and cancelled 4,147,200 Units at a weighted average price of $10.30 per Unit, for a total cost of $42.7 million, representing a 50.4% discount to NAV per Unit as at December 31, 2023 (a non-GAAP ratio, refer to the “Non-GAAP Measures” section of this MD&A). During the year ended December 31, 2022, under a previous NCIB, the REIT purchased and cancelled 22,873,800 Units at a weighted average price of $12.99 per Unit, for a total cost of $297.1 million, representing a 40.4% discount to NAV per Unit as at December 31, 2022 (a non-GAAP ratio, refer to the “Non-GAAP Measures” section of this MD&A). Page 32 of 70 H&R REIT - MD&A - December 31, 2023 Unitholders’ Equity per Unit and NAV per Unit (in thousands except for per Unit amounts) Unitholders' equity Exchangeable units Deferred tax liability Total Units outstanding Exchangeable units outstanding Total Unitholders' equity per Unit(1) NAV per Unit(2) December 31 December 31 2023 2022 $5,192,375 $5,487,287 177,944 437,214 217,668 483,048 5,807,533 6,188,003 261,868 17,974 279,842 $19.83 $20.75 265,885 17,974 283,859 $20.64 $21.80 (1) (2) Unitholders’ equity per Unit is calculated by dividing unitholders’ equity by Units outstanding. This is a Non-GAAP ratio. Refer to the “Non-GAAP Measures” section of this MD&A. The repurchasing of Units under H&R’s NCIB during the year ended December 31, 2023 had a $0.15 positive impact on both Unitholders’ equity per Unit and NAV per Unit, respectively. Unitholders’ equity per Unit and NAV per Unit, without accounting for any Units being repurchased during the year ended December 31, 2023, would have been $19.68 and $20.60, respectively. The repurchasing of Units under H&R’s NCIB during the year ended December 31, 2022 had a $0.61 and $0.66 positive impact on Unitholders’ equity per Unit and NAV per Unit, respectively. Unitholders’ equity per Unit and NAV per Unit, without accounting for any Units being repurchased during the year ended December 31, 2022, would have been $20.03 and $21.14, respectively. Page 33 of 70 H&R REIT - MD&A - December 31, 2023 RESULTS OF OPERATIONS The following foreign exchange rates have been used in the results of operations when converting U.S. dollars to Canadian dollars except where otherwise noted: For each U.S. $1.00 Three months ended December 31 Year ended December 31 2023 2022 2023 2022 $1.35 CAD $1.36 CAD $1.35 CAD $1.30 CAD The following table reconciles the REIT’s Results of Operations from the REIT’s Financial Statements to the REIT’s proportionate share: (in thousands of Canadian dollars) Rentals from investment properties Property operating costs Net operating income Net income from equity accounted investments Three months ended December 31, 2023 Three months ended December 31, 2022 REIT's Financial Statements Equity accounted investments REIT's proportionate share(1) REIT's Financial Statements Equity accounted investments REIT's proportionate share(1) $205,904 $38,439 $244,343 $216,835 $37,471 $254,306 (58,544) 147,360 (10,459) 27,980 145,320 (145,292) (69,003) 175,340 28 (68,723) 148,112 53,473 Finance costs - operations (54,130) (12,310) (66,440) (55,625) Finance income Trust expenses Fair value adjustment on financial instruments Fair value adjustment on real estate assets Loss on sale of real estate assets, net of related costs Net income (loss) before income taxes and non-controlling interest Income tax (expense) recovery Net income (loss) before non-controlling interest Non-controlling interest Net loss Other comprehensive loss: 3,325 (7,054) (43,606) (197,587) (1,119) (7,491) (3,822) (11,313) — (11,313) 103 (1,309) 527 131,522 (501) 720 (14) 706 (706) — 3,428 (8,363) (43,079) (66,065) (1,620) (6,771) (3,836) 3,204 (11,012) (30,234) (224,480) (3,322) (119,884) 3,755 (10,607) (116,129) (706) — (223) (223) (11,313) (116,129) — (116,129) Items that are or may be reclassified subsequently to net loss Total comprehensive loss attributable to unitholders (130,990) ($142,303) — $— (130,990) (71,875) ($142,303) ($188,004) — $— (71,875) ($188,004) (1) The REIT's proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Net loss before income taxes and non-controlling interest per the REIT’s Financial Statements decreased by $112.4 million for the three months ended December 31, 2023 compared to the respective 2022 period primarily due to fair value adjustments on real estate assets, including fair value adjustments on real estate assets within equity accounted investments. Page 34 of 70 (9,477) 27,994 (52,719) (11,736) 60 (1,100) 481 (78,200) 176,106 754 (67,361) 3,264 (12,112) (29,753) 37,350 (187,130) (89) 241 (18) 223 (3,411) (119,643) 3,737 (115,906) H&R REIT - MD&A - December 31, 2023 The following table reconciles the REIT’s Results of Operations from the REIT’s Financial Statements to the REIT’s proportionate share: (in thousands of Canadian dollars) Rentals from investment properties Property operating costs Net operating income Year ended December 31, 2023 Year ended December 31, 2022 REIT's Financial Statements Equity accounted investments REIT's proportionate share(1) REIT's Financial Statements Equity accounted investments REIT's proportionate share(1) $847,146 $150,704 $997,850 $834,640 $130,312 $964,952 (300,542) (41,035) (341,577) (299,691) (38,230) (337,921) 546,604 109,669 656,273 534,949 92,082 627,031 Net income from equity accounted investments 145,459 (145,033) 426 47,139 (46,007) 1,132 Finance costs - operations Finance income Proceeds on disposal of purchase option Trust expenses Fair value adjustment on financial instruments Fair value adjustment on real estate assets Gain (loss) on sale of real estate assets, net of related costs Net income before income taxes and non-controlling interest Income tax (expense) recovery Net income before non-controlling interest Non-controlling interest Net income Other comprehensive income (loss): Items that are or may be reclassified subsequently to net income Total comprehensive income (loss) attributable to unitholders (218,152) (48,643) (266,795) (220,262) (40,026) (260,288) 13,849 30,568 (24,385) 30,555 (486,104) (7,247) 31,147 30,543 61,690 341 — 14,190 30,568 14,793 — (4,850) (29,235) (22,121) 856 31,411 91,146 (2,173) 1,313 (59) 1,254 (394,958) (9,420) 32,460 30,484 62,944 (1,254) 61,690 — (1,254) 61,690 — 38,349 546,081 7,332 946,260 (101,437) 844,823 — 844,823 88 — (3,242) 2,910 (4,802) 161 1,164 (197) 967 (967) — 14,881 — (25,363) 41,259 541,279 7,493 947,424 (101,634) 845,790 (967) 844,823 (131,202) ($69,512) — $— (131,202) 321,570 ($69,512) $1,166,393 — $— 321,570 $1,166,393 (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Net income before income taxes and non-controlling interest per the REIT’s Financial Statements decreased by $915.1 million for the year ended December 31, 2023 compared to the respective 2022 period primarily due to fair value adjustments on real estate assets. Page 35 of 70 H&R REIT - MD&A - December 31, 2023 NET OPERATING INCOME Net operating income consists of rentals from investment properties less property operating costs. Management believes that net operating income is a useful measure for investors in assessing the performance of H&R’s properties before financing costs and other sources of income and expenditures, which are not directly related to the day-to-day operations of a property. Same-Property net operating income (cash basis), a non-GAAP financial measure, adjusts net operating income (including net operating income from equity accounted investments on a proportionately consolidated basis) to exclude straight-lining of contractual rent and realty taxes accounted for under IFRIC 21. “Same-Property” refers to those properties owned by H&R for the entire two-year period ended December 31, 2023. It excludes acquisitions, dispositions, and transfers of investment properties to or from properties under development during the two-year period ended December 31, 2023 (collectively, “Transactions”). Management believes that this measure is useful for investors as it adjusts net operating income (including net operating income from equity accounted investments on a proportionately consolidated basis) for non-cash items which allows investors to better understand period-over- period changes due to occupancy, rental rates, realty taxes and operating costs, before evaluating the changes attributable to Transactions. Furthermore, it is also used as a key input in determining the value of investment properties. (in thousands of Canadian dollars) Rentals from investment properties Property operating costs 2023 2022 Change 2023 2022 $205,904 (58,544) $216,835 (68,723) ($10,931) 10,179 $847,146 (300,542) $834,640 (299,691) Net operating income per the REIT's Financial Statements 147,360 148,112 (752) 546,604 534,949 Change $12,506 (851) 11,655 Three months ended December 31 Year ended December 31 Adjusted for: Net operating income from equity accounted investments(1) Straight-lining of contractual rent at the REIT's proportionate share(1) Realty taxes in accordance with IFRIC 21 at the REIT's proportionate share(1) Net operating income (cash basis) from Transactions at the REIT's proportionate share(1) Same-Property net operating income (cash basis)(1) (1) These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A. 27,980 (2,623) 27,994 (3,588) (14) 965 109,669 (12,100) 92,082 (6,890) 17,587 (5,210) (14,946) (12,600) (2,346) — — — (30,072) (38,504) 8,432 (136,609) (159,794) 23,185 $127,699 $121,414 $6,285 $507,564 $460,347 $47,217 Net operating income per the REIT's Financial Statements decreased by $0.8 million for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to the following: (i) properties sold; (ii) straight-lining of contractual rent further outlined below; and (iii) the weakening of the U.S. dollar. This was offset by Same-Property net operating income (cash basis) further outlined below and the impact of IFRIC 21. Net operating income per the REIT's Financial Statements increased by $11.7 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to the following: (i) Same- Property net operating income (cash basis) further outlined below; (ii) straight-lining of contractual rent further outlined below; and (iii) the strengthening of the U.S. dollar. This was offset by properties sold. Net operating income from equity accounted investments increased by $17.6 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to rental growth at Jackson Park in Long Island City, NY and the strengthening of the U.S. dollar. Straight-lining of contractual rent at the REIT’s proportionate share decreased by $1.0 million for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to the 3777 Kingsway Lease Amendment, partially offset by the 6900 Maritz Lease Amendment. Straight-lining of contractual rent at the REIT’s proportionate share increased by $5.2 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to H&R entering into a lease amendment with Bell Canada in Q3 2022 to terminate their lease at 200 Bouchard Boulevard, Montreal, QC in December 2026 (“200 Bouchard Lease Amendment”). The previous lease term would have ended in April 2036. H&R will receive a lease termination fee of approximately $70.0 million in 2026. The terms of the rental payments to 2026 have not changed. IFRS 16, Leases (“IFRS 16”) requires revenue from leases to be recognized on a straight-line basis over the contractual term of the lease. As a result of this lease amendment, a non-cash adjustment to straight-lining of contractual rent of approximately $3.5 million has been recorded in each quarter since Q3 2022 and will continue to be recorded every quarter until the end of the lease. This was partially offset by the 3777 Kingsway Lease Amendment. Page 36 of 70 H&R REIT - MD&A - December 31, 2023 Same-Property net operating income (cash basis) increased by $6.3 million for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to strong rental growth and lower property operating costs from H&R’s residential segment, as well as strong rental growth from H&R’s industrial segment. Same-Property net operating income (cash basis) increased by $47.2 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to the following: (i) strengthening of the U.S. dollar; (ii) strong rental growth from H&R’s residential segment; (iii) strong rental growth and occupancy increases since January 1, 2022 from H&R’s industrial segment; (iv) increase in occupancy at River Landing in Miami, FL; (v) higher lease termination fees earned; and (vi) bad debt recoveries in Q3 2023. SEGMENT INFORMATION Operating Segments and Geographic Locations H&R has four reportable operating segments (Residential, Industrial, Office and Retail), in two geographical locations (Canada and the United States). The operating segments derive their revenue primarily from rental income from leases. The segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, determined to be the Chief Executive Officer (“CEO”) of the REIT. The CEO measures and evaluates the performance of the REIT based on net operating income on a proportionately consolidated basis for the REIT’s equity accounted investments. The Residential segment consists of 24 residential properties in select markets in the United States. As at December 31, 2023, the portfolio comprised of 8,166 residential rental units, at H&R’s ownership interest. The Industrial segment consists of 68 industrial properties in Canada and two properties in the United States comprising 8.6 million square feet, at H&R’s ownership interest, with an average lease term to maturity of 4.6 years as at December 31, 2023. The Office segment, excluding the Bow and 100 Wynford, consists of 18 properties in Canada and three properties in select markets in the United States, aggregating 5.6 million square feet, at H&R’s ownership interest, with an average lease term to maturity of 6.8 years as at December 31, 2023. The Office portfolio is leased on a long-term basis to creditworthy tenants, with 80.7% of office revenue from tenants with investment grade credit ratings. With long average lease terms resulting in only 7.6% of office square feet expiring during 2024, as well as high credit tenants, this segment tends to generate stable net operating income with gradual growth driven by contractual rental rate increases. The Retail segment consists of 34 properties in Canada which are mostly grocery-anchored and single tenant properties as well as four automotive-tenanted retail properties and one multi-tenant retail property in the United States. In addition, the Retail segment also holds a 33.1% interest in ECHO, a privately held real estate and development company consisting of 233 properties, which focuses on developing and owning a core portfolio of grocery-anchored shopping centres in the United States. In total, this segment includes 34 properties in Canada and 238 properties in the United States comprising 5.2 million square feet, at H&R’s ownership interest, with an average lease term to maturity of 8.3 years as at December 31, 2023. Further disclosure of segment information for net operating income can be found in note 21 of the REIT’s Financial Statements. Page 37 of 70 H&R REIT - MD&A - December 31, 2023 Net Operating Income by Segment (in thousands of Canadian dollars) 2023 2022 % Change 2023 2022 % Change 2023 2022 Three months ended December 31 Year ended December 31 Net operating income Occupancy As at December 31 Operating Segment: Residential Industrial Office Retail The REIT's proportionate share(1) Less: equity accounted investments $50,483 $45,742 19,005 78,169 27,683 175,340 (27,980) 16,791 84,181 29,392 176,106 (27,994) The REIT's Financial Statements $147,360 $148,112 Geographic Location: Canada United States The REIT's proportionate share(1) Less: equity accounted investments 76,443 98,897 175,340 (27,980) 82,429 93,677 176,106 (27,994) The REIT's Financial Statements $147,360 $148,112 10.4% 13.2% (7.1%) (5.8%) (0.4%) (0.1%) (0.5%) (7.3%) 5.6% (0.4%) (0.1%) (0.5%) $165,164 $140,288 75,054 314,713 101,342 656,273 (109,669) 63,737 321,235 101,771 627,031 (92,082) $546,604 $534,949 322,785 333,488 656,273 (109,669) 327,429 299,602 627,031 (92,082) $546,604 $534,949 17.7% 17.8% (2.0%) (0.4%) 4.7% 19.1% 2.2% (1.4%) 11.3% 4.7% 19.1% 2.2% 94.3 % 99.2 % 95.9 % 96.2 % 96.5% 97.0 % 96.4 % 97.7 % 95.2 % 96.5 % 97.0 % 96.4 % 94.5% 97.9% 98.6% 95.3% 96.6% 96.8% 96.6% 98.1% 95.0% 96.6% 96.8% 96.6% (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Net operating income across all operating segments was negatively impacted by the weakening of the U.S. dollar for the three months ended December 31, 2023 compared to the respective 2022 period. Net operating income across all operating segments was positively impacted by the strengthening of the U.S. dollar for the year ended December 31, 2023 compared to the respective 2022 period. The following explanations for changes in net operating income are in addition to the impact of foreign exchange. Net operating income from residential properties increased by 10.4% and 17.7%, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods, primarily due to strong rental growth. Net operating income from industrial properties increased by 13.2% and 17.8%, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods, primarily due to an increase in occupancy including the lease commencement of 140 Speirs Giffen Avenue and 34 Speirs Giffen Avenue in Caledon, ON which commenced in December 2022 and January 2023, respectively, as well as strong rental rate growth. Net operating income from industrial properties further increased for the year ended December 31, 2023 compared to the respective 2022 period, due to occupancy increases since January 1, 2022 and a $0.9 million lease termination fee received from a U.S. industrial tenant in Q2 2023. Net operating income from office properties decreased by 7.1% and 2.0%, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods, primarily due to properties sold. The decrease in net operating income from office properties for the year ended December 31, 2023 compared to the respective 2022 period was partially offset by the 200 Bouchard Lease Amendment, the 6900 Maritz Lease Termination Payment, and bad debt recoveries in Q3 2023. Net operating income from retail properties decreased by 5.8% and 0.4%, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods, primarily due to properties sold. The decrease in net operating income for the year ended December 31, 2023 compared to the respective 2022 period was partially offset by an increase in occupancy at River Landing in Miami, FL. Page 38 of 70 H&R REIT - MD&A - December 31, 2023 Same-Property Net Operating Income (Cash Basis) by Segment The following segment information has been presented at the REIT’s proportionate share, which is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A: (in thousands of Canadian dollars) 2023 2022 % Change 2023 2022 % Change 2023 2022 Same-Property net operating income (cash basis)(1) Three months ended December 31 Year ended December 31 Occupancy (Same-Property) As at December 31 Operating Segment: Residential Industrial Office Retail The REIT's proportionate share(1) (page 36) Geographic Location: Ontario Alberta Other Canada Total – Canada United States The REIT's proportionate share(1) (page 36) United States in U.S. dollars: Residential Industrial Office Retail $41,606 $37,137 12.0% $161,901 $136,341 17,377 44,536 24,180 15,839 43,741 24,697 9.7% 1.8% 68,130 60,566 183,227 174,224 (2.1%) 94,306 89,216 18.7% 12.5% 5.2% 5.7% $127,699 $121,414 5.2% $507,564 $460,347 10.3% 29,333 29,486 7,613 8,280 45,226 82,473 7,702 6,334 43,522 77,892 (0.5%) (1.2%) 30.7% 3.9% 5.9% 125,751 118,633 31,415 28,334 185,500 322,064 30,328 25,362 174,323 286,024 $127,699 $121,414 5.2% $507,564 $460,347 30,819 27,374 12.6% 119,927 104,878 447 16,083 13,742 416 15,671 13,954 7.5% 2.6% (1.5%) 2,394 63,518 52,727 1,641 62,552 50,947 6.0% 3.6% 11.7% 6.4% 12.6% 10.3% 14.3% 45.9% 1.5% 3.5% 8.4% 94.6 % 99.2 % 96.0 % 96.2 % 96.6 % 98.3 % 98.6 % 94.2 % 97.7 % 95.4 % 96.6 % 94.6 % 100.0 % 100.0 % 94.9 % 95.4 % 94.9 % 99.4 % 98.9 % 95.0 % 97.2 % 99.0 % 98.6 % 99.3 % 99.0 % 95.2 % 97.2 % 94.9 % 100.0 % 100.0 % 93.2 % 95.2 % U.S. total in U.S. dollars $61,091 $57,415 6.4% $238,566 $220,018 (1) These are non-GAAP measures defined in the “Non-GAAP Measures” section of this MD&A. Same-Property net operating income (cash basis) across all operating segments was negatively impacted by the weakening of the U.S. dollar for the three months ended December 31, 2023 compared to the respective 2022 period. Same-Property net operating income (cash basis) across all operating segments was positively impacted by the strengthening of the U.S. dollar for the year ended December 31, 2023 compared to the respective 2022 period. The following explanations for changes in Same-Property net operating income (cash basis) are in addition to the impact of foreign exchange. Same-Property net operating income (cash basis) from residential properties in U.S. dollars increased by 12.6% for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to strong rental growth of 4.1% and a decrease in property operating costs of 6.4%. The decrease in property operating costs was primarily a result of an over-accrual of realty taxes adjusted in Q4 2023 upon receipt of final 2023 tax bills and lower bad debt expenses. Same-Property net operating income (cash basis) from residential properties in U.S. dollars increased by 14.3% for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to strong rental growth of 9.3%, partially offset by an increase in property operating costs of 2.9%. Same-Property net operating income (cash basis) from industrial properties increased by 9.7% and 12.5%, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods, primarily due to strong rental rate growth. Same-Property net operating income (cash basis) from industrial properties further increased for the year ended December 31, 2023 compared to the respective 2022 period, due to occupancy increases since January 1, 2022 and a $0.9 million lease termination fee received from a U.S. industrial tenant in Q2 2023. Same-Property net operating income (cash basis) from office properties increased by 1.8% and 5.2%, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods, primarily due to higher lease termination fees earned and contractual rental escalations, partially offset by a decrease in occupancy. Same-Property net operating income (cash basis) from office properties further increased for the year ended December 31, 2023 compared to the respective 2022 period due to bad debt recoveries in Q3 2023. Page 39 of 70 H&R REIT - MD&A - December 31, 2023 Same-Property net operating income (cash basis) from retail properties decreased by 2.1% for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to lower lease termination fees received from Echo. Same-Property net operating income (cash basis) from retail properties increased by 5.7% for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to an increase in occupancy at River Landing in Miami, FL, partially offset by the decrease in lease termination fees noted above. NET INCOME, FFO AND AFFO FROM EQUITY ACCOUNTED INVESTMENTS(1) The following table provides a reconciliation of H&R’s net income from equity accounted investments to FFO and AFFO from equity accounted investments: Three months ended December 31 Year ended December 31 (in thousands of Canadian dollars) Net income from equity accounted investments(1) Realty taxes in accordance with IFRIC 21 2023 $145,320 (1,184) Fair value adjustments on financial instruments and real estate assets (132,049) (Gain) loss on sale of real estate assets, net of related costs Gain on sale of real estate assets within ECHO's equity accounted investments Notional interest capitalization(2) FFO from equity accounted investments(1) Straight-lining of contractual rent Rent amortization of tenant inducements Capital expenditures Leasing expenses and tenant inducements AFFO from equity accounted investments(1) 501 — — 12,588 (170) 268 (894) (568) $11,224 2022 $53,473 (1,316) (37,831) 89 (627) — 13,788 (308) 285 (1,229) (1,052) $11,484 2023 $145,459 — (92,002) 2,173 — — 55,630 (696) 1,104 (3,861) (1,759) 2022 $47,139 — 1,892 (161) (627) 960 49,203 (378) 1,087 (4,296) (2,089) $50,418 $43,527 (1) (2) Each of these line items represent the REIT’s proportionate share of equity accounted investments. These are non-GAAP measures defined in the “Non-GAAP Measures” section of this MD&A. Represents an adjustment to add general or indirect interest incurred in respect of properties under development held in and through equity accounted investments. Net income from equity accounted investments increased by $91.8 million and $98.3 million, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods, primarily due to fair value adjustments on real estate assets. FFO from equity accounted investments increased by $6.4 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to rental growth at Jackson Park in Long Island City, NY. Page 40 of 70 H&R REIT - MD&A - December 31, 2023 INCOME AND EXPENSE ITEMS The income and expense items section of this MD&A provides management’s commentary on the Results of Operations per the REIT’s Financial Statements. Finance Costs (in thousands of Canadian dollars) Finance costs – operations: Contractual interest on mortgages payable Contractual interest on debentures payable Contractual interest on unsecured term loans Bank interest and charges on lines of credit Effective interest rate accretion Accretion finance expense on deferred revenue Exchangeable unit distributions Capitalized interest Finance income Three months ended December 31 Year ended December 31 2023 2022 Change 2023 2022 Change ($15,247) ($16,141) (10,899) (13,052) (6,236) (5,319) (1,204) (13,414) (4,494) (56,813) 2,683 (5,508) (3,348) (1,052) (13,868) (3,368) (56,337) 712 (54,130) (55,625) 3,325 3,204 $894 2,153 (728) (1,971) (152) 454 (1,126) (476) 1,971 1,495 121 ($62,024) ($67,506) (43,778) (28,489) (20,266) (4,638) (51,780) (18,969) (10,950) (4,207) (54,348) (57,389) (12,582) (226,125) (10,692) (221,493) 7,973 1,231 (218,152) (220,262) 13,849 30,555 14,793 38,349 $5,482 8,002 (9,520) (9,316) (431) 3,041 (1,890) (4,632) 6,742 2,110 (944) (7,794) Fair value adjustment on financial instruments (43,606) (30,234) (13,372) ($94,411) ($82,655) ($11,756) ($173,748) ($167,120) ($6,628) The decrease in contractual interest on mortgages payable of $0.9 million and $5.5 million, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods is primarily due to mortgages repaid. The decrease in contractual interest on debentures payable of $2.2 million and $8.0 million, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods is primarily due to the repayment of the $250.0 million Series O Senior Debentures in January 2023. The increase in contractual interest on unsecured term loans of $0.7 million and $9.5 million, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods is primarily due to H&R obtaining two new $125.0 million unsecured term loans in November 2022, of which one was repaid in August 2023 prior to the original maturity date of November 30, 2024. The increase in bank interest and charges on lines of credit of $2.0 million and $9.3 million respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods is primarily due to H&R obtaining a new $275.0 million non-revolving secured credit facility in March 2023 as well as rising interest rates, partially offset by lower borrowings on H&R’s revolving unsecured operating lines of credit. The accretion finance expense on deferred revenue for all periods noted above is due to the proceeds from the sale of the Bow and 100 Wynford being amortized over the terms of their respective leases as both sale transactions did not meet the criteria of a transfer of control under IFRS 15. Refer to the “Other Liabilities - Deferred Revenue” section of this MD&A for further information on the Bow and 100 Wynford sale transactions. The increase in exchangeable unit distributions of $1.1 million and $1.9 million respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods is primarily due to a special cash distribution of $0.10 per Unit declared in December 2023 compared to $0.05 per Unit declared in December 2022 as well as monthly cash distributions in aggregate of $0.60 per Unit for year ended December 31, 2023 compared to $0.54 per Unit for the year ended December 31, 2022. The increase in capitalized interest of $2.0 million and $6.7 million, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods is primarily due to two U.S. residential developments and two Canadian industrial developments currently under construction. Page 41 of 70 H&R REIT - MD&A - December 31, 2023 The fair value adjustment on financial instruments of ($43.6) million and $30.6 million, respectively, for the three months and year ended December 31, 2023 is due to: (i) the unrealized gain (loss) on fair value of exchangeable units of ($12.0) million and $39.7 million, respectively, which are fair valued at the end of each reporting period based on the quoted price of Units on the TSX; and (ii) an unrealized loss on derivative instruments of ($31.6) million and ($9.2) million, respectively, which is further described in the “Derivative Instruments” section of this MD&A. Proceeds on disposal of purchase option Three months ended December 31 Year ended December 31 (in thousands of Canadian dollars) Proceeds on disposal of purchase option 2023 $— 2022 $— Change 2023 $— $30,568 2022 $— Change $30,568 H&R had a mortgage receivable of approximately $37.2 million (U.S. $27.6 million) secured against industrial land in North Las Vegas, NV. In addition, H&R had an option to purchase the land. H&R sold its option to purchase the land and received repayment of its mortgage receivable from the borrower. The combined proceeds from the repayment of the mortgage receivable and the sale of the option amounted to $67.8 million (U.S. $50.2 million), which were received in August 2023. As a result, H&R recorded $30.6 million (U.S. $22.6 million) as proceeds on disposal of purchase option. Trust expenses Three months ended December 31 Year ended December 31 (in thousands of Canadian dollars) 2023 2022 Change 2023 2022 General expenses Third party property management fees earned Unit-based compensation expense Fair value adjustment to unit-based compensation ($8,473) ($8,310) 3,102 (1,154) (529) 4,444 (670) (6,476) ($163) (1,342) (484) 5,947 ($38,485) ($28,655) 14,184 (5,218) 5,134 13,299 (4,593) (2,172) Change ($9,830) 885 (625) 7,306 Trust expenses ($7,054) ($11,012) $3,958 ($24,385) ($22,121) ($2,264) General expenses increased by $9.8 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to $4.3 million relating to the Support Agreement with K2 and severance costs incurred in Q2 2023. In April 2023, H&R entered into a support agreement (the “Support Agreement”) with the K2 Principal Fund L.P. and K2 & Associates Investment Management Inc. (collectively, “K2”). Among other stipulations in the Support Agreement, K2 withdrew its four nominees for election at the meeting of unitholders on June 15, 2023 (“Unitholder Meeting”). K2 also agreed with H&R to support the election of two additional, mutually agreed upon, independent trustees to H&R’s Board, Lindsay Brand and Leonard Abramsky, with the size of the Board increasing by two to 10 trustees, and also agreed to vote in favour of the balance of the trustees slated for re-election. Mr. Abramsky and Ms. Brand were elected to the REIT’s Board at the Unitholder Meeting. In May 2023, Philippe Lapointe stepped down as President of H&R and as an officer of H&R’s subsidiary, Lantower Residential. Emily Watson, Lantower’s Chief Operating Officer, was appointed to lead the Lantower Residential division. Unit-based compensation consists of the following two compensation plans: the REIT's Unit Option Plan and Incentive Unit Plan. Both plans are considered to be cash-settled under IFRS 2, Share-based Payments (“IFRS 2”) and as a result, are measured at each reporting period and settlement date at their fair value as defined by IFRS 2 based on the quoted price of Units on the TSX. The fair value adjustment to unit-based compensation consists of the difference between the grant price and the quoted price of Units on the TSX at each reporting period. Page 42 of 70 H&R REIT - MD&A - December 31, 2023 Fair Value Adjustment on Real Estate Assets (in thousands of Canadian dollars) Three months ended December 31 Year ended December 31 2023 2022 Change 2023 2022 Change Operating Segment: Residential Industrial Office Retail Land and properties under development Fair value adjustment on real estate assets per the REIT's proportionate share(1) Less: equity accounted investments Fair value adjustment on real estate assets per the REIT's Financial Statements ($278) $61,982 ($62,260) 2,724 11,951 (9,227) ($122,306) $503,851 182,797 10,841 ($626,157) (171,956) (46,091) (193,873) 147,782 (256,494) (349,595) (3,110) (67,190) 64,080 (45,689) (90,336) 93,101 44,647 (19,310) — (19,310) 18,690 294,562 (275,872) (66,065) (187,130) 121,065 (394,958) 541,279 (936,237) (37,350) (94,172) (131,522) ($197,587) ($224,480) $26,893 (91,146) 4,802 ($486,104) $546,081 (95,948) ($1,032,185) (1) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Fair value adjustments on real estate assets are determined based on the movement of various parameters, including changes in capitalization rates, discount rates, terminal capitalization rates and future cash flow projections. Refer to the “Valuation of Investment Properties” section of this MD&A for further disclosure on the REIT’s capitalization rates. Gain (loss) on Sale of Real Estate Assets, Net of Related Costs Three months ended December 31 Year ended December 31 (in thousands of Canadian dollars) 2023 2022 Change 2023 2022 Change Gain (loss) on sale of real estate assets, net of related costs ($1,119) ($3,322) $2,203 ($7,247) $7,332 ($14,579) For a list of property dispositions, refer to the “Investment Properties” section of this MD&A. During the year ended December 31, 2023, the REIT sold one Canadian office property, two U.S. office properties, a 50% interest in one Canadian office property, four Canadian retail properties, one U.S. retail property, one U.S. industrial property and a 50% interest in three Canadian industrial properties and recognized a loss on sale of real estate assets, net of related costs of ($7.2) million. During the year ended December 31, 2022, the REIT sold two Canadian office properties, two Canadian retail properties, 10 U.S. retail properties, a 50% interest in one Canadian industrial property and one U.S. residential property and recognized a gain on sale of real estate assets, net of related costs of $7.3 million. Income tax (Expense) Recovery (in thousands of Canadian dollars) Income tax computed at the Canadian statutory rate of nil applicable to H&R for 2023 and 2022 Current U.S. income tax expense Deferred income tax (expense) recovery applicable to U.S. Holdco Income tax (expense) recovery in the determination of net income (loss) Three months ended December 31 Change 2022 2023 Year ended December 31 2023 2022 Change $— (245) (3,577) ($3,822) $— (341) 4,096 $3,755 $— 96 (7,673) ($7,577) $— (1,802) 32,345 $30,543 $— $— (473) (1,329) (100,108) 132,453 ($101,437) $131,980 H&R is generally subject to tax in Canada under the Income Tax Act (Canada) (“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 H&R for tax purposes. H&R’s current income tax expense is primarily due to U.S. state taxes. H&R’s deferred income tax is recorded in respect of H&R REIT (U.S.) Holdings Inc. (“U.S. Holdco”) and arose due to taxable temporary differences between the tax and accounting bases of assets and liabilities net of the benefit of unused tax credits and losses that are available to be carried forward to future tax years to the extent that it is probable that the unused tax credits and losses can be realized. Deferred income tax (expense) recovery changed by ($7.7) million and $132.5 million, respectively, for the three months and year ended December 31, 2023 compared to the respective 2022 periods, primarily due to fair value adjustments on real estate assets. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply when the assets are realized or the liabilities are settled, based on the tax laws that have been enacted or substantively enacted at the statement of financial position Page 43 of 70 H&R REIT - MD&A - December 31, 2023 date. Deferred income tax relating to items recognized in equity are also recognized in equity. As at December 31, 2023, H&R had net deferred tax liabilities of $437.2 million (December 31, 2022 - $483.0 million), primarily related to taxable temporary differences between the tax and accounting bases of U.S. real estate assets. Refer to the “Deferred Tax Liability” section of this MD&A for further information. FUNDS FROM OPERATIONS AND ADJUSTED FUNDS FROM OPERATIONS H&R presents its consolidated FFO and AFFO calculations in accordance with the January 2022 guidance in the REALPAC Funds Real Property Association of Canada’s (REALPAC) White Paper on Funds From Operations and Adjusted Funds From Operations for IFRS, except for the Bow and 100 Wynford non-cash rental and accretion adjustments which are further explained under the “Non-GAAP Measures” section of this MD&A. FFO and AFFO (in thousands of Canadian dollars except per Unit amounts) Net income (loss) per the REIT's Financial Statements Realty taxes in accordance with IFRIC 21 FFO adjustments from equity accounted investments (page 40) Exchangeable unit distributions Fair value adjustments on financial instruments and real estate assets Fair value adjustment to unit-based compensation (Gain) loss on sale of real estate assets, net of related costs Deferred income tax expense (recoveries) applicable to U.S. Holdco Incremental leasing costs The Bow and 100 Wynford non-cash rental income and accretion adjustments FFO(1) Straight-lining of contractual rent Rent amortization of tenant inducements Capital expenditures Leasing expenses and tenant inducements Incremental leasing costs AFFO adjustments from equity accounted investments (page 40) AFFO(1) Basic and diluted weighted average number of Units and exchangeable units (in thousands of Units)(2) FFO per basic and diluted Unit(3) AFFO per basic and diluted Unit(3) Cash Distributions per Unit Payout ratio as a % of FFO(3) Payout ratio as a % of AFFO(3) Three months ended December 31 Year ended December 31 2023 2022 2023 2022 ($11,313) ($116,129) $61,690 $844,823 (13,762) (132,732) 4,494 241,193 529 1,119 3,577 425 (9,880) $83,650 (2,453) 1,130 (10,881) (980) (425) (1,364) $68,677 279,842 $0.299 $0.245 $0.250 83.6 % 102.0 % (11,284) (39,685) 3,368 254,714 6,476 3,322 (4,096) 411 (9,223) $87,874 (3,280) 1,209 (15,731) (4,874) (411) (2,304) $62,483 283,859 $0.310 $0.220 $0.188 60.6 % 85.5 % — (89,829) 12,582 455,549 (5,134) 7,247 (32,345) 2,163 (38,572) $373,351 (11,404) 4,514 (41,168) (4,747) (2,163) (5,212) $313,171 281,815 $1.325 $1.111 $0.700 52.8 % 63.0 % — 2,064 10,692 (584,430) 2,172 (7,332) 100,108 2,252 (29,166) $341,183 (6,512) 4,691 (35,582) (8,516) (2,252) (5,676) $287,336 290,782 $1.173 $0.988 $0.590 50.3 % 59.7 % (1) (2) (3) These are non-GAAP measures. Refer to the “Non-GAAP Measures” section of this MD&A. For the three months and year ended December 31, 2023, included in the weighted average and diluted weighted average number of Units are exchangeable units of 17,974,186. For the three months and year ended December 31, 2022, included in the weighted average and diluted weighted average number of Units are exchangeable units of 17,974,186 and 18,110,844, respectively. These are non-GAAP ratios. Refer to the “Non-GAAP Measures” section of this MD&A. Included in FFO and AFFO for the year ended December 31, 2023 are: (i) $30.6 million, equating to $0.108 per Unit relating to the proceeds on disposal of purchase option; and (ii) $4.3 million, equating to $0.015 per Unit, relating to the Support Agreement with K2 and severance costs. FFO decreased by $4.2 million for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to a decrease in net operating income and higher trust expenses (when excluding the fair value adjustment to unit-based compensation) partially offset by lower finance costs. FFO increased by $32.2 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to the proceeds on disposal of purchase option and an increase in net operating income partially offset by higher finance costs and trust expenses. Page 44 of 70 H&R REIT - MD&A - December 31, 2023 AFFO increased by $6.2 million for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to lower capital expenditures, leasing expenses and tenant inducements, partially offset by the decrease in FFO noted above. AFFO increased by $25.8 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to the increase in FFO noted above, partially offset by the AFFO adjustment to exclude straight-lining of contractual rent which reduced the overall increase in net operating income. Included in FFO are the following items at the REIT’s proportionate share (a non-GAAP measure, refer to the“Non-GAAP Measures” section of this MD&A) which can be a source of variances between periods: (in thousands of Canadian dollars) Lease termination fees Adjustment to straight-lining of contractual rent Bad debt expense Proceeds on disposal of purchase option Costs incurred for abandoned transactions Support Agreement with K2 and severance costs Three months ended December 31 Year ended December 31 2023 $1,899 (866) (1,844) — (71) — 2022 $314 222 (2,789) — (316) — Change $1,585 (1,088) 945 — 245 — ($882) ($2,569) $1,687 2023 $6,239 (1,805) (2,699) 30,568 (71) (4,255) $27,977 2022 $2,630 614 (4,866) — (316) — ($1,938) Change $3,609 (2,419) 2,167 30,568 245 (4,255) $29,915 Excluding the above items, FFO would have been $84.5 million for the three months ended December 31, 2023 (December 31, 2022 - $90.4 million) and $0.302 per basic and diluted Unit (December 31, 2022 - $0.319 per basic and diluted Unit). For the year ended December 31, 2023, FFO would have been $345.4 million (December 31, 2022 - $343.1 million) and $1.226 per basic and diluted Unit (December 31, 2022 - $1.180 per basic and diluted Unit). Capital and Tenant Expenditures The following is a breakdown of H&R’s capital expenditures and tenant expenditures (leasing expenditures and tenant inducements) by operating segment: (in thousands of Canadian dollars) 2023 2022 Change 2023 2022 Change Three months ended December 31 Year ended December 31 Residential: Capital expenditures Industrial: Capital expenditures Leasing expenses and tenant inducements Office: Capital expenditures Leasing expenses and tenant inducements Retail: Capital expenditures Leasing expenses and tenant inducements Total at the REIT's proportionate share(1) Less: equity accounted investments Total per the REIT's Financial Statements(2) $5,190 $9,751 ($4,561) $26,145 $23,871 $2,274 970 295 4,800 289 815 964 13,323 (1,462) 2,014 4,820 4,143 54 1,052 1,052 22,886 (2,281) (1,044) (4,525) 657 235 (237) (88) (9,563) 819 4,563 3,786 11,059 976 3,262 1,744 51,535 (5,620) 2,441 6,476 9,625 1,374 3,941 2,755 50,483 (6,385) $11,861 $20,605 ($8,744) $45,915 $44,098 2,122 (2,690) 1,434 (398) (679) (1,011) 1,052 765 $1,817 (1) (2) The REIT’s proportionate share is a non-GAAP measure defined in the “Non-GAAP Measures” section of this MD&A. Equal to the sum of capital expenditures and leasing expenses and tenant inducements per the REIT’s Financial Statements. Capital expenditures from the Residential segment for the three months and year ended December 31, 2023 included the following: (i) $1.4 million and $6.1 million, respectively, relating to capital turn expenses across all properties including painting, floor Page 45 of 70 H&R REIT - MD&A - December 31, 2023 replacements and HVAC replacements; (ii) $0.7 million and $5.3 million, respectively, relating to revenue enhancing projects such as private yards and washers and dryers; and value-add repositioning initiatives undertaken on two of H&R's oldest residential rental communities, including unit upgrades; and (iii) $3.1 million and $14.7 million, respectively, relating to asset preservation projects including landscaping, safety and liability, a roof replacement, and clubhouse improvements. Leasing expenses and tenant inducements for the year ended December 31, 2023 included $1.2 million in leasing expenses relating to a new 10-year lease at an Oakville, ON industrial property. Capital expenditures from the Office segment for the three months and year ended December 31, 2023 included the following: (i) $2.0 million and $3.2 million, respectively, relating to a building automation system replacement at a Houston, TX office property; (ii) $0.4 million and $2.2 million, respectively, relating to refurbishments of all washrooms and a generator controls retrofit at a Calgary, AB office property; and (iii) $0.7 million in Q4 2023 relating to a new generator and electrical panel at a Toronto, ON office property. LIQUIDITY AND CAPITAL RESOURCES Cash Distributions In accordance with National Policy 41-201 – Income Trusts and Other Indirect Offerings, the REIT is required to provide the following additional disclosure relating to cash distributions: Three months ended Year ended Year ended Year ended December 31 December 31 December 31 December 31 (in thousands of Canadian dollars) Cash provided by operations Net income (loss) Distributions (Shortfall) excess cash provided by operations over total distributions Excess (shortfall) of net income (loss) over total distributions 2023 $52,966 (11,313) 65,467 (12,501) (76,780) 2023 $294,625 61,690 184,372 110,253 (122,682) 2022 $255,054 844,823 159,785 95,269 685,038 2021 $452,107 597,907 227,312 224,795 370,595 Cash provided by operations exceeded distributions for the years ended December 31, 2023, 2022 and 2021. Distributions exceeded cash provided by operations by $12.5 million for the three months ended December 31, 2023, which did not represent a return of capital but rather was primarily due to the $0.10 per Unit special cash distribution to unitholders of record on December 29, 2023. The specific source of the excess distribution was funded by debt. Distributions exceeded net income (loss) for the three months and year ended December 31, 2023 primarily due to non-cash items. Non-cash items relating to the fair value adjustments on financial instruments, real estate assets and unit-based compensation, gain (loss) on sale of real estate assets, and deferred income taxes (recoveries) are deducted from or added to net income (loss) and have no impact on cash available to pay distributions. Major Cash Flow Components Three months ended December 31 Year ended December 31 (in thousands of Canadian dollars) 2023 2022 Cash and cash equivalents, beginning of period $145,871 $65,809 Cash flows from operations Cash flows (used for) from investing Cash flows used for financing Cash and cash equivalents, end of year 52,966 (37,608) (97,118) $64,111 74,741 22,774 (86,437) $76,887 Change $80,062 (21,775) (60,382) (10,681) 2023 $76,887 294,625 112,862 2022 Change $124,141 ($47,254) 255,054 225,954 39,571 (113,092) (420,263) (528,262) 107,999 ($12,776) $64,111 $76,887 ($12,776) Cash flows from operations decreased by $21.8 million for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to non-cash working capital. Cash flows from operations increased $39.6 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to the proceeds on disposal of purchase option and non- cash working capital. Page 46 of 70 H&R REIT - MD&A - December 31, 2023 Cash flows (used for) from investing decreased by approximately $60.4 million for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to cash released from escrow relating to Section 1031 property exchanges in Q4 2022 compared to cash held in escrow relating to Section 1031 property exchanges in Q4 2023 as well as a mortgage receivable repayment in Q4 2022. This was partially offset by cash spent on two acquisitions in Q4 2022. Cash flows (used for) from investing decreased by approximately $113.1 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to the following: (i) additional cash spent on properties currently under construction; (ii) additional cash held in escrow relating to Section 1031 property exchanges; (iii) lower cash distributions from equity accounted investments, mainly as a result of the sale of the Pearl in Q1 2022; and (iv) cash received from the sale of Primaris REIT units in Q1 2022. The decrease in cash flows (used for) from investing was partially offset by less cash spent on acquisitions of real estate assets. Cash flows used for financing decreased by approximately $10.7 million for the three months ended December 31, 2023 compared to the respective 2022 period, primarily due to higher debt repayments, net of new debt. Cash flows used for financing increased by approximately $108.0 million for the year ended December 31, 2023 compared to the respective 2022 period, primarily due to less cash used for Unit repurchases, partially offset by higher debt repayments, net of new debt. Funding of Future Commitments and Debt Profile As at December 31, 2023, H&R had cash and cash equivalents of $64.1 million, $886.5 million available under its unused lines of credit and an unencumbered property pool of approximately $4.2 billion. The following summarizes the estimated loan to value ratios on investment properties and properties under development for which mortgages mature over the next five years: Year 2024(1) 2025 2026 2027 2028 Number of Properties Mortgage Debt due on Maturity ($000’s) Weighted Average Interest Rate on Maturity Fair Value of Real Estate Assets ($000’s) Loan to Value 6 8 4 10 12 40 $163,767 106,446 27,804 420,751 476,258 $1,195,026 3.2% 3.9% 5.0% 4.2% 4.1% 4.0% $641,752 263,660 105,950 1,139,841 1,058,059 $3,209,262 26% 40% 26% 37% 45% 37% (1) 2024 includes two properties that were classified as held for sale as at December 31, 2023 with an aggregate fair value of $293.2 million and mortgage debt due on maturity totalling $84.6 million. These mortgages are expected to be repaid prior to the closing of each respective sale. The mortgages outstanding as at December 31, 2023 bear interest at a weighted average rate of 4.0% (December 31, 2022 - 4.0%) and mature between 2024 and 2030 (December 31, 2022 – mature between 2023 and 2032). The weighted average term to maturity of the REIT’s mortgages is 3.5 years (December 31, 2022 - 4.6 years). As at December 31, 2023, the non-recourse mortgages to total mortgages ratio was 59.8% (December 31, 2022 - 59.2%). Page 47 of 70 H&R REIT - MD&A - December 31, 2023 Unsecured Senior Debentures (in thousands of Canadian Dollars) Senior Debentures Series O Senior Debentures Series N Senior Debentures Series Q Senior Debentures Series R Senior Debentures Series S Senior Debentures Contractual Interest Rate Effective Interest Rate Maturity Principal Amount Carrying Value Carrying Value December 31 December 31 2023 2022 January 23, 2023(1) January 30, 2024(2) June 16, 2025 June 2, 2026 February 19, 2027 3.42 % 3.37 % 4.07 % 2.91 % 2.63 % 3.33 % 3.44 % 3.45 % 4.19 % 3.00 % 2.72 % $— 350,000 400,000 250,000 300,000 $— $249,980 349,965 399,311 249,443 299,241 349,548 398,892 249,229 299,019 3.42 % $1,300,000 $1,297,960 $1,546,668 (1) (2) In January 2023, the REIT repaid all of its outstanding Series O senior debentures upon maturity for a cash payment of $250.0 million. In January 2024, the REIT repaid all of its outstanding Series N senior debentures upon maturity for a cash payment of $350.0 million. Unsecured Term Loans (in thousands of Canadian Dollars) H&R unsecured term loan #1(1) H&R unsecured term loan #2(2) H&R unsecured term loan #3(3) H&R unsecured term loan #4(4) Maturity December 31 December 31 Date March 7, 2025 November 30, 2025 January 6, 2026 2023 $— 250,000 125,000 250,000 2022 $125,000 250,000 125,000 250,000 $625,000 $750,000 (1) (2) (3) (4) In August 2023, the REIT repaid all of this unsecured term loan of $125.0 million, prior to the original maturity date of November 30, 2024. The REIT entered into an interest rate swap to fix the interest rate at 3.42% per annum. The swap matures on May 7, 2030. The REIT entered into an interest rate swap to fix the interest rate at 5.19% per annum. The swap matures on September 29, 2027. The REIT entered into an interest rate swap to fix the interest rate at 4.16% per annum. The swap matures on January 6, 2026. Lines of Credit (in thousands of Canadian Dollars) Revolving unsecured operating lines of credit: H&R revolving unsecured line of credit H&R revolving unsecured line of credit H&R revolving unsecured letter of credit facility Sub-total Non-revolving secured operating line of credit(1) H&R and CrestPSP non-revolving secured line of credit December 31, 2023 December 31, 2022 (1) Secured by certain investment properties. Maturity Date Total Facility Amount Drawn Outstanding Letters of Credit Available Balance September 20, 2024 December 14, 2027 $150,000 750,000 60,000 960,000 $— (30,480) — (30,480) $— (1,873) (41,145) (43,018) $150,000 717,647 18,855 886,502 March 14, 2026 274,230 (274,230) — — $1,234,230 ($304,710) ($43,018) $886,502 $985,000 ($12,500) ($42,148) $930,352 The lines of credit can be drawn in either Canadian or U.S. dollars and bear interest at a rate approximating the prime rate of a Canadian chartered bank. Included in lines of credit as at December 31, 2023 are U.S. dollar denominated amounts of $14.0 million (December 31, 2022 - nil). The Canadian equivalent of these amounts are $18.5 million (December 31, 2022 - nil). Page 48 of 70 H&R REIT - MD&A - December 31, 2023 Contractual Obligations The following is a summary as at December 31, 2023 of material contractual obligations including payments due for the next five years and thereafter: Contractual Obligations(1) (in thousands of Canadian dollars) Mortgages payable(2)(3) Senior debentures(4) Unsecured term loans Lines of credit Lease liability(5) Committed Developments(6) Total contractual obligations Payments Due by Period 2025 $139,694 400,000 375,000 — 1,252 — 2026 $62,735 250,000 250,000 274,230 1,277 — 2027- 2028 $927,853 300,000 — 30,480 2,631 — 2029 and thereafter Total $131,539 $1,465,627 — — — 179,976 — 1,300,000 625,000 304,710 186,363 127,612 $915,946 $838,242 $1,260,964 $311,515 $4,009,312 2024 $203,806 350,000 — — 1,227 127,612 $682,645 (1) (4) The amounts in the above table are the principal amounts due under the contractual agreements. Non-recourse mortgages to total mortgages ratio is 59.8%. (2) (3) Mortgages payable due in 2024 includes two mortgages totalling $85.4 million secured against two properties that were classified as held for sale as at December 31, 2023 with an aggregate fair value of $293.2 million. These mortgages are expected to be repaid prior to the closing of each respective sale. In January 2024, the REIT repaid all of its outstanding Series N senior debentures upon maturity for a cash payment of $350.0 million. Corresponds to right-of-use assets in leasehold interests. In January 2024, the REIT acquired the right-of-use assets and was released from the corresponding lease liabilities. Committed Developments includes West Love, Midtown, 1965 Meadowvale Blvd. and 1925 Meadowvale Blvd. Refer to the “Properties Under Development” section of the MD&A for further information on each of these developments. (6) (5) Capital Resources As at December 31, 2023, H&R had cash and cash equivalents of $64.1 million and amounts available under its lines of credit totalling $886.5 million. Subject to market conditions, management expects to be able to meet all of the REIT’s ongoing contractual obligations. As at December 31, 2023, the REIT was not in default or arrears on any of its obligations including interest or principal payments on debt and any debt covenant. As at December 31, 2023, H&R had 85 unencumbered properties (including properties under development), with a fair value of approximately $4.2 billion. Also, due to H&R’s 27 year history and management’s conservative strategy of securing long-term financing on individual properties, H&R has numerous other properties with very low loan to value ratios. As at December 31, 2023, H&R had 8 properties valued at approximately $468.2 million which are encumbered with mortgages totalling $120.7 million. In this pool of assets, the average loan to value ratio is 25.8%, the minimum loan to value ratio is 0.9% and the maximum loan to value ratio is 29.5%. The weighted average remaining term to maturity of this pool of mortgages is 1.7 years. Credit Rating DBRS Morningstar (“DBRS”) provides credit ratings of debt securities for commercial entities. A credit rating generally provides an indication of the risk that the borrower will not fulfill its obligations in a timely manner with respect to both interest and principal commitments. Rating categories range from highest credit quality (generally AAA) to default payment (generally D). A credit rating is not a recommendation to buy, sell or hold securities. DBRS has confirmed that H&R has a credit rating of BBB with a Stable trend as at December 31, 2023. A credit rating of BBB by DBRS is generally an indication of adequate credit quality, where the capacity for payment of financial obligations is considered acceptable, however the entity may be vulnerable to future events. A credit rating of BBB or higher is an investment grade rating. There can be no assurance that any rating will remain in effect for any given period of time or that any rating will not be withdrawn or revised by DBRS at any time. The credit rating is reviewed periodically by DBRS. Page 49 of 70 H&R REIT - MD&A - December 31, 2023 OFF-BALANCE SHEET ITEMS In the normal course of operations, H&R has issued letters of credit in connection with developments, financings, operations and acquisitions. As at December 31, 2023, H&R has outstanding letters of credit totalling $43.0 million (December 31, 2022 - $42.1 million), including $20.0 million (December 31, 2022 - $20.7 million) which has been pledged as security for certain mortgages payable. The letters of credit may be secured by certain investment properties. H&R has co-owners and partners in various projects. As a general rule, H&R does not provide guarantees or indemnities for these co- owners and partners pursuant to property acquisitions because should such guarantees be provided, recourse would be available against H&R in the event of a default of the co-owners and partners. In such case, H&R would have a claim against the underlying real estate investment. However, in certain circumstances, subject to compliance with H&R’s Declaration of Trust and the determination by management that the fair value of the co-owners’ or partners’ investment is greater than the mortgages payable for which H&R has provided guarantees, such guarantees have been previously provided. As at December 31, 2023, such guarantees amounted to $6.7 million, which expires in 2026 (December 31, 2022 - $89.1 million, which expired in 2023), and no amount has been provided for in the REIT’s Financial Statements for these items. These amounts arise where H&R has guaranteed a co-owner’s share of the mortgage liability. H&R, however, customarily guarantees or indemnifies the obligations of its nominee companies, which hold title to each of its properties owned. On December 31, 2021, the REIT completed a spin off, on a tax-free basis, of 27 properties including all of the REIT’s enclosed shopping centres (the “Primaris Spin-Off”) to a new publicly-traded REIT (“Primaris REIT”). The REIT continues to guarantee certain debt in connection with the Primaris Spin-Off, and will remain liable until such debts are extinguished or the lenders agree to release the REIT’s guarantees. As at December 31, 2023, the estimated amount of debt subject to such guarantees, and therefore the maximum exposure to credit risk, was $208.8 million, which expire between 2024 and 2030 (December 31, 2022 - $215.7 million – which expire between 2024 and 2030). In January 2024, the REIT was released from $37.4 million of these guarantees. In addition, the REIT provides guarantees on behalf of the co-owners of certain of Primaris REIT’s properties. As at December 31, 2023, the estimated amount of debt subject to such guarantees, and therefore the maximum exposure to credit risk, was $89.3 million, which expire between 2024 and 2027 (December 31, 2022 - $91.3 million, which expire between 2024 and 2027). 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 REIT’s Financial Statements. Page 50 of 70 H&R REIT - MD&A - December 31, 2023 DERIVATIVE INSTRUMENTS Where appropriate, H&R uses interest rate swaps to lock-in lending rates on certain anticipated mortgages, debentures and bank borrowings. This strategy provides certainty to the rate of interest on borrowings when H&R is involved in transactions that may close further into the future than usual for typical transactions. At the end of each reporting period, an interest rate swap is marked- to-market, resulting in an unrealized gain or loss recorded in net income (loss). Where appropriate, H&R uses forward exchange contracts to lock-in foreign exchange rates. As at December 31, 2023, H&R had one forward exchange contact in place, noted in the table below. This strategy manages risks related to foreign exchange rates on transactions that will occur in the future. During 2023 and 2022, H&R had the following swaps outstanding: Fair value asset (liability)* Net unrealized gain (loss) on derivative instruments Net unrealized gain (loss) on derivative instruments December 31 December 31 Three months ended December 31 Years ended December 31 (in thousands of Canadian dollars) Term loan interest rate swap(1) Term loan interest rate swap(2) Debt interest rate swap(3) Foreign exchange hedge(4) Maturity 2023 2022 2023 May 7, 2030 $20,015 $26,875 ($16,491) January 6, 2026 8,171 September 29, 2027 (1,229) March 10, 2025 1,733 11,286 (302) — (6,480) (10,587) 1,994 2022 ($229) 127 604 — 2023 ($6,860) (3,115) (927) 1,733 2022 $31,032 18,346 (302) — (1) (2) (3) (4) * $28,690 $37,859 ($31,564) $502 ($9,169) $49,076 To fix the interest rate at 3.42% per annum for the $250.0 million term loan. To fix the interest rate at 4.16% per annum for the $250.0 million term loan. To fix the interest rate at 5.19% per annum on $250.0 million of variable rate debt, which includes a $125.0 million unsecured term loan. To fix the foreign exchange rate at $1.38 on U.S. $10.0 million, monthly. Under certain circumstances, the hedge may terminate between March 11, 2024 and March 10, 2025. Derivative instruments in asset and liability positions are not presented on a net basis. Derivative instruments in an asset position are recorded in “other assets” and derivative instruments in a liability position are recorded in “accounts payable and accrued liabilities”. SELECTED FINANCIAL INFORMATION Summary of Annual Information The following tables summarize certain financial information for the years indicated below: Year Ended Year Ended Year Ended December 31 December 31 December 31 (in thousands of Canadian dollars except per Unit amounts) Rentals from Investment properties Net income from equity accounted investments Finance income Net income 2023 $847,146 145,459 13,849 61,690 2022 2021 $834,640 $1,065,380 47,139 14,793 844,823 125,649 17,229 597,907 574,332 Total comprehensive income (loss) attributable to unitholders (69,512) 1,166,393 Total assets Total liabilities Cash Distributions per Unit 10,777,643 11,412,603 10,501,141 5,585,268 5,925,316 5,727,308 $0.700 $0.590 $0.790 Page 51 of 70 H&R REIT - MD&A - December 31, 2023 Summary of Quarterly Information The following tables summarize certain financial information for the quarters indicated below: (in thousands of Canadian dollars) Rentals from investment properties Net income (loss) from equity accounted investments Net income (loss) Total comprehensive income (loss) attributable to unitholders Rentals from investment properties Net income (loss) from equity accounted investments Net income (loss) Total comprehensive income (loss) attributable to unitholders Q4 2023 $205,904 145,320 (11,313) (142,303) Q4 2022 $216,835 53,473 (116,129) (188,004) Q3 2023 Q2 2023 Q1 2023 $210,446 $212,501 $218,295 (11,017) 37,596 166,623 Q3 2022 $213,709 (60,071) (121,496) 172,927 1,260 (59,395) (155,762) Q2 2022 9,896 94,802 61,930 Q1 2022 $202,394 $201,702 8,884 112,457 248,581 44,853 969,991 932,889 Major fluctuations between quarterly results are generally due to property acquisitions, dispositions, changes in foreign exchange rates and changes in the fair value of financial instruments and real estate assets. Rentals from investment properties decreased by $4.5 million in Q4 2023 compared to Q3 2023 primarily due to an office property having a lower realty tax recovery as a result of a lower final realty tax bill received in Q4 2023 as well as properties sold. Net income (loss) from equity accounted investments increased by $156.3 million in Q4 2023 compared to Q3 2023 primarily due to fair value adjustments on real estate assets. Net income (loss) decreased by $48.9 million in Q4 2023 compared to Q3 2023 primarily due to fair value adjustments on real estate assets and financial instruments, proceeds on disposal of purchase option received in Q3 2023 and deferred income tax expense applicable to U.S. Holdco. This was partially offset by the net income (loss) from equity accounted investments noted above. Total comprehensive income (loss) attributable to unitholders decreased by $308.9 million in Q4 2023 compared to Q3 2023 primarily due to the decrease in net income (loss) noted above as well as an unrealized foreign currency loss on translation of U.S. denominated foreign operations of $131.0 million in Q4 2023 compared to an unrealized gain of $129.0 million in Q3 2023. SECTION IV NON-GAAP MEASURES AND NON-GAAP RATIOS The REIT’s Financial Statements are prepared in accordance with IFRS. However, in this MD&A, a number of measures and ratios are presented that are not measures or ratios under GAAP in accordance with IFRS. These measures and ratios, as well as the reasons why management believes these measures and ratios are useful to investors, are described below. None of these non-GAAP measures and non-GAAP ratios should be construed as an alternative to financial measures calculated in accordance with GAAP. Furthermore, these supplemental non-GAAP measures and non-GAAP ratios are not standardized under IFRS and the REIT’s method of calculating these supplemental non-GAAP measures and non-GAAP ratios may differ from the methods of other real estate investment trusts or other issuers, and accordingly may not be comparable. Non-GAAP Measures (a) The REIT’s proportionate share H&R accounts for investments in joint ventures and associates as equity accounted investments in accordance with IFRS. The REIT’s proportionate share is a non-GAAP measure that adjusts the REIT’s Financial Statements to reflect the REIT’s financial position and Page 52 of 70 H&R REIT - MD&A - December 31, 2023 share of net income (loss) from H&R’s equity accounted investments on a proportionately consolidated basis at H&R’s ownership interest in the applicable investment. Management believes this measure is important for investors as it is consistent with how H&R reviews and assesses operating performance of its entire portfolio. Throughout this MD&A, the balances at the REIT’s proportionate share have been reconciled back to relevant GAAP measures. Refer to the “Financial Position” and “Results of Operations” sections of this MD&A for reconciliations from the REIT’s Financial Statements to the REIT’s proportionate share. (b) Net operating income (cash basis) and Same-Property net operating income (cash basis) Net operating income (cash basis) is a non-GAAP measure used by H&R to assess performance for properties owned. It adjusts net operating income to exclude four non-cash items: (i) Straight-lining of contractual rent. By excluding the impact of straight-lining of contractual rent, rentals from investment properties will consist primarily of actual rents collected by H&R. (ii) Realty taxes accounted for under IFRS Interpretations Committee Interpretation 21, Levies (“IFRIC 21”), which relates to the timing of the liability recognition for U.S. realty taxes. By excluding the impact of IFRIC 21, U.S. realty tax expenses are evenly matched with realty tax recoveries received from tenants throughout the period. (iii) The Bow non-cash rental adjustment. This is a result of the Bow sale transaction not meeting the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of the Bow. The REIT is legally only entitled to 15% of the lease revenue from the Ovintiv lease, however, under IFRS 15, 100% of the lease revenue is recognized in the REIT’s Financial Statements, resulting in 85% of the recognized lease revenue being non-cash. (iv) 100 Wynford non-cash rental adjustment. This is a result of the 100 Wynford sale transaction not meeting the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of 100 Wynford. Under IFRS 15, the REIT recognizes 100% of the lease revenue in the REIT's Financial Statements which represents a non-cash item. Same-Property net operating income (cash basis) is a non-GAAP measure used by H&R to assess period-over-period performance for properties owned and operated since January 1, 2022. Same-Property net operating income (cash basis) adjusts net operating income to include net operating income from equity accounted investments on a proportionately consolidated basis at H&R’s ownership interest of the applicable investment. Same-Property net operating income (cash basis) also excludes the first two non- cash items noted above as the Bow and 100 Wynford have been included in Transactions. Same-Property net operating income (cash basis) further excludes: • Acquisitions, dispositions, and transfers of investment properties to or from properties under development during the two- year period ended December 31, 2023 (collectively, “Transactions”). Management believes net operating income (cash basis) is useful for investors as it adjusts net operating income for non-cash items which allows investors to better understand the cash-on-cash performance of a property. Management believes that Same-Property net operating income (cash basis) is useful for investors as it adjusts net operating income (including net operating income from equity accounted investments on a proportionately consolidated basis) for non-cash items which allows investors to better understand period-over-period changes due to occupancy, rental rates, realty taxes and operating costs, before evaluating the changes attributable to Transactions. Furthermore, both measures are also used as a key input in determining the value of investment properties. Refer to the “Net Operating Income” section in this MD&A for a reconciliation of net operating income to Same-Property net operating income (cash basis). (c) Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”) FFO and AFFO are non-GAAP measures widely used in the real estate industry as a measure of operating performance particularly by those publicly traded entities that own and operate investment properties. H&R presents its consolidated FFO and AFFO calculations in accordance with the January 2022 guidance in the REALPAC Funds Real Property Association of Canada’s (REALPAC) White Paper on Funds From Operations and Adjusted Funds From Operations for IFRS, except for “the Bow and 100 Wynford non-cash rental and accretion adjustments”. The Bow office property in Calgary, AB was legally disposed of in October 2021. The 100 Wynford office property in Toronto, ON was legally disposed of in August 2022. • The Bow non-cash rental adjustment is a result of the Bow sale transaction not meeting the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of the Bow. The REIT is legally only entitled to 15% of the lease Page 53 of 70 H&R REIT - MD&A - December 31, 2023 • • revenue from the Ovintiv lease, however, under IFRS 15, 100% of the lease revenue is recognized in the REIT’s Financial Statements, resulting in 85% of the recognized lease revenue being non-cash. 100 Wynford non-cash rental adjustment is a result of the 100 Wynford sale transaction not meeting the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of 100 Wynford. Under IFRS 15, the REIT recognizes 100% of the lease revenue in the REIT's Financial Statements which represents a non-cash item. The Bow and 100 Wynford non-cash accretion adjustments are a result of the sale proceeds received by the REIT recorded as deferred revenue and amortized over the remaining terms of the respective leases, consisting of principal and interest in the REIT’s Financial Statements. Therefore, the non-cash components of lease revenue and the interest accretion finance expense have both been adjusted in calculating FFO as the Bow and 100 Wynford non-cash rental and accretion adjustments. FFO provides an operating performance measure that when compared period over period, reflects the impact on operations of trends in occupancy levels, rental rates, property operating costs, acquisition activities and finance costs, that is not immediately apparent from net income (loss) determined in accordance with IFRS. Management believes FFO to be a useful earnings measure for investors as it adjusts net income (loss) for items that are not recurring including gain (loss) on sale of real estate assets, as well as non-cash items such as the fair value adjustments on investment properties. AFFO is calculated by adjusting FFO for the following items: straight-lining of contractual rent, capital expenditures, leasing expenses and tenant inducements. Although capital and tenant expenditures can vary from quarter to quarter due to tenant turnovers, vacancies and the age of a property, H&R has elected to deduct actual capital and tenant expenditures in the relevant period. This may differ from others in the industry that deduct a normalized amount of capital expenditures, leasing expenses and tenant inducements based on historical activity, in their AFFO calculation. Furthermore, since H&R adjusts for actual tenant inducements paid, the amortization of tenant inducements per the REIT’s Financial Statements and at the REIT’s proportionate share is added back in order to only deduct the actual costs incurred by the REIT. Capital expenditures excluded and not deducted in the calculation of AFFO relate to capital expenditures which generate a new investment stream. H&R’s method of calculating FFO and AFFO may differ from other issuers’ calculations. FFO and AFFO should not be construed as an alternative to net income (loss) or any other operating or liquidity measure prescribed under IFRS. Management uses FFO and AFFO to better understand and assess operating performance since net income (loss) includes several non-cash items which management believes are not fully indicative of the REIT’s performance. Refer to the “Funds From Operations and Adjusted Funds From Operations” section of this MD&A for a reconciliation of net income (loss) to FFO and AFFO. Non-GAAP Ratios (a) Debt to Adjusted EBITDA at the REIT’s proportionate share Debt to Adjusted EBITDA at the REIT’s proportionate share is a non-GAAP ratio used to evaluate financial leverage. Debt includes mortgages, debentures, unsecured term loans, lines of credit payable to lenders and liabilities classified as held for sale. Adjusted EBITDA is calculated by taking the sum of net operating income (excluding straight-lining of contractual rent, IFRIC 21, as well as the Bow and 100 Wynford non-cash rental adjustments) and finance income and subtracting trust expenses (excluding the fair value adjustment to unit-based compensation) for the last 12 months. The Bow's non-cash rent is due to the REIT recognizing 100% of the lease revenue from the Ovintiv lease in the REIT’s Financial Statements in accordance with IFRS 15, however the REIT is only legally entitled to 15% of the lease revenue. 100 Wynford's non-cash rent is due to the REIT recognizing 100% of the lease revenue from the Bell lease in the REIT’s Financial Statements in accordance with IFRS 15. Adjusted EBITDA is used as an alternative to net income (loss) because it excludes major non-cash items. Management uses this ratio and believes it is useful for investors as it is an operational measure used to evaluate the length of time it would take the REIT to repay its debt based on its operating performance. Debt to Adjusted EBITDA at the REIT’s proportionate share and a reconciliation of Adjusted EBITDA to net income (loss) is presented in the “Debt” section of this MD&A. (b) Debt to total assets at the REIT’s proportionate share H&R’s Declaration of Trust limits the indebtedness of H&R (subject to certain exceptions) to a maximum of 65% of the total assets of H&R, based on the REIT’s Financial Statements. H&R also presents this ratio at the REIT’s proportionate share which is a non-GAAP ratio. Debt includes mortgages, debentures, unsecured term loans, lines of credit payable to lenders and liabilities classified as held for sale. Total assets have been adjusted to exclude the Bow and 100 Wynford, which the REIT legally disposed of in October 2021 Page 54 of 70 H&R REIT - MD&A - December 31, 2023 and August 2022, respectively. These transactions did not meet the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of the Bow for $737.0 million in 2038 or earlier under certain circumstances and 100% of 100 Wynford for $159.7 million in 2036 or earlier under certain circumstances. As a result, the REIT continues to recognize these two income producing properties in its consolidated statement of financial position, and the fair values of the Bow and 100 Wynford will be adjusted over the remaining lives of their respective leases, bringing the value of each real estate asset to nil by their respective lease maturity. Management uses this ratio to determine the REIT’s flexibility to incur additional debt. Management believes this is useful for investors in order to assess the REIT’s leverage and debt obligations. Refer to the “Financial Highlights” and “Debt” sections of this MD&A for debt to total assets per the REIT’s Financial Statements and at the REIT’s proportionate share. (c) FFO per Unit and AFFO per Unit FFO and AFFO per Unit are non-GAAP ratios calculated by dividing FFO and AFFO, respectively, by the weighted average number of Units and exchangeable units outstanding, basic or diluted, respectively, for the corresponding period. Refer to FFO and AFFO above for H&R's commentary on why these measures are useful for assessing operating performance. (d) Payout ratio as a % of FFO and payout ratio as a % of AFFO Payout ratio as a % of FFO and payout ratio as a % of AFFO are non-GAAP ratios, which assess the REIT’s ability to pay distributions and are calculated by dividing cash distributions per Unit by FFO or AFFO per Unit for the respective period. H&R uses these ratios amongst other criteria to evaluate the REIT’s ability to maintain current distribution levels or increase future distributions as well as to assess whether sufficient cash is being held back for operational expenditures. Furthermore, H&R uses the payout ratio as a % of AFFO to further assess whether sufficient cash is being held back for capital and tenant expenditures. Refer to the “Financial Highlights” and “Funds From Operations and Adjusted Funds From Operations” sections of this MD&A for the REIT’s payout ratio as a % of FFO and payout ratio as a % of AFFO. (e) NAV per Unit NAV per Unit is a non-GAAP ratio that management believes is a useful indicator of fair value of the net tangible assets of H&R. NAV per Unit is calculated by dividing the sum of: (i) Unitholders’ equity, (ii) value of exchangeable units, and (iii) deferred tax liability by the total number of Units and exchangeable units outstanding. The rationale for including exchangeable units and the deferred tax liability are as follows: (i) under IFRS, exchangeable units are classified as debt, however, these units are not required to be repaid and each holder of these units has the option to convert their exchangeable units into Units, and therefore H&R considers this to be equivalent to equity; and (ii) the deferred tax liability is an undiscounted liability that would be crystallized in the event that U.S. properties are sold. H&R plans to continue to take advantage of U.S. tax legislation in order to further defer taxes owing on sold properties. H&R’s method of calculating NAV per Unit may differ from other issuers’ calculations. See the “Unitholders’ Equity” section of this MD&A for a calculation of NAV per Unit and a reconciliation of NAV per Unit to Unitholders’ equity and Unitholders equity per Unit. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Preparation of the REIT’s Financial Statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the REIT’s Financial Statements and reported amounts of revenue and expenses during the reporting period. For a description of the accounting policies that management believes are subject to greater estimation and judgement, as well as other accounting policies, refer to notes 1 and 2 of the REIT’s Financial Statements. Use of Estimates Information about assumption and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the fair value of real estate assets. Page 55 of 70 H&R REIT - MD&A - December 31, 2023 Use of Judgements • Valuations of real estate assets Real estate assets, which consist of investment properties and properties under development, are carried on the consolidated statements of financial position at fair value, as determined by either external independent appraisers or by the REIT’s internal valuation team. The valuations are based on a number of methods and significant assumptions, such as capitalization rates, terminal capitalization rates, discount rates, estimates of future cash flows and market values per unit of measure. Valuation of real estate assets is one of the principal estimates and uncertainties in the REIT’s Financial Statements and this MD&A. Refer to note 3 of the REIT’s Financial Statements for further information on estimates and significant assumptions made in the determination of the fair value of real estate assets. Judgement is applied in determining whether certain costs are additions to the carrying value of the real estate assets, identifying the point at which practical completion of the property occurs and identifying the directly attributable borrowing costs to be included in the carrying value of the development properties. • Leases H&R makes judgements in determining whether certain leases, in particular those tenant leases with long contractual terms and long-term ground leases where H&R is the lessor, are operating or finance leases. H&R has determined that all of its leases, where the REIT is the lessor, are operating leases. • Income taxes H&R is a mutual fund trust and a real estate investment trust pursuant to the Tax Act. Under current tax legislation, H&R is not liable to pay Canadian income tax provided that its taxable income is fully distributed to unitholders each year. H&R is a real estate investment trust if it meets prescribed conditions under the Tax Act relating to the nature of its assets and revenue (the “REIT Conditions”). H&R has reviewed the REIT Conditions and has assessed its interpretation and application to the REIT's assets and revenue, and the REIT has determined that it qualifies as a real estate investment trust pursuant to the Tax Act. H&R expects to continue to qualify as a real estate investment trust; however, should it no longer qualify, H&R would be subject to tax on its taxable income distributed to unitholders. • Impairment of equity accounted investments H&R determines at each reporting date whether there is any objective evidence that the equity accounted investments are impaired. If there is an indication of impairment in respect of the REIT’s investment in associates or joint ventures, the whole carrying value of the investment will be tested for impairment as a single asset under International Accounting Standard 36, Impairment of Assets by comparing the recoverable amount with its carrying value. Any resulting impairment loss will be charged against the carrying value of the investment in associates or joint ventures and recognized in net income. DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING H&R’s CEO and Chief Financial Officer (“CFO”) have designed, or caused to be designed under their direct supervision, the applicable disclosure controls and procedures (as defined in National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”)), adopted by the Canadian Securities Administrators to provide reasonable assurance that: (i) material information relating to the REIT, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the annual filings are being prepared; and (ii) information required to be disclosed in the annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. H&R’s CEO and CFO have evaluated, or caused to be evaluated under their supervision, the effectiveness of the REIT’s disclosure controls and procedures as at December 31, 2023, and based upon that evaluation have each concluded that such disclosure controls and procedures were appropriately designed and were operating effectively as at December 31, 2023. The REIT’s Financial Statements and this MD&A were reviewed and approved by H&R’s Audit Committee and the Board prior to this publication. H&R’s management reviews its respective internal control over financial reporting on an annual basis. The REIT’s management, under the supervision of the CEO and the CFO, has evaluated the effectiveness of internal control over financial reporting as at December 31, 2023 using the framework and criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in May 2013 (2013 COSO Framework). Based on this Page 56 of 70 H&R REIT - MD&A - December 31, 2023 evaluation, the CEO and the CFO have concluded that internal control over financial reporting was effective as of December 31, 2023. No changes were made to H&R’s internal control over financial reporting during the three-month period ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the REIT’s internal controls over financial reporting. H&R’s management, including the CEO and CFO, does not expect that the REIT’s controls and procedures will prevent or detect all misstatements due to error or fraud. Due to the inherent limitations in all control systems, an evaluation of controls can provide only reasonable, not absolute, assurance that all control issues and instances of fraud or error, if any, within the REIT have been detected. H&R is continually evolving and enhancing its systems of controls and procedures. RISKS AND UNCERTAINTIES All real estate assets are subject to a degree of risk and uncertainty. They are affected by various factors including general market conditions and local market circumstances. An example of general market conditions would be the availability of long-term mortgage financing whereas local conditions would relate to factors affecting specific properties such as an oversupply of space or a reduction in demand for real estate in a particular area. Management attempts to manage these risks through geographic, type of asset and tenant diversification in H&R’s portfolio. The major risk factors including detailed descriptions are outlined below and in H&R’s Annual Information Form. Real Property Ownership All real property investments are subject to a degree of risk and uncertainty. Such investments are affected by various factors including general economic conditions, local real estate markets, the impact of disease outbreaks, demand for leased premises, competition from other available premises and various other factors. The value of real property and any improvements thereto may also depend on the credit and financial stability of the tenants. Distributable cash and H&R’s income would be adversely affected if one or more major tenants or a significant number of tenants were to become unable to meet their obligations under their leases or if a significant amount of available space in the properties in which H&R has an interest is not able to be leased on economically favourable lease terms. In the event of default by a tenant, delays or limitations in enforcing rights as lessor may be experienced and substantial costs in protecting H&R’s investment may be incurred. Furthermore, at any time, a tenant of any of the properties in which H&R has an interest may seek the protection of bankruptcy, insolvency or similar laws that could result in the rejection and termination of such tenant’s lease and thereby cause a reduction in the cash flow available to H&R. The ability to rent unleased space in the properties in which H&R has an interest will be affected by many factors, and costs may be incurred in making improvements or repairs to property required by a new tenant. A prolonged deterioration in economic conditions could increase and exacerbate the foregoing risks. The failure to rent unleased space on a timely basis or at all would likely have an adverse effect on H&R’s financial condition. Certain significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related charges must be made throughout the period of ownership of real property regardless of whether the property is producing any income. If H&R is unable to meet mortgage payments on any property, losses could be sustained as a result of the mortgagee’s exercise of its rights of foreclosure or sale. H&R may, in the future, be exposed to a general decline of demand by tenants for space in properties including for example, the impact of hybrid working and working from home with respect to the office market. As well, certain of the leases of the properties held by H&R have early termination provisions and such termination rights are generally exercisable at a cost to the tenant only. The amount of space in H&R’s portfolio which could be affected is not significant. A mortgage on any one property may, from time to time, exceed the estimated current market value of the related property. The cash flow from such a property may not be sufficient to cover debt servicing for that property. The cash flow from H&R’s portfolio is, however, expected by management to be sufficient to cover any cash flow shortfalls on such a property. Page 57 of 70 H&R REIT - MD&A - December 31, 2023 Current Economic Environment H&R is subject to risks involving the economy in general, including inflation, deflation or stagflation, unemployment, geopolitical issues and a local, regional, national or international outbreak of a contagious disease, including the outbreak of COVID-19. Global inflation, exacerbated by supply chain issues and other macroeconomic conditions and geopolitical uncertainties, may keep central banks aggressive in their attempts to mitigate pricing pressures. With heightened interest rates and market sentiment deteriorating, the risk of a global recession is increasing. Poor economic conditions could adversely affect H&R’s ability to generate revenues, thereby reducing its operating income and earnings. It could also have an adverse impact on the ability of H&R to maintain occupancy rates which could harm H&R’s financial condition. In weak economic environments, H&R’s tenants may be unable to meet their rental payments and other obligations due to H&R, which could have a material and adverse effect on H&R. In addition, fluctuation in interest rates or other financial market volatility may adversely affect H&R's ability to refinance existing indebtedness on its maturity or on terms that are as favourable as the terms of existing indebtedness, which may impact negatively on the H&R’s performance, may restrict the availability of financing for future prospective purchasers of the H&R’s investments and could potentially reduce the value of such investments, or may adversely affect the ability of H&R to complete acquisitions on financially desirable terms. Increasing interest rates may put competitive pressure on the levels of distributable income paid by H&R to Unitholders, increasing the level of competition for capital faced by H&R, which could have a material adverse effect on the trading price of the Units. A significant component of the REIT’s ability to successfully operate relates to certain external factors that are beyond the REIT’s control, particularly interest rates and capital markets conditions. As interest rates fluctuate in the lending market, generally so do capitalization rates which affect the underlying value of real estate. As such, when interest rates rise, generally capitalization rates should be expected to rise. Over the period of investment, capital gains and losses at the time of disposition can occur due to the increase or decrease of these capitalization rates. Credit Risk and Tenant Concentration H&R is exposed to credit risk in the event that borrowers default on the repayment of the amounts owing to H&R. Management mitigates this risk by ensuring adequate security has been provided in support of mortgages receivable. H&R is exposed to credit risk as an owner of real estate in that tenants may become unable to pay the contracted rents. Management mitigates this risk by carrying out appropriate credit checks and related due diligence on the significant tenants. Management has historically diversified H&R’s holdings so that it owns several categories of properties (residential, industrial, office and retail) and acquires properties throughout Canada and the United States. In addition, management ensures that no tenant or related group of tenants, other than investment grade tenants, account for a significant portion of the cash flow. In that regard, H&R’s Declaration of Trust restricts the leasing of real property to any person where that person and its affiliates would, after the contemplated lease, be leasing real property having an aggregate leasable area in excess of 20% of the aggregate leasable area of all real property held by H&R, unless the lessee is, or the lease is guaranteed by, the Government of Canada, the Government of the United States, any province or territory of Canada, any state of the United States, any municipality in Canada or the United States, any agency or crown corporation thereof, a Canadian chartered bank or certain trust or insurance companies, and certain issuers, the securities of which meet stated investment criteria or are investment grade. At December 31, 2023, H&R was in compliance with this restriction. Furthermore, the only tenants which individually account for more than 5% of the rentals from investment properties of H&R are Hess Corporation, New York City Department of Health and Giant Eagle, Inc. Hess Corporation and New York City Department of Health both have a public debt rating that is rated with at least a BBB- Stable rating by a recognized rating agency. Lease Rollover Risk Lease rollover risk arises from the possibility that H&R may experience difficulty renewing leases as they expire or in re-leasing space vacated by tenants upon lease expiry, or that H&R may not achieve rental rate increases upon such renewals. Management attempts to enter into long-term leases to mitigate this risk. Management attempts to mitigate the risk by having staggered lease maturities and entering into longer term leases with built-in rental escalations. The leases for 51.3% of H&R’s total commercial leasable area will expire in the next 5 years. The ability to rent unleased space in the properties in which H&R has an interest will be affected by Page 58 of 70 H&R REIT - MD&A - December 31, 2023 many factors. The failure to rent unleased space on a timely basis or at all or to achieve rental rate increases would likely have an adverse effect on H&R’s financial condition and cash available for distributions may be adversely affected. Interest Rate and Other Debt-Related Risks H&R is exposed to financing risks on maturing debt and interest rate risk on its borrowings. The recent trend of increasing interest rates may lead to H&R’s debt being refinanced at higher rates, thereby reducing net income and cash flows which could ultimately affect the level of distributions. In order to minimize this risk, H&R negotiates fixed rate term debt with staggered maturities on the portfolio. Derivative financial instruments have been and may continue to be utilized by H&R in the management of its interest rate exposure. In addition, H&R’s Declaration of Trust restricts total indebtedness permitted on the portfolio. The Senior Debentures, unsecured term loans and lines of credit of H&R contain certain covenants and conditions applicable to the REIT, including without limitation, those requiring H&R to maintain, at all times, the following financial ratios: (i) ratio of debt to gross asset value of not greater than 0.65:1.0 measured at the end of each fiscal quarter; (ii) interest coverage of not less than 1.65:1.0 measured at the end of each fiscal quarter for such quarter and the prior three fiscal quarters; and (iii) unitholders’ equity of not less than $1.0 billion for Senior Debentures and $2.0 billion for unsecured term loans and lines of credit. As at December 31, 2023, H&R was in compliance with each of the preceding financial ratios. If H&R indebtedness is replaced by new debt that has less favourable terms or H&R is unable to secure adequate funding, distributions by H&R to holders of Units may be adversely impacted. In addition, failure by H&R to comply with its obligations under the documents governing such indebtedness (including in the case of the credit facilities, the failure to meet certain financial ratios and financial conditions tests) may adversely impact cash distributions on Units. Development Risks It is likely that, subject to compliance with H&R’s Declaration of Trust, H&R will be involved in various development projects. H&R’s obligations in respect of properties under construction, or which are to be constructed, are subject to risks which include (i) the potential insolvency of a third party developer (where H&R is not the developer); (ii) a third party developer’s failure to use advanced funds in payment of construction costs; (iii) construction or other unforeseeable delays, including as a result of a disease outbreak; (iv) cost overruns; (v) the failure of tenants to occupy and pay rent in accordance with existing lease agreements, some of which are conditional; (vi) the incurring of construction costs before ensuring rental revenues will be earned from the project; and (vii) increases in interest rates during the period of the development. Management strives to mitigate these risks where possible by entering into fixed price construction contracts with general contractors (and to the extent possible, on a bonded basis) and by attempting to obtain long-term financing as early as possible during construction. Residential Rental Risk H&R expects to be increasingly involved in residential development projects and mixed-use development projects that include rental apartments and may include condominiums. As a landlord of its properties that include rental apartments, H&R is subject to the risks inherent in the multi-unit residential rental business, including, but not limited to, fluctuations in occupancy levels, individual credit risk, heightened reputation risk, tenant privacy concerns, potential changes to rent control regulations, increases in operating costs including the costs of utilities and the imposition of new taxes or increased property taxes. Purchaser demand for residential condominiums is cyclical and is affected by changes in general market and economic conditions, such as consumer confidence, employment levels, availability of financing for home buyers, interest rates, demographic trends, housing supply and housing demand. Capital Expenditure Risk Leasing capital and maintenance capital are incurred in irregular amounts and may exceed actual cash available from operations during certain periods. H&R may be required to use part of its debt capacity or reduce distributions in order to accommodate such items. Capital for recoverable improvements may exceed recovery of amounts from tenants. Currency Risk H&R is exposed to foreign exchange fluctuations as a result of ownership of assets in the United States and the rental income earned from these properties. In order to mitigate the risk, H&R’s debt on these properties is also denominated in U.S. dollars to act as a Page 59 of 70 H&R REIT - MD&A - December 31, 2023 natural hedge. In addition, H&R has entered into a foreign exchange hedge to fix the foreign exchange rate at $1.38 on U.S. $10.0 million monthly. H&R is exposed to foreign exchange fluctuations as a result of U.S. mortgages and U.S. lines of credit, each of which are denominated in U.S. dollars. Liquidity Risk Real property investments tend to be relatively illiquid, with the degree of liquidity generally fluctuating in relationship with demand for and the perceived desirability of such investments. Such illiquidity will tend to limit H&R’s ability to vary its portfolio promptly in response to changing economic or investment conditions. The costs of holding real estate are considerable and during an economic recession the REIT may be faced with ongoing expenditures with a declining prospect of incoming receipts. If for whatever reason, liquidation of assets is required, there is a risk that sale proceeds realized might be less than the previously estimated market value of H&R’s investments or that market conditions, including the impact of a disease outbreak or a recession, would prevent prompt disposition of assets. Furthermore, increases in interest rates generally cause a decrease in the demand for properties. Higher interest rates and more stringent borrowing requirements, whether mandated by law or required by banks, could have a material adverse effect on the REIT’s ability to sell any of its properties or execute on its transformational strategic repositioning plan. Additionally, legislation and other regulatory developments, including the Prohibition on the Purchase of Residential Property by Non-Canadians Act, could limit potential purchasers of H&R’s properties, further reducing the liquidity of the real estate market. Cyber Security Risk Cyber security has become an increasingly problematic issue for issuers and businesses in Canada and around the world, including H&R. Cyber attacks against large organizations are increasing in sophistication and are often focused on financial fraud, compromising sensitive data for inappropriate use or disrupting business operations. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of H&R's information resources. More specifically, a cyber- incident is an intentional attack or an unintentional event that can include gaining unauthorized access to information systems to disrupt operations, corrupt data or steal confidential information. As H&R's reliance on technology has increased, so have the risks posed to its systems. The primary risks of a cyber-incident include operational interruption, damage to its reputation, damage to H&R’s business relationships with its tenants, disclosure of confidential information regarding its tenants, employees and third parties with whom H&R interacts, and may result in negative consequences, including remediation costs, loss of revenue, additional regulatory scrutiny and litigation. H&R has implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as its increased awareness of a risk of a cyber-incident, do not guarantee that its financial results will not be negatively impacted by such an incident. Risks Associated with Disease Outbreaks A local, regional, national or international outbreak of a contagious disease, including, but not limited to, the COVID-19 pandemic, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu, or any other similar illness could result in restrictive measures being taken by various governments and businesses which may result in additional risks and uncertainties to the REIT’s business, operations and financial performance as discussed throughout the MD&A. The duration and impact of any disease outbreak on the REIT and the efficacy of any government interventions are difficult to predict. As such, it is not possible to reliably estimate the length and severity of any impacts related to disease outbreaks on the financial results and operations of the REIT. Disruptions caused by a disease outbreak may negatively impact the market price for the equity securities of the REIT and may, in the short or long term, materially adversely impact the REIT’s tenants and/or the debt and equity markets, both of which could materially adversely affect the REIT’s operations and financial performance and ability to pay distributions. In addition, the REIT may experience delays with its current and future development projects. The extent of the effect of any ongoing disease outbreak on the REIT’s operational and financial performance will depend on numerous factors, including the duration, spread and intensity of the outbreak, the actions by governments and others taken to contain the outbreak or mitigate its impact, changes in the preferences of tenants and prospective tenants, and the direct and indirect economic effects of the outbreak and containment measures, all of which are uncertain and difficult to predict as such factors evolve rapidly over the course of any such disease outbreak. As a result, it is not possible to reliably ascertain the long-term impact of any disease outbreak on the REIT’s business and operations. Certain aspects of the REIT’s business and operations that Page 60 of 70 H&R REIT - MD&A - December 31, 2023 have been or could potentially continue to be impacted by disease outbreaks include rental income, occupancy, tenant inducements, future demand for space and market rents, as well as increased costs resulting from the REIT’s efforts to mitigate the impact of such outbreak, longer-term stoppage of development projects, temporary or long-term labour shortages or disruptions, temporary or long-term impacts on domestic and global supply chains, increased risks to IT systems and networks, further impairments and/or write-downs of assets, and the deterioration of worldwide credit and financial markets that could limit the REIT’s ability to access capital and financing on acceptable terms or at all. Even after any disease outbreak has subsided, the REIT may continue to experience material adverse impacts to its business as a result of the global economy, including any related recession, as well as lingering effects on the REIT’s employees, suppliers, third- party service providers and/or tenants. With respect to the COVID-19 pandemic in particular, while many pandemic-related risks are receding and measures to contain the spread of the virus have lifted in many regions, the pandemic continues to have, and a new disease outbreak could have, an impact on the global economy, including contributing to high levels of inflation, rising interest rates (to mitigate inflation) and the resulting threat of recession. In addition, public health measures continue to be implemented in certain regions or countries and may be reinstated in other areas. Management continues to actively assess and respond where possible, to the effects of the COVID-19 pandemic on the REIT’s employees, tenants, suppliers, and service providers, and evaluate governmental actions being taken to curtail its spread. Financing Credit Risk H&R is also exposed to credit risk as a lender on the security of real estate in the event that a borrower is unable to make the contracted payments. Such risk is mitigated through credit checks and related due diligence of the borrowers and through careful evaluation of the worth of the underlying assets. ESG and Climate Change Risk As an owner and manager of real estate assets in Canada and the United States, H&R is subject to various laws relating to environmental matters. These laws impose a liability for the cost of removal and remediation of certain hazardous materials released or deposited on properties owned by H&R or on adjacent properties. H&R will make the necessary capital and operating expenditures to ensure compliance with environmental laws and regulations. Although there can be no assurances, H&R does not believe that costs relating to environmental matters will have a material adverse effect on H&R’s business, financial condition or results of operations. However, environmental laws and regulations may change and H&R may become subject to more stringent environmental laws and regulations in the future. In addition, H&R may become subject to transition risks as a result of the process of shifting to a low-carbon economy, influenced by new and emerging climate-related public policies and regulations, technologies, stakeholder expectations and legal developments. Compliance with more stringent environmental laws and regulations could have an adverse effect on H&R’s business, financial condition or results of operations. In accordance with best management practices, Phase I environmental audits are completed on all properties prior to acquisition. Further investigation is conducted if Phase I tests indicate a potential problem. H&R has operating policies to monitor and manage risk. In addition, the standard lease utilized requires tenants to comply with environmental laws and regulations, and restricts tenants from carrying on environmentally hazardous activities or having environmentally hazardous substances on site. Natural disasters, earthquakes and severe weather such as hurricanes, tornadoes, floods, ice storms, blizzards, rising temperatures and other adverse weather and climate conditions may result in damage to the REIT’s investment and development properties, decreased property values and reduced rental revenue (including from increased vacancy). The extent of H&R's casualty losses and loss in net operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. H&R is also exposed to risks associated with inclement winter weather, including increased need for maintenance and repair of H&R’s buildings. In addition, climate change, to the extent it causes changes in weather patterns, could have effects on H&R's business by increasing the cost to recover and repair the REIT’s investment and development properties, by increasing property insurance costs to insure an investment property against natural disasters and severe weather events and/or by increasing energy costs at the REIT’s investment properties. As a result, the consequences of natural disasters, severe weather and climate change could increase H&R’s costs and reduce H&R’s cash flow. H&R has taken proactive steps to mitigate the risk of climate change on the REIT and its properties and to address the REIT’s environmental impact. Evolving stakeholder expectations and H&R’s efforts and ability to manage these issues, provide updates on Page 61 of 70 H&R REIT - MD&A - December 31, 2023 them, and carry out its environmental and sustainability practices and initiatives presents numerous operational, regulatory, reputational, financial, legal, and other risks, any of which may be outside of H&R’s control or could have a material adverse impact on H&R’s business. H&R’s failure or perceived failure to maintain its environmental and sustainability practices or comply with emerging regulations that meet evolving regulatory or stakeholder expectations could harm H&R’s reputation and expose H&R to increased scrutiny from the investment community and enforcement authorities. In addition, there are currently no universal or commonly accepted ESG or impact reporting standards and no assurance can be given that such standards will develop over time or, if such standards develop in the future, that the REIT’s practices will align with such standards. Accordingly, no assurance is or can be given to investors that the REIT’s focus on goals and key performance indicators, the REIT’s Sustainability Policy, Green Financing Framework or otherwise will meet investor expectations regarding ESG- related or impact investing. In the event that formal standards for ESG or similar reporting are adopted by the Canadian securities regulators, the International Sustainability Standards Board of the IFRS Foundation or similar organizations with governance over H&R, H&R intends to comply with such standards. Similarly, there is no legal, regulatory or market definition of or standardized criteria for what constitutes a “green”, “social”, “sustainable” or other equivalently labeled investment and any such designations made by third parties may not be suitable for the investment criteria of an investor. No assurance can be given that such definitions or consensus will develop over time or, if such definitions or consensus develop in the future, that initiatives undertaken by the REIT in accordance with its Sustainability Policy, Green Financing Framework or otherwise will meet such definitions or consensus. Accordingly, an investment in Units may not meet any or all investor expectations regarding “green”, “social”, “sustainable” or other equivalently labeled performance objectives. See the “ESG” section of this MD&A for additional details on the REIT’s environmental and sustainability practices and initiatives. Co-Ownership Interest in Properties In certain situations, H&R may be adversely affected by a default by a co-owner of a property under the terms of a mortgage, lease or other agreement. Although all co-owners’ agreements entered into by H&R provide for remedies to H&R in such circumstances, such remedies may not be exercisable in all circumstances, or may be insufficient or delayed, and may not cure a default in the event that such default by a co-owner is deemed to be a default of H&R. General Uninsured Losses H&R carries comprehensive general liability, fire, flood, extended coverage and rental loss insurance with policy specifications, limits and deductibles customarily carried for similar properties. There are, however, certain types of risks, generally of a catastrophic nature, such as wars or environmental contamination, which are either uninsurable or not insurable on an economically viable basis. H&R will have insurance for earthquake risks, subject to certain policy limits, deductibles and self-insurance arrangements, and will continue to carry such insurance if it is economical to do so. Should an uninsured or underinsured loss occur, H&R could lose its investment in, and anticipated profits and cash flows from, one or more of its properties; but H&R would continue to be obliged to repay any recourse mortgage indebtedness on such properties. Joint Arrangement and Investment Risks H&R has several investments in joint ventures and investments in associates. H&R is subject to risks associated with the management and performance of these joint arrangements and investments. Such risks include any disagreements with its partners relating to the development or operations of a property, as well as differences with respect to strategic decision making. Other risks include partners not meeting their financial or operational obligations. H&R attempts to mitigate these risks by maintaining good working relationships with its partners, and conducting due diligence on their partners to ensure there is a similar alignment of strategy prior to creating a joint arrangement or investment. Dependence on Key Personnel and Succession Planning The REIT’s continued growth is dependent on its ability to hire, retain and develop its leaders and other key personnel. Any failure to effectively attract and retain talented and experienced employees and to establish adequate succession planning and retention strategies could result in a lack of requisite knowledge, skill and experience. This could erode H&R’s competitive position or result in increased costs and competition for, or high turn-over of, employees. Any of the foregoing could negatively affect H&R’s ability to Page 62 of 70 H&R REIT - MD&A - December 31, 2023 operate its business and execute its strategies, which in turn, could adversely affect its reputation, operations or financial performance. Potential Acquisition, Investment and Disposition Opportunities and Joint Venture Arrangements H&R evaluates business and growth opportunities and considers a number of acquisition, investment and disposition opportunities and joint venture arrangements to achieve its business and growth strategies. In the normal course, H&R may have outstanding non- binding letters of intent and/or conditional agreements or may otherwise be engaged in discussions with respect to potential acquisitions and financing of new assets, the refinancing of existing assets, potential dispositions, establishment of new joint venture arrangements, the viability and status of its joint venture arrangements, and changes to its capital structure, each of which, individually or in the aggregate, may or may not be material if they were to progress. However, there can be no assurance that any of these discussions will result in a definitive agreement and, if they do, what the terms or timing of any acquisition, investment or disposition would be or that such acquisition, investment or disposition will be completed by H&R. Similarly, there can be no assurance that H&R will enter into new joint venture arrangements or continue any existing joint venture arrangements. If H&R does complete such transactions, H&R cannot provide assurance that they will ultimately strengthen its competitive position or that they will not be viewed negatively by customers, securities analysts or investors. Such transactions may also involve significant commitments of H&R’s financial and other resources. Any such activity may not be successful in generating revenue, income or other returns to H&R, and the resources committed to such activities will not be available to H&R for other purposes. Acquisitions of properties by H&R are subject to the normal commercial risks and satisfaction of closing conditions that may include, among other things, lender approval, Competition Act (Canada) approval, receipt of estoppel certificates and obtaining title insurance. Such acquisitions may not be completed or, if completed, may not be on terms that are exactly the same as initially negotiated. In the event that H&R does not complete an acquisition, it may have an adverse effect on the operations and results of H&R in the future and its cash available for distributions to unitholders. Potential Undisclosed Liabilities Associated with Acquisitions H&R may acquire properties that are subject to existing liabilities, some of which may be unknown at the time of the acquisition or which H&R may fail to uncover in its due diligence. Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims by tenants, vendors or other persons dealing with the vendor or predecessor entities (that have not been asserted or threatened to date), and accrued but unpaid liabilities incurred in the ordinary course of business. Representations and warranties given by third parties to H&R regarding acquired properties may not adequately protect against these liabilities and any recourse against third parties may be limited by the financial capacity of such third parties. While in some instances H&R may have the right to seek reimbursement against an insurer or another third party for certain of these liabilities, H&R may not have recourse to the vendor of the properties for any of these liabilities. Competition for Real Property Investments The real estate business is competitive. Numerous other developers, managers and owners of properties compete with H&R in seeking tenants. Some of the properties located in the same markets as H&R’s properties may be newer, better located, less levered or have better tenant profiles than H&R’s properties. Some property owners with properties located in the same markets as H&R’s properties may be better capitalized and may be stronger financially and hence better able to withstand an economic downturn. Competitive pressures in such markets could have a negative effect on H&R’s ability to lease space in its properties and on the rents charged or concessions granted, which could have an adverse effect on H&R’s financial condition and results of operation and decrease the amount of cash available for distribution. H&R competes for suitable real property investments with individuals, corporations, other real estate investment trusts and institutions (both Canadian and foreign) which are presently seeking, or which may seek in the future, real property investments similar to those desired by H&R. Many of these investors have greater financial resources than those of H&R, or operate without H&R’s investment restrictions, or according to more flexible conditions. An increase in the availability of investment funds and an increase in interest in real property investments would tend to increase competition for real property investments, thereby increasing purchase prices and reducing the yields thereon. Page 63 of 70 H&R REIT - MD&A - December 31, 2023 Potential Conflicts of Interest H&R may be subject to various conflicts of interest because of the fact that the members of management and the Trustees may be engaged in a wide range of real estate and other business activities and H&R may become involved in transactions which conflict with the interests of the foregoing. H&R management and the Trustees may from time to time deal with persons, firms, institutions or corporations with which H&R may be dealing, or which may be seeking investments similar to those desired by the REIT. The interests of these persons could conflict with those of H&R. In addition, from time to time, these persons may be competing with H&R for available investment opportunities. Any decisions regarding the enforcement by H&R of the terms of any agreement entered into by H&R with a non-independent Trustee or with an associate of a non-independent Trustee may be made by a majority of the independent Trustees. There is a risk that non-independent Trustees may attempt to influence the independent Trustees in this regard. Unit Prices Publicly traded trust Units will not necessarily trade at values determined solely by reference to the underlying value of trust assets. Accordingly, Units may trade at a premium or a discount to the underlying value of the assets of H&R. See also the “Forward-Looking Disclaimer” in this MD&A. One of the factors that may influence the quoted price of the Units is the annual yield on the Units. Accordingly, an increase in market interest rates may lead investors in Units to demand a higher annual yield, which could adversely affect the quoted price of Units. In addition, the quoted price for Units may be affected by changes in general market conditions, fluctuations in the markets for equity securities and numerous other factors beyond the control of H&R. Challenging market conditions, the health of the economy as a whole and numerous other factors beyond the control of H&R may have a material effect on the business, financial condition, liquidity and results of operations of H&R. Financial markets have previously experienced significant price and volume fluctuations that have particularly affected the market prices of securities of issuers and that have often been unrelated to the operating performance, underlying asset values or the prospects of such issuers. There can be no assurance that such fluctuations in price and volume will not occur again. Accordingly, the market price of Units may decline even if H&R’s operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. If such increased levels of volatility and market turmoil occur, H&R’s operations could be adversely impacted and the trading price of the Units may be adversely affected. Availability of Cash for Distributions Although H&R intends to make distributions of its available cash to unitholders in accordance with its distribution policy, these cash distributions may be reduced or suspended, including as a result of the impact of a disease outbreak on the REIT’s business. The actual amount distributed by H&R will depend on numerous factors including capital market conditions, the financial performance of the properties, H&R’s debt covenants and obligations, its working capital requirements, its future capital requirements, its development commitments and fluctuations in interest rates. Cash available to H&R for distributions may be reduced from time to time because of items such as principal repayments on debt, tenant allowances, leasing commissions, capital expenditures or any other business needs that the Board deems reasonable. H&R may be required to use part of its debt capacity in order to accommodate any or all of the above items. The market value of Units may decline significantly if H&R suspends or reduces distributions. The Board retain the right to re-evaluate the distribution policy from time to time as they consider appropriate. Credit Ratings Credit ratings assigned to H&R’s debentures are not hold or sell recommendations, do not address the market price of the debentures, and are not assessments of the appropriateness of ownership of the debentures given various investment objectives. The credit ratings on the debentures may not reflect the potential impact of all risks and factors affecting the value of the debentures, including market risk, trading liquidity risk and covenant risk. In addition, real or anticipated changes in the credit ratings assigned to the debentures may affect their market value. Such changes can affect the cost at which H&R can access the debenture Page 64 of 70 H&R REIT - MD&A - December 31, 2023 market, and the credit spreads on unsecured term loans or unsecured lines of credit, as applicable. There is no assurance that any rating will remain in effect for any given period of time and ratings may be upgraded, downgraded, placed under review, confirmed and discontinued by a rating agency in the future if in its judgment circumstances so warrant. Ability to Access Capital Markets As H&R distributes a substantial portion of its income to unitholders, H&R may need to obtain additional capital through capital markets and H&R’s ability to access the capital markets through equity issues and forms of secured or unsecured debt financing may affect the operations of H&R as such financing may be available only on disadvantageous terms, if at all. If financing is not available on acceptable terms, further acquisitions or ongoing development projects may be curtailed and cash available for distributions or to fund future commitments may be adversely affected. Dilution The number of Units H&R is authorized to issue is unlimited. The Trustees have the discretion to issue additional Units in certain circumstances, including under H&R’s Unit Option Plan and Incentive Unit Plan. In addition, H&R may issue Units pursuant to the distribution reinvestment plan and unit purchase plan. Any issuance of Units may have a dilutive effect on the investors of Units. Unitholder Liability H&R’s Declaration of Trust provides that no holder of Units, special voting units of the REIT (“Special Voting Units”) or annuitant under a plan of which a holder of Units or Special Voting Units acts as trustee or carrier (an “annuitant”) will be held to have any personal liability as such, and that no resort shall be had to, nor shall recourse or satisfaction be sought from, the private property of any holder of Units, Special Voting Units or annuitant for any liability whatsoever, in tort, contract or otherwise, to any person in connection with property of H&R or the affairs of H&R including, without limitation, for satisfaction of any obligation or claim arising out of or in connection with any contract or obligation of H&R or of the Trustees or any obligation which a holder of Units, Special Voting Units or annuitant would otherwise have to indemnify a Trustee for any personal liability incurred by the Trustee as such. Only assets of H&R are intended to be liable and subject to levy or execution for satisfaction of such liability. H&R’s Declaration of Trust further provides that certain written instruments signed by H&R (including all mortgages and, to the extent the Trustees determine to be practicable and consistent with their fiduciary duty to act in the best interests of holders of Units and Special Voting Units, other written instruments creating a material obligation of H&R) shall contain a provision or be subject to an acknowledgment to the effect that such obligation will not be personally binding upon holders of Units and Special Voting Units or upon and that resort shall not be had to, nor shall recourse or satisfaction be sought from, the private property of any annuitant. However, in conducting its affairs, H&R has acquired and may acquire real property investments subject to existing contractual obligations, including obligations under mortgages and leases. The Trustees will use all reasonable efforts to have any such obligations modified so as not to have such obligations personally binding upon any of the holders of Units, Special Voting Units or annuitants. However, H&R may not be able to obtain such modification in all cases. To the extent that claims are not satisfied by H&R, there is a risk that a holder of Units, Special Voting Units or annuitant will be held personally liable for obligations of H&R where the liability is not disavowed as described above. Personal liability may also arise in respect of claims against H&R that do not arise under contracts, including claims in tort, claims for taxes and possibly certain other statutory liabilities. The possibility of any personal liability of this nature arising is considered remote as the nature of H&R’s activities are such that most of its obligations arise by contract and non-contractual risks are largely insurable. However, the insurance policies maintained by H&R have exclusions for certain environmental liabilities. In the event that payment of H&R obligations were to be made by a holder of Units or Special Voting Units, such holder would be entitled to reimbursement from the available assets of H&R. The Trustees will cause the activities of H&R to be conducted with the advice of counsel, in such a way and in such jurisdictions as to avoid, to the extent they determine to be practicable and consistent with their fiduciary duty to act in the best interests of the holders of Units and Special Voting Units, any material risk of liability on the holders of Units and Special Voting Units for claims against H&R. The Trustees will, to the extent available on terms which they determine to be practicable, cause the insurance carried by H&R, to the extent applicable, to cover the holders of Units, Special Voting Units and annuitants as additional insureds. Page 65 of 70 H&R REIT - MD&A - December 31, 2023 Legislation has been enacted in the Province of Ontario and certain other provinces that is intended to provide unitholders in those provinces with limited liability. On December 16, 2004, the Trust Beneficiaries’ Liability Act, 2004 (Ontario), came into force. Such legislation provides that unitholders of a trust that is a reporting issuer and governed by the laws of Ontario are not liable, as beneficiaries, for any act, default, obligation or liability of the trust or any of its trustees that arise after the legislation came into force. A trust is considered governed by the laws of Ontario if its declaration of trust or other constating instrument contains the customary provision to that effect. H&R’s Declaration of Trust contains such a provision, and accordingly, the holders of Units and Special Voting Units are protected by this legislation. However, there remains a risk, which H&R considers to be remote in the circumstances, that a holder of Units and Special Voting Units could be held personally liable for H&R’s obligations to the extent that claims are not satisfied out of H&R’s assets. It is intended that H&R’s affairs will be conducted to seek to minimize such risk wherever possible. Redemption Right Unitholders are entitled to have their Units redeemed at any time on demand. It is anticipated that this redemption right will not be the primary mechanism for unitholders to liquidate their investments. The entitlement of holders of Units to receive cash upon the redemption of their Units is subject to the limitations that: (i) the total amount payable by H&R in respect of those Units and all other Units tendered for redemption in the same calendar month does not exceed $50,000.00 (subject to certain adjustments and provided that the trustees of H&R may waive this limitation at their sole discretion), (ii) at the time such Units are tendered for redemption, the outstanding Units shall be listed for trading or quoted on a stock exchange or traded or quoted on another market which the trustees consider, in their sole discretion, provides representative fair market value prices for the Units; and (iii) the normal trading of the Units is not suspended or halted on any stock exchange on which the Units are listed (or, if not so listed, on any market on which the Units are quoted for trading) on the redemption date or for more than five trading days during the ten-day trading period commencing immediately prior to such date. In certain circumstances, H&R’s Declaration of Trust provides for the in specie distributions of notes of H&R Portfolio LP Trust in the event of redemption of Units. The notes which may be distributed in specie to unitholders in connection with a redemption will not be listed on any stock exchange, and are not expected to be qualified investments for registered plans, no established market is expected to develop for such notes and they may be subject to resale restrictions under applicable securities laws. Investment Eligibility The Tax Act imposes penalties for the acquisition or holding of non-qualified or prohibited investments (as defined in the Tax Act) by certain registered plans. H&R will endeavour to ensure that Units continue to be qualified investments for registered plans, but there can be no assurances in this regard. Unitholders, annuitants and subscribers of registered plans should consult their own tax advisors with respect to whether Units would be prohibited investments having regard to their particular circumstances. Debentures The likelihood that purchasers of the Series Q, R and S Senior Debentures will receive payments owing to them under the terms of such debentures will depend on the financial health of H&R and its creditworthiness. In addition, such debentures are unsecured obligations of H&R and are subordinate in right of payment to all H&R’s existing and future senior indebtedness as defined in each such respective trust indenture. Therefore, if H&R becomes bankrupt, liquidates its assets, reorganizes or enters into certain other transactions, H&R’s assets will be available to pay its obligations with respect to such debentures only after it has paid all of its senior indebtedness in full. There may be insufficient assets remaining following such payments to pay amounts due on any or all of the Senior Debentures then outstanding. The Senior Debentures are also effectively subordinate to claims of creditors (including trade creditors) of H&R’s subsidiaries except to the extent H&R is a creditor of such subsidiaries ranking at least pari passu with such other creditors. A parent entity is entitled only to the residual equity of its subsidiaries after all debt obligations of its subsidiaries are discharged. In the event of bankruptcy, liquidation or reorganization of H&R, holders of indebtedness of H&R (including holders of the Senior Debentures), may become subordinate to lenders to the subsidiaries of H&R. The indentures governing such debentures do not prohibit or limit the ability of H&R or its subsidiaries to incur additional debt or liabilities (including senior indebtedness), to amend and modify the ranking of any indebtedness or to make distributions, except, in respect of distributions where an event of default has occurred and such default has not been cured or waived. The indentures do not contain any provision specifically intended to protect holders of debentures in the event of a future leveraged transaction involving H&R. Page 66 of 70 H&R REIT - MD&A - December 31, 2023 In addition, H&R may be required to purchase all outstanding Senior Debentures upon the occurrence of a change of control. However, it is possible that following a change of control, H&R will not have sufficient funds at that time to make any required purchase of such outstanding debentures or that restrictions contained in other indebtedness will restrict those purchases. Statutory Remedies H&R is not a legally recognized entity within the relevant definitions of the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and in some cases, the Winding Up and Restructuring Act. As a result, in the event a restructuring of H&R were necessary, H&R would not be able to access the remedies available thereunder. The rights granted in H&R’s Declaration of Trust are granted as contractual rights afforded to securityholders of H&R (“Securityholders”). Similar to other existing rights contained in H&R’s Declaration of Trust (e.g. take-over bid provisions and conflict of interest provisions), making these rights and remedies and certain procedures available by contract is structurally different from the manner in which the equivalent rights and remedies or procedures (including the procedure for enforcing such remedies) are made available to shareholders of a corporation, who benefit from those rights and remedies or procedures by the corporate statute that governs the corporation, such as the Canada Business Corporations Act. As such, there is no certainty how these rights, remedies or procedures may be treated by the courts in the non-corporate context or that a Securityholder will be able to enforce the rights and remedies in the manner contemplated by H&R’s Declaration of Trust. Furthermore, how the courts will treat these rights, remedies and procedures will be at the discretion of the court, and a court may choose to not accept jurisdiction to consider any claim contemplated in H&R’s Declaration of the Trust. Tax Risk The Tax Act includes rules (referred to herein as the ‘‘SIFT Rules’’) which effectively tax certain income of a publicly traded trust that is distributed to its investors or of a publicly traded partnership on the same basis as would have applied had the income been earned through a taxable corporation and distributed by way of dividend to its shareholders. The SIFT Rules apply only to ‘‘SIFT trusts’’, ‘‘SIFT partnerships’’ (each as defined in the Tax Act) and their investors. A trust that qualifies as a “real estate investment trust” (as defined in the Tax Act) for a taxation year will not be considered to be a SIFT trust in that year (the “REIT Exemption”). Based on a review of H&R’s assets and revenues, management believes that H&R satisfied the tests to qualify for the REIT Exemption for 2023. Management of H&R intends to conduct the affairs of H&R so that it qualifies for the REIT Exemption at all future times. However, as the REIT Exemption includes complex revenue and asset tests, no assurances can be provided that H&R has qualified for the REIT Exemption for its 2023 taxation year or will qualify for the REIT Exemption for its current or any subsequent taxation year. H&R currently qualifies as a mutual fund trust for purposes of the Tax Act. There can be no assurance that Canadian federal income tax laws and the administrative policies and assessing practices of the Canada Revenue Agency, including in respect of the treatment of mutual fund trusts or SIFT trusts, will not be changed in a manner which adversely affects H&R or holders of Units. If H&R does not qualify as a “mutual fund trust” under the Tax Act or were to cease to so qualify, the income tax considerations applicable to H&R and an investment in Units would be materially and adversely different. For example, if H&R were to cease to qualify as a mutual fund trust and Units cease to be listed on a designated stock exchange (which currently includes the TSX), Units may cease to be qualified investments for registered retirement savings plans, deferred profit sharing plans, registered retirement income funds and first home savings accounts, and will cease to be qualified investments for registered education savings plans, registered disability savings plans and tax-free savings accounts. On November 28, 2023, the Minister of Finance released revised proposals (“Tax Proposals”) to amend the Tax Act (the “EIFEL Proposals”) that are intended, where applicable, to limit the deductibility of interest and other financing-related expenses by an entity to the extent that such expenses, net of interest and other financing-related income, exceed a fixed ratio of the entity’s tax EBITDA. The EIFEL Proposals and their application are highly complex, and there can be no assurances that the EIFEL Proposals, if enacted as proposed, will not have adverse consequences to H&R or its Unitholders. In particular, if these rules were to apply to restrict deductions otherwise available to H&R or otherwise increase the REIT’s income for purposes of the Tax Act, the taxable component of distributions paid by H&R to Unitholders may be increased, which could reduce the after-tax return associated with an investment in Units. The EIFEL Proposals are proposed to be effective for taxation years beginning on or after October 1, 2023. Page 67 of 70 H&R REIT - MD&A - December 31, 2023 The Tax Proposals released on November 28, 2023 also include a proposed tax on repurchases of equity, which is proposed to be effective for transactions that occur on or after January 1, 2024 (the "Equity Repurchase Rules"). Under these proposals, a trust the equity of which is listed on a "designated stock exchange" (which currently includes the TSX) that is a real estate investment trust for purposes of the Tax Act will be subject to a 2% tax on the value of the trust's net equity repurchases (which would include purchases of Units by H&R under its normal course issuer bid) in a taxation year, as calculated in accordance with the detailed rules contained in the proposals, subject to a de minimis exception where the trust's gross equity repurchases in the year do not exceed $1,000,000. If H&R is required to pay tax under the Equity Repurchase Rules, the amount of cash available for distribution to investors would be reduced. If H&R experiences a “loss restriction event”, as defined in the Tax Act, (i) it will be deemed to have a year-end for tax purposes (which would result in an unscheduled distribution of undistributed net income and net realized capital gains, if any, at such time to unitholders to the extent necessary to ensure that H&R is not liable for income tax on such amounts under Part I of the Tax Act), and (ii) it will become subject to the loss restriction rules generally applicable to a corporation that experiences an acquisition of control, including a deemed realization of any unrealized capital losses and restrictions on its ability to carry forward unused losses to future taxation years. Generally, H&R will be subject to a loss restriction event if a person becomes a “majority-interest beneficiary”, or a group of persons becomes a “majority-interest group of beneficiaries”, of H&R, each as defined in the affiliated persons rules contained in the Tax Act, with certain modifications. Generally, a majority-interest beneficiary of a trust is a beneficiary of the trust whose beneficial interests in the income or capital of the trust, as the case may be, together with the beneficial interests in the income or capital of the trust, as the case may be, of persons and partnerships with whom such beneficiary is affiliated for the purposes of the Tax Act, represent greater than 50% of the fair market value of all the interests in the income or capital of the trust, as the case may be. H&R operates in the United States through U.S. Holdco, which is capitalized with debt and equity provided by H&R. During 2018, H&R made loans to U.S. Holdco (“U.S. Holdco Loans”), including a revolving loan that U.S. Holdco drew upon in 2022 and 2023, to refinance existing loans, including certain interest bearing unsecured subordinated notes of U.S. Holdco held by H&R (the “U.S. Holdco Notes”), or indirectly fund additional U.S. Holdco acquisitions of income generating real property. Management anticipates that U.S. Holdco will continue to borrow funds from H&R in the future for similar purposes, to fund its operations or to refinance existing loans. U.S. Holdco treats the U.S. Holdco Notes and U.S. Holdco Loans as indebtedness for U.S. federal income tax purposes. If the IRS or a court were to determine that the U.S. Holdco Notes and/or the U.S. Holdco Loans should be treated for U.S. federal income tax purposes as equity rather than debt, the interest on the U.S. Holdco Notes and/or the U.S. Holdco Loans could be treated as a dividend, and interest on the U.S. Holdco Notes and/or the U.S. Holdco Loans would not be deductible for U.S. federal income tax purposes. In addition, if the IRS were to determine that the interest rate on the U.S. Holdco Notes and/or the U.S. Holdco Loans did not represent an arm’s length rate, any excess amount over the arm’s length rate would not be deductible and could be re- characterized as a dividend payment instead of an interest payment. This would significantly increase the U.S. federal income tax liability of U.S. Holdco, potentially including the tax liability for prior years in which U.S. Holdco has claimed a deduction for interest paid on the U.S. Holdco Notes. In addition, U.S. Holdco could be subject to penalties. Such an increase in tax liability could materially adversely affect U.S. Holdco’s ability to make interest payments on the U.S. Holdco Loans or H&R’s ability to make distributions on its Units. Under the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”), Section 163(j) of the Internal Revenue Code has been repealed and replaced with a new section 163(j) that is applicable to taxable years beginning after December 31, 2017. New section 163(j) applies to both related and third-party debt and there is no debt to equity ratio safe harbor. New section 163(j) limits all interest deductions (related and third party) to 30% (50% for the 2019 and 2020 taxable years) of “adjusted taxable income” (defined similarly to earnings before interest, taxes, depreciation and amortization for taxable years beginning before January 1, 2022, and earnings before interest and taxes thereafter). However, there is an exception to the limitation of new section 163(j) for certain “real property trades or businesses” that make an irrevocable election. If such an election is made, the real property trade or business is required to use the alternative depreciation system (ADS) to depreciate certain assets for U.S. federal income tax purposes. Management believes U.S. Holdco was eligible to make this election and did so for 2018 onwards. As the new U.S. Tax Reform continues to move through the implementation process, there is risk that regulatory, administrative or legislative actions could have a materially adverse effect on H&R’s deferred income tax assets or liabilities. Management continues to monitor ongoing developments and IRS guidance. Page 68 of 70 H&R REIT - MD&A - December 31, 2023 Additional Tax Risks Applicable to Unitholders H&R is classified as a foreign corporation for United States federal income tax purposes. A foreign corporation will be classified as a passive foreign investment company, or “PFIC”, for United States federal income tax purposes if either (i) 75% or more of its gross income is passive income or (ii) on average for the taxable year, 50% or more of its assets (by value) produce or are held for the production of passive income. If H&R were treated as a PFIC, then in the absence of certain elections being made by a U.S. Unitholder with respect to such U.S. Unitholder’s Units, any distributions in respect of Units which are treated as “excess distributions” under the applicable rules and any gain on a sale or other disposition of Units would be treated as ordinary income and would be subject to special tax rules, including an interest charge. In addition, if H&R were treated as a PFIC, then dividends paid on Units will not qualify for the reduced 20% U.S. federal income tax rate applicable to certain qualifying dividends received by non- corporate taxpayers. The foregoing adverse consequences of PFIC characterization can be mitigated by making certain elections. U.S. Unitholders should consult with their own tax advisors regarding the implications of these rules and the advisability of making one of the applicable PFIC elections, taking into account their particular circumstances. If H&R were a PFIC, U.S. Unitholders would be required to file an annual return on IRS Form 8621. U.S. individuals are required to report an interest in any “specified foreign financial asset” if the aggregate value of such assets owned by the U.S. individual exceeds $50,000.00 (or such higher threshold as may apply to a particular taxpayer pursuant to the instructions to IRS Form 8938). Units are treated as a specified foreign financial asset for this purpose. A holder of Units that is a resident of the U.S. for purposes of the Tax Act will generally be subject to Canadian withholding tax under Part XIII of the Tax Act at the rate of 25% on the portion of the income of H&R (including, in general, taxable capital gains deemed to be “TCP gains distributions” for purposes of the Tax Act) paid or credited (whether in cash or in specie) in respect of such Units, subject to reduction under the Canada-U.S. Tax Convention (the “U.S. Treaty”), if applicable. The withholding rate applicable to a U.S. Unitholder entitled to the benefits of the U.S. Treaty in respect of such income generally would be reduced to 15% in the case of income arising in Canada and to 0% in the case of income arising outside of Canada. U.S. Unitholders may be entitled to a refund of a portion of such withholding tax if the rate applied by H&R were determined to be excessive. You should consult with your own tax advisor regarding the advisability of applying for such a refund. OUTSTANDING UNIT DATA The beneficial interests in the REIT are represented by two classes of units: Units which are unlimited in number and Special Voting Units of which a maximum of 13,013,698 may be issued. Each Unit carries a single vote at any meeting of unitholders of the REIT. Each Special Voting Unit carries a single vote at any meeting of unitholders of the REIT. As at December 31, 2023 there were 261,867,587 Units issued and outstanding and 13,013,698 Special Voting Units outstanding. As at February 6, 2024, there were 261,867,587 Units issued and outstanding and 13,013,698 Special Voting Units outstanding. During the year ended December 31, 2023, the unit option plan of H&R (the “Unit Option Plan”) was amended to decrease the aggregate number of Units reserved for issuance pursuant to grants under the Unit Option Plan to 8,805,638, resulting in the voluntary reduction of the number options available for grant by 8,917,472. In accordance with the revised Unit Option Plan, no further options may be granted and upon expiry of any outstanding options, the pool will automatically decrease. Following expiry of the final outstanding options thereunder, the Unit Option Plan will terminate. As at December 31, 2023, the maximum number of options to purchase Units authorized to be issued under H&R’s Unit Option Plan was 8,805,638. Of this amount, 8,805,638 options to purchase Units have been granted and are outstanding and nil options remain available for granting. As at February 6, 2024, there were 8,805,638 options to purchase Units outstanding and fully vested. As at December 31, 2023, the maximum number of incentive units authorized to be granted under H&R’s Incentive Unit Plan was 5,000,000. The REIT has granted 1,672,059 incentive units which remain outstanding, 365,450 have been settled for Units and 2,962,491 incentive units remain available for granting. As at February 6, 2024, there were 1,697,215 incentive units outstanding. As at December 31, 2023 and February 6, 2024, there were 17,974,186 exchangeable units outstanding of which 13,013,698 exchangeable units are accompanied by Special Voting Units. Page 69 of 70 H&R REIT - MD&A - December 31, 2023 ADDITIONAL INFORMATION Additional information relating to H&R, including H&R’s Annual Information Form, is available on SEDAR+ at www.sedarplus.com. SUBSEQUENT EVENTS (a) In January 2024, the REIT redeemed all of its $350.0 million outstanding 3.369% Series N Series Debentures. Page 70 of 70 Consolidated financial statements of H&R REAL ESTATE INVESTMENT TRUST For the years ended December 31, 2023 and 2022 KPMG LLP Bay Adelaide Centre 333 Bay Street, Suite 4600 Toronto, ON M5H 2S5 Canada Tel 416-777-8500 Fax 416-777-8818 INDEPENDENT AUDITOR’S REPORT To the Unitholders of H&R Real Estate Investment Trust Opinion We have audited the consolidated financial statements of H&R Real Estate Investment Trust (“the Entity”), which comprise: • • • • the consolidated statements of financial position as at December 31, 2023 and 2022 the consolidated statements of comprehensive income (loss) for the years then ended the consolidated statements of changes in unitholders’ equity for the years then ended the consolidated statements of cash flows for the years then ended • and notes to the consolidated financial statements, including a summary of material accounting policy information (hereinafter referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2023 and 2022, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our auditor’s report. those standards are further described in We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. © 2024 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2023. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matter described below to be the key audit matter to be communicated in our auditors’ report. Evaluation of the fair value of investment properties Description of the matter We draw attention to Notes 1 (d)(ii), 2 (b) and 4 of the financial statements. The Entity has recorded investment properties at fair value for an amount of $7,811,543 thousand. The Entity also has recorded equity accounted investments of $1,165,021 thousand representing the Entity’s share of net assets of associates and joint ventures. These associates and joint ventures hold investment properties at fair value for an amount of $5,326,169 thousand. The investment properties are measured at fair value using valuations prepared by either the Entity’s internal valuation team or external independent appraisers. The valuations are based on a number of methods and significant assumptions, such as capitalization rates, terminal capitalization rates, discount rates, estimates of future cash flows and market value per unit of measure. Why the matter is a key audit matter We identified the evaluation of the fair value of investment properties as a key audit matter. This matter represented an area of significant risk of material misstatement given the magnitude of investment properties and the high degree of estimation uncertainty in determining the fair value of investment properties. In addition, significant auditor judgment and specialized skills and knowledge were required in performing, and evaluating the results of, our audit procedures due to the sensitivity of the fair value of investment properties to minor changes in certain significant assumptions. How the matter was addressed in the audit The primary procedures we performed to address this key audit matter included the following: For a selection of investment properties, we assessed the Entity’s ability to accurately forecast by comparing the Entity’s forecasted future cash flows to be generated by the investment properties used in the prior year’s estimate of the fair value of investment properties to actual results. For a selection of investment properties, we compared the forecasted future cash flows used by Entity’s internal valuation team and external independent appraisers to the actual historical cash flows. We took into account the changes in conditions and events affecting the investment properties to assess the adjustments, or lack of adjustments, made by the Entity’s internal valuation team and external independent appraisers in arriving at those future cash flows. 2 We involved our valuations professionals with specialized skills and knowledge, who assisted in evaluating, for the overall portfolio, the appropriateness of the capitalization rates, terminal capitalization rates, discount rates and market value per unit of measure used by Entity’s internal valuation team and external independent appraisers. We evaluated these rates by comparing them to published reports of real estate industry commentators and, where available, the rate and market value per unit of measure assumptions were compared to recent sales of similar properties while considering the features of the specific investment properties. We evaluated the competence, capabilities and objectivity of the external independent appraisers by: • Inspecting evidence that the appraisers are in good standing with the Appraisal Institute • Considering whether the appraisers have appropriate knowledge in relation to the specific type of investment properties • Reading the reports of the external independent appraisers which refers to their independence. Other Information Management is responsible for the other information. Other information comprises: • • the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions; and the information, other than the financial statements and the auditor’s report thereon, included in a document entitled “2023 Annual Report”. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions and the information other than the financial statements and the auditor’s report thereon, included in a document entitled “2023 Annual Report” as at the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor’s report. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 3 In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 4 • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. • Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Chartered Professional Accountants, Licensed Public Accountants The engagement partner on the audit resulting in this auditor’s report is Larry Toste. Toronto, Canada February 13, 2024 5 TABLE OF CONTENTS Consolidated Statements of Financial Position Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Changes in Unitholders’ Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements 1. Basis Of Preparation 2. Material Accounting Policy Information 3. Real Estate Assets 4. Equity Accounted Investments 5. Assets And Liabilities Classified As Held For Sale 6. Other Assets 7. Cash And Cash Equivalents 8. Debt 9. Exchangeable Units 10. Deferred Revenue 11. Accounts Payable And Accrued Liabilities 12. Derivative Instruments 13. Unitholders' Equity 14. Accumulated Other Comprehensive Income 15. Rentals From Investment Properties 16. Finance Costs 17. Supplemental Cash Flow Information 18. Capital Risk Management 19. Risk Management 20. Compensation Of Key Management Personnel 21. Segment Disclosures 22. Income Tax Recovery (Expense) 23. Commitments And Contingencies 24. Subsidiaries 25. Subsequent Events 1 2 3 4 5 5 7 11 13 15 16 17 17 20 20 22 22 23 26 26 27 27 28 29 32 32 35 36 36 36 H&R REAL ESTATE INVESTMENT TRUST Consolidated Statements of Financial Position (In thousands of Canadian dollars) Assets Real estate assets: Investment properties Properties under development Equity accounted investments Assets classified as held for sale Other assets Cash and cash equivalents Liabilities and Unitholders' Equity Liabilities: Debt Exchangeable units Deferred revenue Deferred tax liability Accounts payable and accrued liabilities Liabilities classified as held for sale Unitholders' equity Commitments and contingencies Note December 31 2023 December 31 2022 3 3 4 5 6 7 8 9 10 22 11 5 23 $7,811,543 1,074,819 8,886,362 1,165,012 293,150 369,008 64,111 $10,777,643 $8,799,317 880,778 9,680,095 1,060,268 294,028 301,325 76,887 $11,412,603 $3,686,833 177,944 947,671 437,214 335,606 — 5,585,268 $3,922,529 217,668 986,243 483,048 309,505 6,323 5,925,316 5,192,375 5,487,287 Subsequent events 3, 8(b), 11, 25 $10,777,643 $11,412,603 See accompanying notes to the consolidated financial statements. Approved on behalf of the Board of Trustees: “Donald Clow” Trustee “Thomas J. Hofstedter” Trustee Page 1 of 36 H&R REAL ESTATE INVESTMENT TRUST Consolidated Statements of Comprehensive Income (Loss) (In thousands of Canadian dollars) Years ended December 31, 2023 and 2022 Rentals from investment properties Property operating costs Net operating income Net income from equity accounted investments Finance cost - operations Finance income Proceeds on disposal of purchase option Trust expenses Fair value adjustment on financial instruments Fair value adjustment on real estate assets Gain (loss) on sale of real estate assets, net of related costs Net income before income taxes Income tax recovery (expense) Net income Other comprehensive income (loss): Items that are or may be reclassified subsequently to net income Total comprehensive income (loss) attributable to unitholders See accompanying notes to the consolidated financial statements. Note 2023 2022 15 4 16 16 6 16 3 3 22 $847,146 (300,542) 546,604 $834,640 (299,691) 534,949 145,459 (218,152) 13,849 30,568 (24,385) 30,555 (486,104) (7,247) 31,147 47,139 (220,262) 14,793 — (22,121) 38,349 546,081 7,332 946,260 30,543 61,690 (101,437) 844,823 14 (131,202) ($69,512) 321,570 $1,166,393 Page 2 of 36 H&R REAL ESTATE INVESTMENT TRUST Consolidated Statements of Changes in Unitholders' Equity (In thousands of Canadian dollars) Years ended December 31, 2023 and 2022 Note Value of Units Accumulated distributions UNITHOLDERS' EQUITY Unitholders' equity, January 1, 2022 Proceeds from issuance of Units Net income Distributions to unitholders Units repurchased and cancelled Other comprehensive income Unitholders' equity, December 31, 2022 Proceeds from issuance of Units Net income Distributions to unitholders Units repurchased and cancelled Other comprehensive loss Unitholders' equity, December 31, 2023 $5,417,419 3,902 — — (297,056) — 5,124,265 1,695 — — (42,723) — $5,083,237 13(d) 14 13(d) 14 Accumulated net income $5,871,699 — 844,823 — — — 6,716,522 — 61,690 — — — $6,778,212 Accumulated other comprehensive income $136,261 — — — — 321,570 457,831 — — — — (131,202) $326,629 ($6,651,546) — — (159,785) — — (6,811,331) — — (184,372) — — ($6,995,703) Total $4,773,833 3,902 844,823 (159,785) (297,056) 321,570 5,487,287 1,695 61,690 (184,372) (42,723) (131,202) $5,192,375 See accompanying notes to the consolidated financial statements. Page 3 of 36 H&R REAL ESTATE INVESTMENT TRUST Consolidated Statements of Cash Flows (In thousands of Canadian dollars) Years ended December 31, 2023 and 2022 Cash provided by (used in): Operations: Net income Finance cost - operations Interest paid Items not affecting cash: Rental income accrued from the Bow and 100 Wynford Net income from equity accounted investments Rent amortization of tenant inducements Fair value adjustment on real estate assets (Gain) loss on sale of real estate assets, net of related costs Fair value adjustment on financial instruments Unit-based compensation expense Deferred income tax expense (recovery) Change in other non-cash operating items Investing: Properties under development: Acquisitions Additions Investment properties: Deferred revenue Net proceeds on disposition of real estate assets Acquisitions Redevelopment, net of insurance proceeds Capital expenditures Leasing expenses and tenant inducements Equity accounted investments, net Mortgages receivable, net Restricted cash Proceeds from sale of Primaris REIT units Financing: Unsecured term loans Lines of credit Mortgages payable: New mortgages payable Principal repayments Redemption of debentures payable Proceeds from issuance of Units Units repurchased and cancelled Distributions paid to unitholders Decrease in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See note on supplemental cash flow information (note 17). See accompanying notes to the consolidated financial statements. Page 4 of 36 Note 2023 2022 16 10 4 15 3 3 16 13(b) 22 17 3 3, 17 10 3 3 3 3 6 8 8 8 8 8 17 13(d) 17 7 7 $61,690 218,152 (169,726) $844,823 220,262 (171,242) (92,920) (145,459) 4,514 486,104 7,247 (30,555) 84 (32,345) (12,161) 294,625 (86,555) (47,139) 4,691 (546,081) (7,332) (38,349) 6,765 100,108 (24,897) 255,054 (18,666) (162,273) (90,845) (70,024) — 371,900 (66) (7,203) (41,168) (4,747) 7,410 36,856 (69,181) — 112,862 118,608 263,679 (78,448) 5,425 (35,582) (8,516) 57,559 32,732 (17,909) 49,275 225,954 (125,000) 292,210 250,000 — 20,361 (144,534) (250,000) (13) (42,723) (170,564) (420,263) (12,776) 76,887 $64,111 — (301,132) — (331) (297,056) (179,743) (528,262) (47,254) 124,141 $76,887 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 H&R Real Estate Investment Trust (the “REIT”) is an unincorporated open-ended trust domiciled in Canada. The REIT owns, operates and develops residential and commercial properties across Canada and in the United States. The REIT’s units (“Units”) are listed and posted for trading on the Toronto Stock Exchange (“TSX”) under the symbol HR.UN. The principal office and centre of administration of the REIT is located at 3625 Dufferin Street, Suite 500, Toronto, Ontario M3K 1N4. Unitholders of the REIT participate pro rata in distributions and, in the event of termination of the REIT, participate pro rata in the net assets remaining after satisfaction of all liabilities. 1. Basis of preparation: (a) Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standard (“IFRS”) as issued by the International Accounting Standards Board and using accounting policies described herein. The consolidated financial statements were approved by the Board of Trustees of the REIT (the “Board”) on February 13, 2024. (b) Functional currency and presentation These consolidated financial statements are presented in Canadian dollars, except where otherwise stated, which is the REIT’s functional currency. All financial information has been rounded to the nearest thousand Canadian dollar. The REIT presents its consolidated statements of financial position based on the liquidity method, where all assets and liabilities are presented in ascending order of liquidity. (c) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following items in the consolidated statements of financial position which have been measured at fair value: (i) Real estate assets; (ii) Assets classified as held for sale; (iii) Certain mortgages receivable; (iv) Derivative instruments; (v) Liabilities for cash-settled unit-based compensation; and (vi) Exchangeable units. (d) Use of estimates and judgements The preparation of these consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates. (i) Use of estimates Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the fair value of real estate assets (note 3). Page 5 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 (ii) Use of Judgements The critical judgements made in applying accounting policies that have the most significant effect on the amounts recognized in these consolidated financial statements are as follows: • Valuations of real estate assets Real estate assets, which consist of investment properties and properties under development, are carried on the consolidated statements of financial position at fair value, as determined by either external independent appraisers or by the REIT’s internal valuation team. The valuations are based on a number of methods and significant assumptions, such as capitalization rates, terminal capitalization rates, discount rates, estimates of future cash flows and market values per unit of measure. Valuation of real estate assets is one of the principal estimates and uncertainties of these consolidated financial statements. Refer to note 3 for further information on estimates and significant assumptions made in the determination of the fair value of real estate assets. Judgement is applied in determining whether certain costs are additions to the carrying value of the real estate assets, identifying the point at which practical completion of the property occurs and identifying the directly attributable borrowing costs to be included in the carrying value of the development properties. • Leases The REIT makes judgements in determining whether certain leases, in particular those tenant leases with long contractual terms and long-term ground leases where the REIT is the lessor, are operating or finance leases. The REIT has determined that all of its leases, where the REIT is the lessor, are operating leases. • Income taxes The REIT is a mutual fund trust and a real estate investment trust pursuant to the Income Tax Act (Canada) (“Tax Act”). Under current tax legislation, the REIT is not liable to pay Canadian income tax provided that its taxable income is fully distributed to unitholders each year. The REIT is a real estate investment trust if it meets prescribed conditions under the Tax Act relating to the nature of its assets and revenue (the "REIT Conditions"). The REIT has reviewed the REIT Conditions and has assessed its interpretation and application to the REIT's assets and revenue, and the REIT has determined that it qualifies as a real estate investment trust pursuant to the Tax Act. The REIT expects to continue to qualify as a real estate investment trust; however, should it no longer qualify, the REIT would be subject to tax on its taxable income distributed to unitholders. • Impairment of equity accounted investments The REIT determines at each reporting date whether there is any objective evidence that the equity accounted investments are impaired. If there is an indication of impairment in respect of the REIT’s investment in associates or joint ventures, the whole carrying value of the investment will be tested for impairment as a single asset under IAS 36, Impairment of Assets by comparing the recoverable amount with its carrying value. Any resulting impairment loss will be charged against the carrying value of the investment in associates or joint ventures and recognized in net income. Page 6 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 2. Material accounting policy information: The accounting policies set out below have been applied consistently for all periods presented in these consolidated financial statements. (a) Basis of consolidation: These consolidated financial statements include the accounts of all entities in which the REIT holds a controlling interest. The REIT carries out a portion of its activities through joint operations and records its proportionate share of assets, liabilities, revenues, expenses and cash flows of all joint operations in which it participates. All material intercompany transactions and balances have been eliminated upon consolidation. (b) Investment properties: The REIT’s investment properties are held to earn rental income or for capital appreciation, or both, but not for sale in the ordinary course of business. As such, investment properties are measured at fair value, under IAS 40, Investment Property (“IAS 40”) using valuations prepared by either the REIT’s internal valuation team or external independent appraisers. The REIT performs an assessment of each investment property acquired to determine whether the acquisition is to be accounted for as an asset acquisition or a business combination. A transaction is considered to be a business combination if the acquired property meets the definition of a business under IFRS 3, Business Combinations. The REIT expenses transaction costs on business combinations and capitalizes transaction costs on asset acquisitions. Upon acquisition, investment properties are initially recorded at cost, comprising its purchase price and any directly attributable expenditures. Subsequent to initial recognition, the REIT uses the fair value model to account for investment properties. Under the fair value model, investment properties are recorded at fair value, determined based on available market evidence at each reporting date. The related gain or loss in fair value is recognized in net income in the year in which it arises. Subsequent capital expenditures are capitalized to investment properties only when it is probable that future economic benefits of the expenditure will flow to the REIT and the cost can be measured reliably. All other repairs and maintenance costs are expensed when incurred. Leasing costs, such as commissions incurred in negotiating tenant leases, are included in the carrying amount of the investment properties. Gains or losses from the disposal of investment properties are determined as the difference between the net disposal proceeds and the carrying amount of the investment property and are recognized in net income in the year of disposal. (c) Properties under development: Properties under development for future use as investment property are accounted for as investment property under IAS 40. Costs eligible for capitalization to properties under development are initially recorded at cost, and subsequent to initial recognition are accounted for using the fair value method. At each reporting date, properties under development are recorded at fair value based on available market evidence. The related gain or loss in fair value is recognized in net income in the year in which it arises. The cost of properties under development includes direct development costs, realty taxes and borrowing costs that are directly attributable to the development. Borrowing costs associated with direct expenditures on properties under development are capitalized. Borrowing costs relating to the purchase of a site or property acquired for redevelopment are also capitalized. The amount of borrowing costs capitalized is determined first by reference to borrowing specific to the project, where relevant, and otherwise by applying a weighted average cost of borrowings to eligible expenditures after adjusting for borrowings associated with other qualifying assets until substantially complete. Borrowing costs are capitalized from the commencement of the development until the date of practical completion. The capitalization of borrowing costs is suspended if there are prolonged periods when development activity is interrupted. Page 7 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 Upon practical completion of a development, the development property is transferred to investment properties at the fair value on the date of practical completion. The REIT considers practical completion to have occurred when the property is capable of operating in the manner intended by management. Generally, this occurs upon completion of construction and receipt of all necessary occupancy and other material permits. Where the REIT has pre-leased space as of or prior to the start of the development and the lease requires the REIT to construct tenant improvements which enhance the value of the property, practical completion is considered to occur on completion of such improvements. (d) Income taxes: Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net income except to the extent that they relate to a business combination, or items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable net income, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, if such entities intend to settle current tax liabilities and assets on a net basis or the entities’ tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The REIT is a mutual fund trust and a real estate investment trust pursuant to the Tax Act. Under current tax legislation, a real estate investment trust is entitled to deduct distributions from taxable income such that it is not liable to pay income tax provided that its taxable income is fully distributed to unitholders. The REIT intends to continue to qualify as a real estate investment trust and to make distributions not less than the amount necessary to ensure that the REIT will not be liable to pay income taxes. The REIT qualified as a real estate investment trust throughout 2023 and the 2022 comparative year. For financial statement reporting purposes, the tax deductibility of the REIT’s distributions is treated as an exemption from taxation as the REIT has distributed and is committed to continue distributing all of its taxable income to its unitholders. (e) Unit-based compensation: The REIT has a unit option plan and an incentive unit plan available for REIT trustees, officers, employees and consultants as disclosed in note 13(b). These plans are considered to be a cash-settled liability under IFRS 2, Share-based Payment and as a result are measured at each reporting period and at settlement date at their fair value as defined by IFRS. The fair value of the amount payable to participants in respect of the unit option plan and incentive unit plan is recognized as an expense with a corresponding increase or decrease in liabilities, over the period that the employees unconditionally become entitled to payment. Any change in the fair value of the liability is recognized as a component of trust expenses. (f) Foreign currency translation: The REIT accounts for its investment in H&R REIT (U.S.) Holdings Inc. (“U.S. Holdco”), a wholly owned subsidiary of the REIT in the United States (“foreign operations”), as a U.S. dollar functional currency foreign operation. Assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rates in effect at the dates of the consolidated statements of financial position and revenue and expenses are translated at the average exchange rates for the reporting periods. Page 8 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 The foreign currency translation adjustment is recorded as a separate component of accumulated other comprehensive income until there is a reduction in the REIT’s net investment in the foreign operations. The U.S. dollar denominated lines of credit are designated as a hedge of the REIT’s investment in self-sustaining operations. Accordingly, the accumulated unrealized gains or losses arising from the translation of these obligations are recorded as a foreign currency translation adjustment in accumulated other comprehensive income. Assets and liabilities denominated in a currency other than the functional currency are translated into the functional currency at the exchange rates in effect at the dates of the consolidated statements of financial position and revenue and expenses are translated at the actual exchange rate on the date incurred, with any gain (loss) recorded in net income, unless the asset or liability is designated as a hedge. (g) Units: Under IAS 32, Financial Instruments: Presentation (“IAS 32”), puttable instruments, such as the Units, are generally classified as financial liabilities unless the exemption criteria are met for equity classification. As a result of the REIT receiving consent of its unitholders to modify the REIT’s Declaration of Trust to eliminate the mandatory distribution and leave distributions to the discretion of the trustees and the ability of the trustees to fund distributions by way of issuing additional Units, the REIT met the exemption criteria under IAS 32 for equity classification. Nevertheless, the Units are not considered ordinary units under IAS 33, Earnings Per Share, and therefore an income per unit calculation is not presented. (h) Investment in associates and joint ventures: An associate is an entity over which the REIT has significant influence. Significant influence is the power to participate in an entity’s financial and operating policy decisions, which is presumed to exist when an investor holds 20 percent or more of the voting power of another entity. An investment is considered an associate when significant influence exists but there is no joint control over the investment. The REIT considers investments in joint arrangements to be joint ventures when the REIT jointly controls one or more investment properties with another party and has rights to the net assets of the arrangements. This occurs when the joint arrangement is structured through a separate vehicle, such as a partnership, with separation maintained. The REIT’s interests in its associates and joint ventures (collectively, “Equity accounted investments”) are accounted for using the equity method and are carried on the consolidated statements of financial position at cost, adjusted for the REIT’s proportionate share of post-acquisition changes in the net assets, less any identified impairment loss. The REIT’s share of profits and losses in Equity accounted investments is recognized in net income from equity accounted investments in the consolidated statements of comprehensive income (loss). The REIT’s other comprehensive income (loss) includes its share of the Equity accounted investments’ other comprehensive income (loss). An associate or a joint venture is considered to be impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the associate or joint venture and that event has a negative impact on the future cash flows of the associate or joint venture that can be reliably estimated. (i) Joint operations: The REIT considers investments in joint arrangements to be joint operations when the REIT makes operating, financial and strategic decisions over one or more investment properties jointly with another party and has direct rights to the assets and obligations for the liabilities relating to the arrangement. When the arrangement is considered to be a joint operation, the REIT will include its proportionate share of the underlying assets, liabilities, revenue and expenses in its financial results. (j) Levies: Under IFRS Interpretations Committee Interpretation 21, Levies (“IFRIC 21”) realty taxes payable by the REIT are considered levies. Based on the guidance of IFRIC 21, the REIT recognizes the full amount of annual U.S. realty tax liabilities at the point in time when the realty tax obligation is imposed. Page 9 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 (k) Revenue from contracts with customers: IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) contains a single, control-based model that applies to contracts with customers and provides two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. The REIT earns revenue from its tenants from various sources consisting of: base rent for the use of space leased, recoveries of property tax and property insurance, and service revenue from utilities, cleaning and property maintenance costs. Revenue from lease components is accounted for in accordance with IFRS 16, Leases and recognized on a straight-line basis over the lease term and includes the recovery of property taxes and insurance. Revenue recognition commences when a tenant has the right to use the premises. Revenue related to the services component of the REIT’s leases is accounted for in accordance with IFRS 15. These services consist primarily of utilities, cleaning and property maintenance costs for which the revenue is recognized over time, typically as the costs are incurred, which is when the services are provided. (l) Financial instruments: IFRS 9, Financial Instruments (“IFRS 9”) requires financial assets to be classified and measured based on the business model in which they are managed and the characteristics of their contractual cash flows. IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income and fair value through profit or loss. A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at fair value through profit or loss (“FVTPL”): (i) It is held within a business model whose objective is to hold assets to collect contractual cash flows; and (ii) Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All of the REIT’s financial assets not classified as measured at amortized cost, as described above, are measured at FVTPL. Under IFRS 9, the change in fair value of financial liabilities, carried at FVTPL, attributable to changes in the credit risk of the liability is presented in other comprehensive income, and the remaining amount of change in fair value is presented in profit or loss, unless the treatment of the effects of the changes in the credit risk of the liability would create an accounting mismatch in profit or loss. For impairment of financial assets, IFRS 9 has a forward-looking ‘expected credit loss’ (“ECL”) model. A provision for ECL is recognized at each balance sheet date for all financial assets measured at amortized cost. The REIT applies the practical expedient to determine ECL on accounts receivable using a provision matrix based on historical credit loss experiences adjusted for current and forecasted future economic conditions to estimate lifetime ECL. The other ECL models applied to other financial assets also require judgement, assumptions and estimations on changes in credit risks, forecasts of future economic conditions and historical information on the credit quality of the financial asset. Impairment losses are recorded in finance cost - operations in the consolidated statements of comprehensive income with the carrying amount of the financial asset or group of financial assets reduced through the use of impairment allowance accounts. IFRS 9 also includes a general hedge accounting standard which aligns hedge accounting more closely with risk management. The REIT’s risk management strategy is disclosed in note 19. The U.S. dollar denominated line of credit is designated as a hedge of the REIT’s investment in self-sustaining foreign operations. Page 10 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 3. Real estate assets: Opening balance, beginning of year Acquisitions, including transaction costs Dispositions Operating capital: Capital expenditures Leasing expenses and tenant inducements Development capital: Redevelopment, net of insurance proceeds Additions to properties under development (including capitalized interest) Amortization of tenant inducements and straight-lining of contractual rents Transfer of properties under development that have reached substantial completion to investment properties Transfer of investment properties to assets classified as held for sale Change in right-of-use assets(1) 5 17 Fair value adjustment on real estate assets Change in foreign exchange Closing balance, end of year December 31, 2023 December 31, 2022 Note Investment Properties Properties Under Development Investment Properties Properties Under Development $8,799,317 $880,778 $8,581,100 $481,432 66 18,666 (128,357) 41,168 4,747 7,203 — 6,985 — (293,150) — (508,104) (118,332) — — — — 170,246 — — — (965) 22,000 (15,906) 78,448 (256,292) 35,582 8,516 (5,425) — 1,896 90,845 — — — — 71,255 — 56,834 (56,834) (294,028) — 283,705 308,981 — (1,023) 262,376 32,727 $7,811,543 $1,074,819 $8,799,317 $880,778 (1) As at December 31, 2023, the right-of-use assets in a leasehold interest of U.S. $21,629 (December 31, 2022 - U.S. $22,360) was measured at an amount equal to the corresponding lease liabilities (note 11). The Canadian dollar equivalent of this amount is $28,550 (December 31, 2022 - $30,410). In January 2024, the REIT acquired the right-of-use assets and was released from the corresponding lease liabilities (note 11). Asset acquisitions: During the year ended December 31, 2023, the REIT: (a) did not acquire any investment properties (year ended December 31, 2022 - acquired one U.S. office property and a 50% interest in one Canadian industrial property); and (b) acquired a 50% interest in one U.S. land parcel for future residential development (year ended December 31, 2022 - acquired five U.S. land parcels for future residential development). The results of operations for acquisitions are included in the consolidated financial statements from the date of acquisition. The following table summarizes the purchase price, inclusive of transaction costs, of the assets as at the respective dates of acquisition: Assets Investment properties Properties under development December 31 December 31 2023 2022 $— 18,666 $18,666 $78,362 90,845 $169,207 During the year ended December 31, 2023, the REIT incurred additional costs of $66 (year ended December 31, 2022 - $86) in respect of prior year acquisitions which are not included in the above table. Page 11 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 Asset dispositions: During the year ended December 31, 2023, the REIT sold one Canadian office property, two U.S. office properties, a 50% interest in one Canadian office property, four Canadian retail properties, one U.S. retail property, one U.S. industrial property and a 50% interest in three Canadian industrial properties and recognized a loss on sale of real estate assets, net of related costs of $7,247. During the year ended December 31, 2022, the REIT sold two Canadian office properties, two Canadian retail properties, 10 U.S. retail properties, a 50% interest in one Canadian industrial property and one U.S. residential property and recognized a gain on sale of real estate assets, net of related costs of $7,332. Fair value disclosure: The estimated fair values of the REIT’s real estate assets are based on the following methods and significant assumptions: (i) Discounted cash flow analyses which are based upon, among other things, future cash inflows in respect of rental income from current leases and assumptions about rental income from future leases reflecting market conditions at the reporting period, less future cash outflows in respect of such leases and capital expenditures for the property utilizing appropriate discount rates and terminal capitalization rates, generally over a minimum term of 10 years; (ii) The direct capitalization method which calculates fair value by applying a capitalization rate to future cash flows based on stabilized net operating income; and (iii) The comparable sales approach which estimates fair value based on the market value per unit of measure which is established by recent sales activity in the same or similar markets. During the year ended December 31, 2023, certain properties were valued by professional external independent appraisers. When an external independent appraisal is obtained, the REIT's internal valuation team assesses the significant assumptions used in the appraisal and holds discussions with the external independent appraiser on the reasonableness of their assumptions. External independent appraisals received throughout the year represent 16.5% and 0.0% of the fair value of investment properties and properties under development, respectively, as at December 31, 2023 (year ended December 31, 2022 - 21.4% and 35.5%, respectively). The REIT utilizes external industry sources to determine a range of capitalization, discount and terminal capitalization rates. To the extent that the ranges of these externally provided rates change from one reporting period to the next, the fair value of the investment properties is adjusted accordingly. The following table highlights the significant assumptions used in determining the fair value of the REIT’s investment properties: December 31, 2023 December 31, 2022 Weighted Average Capitalization Rates(1) Weighted Average Discount Rates(2) Weighted Average Terminal Capitalization Rates(1)(2) Canada 5.79 % 5.65 % United States 5.84 % 5.23 % Total 5.82 % 5.41 % Canada 6.73 % 6.58 % United States 7.55 % 7.12 % Total 6.96 % 6.73 % Canada 6.48 % 6.08 % United States 7.24 % 6.70 % Total 6.74 % 6.29 % (1) (2) Excludes the Bow and 100 Wynford as these properties were legally sold in October 2021 and August 2022, respectively (note 10). The discount rate is used to adjust the fair value of the investment properties over the remaining life of the respective leases. Excludes the REIT’s residential segment as these properties are valued using the direct capitalization method. Page 12 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 Fair value sensitivity: The REIT’s investment properties are classified as level 3 under the fair value hierarchy (note 19(d)), as the inputs in the valuations of these investment properties are not based on observable market data. The following table provides a sensitivity analysis for the weighted average capitalization rate applied as at December 31, 2023: Capitalization Rate Sensitivity Increase (Decrease) (0.75%) (0.50%) (0.25%) December 31, 2023 0.25% 0.50% 0.75% Capitalization Rate 5.07 % Fair Value of Investment Properties 7,720,539 $ 5.32 % 5.57 % 5.82 % 6.07 % 6.32 % 6.57 % $ $ $ $ $ $ (1) 7,357,732 7,027,492 6,725,624 6,448,621 6,193,533 5,957,859 Fair Value Variance 994,915 632,108 301,868 — (277,003) (532,091) (767,765) $ $ $ $ $ $ $ % Change 14.79 % 9.40 % 4.49 % — (4.12) % (7.91) % (11.42) % (1) Excludes the Bow and 100 Wynford as these properties were legally sold in October 2021 and August 2022, respectively (note 10). 4. Equity accounted investments: The REIT has entered into a number of arrangements with other parties for the purpose of jointly developing, owning and operating investment properties. In order to determine how these arrangements should be accounted for, the REIT has assessed the structure of the arrangement, and whether the REIT has joint control over the operations of such properties. The REIT’s arrangements fall into three categories: (i) joint operations, where the REIT has joint control over the operations and the REIT has rights to the assets and obligations for the liabilities of the properties; (ii) joint ventures, where the REIT has joint control over the operations, where each investment is structured as a separate vehicle and the REIT has rights to the net assets of the entities; and (iii) investments in associates, where the REIT has significant influence over the investment but does not have joint control over the operations. Joint operations are accounted for by including the REIT’s proportionate share of the underlying assets, liabilities, revenue and expenses in its financial results. Joint ventures and investments in associates are accounted for using the equity method. Description of Equity accounted investments Investments in joint ventures:(1) Hercules Project Shoreline Slate Drive One industrial property Central Pointe Sunny Creek Investments in associates:(2) Jackson Park ECHO Realty LP ("ECHO") Location Operating segment Ownership interest December 31 2023 December 31 2022 United States United States Canada United States United States United States United States United States Residential Residential Industrial Industrial Residential Residential Residential Retail 31.7 % 31.2 % 50.0 % 50.5 % 50.0 % 33.3 % 50.0 % 33.1 % 31.7 % 31.2 % 50.0 % 50.5 % 50.0 % — % 50.0 % 33.7 % (1) Where the REIT has joint control over the operations, each investment is structured as a separate vehicle and the REIT has rights to the net assets of the entities. (2) Where the REIT has significant influence over the investment but does not have joint control over the operations. Page 13 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 During the year ended December 31, 2023, the REIT acquired Sunny Creek, a joint venture that holds one residential property under development. During the year ended December 31, 2022, the REIT: (i) disposed of The Pearl, a joint venture that held one residential property under development which was classified as held for sale as at December 31, 2021; (ii) transferred Shoreline and Hercules Project (Phase 2), each a joint venture, from properties under development to investment properties as they had reached substantial completion; and (iii) acquired Central Pointe, a joint venture that holds one residential property under development. The following tables summarize the total amounts of the financial information of the equity accounted investments and reconciles the summarized financial information to the carrying amount of the REIT’s interest in these arrangements. The REIT has determined that it is appropriate to aggregate each of the investments in joint ventures, as the individual investments are not individually material: Equity accounted investments in: ----Associates---- Joint Ventures(1) ----Associates---- Joint Ventures(1) December 31, 2023 December 31, 2022 Investment properties(2) Properties under development Other assets Cash and cash equivalents ECHO Jackson Park Total ECHO Jackson Park Total $2,590,479 $2,277,690 $458,000 $5,326,169 $2,713,391 $2,057,000 $494,887 $5,265,278 88,199 53,344 29,387 — 3,810 10,621 256,961 345,160 6,845 46,160 63,999 86,168 43,428 54,453 22,797 — 3,352 12,598 168,753 212,181 4,462 53,876 62,267 89,271 Debt (1,033,828) (1,308,673) (301,917) (2,644,418) (1,060,442) (1,346,310) (319,401) (2,726,153) Accounts payable and accrued liabilities Lease liabilities(2) Non-controlling interest (51,495) (15,603) (11,685) (78,783) (30,208) (16,344) (11,821) (58,373) (94,437) (58,630) — — — — (94,437) (105,606) (58,630) (67,004) — — — — (105,606) (67,004) Net assets 1,523,019 967,845 454,364 2,945,228 1,570,809 710,296 390,756 2,671,861 REIT's share of net assets $504,418 $483,923 $176,671 $1,165,012 $537,106 $355,503 $167,659 $1,060,268 (1) (2) See the table “Description of equity accounted investments” (note 4) for the composition of the REIT’s investments in joint ventures. As at December 31, 2023, the total fair value of investment properties within equity accounted investments, net of the lease liabilities, was $5,231,732 (December 31, 2022 - $5,159,672). ECHO reports its financial position to the REIT one month in arrears due to time constraints on its reporting. Therefore, the above amounts include ECHO’s financial information as at November 30, 2023 and November 30, 2022, respectively. Page 14 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 Net income (loss) from equity accounted investments in: Year ended December 31, 2023 Year ended December 31, 2022 ----Associates---- Joint Ventures(1) ----Associates---- Joint Ventures(1) ECHO Jackson Park Total ECHO Jackson Park Total Rentals from investment properties $229,384 $129,172 $29,998 $388,554 $213,800 $105,310 $15,967 $335,077 Property operating costs (50,051) (38,861) (15,924) (104,836) (46,579) (40,813) (6,656) (94,048) Net income from equity accounted investments Finance income Finance cost - operations Trust expenses Fair value adjustment on financial instruments 1,289 930 — — — 69 1,289 999 3,361 200 — — — 41 3,361 241 (57,772) (46,490) (19,986) (124,248) (44,347) (44,768) (8,618) (97,733) (14,586) 1,025 — — (38) (14,624) (9,572) 1,658 2,683 8,638 — — (35) (9,607) — 8,638 Fair value adjustment on real estate assets (92,272) 287,510 (70,346) 124,892 (26,306) (41,412) 9,160 (58,558) Gain (loss) on sale of real estate assets, net of related costs Income tax expense Net income (loss) (7,617) (151) — (18) 1,053 (6,564) 1,594 — (169) (168) — (20) 52,680 54,274 (258) (446) 10,179 331,313 (73,516) 267,976 100,621 (21,703) 62,281 141,199 Net income attributable to non-controlling interest (3,787) — — (3,787) (2,871) — — (2,871) Net income (loss) attributable to owners 6,392 331,313 (73,516) 264,189 97,750 (21,703) 62,281 138,328 REIT's share of net income (loss) attributable to unitholders $2,117 $165,656 ($22,314) $145,459 $32,931 ($10,851) $25,059 $47,139 (1) See the table “Description of equity accounted investments” (note 4) for the composition of the REIT’s investments in joint ventures. ECHO reports its financial results to the REIT one month in arrears due to time constraints on its reporting. Therefore, the above amounts include ECHO’s financial information for December 1, 2022 to November 30, 2023 and December 1, 2021 to November 30, 2022, respectively. 5. Assets and liabilities classified as held for sale: Assets that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. For this purpose, a sale is considered to be highly probable if management is committed to a plan to achieve the sale; there is an active program to find a buyer; the non-current asset is being actively marketed at a reasonable price; the sale is anticipated to be completed within one year from the date of classification; and it is unlikely there will be changes to the plan. Liabilities that are to be assumed by the buyer on disposition of the non-current asset, are also classified as held for sale. Non- current assets and non-current liabilities held for sale are classified separately from other assets and other liabilities in the consolidated statements of financial position. These amounts are not offset or presented as a single amount. As at December 31, 2023, the REIT had one Canadian office property and a 50% interest in one Canadian industrial property classified as held for sale. As at December 31, 2022, the REIT had one Canadian office property, a 50% interest in one Canadian office property and a 50% interest in one Canadian industrial property classified as held for sale. Page 15 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 The following table sets forth the items on the consolidated statements of financial position associated with investment properties classified as held for sale: Assets Investment properties Liabilities Mortgage payable 6. Other assets: Mortgages receivable(1) Prepaid expenses and sundry assets Accounts receivable - net of provision for expected credit loss of $3,556 (2022 - $4,946) Restricted cash(2) Derivative instruments Note 12 Current Non-current December 31 December 31 2023 2022 $293,150 $294,028 $— $6,323 December 31 December 31 2023 $166,077 70,482 5,905 96,625 29,919 2022 $169,190 61,212 5,318 27,444 38,161 $369,008 $301,325 December 31 December 31 2023 $285,839 83,169 $369,008 2022 $194,538 106,787 $301,325 (1) Mortgages receivable include nil classified as FVTPL and $166,077 classified as amortized cost (December 31, 2022 - $53,355 and $115,835, respectively). As at December 31, 2023, mortgages receivable bear interest at effective rates between 2.50% and 14.32% per annum (December 31, 2022 - between 2.50% and 14.32% per annum) with a weighted average effective rate of 7.52% per annum (December 31, 2022 - 8.18%), and mature between 2024 and 2029 (December 31, 2022 - mature between 2023 and 2029). H&R had a mortgage receivable of approximately $37,200 secured against industrial land in North Las Vegas, NV, as well as an option to purchase the land. In August 2023, H&R sold its option to purchase the land and received repayment of its mortgage receivable from the borrower for aggregate proceeds of $67,800. As a result, H&R recorded $30,600 as proceeds on disposal of purchase option. (2) Included in restricted cash as at December 31, 2023, was approximately $57,000 of proceeds from the sale of three U.S. properties and approximately $30,600 of proceeds from the disposal of a purchase option held in escrow for property exchanges under Section 1031 of the U.S. Internal Revenue Code (December 31, 2022 - $18,900 of proceeds from the sale of three U.S. properties). Page 16 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 Future repayments of mortgages receivable are as follows: Years ending December 31: 2024 2025 2026 2027 2028 Thereafter 7. Cash and cash equivalents: December 31 2023 $112,827 — 16,484 — 30,000 6,766 $166,077 Cash and cash equivalents as at December 31, 2023 included cash on hand of $64,111 (December 31, 2022 - $76,887). Included in cash and cash equivalents as at December 31, 2023 were U.S. dollar denominated amounts of U.S. $34,657 (December 31, 2022 - U.S. $37,043). The Canadian dollar equivalent of these amounts is $45,747 (December 31, 2022 - $50,378). 8. Debt: The REIT’s debt consists of the following items: Mortgages payable Debentures payable Unsecured term loans Lines of credit Note 8(a) 8(b) 8(c) 8(d) December 31 December 31 2023 2022 $1,459,163 $1,613,361 1,297,960 1,546,668 625,000 304,710 750,000 12,500 $3,686,833 $3,922,529 The following is a summary of the changes in debt for the year ended December 31, 2023: Opening balance, beginning of year Scheduled amortization payments Debt repayments New debt Net advances Effective interest rate accretion Change in foreign exchange Closing balance, end of year Mortgages Debentures Unsecured Note Payable Payable Term Loans Lines of Credit Total $1,613,361 $1,546,668 $750,000 $12,500 $3,922,529 (40,966) — — 8(b), 8(c) (103,568) (250,000) (125,000) 20,361 — 1,877 (31,902) — — 1,292 — — — — — (770) (12,500) 275,000 30,480 — — (41,736) (491,068) 295,361 30,480 3,169 (31,902) $1,459,163 $1,297,960 $625,000 $304,710 $3,686,833 Page 17 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 (a) Mortgages payable: The mortgages payable are secured by 43 real estate assets with an aggregate fair value of $3,275,426 (December 31, 2022 - 51 real estate assets with an aggregate fair value of $3,863,654), bearing interest at fixed rates with a contractual weighted average rate of 3.99% (December 31, 2022 - 3.99%) per annum and maturing between 2024 and 2030 (December 31, 2022 - maturing between 2023 and 2032). Included in mortgages payable as at December 31, 2023 were U.S. dollar denominated mortgages of U.S. $725,668 (December 31, 2022 - U.S. $797,556). The Canadian dollar equivalent of these amounts is $957,882 (December 31, 2022 - $1,084,676). Mortgages payable related to certain properties are 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. Future principal mortgage payments are as follows: Years ending December 31: 2024 2025 2026 2027 2028 Thereafter Financing costs and mark-to-market adjustment arising on acquisitions (b) Debentures payable: December 31 2023 $203,806 139,694 62,735 441,055 486,798 131,539 1,465,627 (6,464) $1,459,163 The full terms of the debentures are contained in the trust indenture and applicable supplemental trust indentures; the following table summarizes the key terms: Unsecured Senior Debentures: Series O Senior Debentures Series N Senior Debentures Series Q Senior Debentures Series R Senior Debentures Series S Senior Debentures Contractual interest rate Effective interest rate Maturity Principal amount Carrying value Carrying value December 31 December 31 2023 2022 January 23, 2023(1) January 30, 2024(2) June 16, 2025 June 2, 2026 February 19, 2027 3.42 % 3.37 % 4.07 % 2.91 % 2.63 % 3.33 % 3.44 % 3.45 % 4.19 % 3.00 % 2.72 % $— 350,000 400,000 250,000 300,000 $— $249,980 349,965 399,311 249,443 299,241 349,548 398,892 249,229 299,019 3.42 % $1,300,000 $1,297,960 $1,546,668 (1) (2) In January 2023, the REIT repaid all of its outstanding Series O senior debentures upon maturity for a cash payment of $250,000. In January 2024, the REIT repaid all of its outstanding Series N senior debentures upon maturity for a cash payment of $350,000. The Series Q, R and S unsecured senior debentures (collectively, the “Senior Debentures”) pay interest semi-annually. Page 18 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 At its option, the REIT may redeem any of the fixed rate Senior Debentures, in whole at any time, or in part from time to time prior to the specified par call date on payment of a redemption price equal to the greater of (a) the Canada Yield Price as defined in the relevant supplemental trust indenture and (b) par, together in each case with accrued and unpaid interest to the date fixed for redemption. Between the specified par call date and maturity, the Senior Debentures may be redeemed on payment of a redemption price equal to par. The REIT will give notice of any redemption at least 10 days, but not more than 60 days, before the date fixed for redemption, which redemption may be upon such conditions as specified in such notice. Where less than all of any Senior Debentures are to be redeemed pursuant to their terms, the Senior Debentures to be so redeemed will be redeemed on a pro rata basis according to the principal amount of Senior Debentures registered in the respective name of each holder of Senior Debentures or in such other manner as the indenture trustee may consider equitable. (c) Unsecured term loans: The REIT has the following unsecured term loans: H&R REIT unsecured term loan #1(1) H&R REIT unsecured term loan #2(2) H&R REIT unsecured term loan #3(3) H&R REIT unsecured term loan #4(4) December 31 December 31 Maturity Date March 7, 2025 November 30, 2025 January 6, 2026 2023 $— 250,000 125,000 250,000 2022 $125,000 250,000 125,000 250,000 $625,000 $750,000 (1) (2) (3) (4) In August 2023, the REIT repaid all of this unsecured term loan of $125,000, prior to the original maturity date of November 30, 2024. The REIT entered into an interest rate swap to fix the interest rate at 3.42% per annum. The swap matures on May 7, 2030 (note 12). The REIT entered into an interest rate swap to fix the interest rate at 5.19% per annum. The swap matures on September 29, 2027 (note 12). The REIT entered into an interest rate swap to fix the interest rate at 4.16% per annum. The swap matures on January 6, 2026 (note 12). (d) Lines of credit: The REIT has the following lines of credit: Maturity Date Total Facility Amount Drawn Outstanding Letters of Credit Available Balance Revolving unsecured operating lines of credit: H&R REIT revolving unsecured line of credit September 20, 2024 $150,000 $— $— $150,000 H&R REIT revolving unsecured line of credit December 14, 2027 750,000 (30,480) H&R REIT revolving unsecured letter of credit facility Sub-total 60,000 — 960,000 (30,480) (1,873) (41,145) (43,018) 717,647 18,855 886,502 Non-revolving secured operating line of credit(1): H&R REIT and CrestPSP non-revolving secured line of credit March 14, 2026 274,230 (274,230) — — December 31, 2023 $1,234,230 ($304,710) ($43,018) $886,502 December 31, 2022 (1) Secured by certain investment properties. $985,000 ($12,500) ($42,148) $930,352 The lines of credit can be drawn in either Canadian or U.S. dollars and bear interest at a rate approximating the prime rate of a Canadian chartered bank. Included in lines of credit as at December 31, 2023 are U.S. dollar denominated amounts of $14,000 (December 31, 2022 - nil). The Canadian equivalent of these amounts are $18,480 (December 31, 2022 - nil). Page 19 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 9. Exchangeable units: As at December 31, 2023, certain of the REIT’s subsidiaries had in aggregate 17,974,186 (December 31, 2022 - 17,974,186) exchangeable units outstanding which are puttable instruments where, upon redemption, the REIT has a contractual obligation to issue Units. Holders of all exchangeable units are entitled to receive the economic equivalence of distributions on a per unit amount equal to a per Unit amount provided to holders of Units. These puttable instruments are classified as a liability under IFRS and are measured at FVTPL. At the end of each reporting period, the fair value is determined by using the quoted price of Units on the TSX as the exchangeable units are exchangeable into Units at the option of the holder. The quoted price as at December 31, 2023 was $9.90 (December 31, 2022 - $12.11) per Unit. A summary of the carrying value of exchangeable units and the changes during the respective periods are as follows: Carrying value, beginning of year Exchanged for Units (Gain) loss on fair value of exchangeable units Carrying value, end of year December 31 December 31 2023 $217,668 — (39,724) $177,944 2022 $216,841 (4,064) 4,891 $217,668 The REIT has entered into various exchange agreements that provide, among other things, the mechanics whereby exchangeable units may be exchanged for Units. 10. Deferred revenue: (a) Bow deferred revenue (i) Sale of the Bow property and 40% interest in the Ovintiv lease In October 2021, the REIT sold its interest in the Bow property (the “Bow”) including 40% of the future income stream derived from the Ovintiv lease (“Ovintiv lease”) until the end of the lease term in May 2038 to an arm’s length third party, Oak Street Real Estate Capital (“Oak Street”), for approximately $528,000. Subsequent to the maturity of the Ovintiv lease, Oak Street will receive all future lease revenue earned by the Bow. Although the REIT sold the Bow, the transaction did not meet the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of the Bow for approximately $737,000 in 2038 or earlier under certain circumstances. As such, the REIT continues to recognize the income producing property whereby the fair value will be adjusted over the remaining life of the Ovintiv lease bringing the value of the real estate asset to nil by the lease maturity. The net proceeds received by the REIT on disposition were $496,063. These proceeds were recorded as deferred revenue (classified as a liability) and will be amortized over the remaining term of the Ovintiv lease (40% of the rental income remitted to Oak Street will consist of principal and interest). (ii) Sale of 45% interest in the Ovintiv lease In a separate transaction, in October 2021, the REIT sold 45% of its residual 60% interest in the future income stream derived from the Ovintiv lease to an arm’s length third party that was financed by Deutsche Bank Credit Solutions and Direct Lending (“Deutsche Bank”). The REIT received a lump-sum cash payment of $418,000 as consideration. The net proceeds received of $408,314 were also recorded as deferred revenue (classified as a liability) and will be amortized over the remaining term of the Ovintiv lease as the 45% lease payments are made to Deutsche Bank and will consist of principal and interest. As a result of the above transactions, the REIT is legally only entitled to 15% of the lease revenue from the Ovintiv lease until the end of the lease term in May 2038. Page 20 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 (b) 100 Wynford deferred revenue On August 31, 2022, the REIT sold its interest in 100 Wynford Drive, an office property in Toronto, ON (“100 Wynford”) to an arm’s length third party, Blue Owl Capital, formerly Oak Street (“Blue Owl”) for approximately $120,800. Although the REIT sold 100 Wynford, the transaction did not meet the criteria of a transfer of control under IFRS 15 as the REIT has an option to repurchase 100% of 100 Wynford for approximately $159,700 in 2036 or earlier under certain circumstances. As such, the REIT continues to recognize the income producing property whereby the fair value will be adjusted over the remaining life of the Bell lease (“Bell lease”) bringing the value of the real estate asset to nil by the lease maturity in April 2036. The net proceeds received by the REIT on disposition were $118,608. These proceeds were recorded as deferred revenue (classified as a liability) and will be amortized over the remaining term of the Bell lease and will consist of principal and interest. The following is a summary of the Bow and 100 Wynford in the consolidated statements of financial position: Income producing property - fair value(1) Deferred revenue - net of amortization of $75,314 (2022 - $36,742) December 31, 2023 December 31 The Bow 100 Wynford Total 2022 $976,951 $108,968 $1,085,919 $1,127,002 838,861 108,810 947,671 986,243 (1) The fair value of the income producing properties will be reduced as the remaining financial benefit from these income producing properties diminishes over the term of their respective leases. The following is a summary of the financial results for the Bow and 100 Wynford included in the consolidated statements of comprehensive income (loss): Rental income earned Rental income earned - non-cash Straight-lining of contractual rent Revenue reimbursement for property operating costs Property operating costs Net operating income Accretion finance expense on deferred revenue - non-cash Fair value adjustment on real estate assets - non-cash Net income (loss) Year ended December 31 The Bow 100 Wynford $15,656 84,423 — 50,646 (50,790) 99,935 (53,225) (35,001) $11,709 $— 8,497 — 2,780 (2,813) 8,464 (1,123) (8,442) ($1,101) 2023 $15,656 92,920 — 53,426 (53,603) 108,399 (54,348) (43,443) $10,608 2022 $20,401 86,555 265 47,739 (47,864) 107,096 (57,389) (37,429) $12,278 Page 21 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 11. Accounts payable and accrued liabilities: Current: Other accounts payable and accrued liabilities Distributions payable to unitholders Distributions payable to exchangeable unitholders Debt interest payable Prepaid rent Lease liabilities(1) Unit-based compensation payable: Options Incentive units Non-current: Derivative instruments Lease liabilities(1) Security deposits Unit-based compensation payable: Incentive units December 31 December 31 Note 2023 2022 $205,849 $181,527 39,279 2,696 12,515 21,492 28,550 1,244 6,095 1,229 — 10,847 25,471 1,722 16,480 22,033 — 5,592 3,359 302 30,410 10,660 5,810 $335,606 11,949 $309,505 13(b) 13(b) 12 13(b) (1) Corresponds to a right-of-use assets in a leasehold interest (note 3). In January 2024, the REIT acquired the right-of-use assets and was released from the corresponding lease liabilities (note 3). 12. Derivative instruments: Maturity May 7, 2030 January 6, 2026 September 29, 2027 March 10, 2025 Fair value asset (liability)* Net unrealized gain (loss) on derivative instruments December 31 December 31 Years ended December 31 2023 $20,015 8,171 (1,229) 1,733 $28,690 2022 $26,875 11,286 (302) — $37,859 2023 ($6,860) (3,115) (927) 1,733 ($9,169) 2022 $31,032 18,346 (302) — $49,076 Term loan interest rate swap (1) Term loan interest rate swap (2) Debt interest rate swap (3) Foreign exchange hedge (4) The REIT entered into swaps as follows: (1) (2) (3) (4) * To fix the interest rate at 3.42% per annum for the $250,000 term loan. To fix the interest rate at 4.16% per annum for the $250,000 term loan. To fix the interest rate at 5.19% per annum on $250,000 of variable rate debt, which includes a $125,000 unsecured term loan. To fix the foreign exchange rate at $1.38 on U.S. $10,000, monthly. Under certain circumstances, the hedge may terminate between March 11, 2024 and March 10, 2025. Derivative instruments in asset and liability positions are not presented on a net basis. Derivative instruments in an asset position are recorded in other assets (note 6) and derivative instruments in a liability position are recorded in accounts payable and accrued liabilities (note 11). Page 22 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 13. Unitholders' equity: The REIT is an unincorporated open-ended trust. The beneficial interests in the REIT are divided into two classes of trust units: units of the REIT and special voting units. (a) Description of Units: Each Unit and special voting unit carries a single vote at any meeting of unitholders. Holders of special voting units do not have any additional rights than those of holders of Units. The aggregate number of Units which the REIT may issue is unlimited and the aggregate number of special voting units which the REIT may issue is 13,013,698 (December 31, 2022 - 13,013,698). Units carry the right to participate pro rata in any distributions. As at December 31, 2023, there were 13,013,698 (December 31, 2022 - 13,013,698) special voting units issued and outstanding. Units are listed and posted for trading on the TSX under the symbol HR.UN. Units are freely transferable and the trustees shall not impose any restriction on the transfer of Units. Unitholders have the right to require the REIT to redeem their Units on demand. Upon valid tender for redemption of each Unit, the unitholder is entitled to receive a price per Unit as determined by a formula based on the market price of a Unit. The redemption price payable by the REIT will be satisfied by way of a cash payment to the unitholder or, in certain circumstances, including where such payment would cause the REIT’s monthly cash redemption obligations to exceed $50 (subject to adjustment in certain circumstances or waiver by the trustees), an in specie distribution of notes of H&R Portfolio LP Trust (a subsidiary of the REIT). A summary of the issued and outstanding number of Units and the changes during the respective years are as follows: Balance, beginning of year Issuance of Units: Incentive units settled in Units Exchangeable units exchanged into Units Units repurchased and cancelled Balance, end of year December 31 December 31 2023 2022 265,884,526 288,439,847 130,261 — 13,119 305,360 (4,147,200) (22,873,800) 261,867,587 265,884,526 The weighted average number of basic Units for the year ended December 31, 2023 was 263,840,995 (December 31, 2022 - 272,671,167). (b) Unit-based compensation: In order to provide long-term compensation to the REIT’s trustees, officers, employees and consultants, there may be grants of options and incentive units, which are each subject to certain restrictions. (i) Unit option plan: During the year ended December 31, 2023, the unit option plan of the REIT (the “Unit Option Plan”) was amended to decrease the aggregate number of Units reserved for issuance pursuant to grants under the Unit Option Plan to 8,805,638, resulting in the voluntary reduction of the number of options available for grant by 8,917,472. In accordance with the revised Unit Option Plan, no further options may be granted and upon expiry of any outstanding options, the pool will automatically decrease. Following expiry of the final outstanding options thereunder, the Unit Option Plan will terminate. Page 23 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 As at December 31, 2023, a maximum of 8,805,638 (December 31, 2022 - 17,723,110) options to purchase Units were authorized to be issued; 8,805,638 (December 31, 2022 - 10,313,443) options have been granted and are outstanding and nil (December 31, 2022 - 7,409,667) options remain available for granting. The exercise price of each option approximates the quoted price of the Units on the date of grant. The options vest at 33.3% per year from the grant date, will be fully vested after three years, and expire ten years after the date of the grant. A summary of the status of the Unit Option Plan and the changes during the respective years are as follows: Outstanding and vested, beginning of year Expired Outstanding and vested, end of year December 31, 2023 December 31, 2022 Options 10,313,443 (1,507,805) 8,805,638 Weighted average exercise price $14.62 16.84 $14.24 Options 11,660,809 (1,347,366) 10,313,443 Weighted average exercise price $14.89 16.93 $14.62 The outstanding and vested options as at December 31, 2023 are exercisable at varying prices ranging from $13.86 to $16.19 (December 31, 2022 - $13.86 to $16.84) and have a weighted average remaining life of 1.9 years (December 31, 2022 - 2.5 years). (ii) Incentive unit plan: As at December 31, 2023, a maximum of 5,000,000 (December 31, 2022 - 5,000,000) incentive units exchangeable into Units were authorized to be issued. The REIT has granted 1,672,059 (December 31, 2022 - 1,932,770) incentive units which remain outstanding, 365,450 (December 31, 2022 - 235,189) incentive units have been settled for Units and 2,962,491 (December 31, 2022 - 2,832,041) incentive units remain available for granting. Incentive units, comprised of restricted units, deferred units and performance units, are recognized based on the grant date fair value and re-measured at each reporting date. The grant agreements provide that the awards will be satisfied in cash, unless the holder elects to have them satisfied in Units issued from treasury, with the result that the awards are classified as cash-settled unit- based payments and presented as liabilities. The incentive units may, if specified at the time of grant, accrue cash distributions during the vesting period and accrued distributions will be paid when the incentive units vest. The REIT grants restricted units under the incentive unit plan. As at December 31, 2023, 100% of the restricted units outstanding vest on the third anniversary of their respective grant dates and are subject to forfeiture until the recipients of the awards have held office with, or provided services to, the REIT for a specified period of time. The restricted units are, subject to the holder’s election, cash settled upon vesting. During the year ended December 31, 2023, the REIT and certain of the Trustees entered into an amending agreement to amend the terms of their respective outstanding restricted units such that the outstanding restricted units were converted into deferred units. Deferred units vest immediately upon their grant date and will be redeemed and settled after the Trustee ceases to be a member of the Board. The REIT grants performance units under the incentive unit plan with a three-year performance period for certain senior executives. The performance units are and will be subject to both internal and external measures consisting of both absolute and relative performance over a three-year period and, subject to the holder’s election, cash settled upon vesting. In March 2023, the grant of performance units awarded in 2020 vested at 54% of target and in February 2022, the grant of performance units awarded in 2019 vested at 0% of target. Page 24 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 A summary of the status of the incentive unit plan and the changes during the respective years are as follows: Outstanding, beginning of year Granted Expired Settled Outstanding, end of year December 31 December 31 2023 2022 Incentive units Incentive units 1,932,770 1,593,778 684,743 (41,882) (903,572) 1,672,059 595,641 (81,321) (175,328) 1,932,770 The fair values of the options and incentive units, included in accounts payable and accrued liabilities, are as follows: Options Incentive units Unit-based compensation expense included in trust expenses is as follows: Options Incentive units (c) Distributions: December 31 December 31 2023 $1,244 11,905 $13,149 2022 $5,592 15,308 $20,900 2023 $4,348 (4,432) ($84) 2022 ($1,157) (5,608) ($6,765) Under the REIT’s Declaration of Trust, the total amount of income of the REIT to be distributed to unitholders for each calendar month shall be subject to the discretion of the trustees however, the total income distributed in a calendar year shall not be less than the amount necessary to ensure that the REIT will not be liable to pay income tax under Part I of the Tax Act for any year. The method of payment is at the discretion of the trustees. For the year ended December 31, 2023, the REIT declared distributions per Unit of $1.22 (December 31, 2022- $0.94) comprised of: (i) monthly cash distributions in aggregate of $0.60 per Unit (December 31, 2022 - $0.54 per Unit); (ii) a special cash distribution of $0.10 per Unit (December 31, 2022 - $0.05 per Unit); and (iii) a special distribution in Units of $0.52 per Unit (December 31, 2022 - $0.35 per Unit), which were immediately consolidated such that there was no change in the number of outstanding Units. (d) Normal course issuer bid: On February 9, 2023, the REIT received approval from the TSX for the renewal of its normal course issuer bid (“NCIB”) allowing the REIT to purchase for cancellation up to a maximum of 26,028,249 Units on the open market until the earlier of February 15, 2024 and the date on which the REIT has purchased the maximum number of Units permitted under the NCIB. During the year ended December 31, 2023, the REIT purchased and cancelled 4,147,200 Units at a weighted average price of $10.30 per Unit, for a total cost of $42,723. During the year ended December 31, 2022, under a previous NCIB, the REIT purchased and cancelled 22,873,800 Units at a weighted average price of $12.99 per Unit, for a total cost of $297,056. Page 25 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 14. Accumulated other comprehensive income: Items that are or may be reclassified subsequently to net income: December 31, 2023 Cash flow hedges Foreign operations Total December 31 2022 Total Opening balance, beginning of year ($134) $457,965 $457,831 $136,261 Transfer of realized loss on cash flow hedges to net income Unrealized gain (loss) on translation of U.S. denominated foreign operations 28 — 28 — 28 (131,230) (131,230) (131,230) (131,202) 29 321,541 321,570 Closing balance, end of year ($106) $326,735 $326,629 $457,831 15. Rentals from investment properties: Rental income Revenue from services Straight-lining of contractual rent Rent amortization of tenant inducements Operating leases: 2023 $682,262 157,994 11,404 (4,514) 2022 $674,487 158,332 6,512 (4,691) $847,146 $834,640 The REIT leases its investment properties under operating leases. The future minimum lease payments under non-cancellable leases are as follows: Less than 1 year Between 1 and 5 years More than 5 years 2023 $485,529 1,344,965 1,819,983 2022 $496,086 1,428,819 2,091,932 $3,650,477 $4,016,837 Page 26 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 16. Finance costs: Finance cost - operations Contractual interest on mortgages payable Contractual interest on debentures payable Contractual interest on unsecured term loans Bank interest and charges on lines of credit Effective interest rate accretion Accretion finance expense on deferred revenue Exchangeable unit distributions Capitalized interest(1) Finance income Fair value adjustment on financial instruments Note 2023 2022 10 ($62,024) ($67,506) (43,778) (28,489) (20,266) (4,638) (54,348) (12,582) (51,780) (18,969) (10,950) (4,207) (57,389) (10,692) (226,125) (221,493) 7,973 1,231 (218,152) (220,262) 13,849 30,555 14,793 38,349 ($173,748) ($167,120) (1) The weighted average rate of borrowings for the capitalized interest was 5.24% for the year ended December 31, 2023 (December 31, 2022 - 5.24%). 17. Supplemental cash flow information: The following is a summary of changes in other non-cash operating items: Accrued rents receivable Prepaid expenses and sundry assets Accounts receivable Accounts payable and accrued liabilities 2023 ($11,499) (11,028) (587) 10,953 ($12,161) 2022 ($6,587) 6,029 812 (25,151) ($24,897) Page 27 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 The following amounts have been excluded from operating, investing and financing activities in the consolidated statements of cash flows: Non-cash items: Non-cash adjustment to proceeds from issuance of Units Exchangeable units exchanged for Units Non-cash assumption of liability held for sale on disposition of investment property Mortgages receivable from the sale of investment properties Other items: Change in right-of-use assets Change in distributions payable to unitholders Change in debt interest payable included in finance cost - operations Change in distributions payable to exchangeable unit holders included in finance cost - operations Capitalized interest on properties under development Note 2023 2022 9 3 11 11 11 16 $1,708 — (6,323) 37,000 965 (13,808) 3,965 (974) (7,973) $169 4,064 — — 1,023 19,958 3,626 380 (1,231) 18. Capital risk management: The REIT’s primary objectives when managing capital are: (a) to maximize Unit value through ongoing active management of the REIT’s assets, acquisition of additional properties and the development and construction of projects; and (b) to provide unitholders with stable and growing cash distributions generated by the revenue it derives from a diversified portfolio of income producing real estate assets. The REIT considers its capital to be: Debt Exchangeable units Unitholders' equity December 31 December 31 2023 2022 $3,686,833 $3,922,529 177,944 5,192,375 217,668 5,487,287 $9,057,152 $9,627,484 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. 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 total assets ratio of 65%. As at December 31, 2023, this ratio was 34.2%% (December 31, 2022 - 34.4%). Management uses this ratio as a key indicator in managing the REIT’s capital. In addition to the above key ratio, the REIT’s debt has various covenants calculated as defined within these agreements. The REIT monitors these covenants and was in compliance as at and for the years ended December 31, 2023 and December 31, 2022. Page 28 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 19. Risk management: (a) Credit risk: The REIT is exposed to credit risk in the event that borrowers default on the repayment of the amounts owing to the REIT. Management mitigates this risk by ensuring adequate security has been provided in support of mortgages receivable. The REIT is exposed to credit risk as an owner of investment properties in that tenants may become unable to pay the contracted rent. Management mitigates this risk by carrying out appropriate credit checks and related due diligence on significant tenants. Management has diversified the REIT’s holdings so that it owns several categories of properties and acquires investment properties throughout Canada and the United States. In addition, management ensures that no tenant or related group of tenants, other than investment grade tenants, account for a significant portion of the REIT’s cash flow. The REIT has three tenants which individually account for more than 5% of the rentals from investment properties of the REIT: Hess Corporation, New York City Department of Health and Giant Eagle, Inc. Hess Corporation and New York City Department of Health both have a public debt rating that is rated with at least a BBB- Stable rating by a recognized rating agency. The carrying amount of receivables represents the maximum credit exposure, therefore the REIT’s exposure to credit risk on receivables is as follows: Mortgages receivable Accounts receivable (b) Liquidity risk: Note 6 6 December 31 December 31 2023 2022 $166,077 $169,190 5,905 5,318 $171,982 $174,508 The REIT is subject to liquidity risk whereby the REIT may not be able to refinance or pay its debt obligations when they become due. The REIT manages liquidity risk by: • Ensuring appropriate unsecured term loans and lines of credit are available. As at December 31, 2023, the consolidated amount available under its lines of credit was $886,502 (note 8(d)); • Maintaining a large unencumbered asset pool. As at December 31, 2023, there were 85 unencumbered properties with a fair value of $4,223,082; and • Structuring its financing so as to stagger the maturities of its debt, thereby minimizing exposure to liquidity risk in any one year (note 8). Management monitors the REIT’s liquidity risk through review of financial covenants contained in bank credit facility agreements, debt agreements and compliance with the REIT’s Declaration of Trust. Page 29 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 The REIT’s obligations are as follows: Debt(1) Accounts payable and accrued liabilities(2) (1) (2) Amounts only include principal repayments. Excludes options payable. (c) Market risk: Note 8 11 2024 Thereafter Total $553,806 316,476 $870,282 $3,141,531 $3,695,337 17,886 334,362 $3,159,417 $4,029,699 The REIT is subject to currency risk and interest rate risk. The REIT’s objective is to manage and control market risk exposure within acceptable parameters, while optimizing the return on risk. (i) Currency risk: Foreign exchange risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. A portion of the REIT’s properties are located in the United States, resulting in the REIT being subject to foreign currency fluctuations which may impact its financial position and results. In order to mitigate the foreign exchange risk, the REIT’s debt on U.S. properties are also denominated in U.S. dollars to act as a natural hedge. In addition, the REIT has entered into a foreign exchange hedge to fix the foreign exchange rate at $1.38 on U.S. $10,000, monthly. A $0.10 weakening of the U.S. dollar against the average Canadian dollar exchange rate of $1.35 for the year ended December 31, 2023 (December 31, 2022 - $1.30), as well as the Canadian dollar exchange rate as at December 31, 2023 of $1.32 (December 31, 2022 - $1.36), would have decreased net income by approximately $1,700 (December 31, 2022 - decreased by $33,700) and decreased other comprehensive income (loss) by approximately $198,000 (December 31, 2022 - decreased by $193,000). Conversely, a $0.10 strengthening of the U.S. dollar against the Canadian dollar would have had an equal but opposite effect. This analysis assumes that all other variables, in particular interest rates, remain constant. (ii) Interest rate risk: The REIT is exposed to interest rate risk on its borrowings. It minimizes this risk by obtaining long-term fixed interest rate debt. At December 31, 2023, the percentage of fixed rate debt to total debt was 91.7% (December 31, 2022 - 99.5%). Therefore, a change in interest rates at the reporting date would not have a material impact on net income as the majority of the REIT’s borrowings are through fixed rate instruments. As at December 31, 2023, lines of credit of $304,710 and mortgages payable of nil (December 31, 2022 - $12,500 and 6,470, respectively) are subject to variable interest rates. An increase in interest rates of 100 basis points for the year ended December 31, 2023 would have decreased net income by approximately $3,000 (December 31, 2022 - decreased by $160). This analysis assumes that all other variables, in particular foreign exchange rates, remain constant. As at December 31, 2023, there were no debentures payable or term loans subject to variable interest rates (December 31, 2022 - nil). Page 30 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 (d) Fair value measurement: (i) Financial assets and liabilities carried at amortized cost: The fair values of the REIT’s accounts receivable, restricted cash, cash and cash equivalents and accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short periods to maturity of these financial instruments. The fair value of certain mortgages receivable, mortgages payable, senior debentures, unsecured term loans and lines of credit have been determined by discounting the cash flows of these financial obligations using market rates for debt of similar terms and credit risks. (ii) Fair value of assets and liabilities: Assets and liabilities measured at fair value in the consolidated statements of financial position, or disclosed in the notes to the financial statements, are categorized using a fair value hierarchy that reflects the significance of the inputs used in determining the fair values: • • • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). December 31, 2023 Assets measured at fair value: Investment properties Properties under development Assets classified as held for sale Derivative instruments Assets for which fair values are disclosed: Mortgages receivable Liabilities measured at fair value: Exchangeable units Derivative instruments Liabilities for which fair values are disclosed: Mortgages payable Debentures payable Unsecured term loans Lines of credit Note Level 1 Level 2 Level 3 Total fair value Carrying value 3 3 5 6 6 9 11 8(a) 8(b) 8(c) 8(d) $— — — — — — $— $7,811,543 $7,811,543 $7,811,543 — — 29,919 1,074,819 1,074,819 1,074,819 293,150 — 293,150 29,919 293,150 29,919 — 162,654 162,654 166,077 29,919 9,342,166 9,372,085 9,375,508 (177,944) — — — — — — (1,229) (1,382,206) (1,263,671) (596,967) (306,793) (177,944) (3,550,866) — — — — — — — (177,944) (177,944) (1,229) (1,229) (1,382,206) (1,459,163) (1,263,671) (1,297,960) (596,967) (306,793) (625,000) (304,710) (3,728,810) (3,866,006) ($177,944) ($3,520,947) $9,342,166 $5,643,275 $5,509,502 Page 31 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 December 31, 2022 Assets measured at fair value: Investment properties Properties under development Assets classified as held for sale Mortgages receivable Derivative instruments Assets for which fair values are disclosed: Mortgages receivable Liabilities measured at fair value: Exchangeable units Derivative instruments Liabilities classified as held for sale Liabilities for which fair values are disclosed: Mortgages payable Debentures payable Unsecured term loans Lines of credit Note Level 1 Level 2 Level 3 Total fair value Carrying value 3 3 5 6 6 6 9 11 5 8(a) 8(b) 8(c) 8(d) $— $— $8,799,317 $8,799,317 $8,799,317 — — — — — — (217,668) — — — — — — — — — 38,161 880,778 294,028 53,355 — 880,778 294,028 53,355 38,161 880,778 294,028 53,355 38,161 — 113,836 113,836 115,835 38,161 10,141,314 10,179,475 10,181,474 — (302) — — — (6,323) (217,668) (217,668) (302) (6,323) (302) (6,323) (1,508,507) (1,479,743) (719,547) (12,562) — — — — (1,508,507) (1,613,361) (1,479,743) (1,546,668) (719,547) (750,000) (12,562) (12,500) (217,668) (3,720,661) (6,323) (3,944,652) (4,146,822) ($217,668) ($3,682,500) $10,134,991 $6,234,823 $6,034,652 20. Compensation of key management personnel: Key management personnel are those individuals who have the authority and responsibility for planning, directing and controlling the REIT’s activities, directly or indirectly. Salaries and short-term employee benefits Unit-based compensation 21. Segment disclosures: 2023 ($8,410) 1,073 ($7,337) 2022 ($8,126) (5,512) ($13,638) The REIT has four reportable operating segments (Residential, Industrial, Office and Retail), in two geographical locations (Canada and the United States). The operating segments derive their revenue primarily from rental income from leases. The segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, determined to be the Chief Executive Officer (“CEO”) of the REIT. The CEO measures and evaluates the performance of the REIT based on net operating income on a proportionately consolidated basis for the REIT’s equity accounted investments. The accounting policies of the segments presented here are consistent with the REIT’s accounting policies as described in note 2. Page 32 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 (a) Operating segments: Real estate assets by reportable segment as at December 31, 2023 and December 31, 2022 were as follows: December 31, 2023 Number of investment properties Real estate assets: Investment properties Properties under development Residential Industrial 24 70 Office 23 Retail 272 Total 389 $3,668,856 $1,473,037 $3,549,406 $1,561,406 $10,252,705 740,114 430,098 11,030 29,212 1,210,454 4,408,970 1,903,135 3,560,436 1,590,618 11,463,159 Less: assets classified as held for sale — (60,650) (232,500) — (293,150) Less: REIT's proportionate share of real estate assets relating to equity accounted investments (1,356,620) (39,833) — (887,194) (2,283,647) $3,052,350 $1,802,652 $3,327,936 $703,424 $8,886,362 December 31, 2022 Number of investment properties Residential Industrial 24 74 Office 27 Retail 281 Total 406 Real estate assets: Investment properties $3,877,344 $1,490,939 $4,134,997 $1,718,371 $11,221,651 Properties under development 582,873 364,057 9,129 14,631 970,690 4,460,217 1,854,996 4,144,126 1,733,002 12,192,341 Less: assets classified as held for sale — (2,188) (291,840) — (294,028) Less: REIT's proportionate share of real estate assets relating to equity accounted investments (1,240,840) (40,428) — (936,950) (2,218,218) $3,219,377 $1,812,380 $3,852,286 $796,052 $9,680,095 Net operating income by reportable segment for the years ended December 31, 2023 and December 31, 2022 was as follows: Residential Industrial Office Retail Sub-total Less: Equity Accounted Investments Year ended December 31, 2023 Rentals from investment properties $285,625 $97,866 $473,657 $140,702 $997,850 ($150,704) $847,146 Property operating costs (120,461) (22,812) (158,944) (39,360) (341,577) 41,035 (300,542) Net operating income $165,164 $75,054 $314,713 $101,342 $656,273 ($109,669) $546,604 Residential Industrial Office Retail Sub-total Less: Equity Accounted Investments Year ended December 31, 2022 Rentals from investment properties $252,151 $84,593 $488,940 $139,268 $964,952 ($130,312) $834,640 Property operating costs (111,863) (20,856) (167,705) (37,497) (337,921) 38,230 (299,691) Net operating income $140,288 $63,737 $321,235 $101,771 $627,031 ($92,082) $534,949 Page 33 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 (b) Geographical locations: The REIT operates in Canada and the United States. Real estate assets are attributed to countries based on the location of the properties. Real estate assets: Canada United States Less: Assets classified as held for sale Less: REIT's proportionate share of real estate assets relating to equity accounted investments Rentals from investment properties: Canada United States Less: REIT's proportionate share of rentals relating to equity accounted investments December 31 December 31 2023 2022 $4,704,626 $5,113,057 6,758,533 7,079,284 11,463,159 12,192,341 (293,150) (294,028) (2,283,647) (2,218,218) $8,886,362 $9,680,095 2023 2022 $478,316 $493,423 519,534 997,850 (150,704) $847,146 471,529 964,952 (130,312) $834,640 Page 34 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 22. Income tax recovery (expense): Income tax computed at the Canadian statutory rate of nil applicable to the REIT for 2023 and 2022 Current U.S. income tax expense Deferred income tax (expense) recovery applicable to U.S. Holdco Income tax (expense) recovery in the determination of net income 2023 $— (1,802) 32,345 2022 $— (1,329) (100,108) $30,543 ($101,437) The Tax Act contains provisions (the “SIFT Rules”) affecting the tax treatment of “specified investment flow-through” (“SIFT”) trusts. A SIFT includes a publicly-traded trust. Under the SIFT Rules, distributions of certain income by a SIFT are not deductible in computing the SIFT’s taxable income, and a SIFT is subject to tax on such income at a rate that is substantially equivalent to the general tax rate applicable to a Canadian corporation. The SIFT Rules do not apply to a publicly-traded trust that qualifies as a real estate investment trust under the Tax Act, such as the REIT. The REIT has certain subsidiaries in the United States that are subject to tax on their taxable income at a combined federal and state tax rate of approximately 24.0% (December 31, 2022 - 23.8%). The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: Deferred tax assets: Net operating losses Accounts payable and accrued liabilities Deferred tax liabilities: Investment properties Equity accounted investments Other assets December 31 December 31 2023 2022 $93,622 2,732 96,354 362,581 170,263 724 533,568 $84,420 1,386 85,806 427,149 141,705 — 568,854 Deferred tax liability ($437,214) ($483,048) The change in deferred tax liability is the result of deferred income tax recovery of $32,345 (2022 - expense of $100,108) and a foreign currency translation gain of $13,489 (2022 - loss of $32,439) recognized in other comprehensive income (loss). As at December 31, 2023, U.S. Holdco had accumulated net operating losses available for carryforward for U.S. income tax purposes of $390,380 (December 31, 2022 - $355,421). $39,239 of the net operating losses will expire between 2031 and 2032 (December 31, 2022 - $31,774 expiring between 2031 and 2032). Net operating losses arising after December 31, 2017 do not generally expire under current U.S. tax legislation. The deductible temporary differences do not generally expire under current tax legislation. Page 35 of 36 H&R REAL ESTATE INVESTMENT TRUST Notes to Consolidated Financial Statements (In thousands of Canadian dollars, except Unit and per Unit amounts) Years ended December 31, 2023 and 2022 23. Commitments and contingencies: (a) In the normal course of operations, the REIT has issued letters of credit in connection with developments, financings, operations and acquisitions. As at December 31, 2023, the REIT has outstanding letters of credit totalling $43,018 (December 31, 2022 - $42,148), including $20,000 (December 31, 2022 - $20,680) which has been pledged as security for certain mortgages payable. The letters of credit may be secured by certain investment properties. (b) The REIT has previously provided guarantees on behalf of third parties, including co-owners. As at December 31, 2023, the REIT issued guarantees amounting to $6,749, which expires in 2026 (December 31, 2022 - $89,122, which expired in 2023), relating to the co-owner’s share of mortgage liability. On December 31, 2021, the REIT completed a spin off, on a tax-free basis, of 27 properties including all of the REIT’s enclosed shopping centres (the “Primaris Spin-Off”) to a new publicly-traded REIT (“Primaris REIT”). The REIT continues to guarantee certain debt in connection with the Primaris Spin-Off, and will remain liable until such debts are extinguished or the lenders agree to release the REIT’s guarantees. As at December 31, 2023, the estimated amount of debt subject to such guarantees, and therefore the maximum exposure to credit risk, was $208,803, which expire between 2024 and 2030 (December 31, 2022 - $215,680, which expire between 2024 and 2030). In January 2024, the REIT was released from $37,389 of these guarantees. In addition, the REIT continues to provide guarantees on behalf of the co-owners of certain of Primaris REIT’s properties. As at December 31, 2023, the estimated amount of debt subject to such guarantees, and therefore the maximum exposure to credit risk, was $89,322, which expire between 2024 and 2027 (December 31, 2022 - $91,319, which expire between 2024 and 2027). 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 consolidated financial statements. Credit risks arise in the event that these parties default on repayment of their debt since they are guaranteed by the REIT. These credit risks are mitigated as the REIT has recourse under these guarantees in the event of a default by the borrowers, in which case the REIT’s claim would be against the underlying real estate investments. (c) The REIT is obligated, under certain contract terms, to construct and develop investment properties. (d) The REIT is involved in litigation and claims in relation to the investment properties that arise from time to time in the normal course of business. In the opinion of management, any liability that may arise from such contingencies would not have a material adverse effect on the consolidated financial statements. 24. Subsidiaries: Subsidiaries are entities controlled by the REIT. The REIT controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. The following are the REIT’s subsidiaries: Name of Entity Bow Centre Street Limited Partnership H&R Portfolio Limited Partnership H&R REIT Management Services Limited Partnership H&R REIT (U.S.) Holdings Inc. 25. Subsequent events: Place of Business Canada Canada Canada United States Ownership interest December 31 December 31 2023 100 % 100 % 100 % 100 % 2022 100 % 100 % 100 % 100 % (a) In January 2024, the REIT redeemed all of its $350,000 outstanding 3.369% Series N Series Debentures. Page 36 of 36 BOARD OF TRUSTEES STRONG AND SKILLFUL BOARD WITH UNITHOLDER ALIGNMENT BOARD MEMBERS THOMAS J. HOFSTEDTER(1) Executive Chairman & Chief Executive Officer, H&R REIT MARK COWIE(1) Principal, Cowie Capital Partners JENNIFER A. CHASSON(2) Founder & President, Springbank Capital Corporation MARVIN RUBNER(2) Manager & Founder, YAD Investments Limited STEPHEN GROSS(3) Principal, Initial Corporation BRENNA HAYSOM(2,3) Chief Executive Officer, Rally Labs d JULI MORROW Partner, Goodmans LLP DONALD CLOW(1,2,3) Independent Lead Trustee LEONARD ABRAMSKY(1) President, The Dunloe Group Inc. LINDSAY BRAND(3) Corporate Director, Real Estate Investor & Advisor Majority Independent Board | 10-Year Term Limit | 40% Women | 9% Ownership(4) 1. 2. 3. 4. Investment Committee Audit Committee Compensation, Governance and Nominating Committee Includes officers and the families of trustees and officers 7 | H&R REIT 2023 ANNUAL REPORT 7 | H&R REIT Annual Report 2022 CORPORATE INFORMATION TAXABILITY OF DISTRIBUTIONS The REIT's cash distributions amounted to $0.70 per Unit during 2023 (including a $0.10 per Unit special cash distribution to unitholders of record on December 29, 2023). The REIT also made a special distribution to unitholders of record on December 29, 2023 of $0.52 per Unit payable in additional Units, which were immediately consolidated such that there was no change in the number of outstanding Units. The amount of the special distribution payable in Units ($0.52 per Unit) will increase the adjusted cost basis of unitholders’ consolidated Units. PLAN ELIGIBILITY RRSP, RRIF, DPSP, RESP, RDSP, TFSA, FHSA STOCK EXCHANGE LISTING Units of H&R are listed on the Toronto Stock Exchange under the trading symbol HR.UN. REGISTRAR AND TRANSFER AGENT TSX Trust Company, P.O. Box 4229, Station A, Toronto, Ontario, Canada, M5W 0G1. Telephone: 1‐800‐387‐0825 (or for callers outside North America 416‐682‐3860), Fax: 1‐888‐488‐1416, E‐mail: shareholderinquiries@tmx.com, Website: www.txstrust.com. CONTACT INFORMATION Investors, investment analysts and others seeking financial information should go to our website at www.hr‐reit.com, or e‐mail info@hr‐reit.com, or call and ask for Larry Froom, Chief Financial Officer, or write to H&R Real Estate Investment Trust, 3625 Dufferin Street, Suite 500, Toronto, Ontario, Canada, M3K 1N4. 8 | H&R REIT 2023 ANNUAL REPORT 8 | H&R REIT Annual Report 2022 HR.UN - TSX Ticker H&R Real Estate Investment Trust 3625 Dufferin Street, Suite 500 Toronto, Ontario, Canada, M3K 1N4 9 | H&R REIT Annual Report 2022 

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