Sun Residential Real Estate Investment Trust : 2023 Annual Report

sunresidential

Annual Report

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Consolidated Financial Statements Management's Discussion and Analysis

Year ended December 31, 2023

FOR IMMEDIATE RELEASE

SUN RESIDENTIAL REIT REPORTS REVENUE UP 5.9% FROM PREVIOUS YEAR, AND DECLARES QUARTERLY DISTRIBUTION PAYABLE MARCH 28, 2024

Toronto, February 6, 2024 - Sun Residential Real Estate Investment Trust (TSXV: SRES) today released its financial results for the three months and year ended December 31, 2023. All amounts are in United States dollars unless otherwise noted. "C$" refers to Canadian dollars.

Revenue for the year ended December 31, 2023 was $5,780,485, an increase of 5.9% compared with the same period in the prior year. Net rental income was $3,050,656 (prior year - $3,000,721), and net loss and comprehensive loss for the year $8,548,041, which includes an investment property valuation adjustment of $11,648,437.

Revenue for the three months ended December 31, 2023, was $1,443,032, an increase of 2.2% compared with the same period in the prior year. Net rental income was $57,684 (prior year - $213,697), and net loss and comprehensive loss for the three months was a loss of $989,852, which includes an investment property valuation adjustment of $892,258.

At December 31, 2023, Sun had total assets of $64.3 million (December 31, 2022 - $75.6 million), and cash and cash equivalents of $3.8 million (December 31, 2022 - $4.7 million). Working capital at December 31, 2023, was $3.7 million (December 31, 2022 - $4.6 million).

"Occupancy at Evergreen at Southwood, our flagship property in Tallahassee, has been improving after some softness during the fall, and today stands at 93%," said Robert C. Wetenhall Jr., Chief Executive Officer. "Permitting has been completed for our Cape Coral property, and we are expecting construction to be completed during the first half of 2024."

Additional highlights (at December 31, 2023 or for the three months then ended, unless otherwise noted)

• Weighted average occupancy for the quarter - 91% (Occupancy at year-end - 93%)
• Net operating income margin - 49%
• FFO (funds from operations) for the three months ended December 31, 2023 - $150,707 (December 31, 2022 - $180,078).
• FFO (funds from operations) for the year ended December 31, 2023 - $725,241 (December 31, 2022 - $600,689).
• AFFO (adjusted funds from operations) for the three months ended December 31, 2003 - $142,479 (December 31, 2022 - $33,192).
• AFFO (adjusted funds from operations) for the year ended December 31, 2003 - $637,361 (December 31, 2022 - $355,952).
• Quarterly distribution paid December 29, 2023, corresponds to 95% of FFO, and 100% of AFFO.
• Debt to gross book value - 49%
• NAV (net asset value) per unit - $0.087 (C$0.114)

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A reconciliation to non-IFRS measures is set out below. For further information on the financial results as well as analysis of operational statistics, please refer to Sun's consolidated financial statements and its management's discussion and analysis for the year ended December 31, 2023, available on SEDAR+ at www.sedarplus.comand on Sun's website at www.sunresreit.com.

Quarterly distribution

The Board of Trustees has approved a regular quarterly distribution of C$0.00095 (0.095 Canadian cents) per unit. This distribution will be paid March 28, 2024 to unitholders of record as of the close of business on March 13, 2024, and represents an annual rate of C$0.0038 (0.38 Canadian cents) per unit.

Non-IFRS Financial Measures

Weighted average leased rate, FFO, AFFO, rent collection, net operating income margin, NAV per unit and debt to gross book value are key measures of performance commonly used by real estate investment trusts. They are not measures recognized under International Financial Reporting Standards (IFRS) and do not have meanings prescribed by IFRS. Weighted average leased rate, FFO, AFFO, rent collection for December 2023, net operating income margin, NAV per unit and debt to gross book value as calculated by Sun may not be comparable to similar measures presented by other issuers. Please see the table below for reconciliationsto IFRS measures.

Three months ended

December 31

		2023		2022
Net income (loss) attributable to unitholders
unitholders	$	(430,630)	$	1,978,700
Adjustments to arrive at FFO
Fair value adjustment to
income producing investment properties		916,134		(5,361,989)
Realty taxes not accounted for under
IFRIC 21		653,400		570,600
Non-controlling interest		(769,072)		2,347,781
Fair value adjustment to
property under development		(23,876)		-
Deferred income taxes		(180,424)		645,602
Loss (gain) on foreign currency translation		(14,825)		(616)
Funds from operations (FFO)		150,707		180,078
Adjustments to arrive at AFFO
Capital expenditures		(16,134)		(288,011)
Non-controlling interest		7,906		141,125
Adjusted funds from operations (AFFO)	$	142,479	$	33,192
Weighted average number of units		203,338,999		203,338,999
FFO per unit	$	0.0007	$	0.0009
AFFO per unit	$	0.0007	$	0.0002

Years ended

December 31

	2023		2022
$	(3,773,622)	$	2,482,338
	11,672,313		(5,170,123)
	-		-
	(5,719,433)		2,533,360
	(23,876)
	(1,415,253)		751,649
	(14,888)		3,465
	725,241		600,689
	(172,313)		(479,877)
	84,433		235,140
$	637,361	$	355,952
	203,338,999		203,338,999
$	0.0036	$	0.0030
$	0.0031	$	0.0018

Unitholder equity	$	17,593,803	$	21,801,627
NAV per unit	$	0.087	$	0.107
NAV per unit (C$)	$	0.114	$	0.144

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About Sun Residential REIT

Sun Residential Real Estate Investment Trust is an unincorporated open-ended real estate investment trust established pursuant to a declaration of trust dated January 22, 2019, as amended and restated on March 22, 2019 and November 4, 2020. The business of Sun is to acquire multi-family residential properties in the Sunbelt region of the United States.

Caution regarding forward-looking statements

Forward-looking statements in this news release, including the timing of the development of our Cape Coral property, and elsewhere reflect Sun's current assumptions, expectations, and projections. Often, but not always, forward‐looking statements can be identified by words such as "planned," "expects," "expecting," "anticipated," or "believes," or variations of such words and phrases or state that certain actions, events, or results "may," "could," "would," "might," "should," or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause Sun's actual results or achievements to be materially different from those expressed or implied by the forward-looking statements. The forward-looking statements made in this news release relate only to events or information as of the date hereof. All forward-looking statements are based on assumptions that may prove to be incorrect. Furthermore, forward-looking statements are qualified in their entirety by the inherent risks, uncertainties and changes in circumstances surrounding future expectations that are difficult to predict and mostly beyond the control of Sun.

Except as specifically required by Canadian securities law, Sun undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Many factors will cause actual results to differ, perhaps materially, from results in the forward- looking statements: for a description of such factors please refer to the Management's Discussion and Analysis for the year ended December 31, 2023 available at www.sedarplus.caor at www.sunresreit.com.

For further information, please

contact: Robert C. Wetenhall Jr. Chief Executive Officer [e-mail]

Jeffrey D. Sherman, Chief Financial Officer [e-mail][phone]

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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sunresidential

Management's

Discussion and

Analysis

Year ended December 31, 2023

(expressed in United States dollars)

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - DECEMBER 31, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 1

BASIS OF PRESENTATION

This Management's Discussion and Analysis (MD&A) of Sun Residential Real Estate Investment Trust (Sun, we, our or us) is dated February 6, 2024, and should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2023. Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. All references herein to "$" refer to United States dollars, and "C$" refer to Canadian dollars. This MD&A provides information for the year ended December 31, 2023 and is current to February 6, 2024, the date that it was approved by our board of trustees.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

From time to time, we make written or oral forward-looking statements within the meaning of securities laws, including Canadian securities legislation. We may make forward-looking statements in this MD&A, in other reports to unitholders, and in other communications. Forward-looking statements in this MD&A and elsewhere reflect our current assumptions, expectations and projections as to future results. Often, but not always, forward‐looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or achievements to be materially different from those expressed or implied by the forward-looking statements. The forward-looking statements made in this MD&A relate only to events or information as of the date hereof. All forward-looking statements are based on assumptions that may prove to be incorrect. Furthermore, forward-looking statements are qualified in their entirety by the inherent risks, uncertainties and changes in circumstances surrounding future expectations which are difficult to predict and mostly beyond our control.

Except as specifically required by Canadian securities law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Many factors will cause actual results to differ, perhaps materially, from results in the forward-looking statements: please refer to "Risk Factors" below.

ACCOUNTING POLICIES

Our consolidated financial statements for the year ended December 31, 2023 have been prepared in accordance with IFRS. Our accounting policies are described in our consolidated financial statements for the year ended December 31, 2023, which should be read in conjunction with this MD&A. In applying these policies, in certain cases it is necessary to use estimates, for which we use information available to us at the time. We review key estimates quarterly to determine their appropriateness and any change to these estimates is applied prospectively as required by IFRS. The most significant estimates relate to the fair value of investment properties.

NON-IFRS MEASURES

In this MD&A, we disclose some financial measures that are not recognized under IFRS and that, therefore, do not have standard meanings prescribed by IFRS. These measures are commonly used by entities in the real estate industry as useful metrics for measuring performance. Since they do not have any standardized meaning under IFRS, they may not be comparable to similar measures presented by other entities. These measures should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with IFRS.

FFO (funds from operations) is a measure of operating performance based upon funds generated by Sun before reinvestment or provision for other capital needs. AFFO (adjusted funds from operations) is a supplemental measure that adjusts FFO for costs associated with capital expenditures, leasing costs, and tenant improvements. FFO and AFFO as presented are in accordance with the recommendations of the Real Property Association of Canada (REALPAC) as published in its white paper in February 2019, except as noted below.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - DECEMBER 31, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 2

FFO is defined as IFRS consolidated net income (or loss) adjusted for items such as unrealized changes in the estimated fair value of investment properties, the effect of changes in value of puttable instruments classified as financial liabilities, property taxes accounted for under IFRS Interpretations Committee - 21 Levies (IFRIC 21 - see comment below in discussion of net operating income), transaction costs expensed as a result of the purchase of a property being accounted for as a business combination, changes in the fair value of financial instruments that are economically effective hedges but do not qualify or were not designated for hedge accounting, foreign exchange gains or losses (as noted below) and operational revenue and expenses from right to use assets. FFO should not be considered to be an alternative to net income (loss) or cash flows provided by or used in operating activities determined in accordance with IFRS. Our method of calculating FFO is in accordance with REALPAC's recommendations, except that FFO is also adjusted for foreign exchange gains or losses that do not result from activities related to the property, and may differ from methods used by other issuers. We consider FFO to be a key measure of operating performance.

AFFO is defined as FFO adjusted for maintenance capital expenditures incurred. AFFO should not be considered to be an alternative to net income (loss) or cash flows provided by or used in operating activities in accordance with IFRS. Our method of calculating AFFO is in accordance with REALPAC's recommendations, except for the foreign exchange adjustment noted above, and may differ from methods used by other issuers. We consider AFFO to be a key measure of operating performance.

Net operating income (NOI) is defined as net rental income, which is total revenue from properties less direct property operating expenses, adjusted for realty taxes prepared in accordance with IFRS, except for adjustments related to IFRIC 21. (Therefore, when NOI is calculated quarterly, it includes a quarterly charge for realty taxes, notwithstanding that IFRIC 21 requires that a government levy (such as realty taxes) be recognized in accordance with the relevant legislation. The obligating event for realty taxes occurs during the fourth quarter, consequently under IFRS, the full amount of the expense is recognized at that time. This only affects quarterly reporting.) NOI should not be considered to be an alternative to net income determined in accordance with IFRS. Our method of calculating NOI may differ from methods used by other issuers. We consider NOI to be an important measure of income generated from our income producing properties and we use it to evaluate the performance of our properties. It is also a key input in determining the fair value of our properties.

In this MD&A, we also refer to several other real estate industry metrics that are non-IFRS measures:

Non-IFRS measures are as follows:

• NOI margin is defined as NOI divided by our total revenue.
• FFO per unit is defined as FFO divided by the weighted average units outstanding.
• AFFO per unit is defined as AFFO divided by the weighted average units outstanding.
• Net asset value (NAV) per unit is defined as unitholders' equity divided by units outstanding.

Other performance measures include:

• "Gross Book Value" means the book value of our total consolidated assets.
• "Debt to Gross Book Value Ratio" is calculated by dividing our debt, which consists of mortgage payable, by Gross Book Value.

See "Reconciliation of Non-IFRS Measures" below.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - DECEMBER 31, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 3

OVERVIEW

Sun Residential Real Estate Investment Trust is an unincorporated open-ended real estate investment trust governed by the laws of the Province of Ontario and established pursuant to a declaration of trust dated January 22, 2019, as amended and restated on March 22, 2019 and November 4, 2020. The business of Sun is to acquire and operate multi-family residential properties located in the Sunbelt region of the United States.

Our business operations commenced on January 28, 2020, when we completed a financing and concurrently acquired a 51% interest in Evergreen at Southwood, a "Class A" multi-family residential property located in Tallahassee, Florida comprising 12 buildings with 288 rental units.

SIGNIFICANT EVENTS AND HIGHLIGHTS

Evergreen at Southwood has performed well since it was acquired on January 28, 2020. Rental revenue increased by 5.9% for 2023 compared with the previous year, while expenses have increased 11.0%, resulting in an increase in net rental income of 1.6% compared with the previous year. Occupancy currently stands at 93% and has fluctuated between 89% and 98% since the property was acquired.

On June 15, 2023, we acquired 4815 Tudor Drive, an abandoned apartment building located in Cape Coral, Florida, for $867,684. Mobilization to begin renovating the property, which was heavily damaged by Hurricane Ian, has begun. We expect that the property will be accretive to earnings when stabilized during 2024.

On December 29, 2023, we paid a quarterly distribution of C$0.00095 per unit. During 2023, we paid four quarterly distributions at an annual rate of C$0.0038 (0.38 Canadian cents) per unit.

Our NAV per unit was $0.087 at December 31, 2023, or C$0.114 (based upon the Bank of Canada rate of 1.3226 at that date). Please refer to "Reconciliation of Non-IFRS Measures" below.

OUTLOOK

Growth strategy

We believe that the multifamily sector in the Sunbelt region of the United States offers attractive long-term investment opportunities. Our expansion plans, however, have been delayed because of continued volatility in the capital markets, which has curtailed our ability to raise additional equity for acquisitions on attractive terms. Evergreen at Southwood, in which we have a 51% interest, has generated consistent financial performance since being acquired.

A recent operational review of the property in 2023 led management to adopt a targeted capital spending program focused on making improvements to the common areas, which should support a better tenant experience while also reinforcing the property's strong competitive position in the local market. Accordingly, management remains confident in the outlook for the property's long-term financial performance.

Management believes that our core business of owning high-quality stabilized assets like Evergreen at Southwood is complemented by selectively pursuing value-add investment opportunities in the Sunbelt that have the potential to generate attractive yields and incremental cash flow. To this end, in 2023 we acquired 4815 Tudor Drive, a small apartment building that had been severely damaged by Hurricane Ian.