Sun Residential Real Estate Investment Trust : Q3 2023 Management Discussion and Analysis

sunresidential

Management's

Discussion and

Analysis

Third quarter 2023

September 30, 2023

(expressed in United States dollars)

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - SEPT. 30, 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 October 31, 2023, and should be read in conjunction with our unaudited interim consolidated financial statements for the three months and nine ended September 30, 2023, and our audited consolidated financial statements for the year ended December 31, 2022. 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 three and nine months ended September 30, 2023 and is current to October 31, 2023, 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 three- and nine-month periods ended September 30, 2023 have been prepared in accordance with IFRS. Our accounting policies are described in our consolidated financial statements for the periods ended September 30, 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.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - SEPT. 30, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 2

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.

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 - SEPT. 30, 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 and net rental income increased by 4.5% and 7.1%, respectively, for the three months ended September 30, 2023 compared with the same period in the previous year. Occupancy, which currently stands at 91%, has fluctuated between 89% and 99% since the property was acquired.

On June 15, 2023, we acquired 4815 Tudor Drive, an abandoned apartment building located in Cape Coral, Florida, for the total purchase price of $867,684. Mobilization to begin renovating the property, which was heavily damaged by Hurricane Ian, has already begun. We expect that the property will be accretive to earnings when stabilized next year and demonstrates our commitment to create shareholder value by sourcing attractive investment opportunities in the Sunbelt.

On September 29, 2023 we paid a distribution of C$0.00095 per unit. This represents an annual rate of C$0.0038 (0.38 Canadian cents) per unit. Our NAV per unit was $0.089 at September 30, 2023, C$0.121 (based upon the Bank of Canada rate of 1.3520 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 earlier this year 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, earlier in the year we acquired 4815 Tudor Drive, a small apartment building that had been severely damaged by Hurricane Ian. Our renovation program, which is underway, should enable the property, which is situated in an upscale residential neighborhood, to achieve stabilization next year.

The combination of tighter credit conditions, rising interest rates, and sharply higher insurance costs may aid us in sourcing additional investment opportunities that meet our acquisition criteria. Our strategy of using cash flow from stabilized assets to fund attractive investment opportunities like 4815 Tudor Drive, which has a significant value-add component, provides a template for growth that should reward unitholders.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - SEPT. 30, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 4

PERFORMANCE MEASURES

Business Metrics
		September 30		December 31
		2023		2022
Portfolio:
Total apartment units		288		288
Total square feet		276,664		276,664
Weighted average occupancy for the quarter		91%		91%
Occupancy at quarter-end		91%		89%
Rent collection - Period end		99%		98%
NOI Margin		54%		55%
Gross book value	$	65,669,330	$	75,551,342
Debt:
Debt to gross book value ratio		47.9%		41.6%
Weighted average contractual interest
rate of mortgages		3.52%		3.52%
Weighted average mortgage debt term - years		6.2		6.9
Equity:
Units outstanding		203,338,999		203,338,999
Unitholders' equity	$	18,170,075	$	21,801,627
NAV per unit	$	0.089	$	0.107

Please refer to "Non-IFRS Measures" above and "Reconciliation of Non-IFRS Measures" below.

Operating results		Three months ended		Nine months ended
		September 30			September 30
		2023		2022		2023		2022
Revenue	$	1,466,573	$	1,403,333	$	4,337,453	$	4,047,611
Net operating income	$	799,323	$	732,762	$	2,339,572	$	2,216,424
Funds from operations	$	207,547	$	146,210	$	574,533	$	420,612
FFO per unit	$	0.0010	$	0.0007	$	0.0028	$	0.0021
Adjusted funds from operations	$	177,958	$	53,536	$	494,882	$	322,760
AFFO per unit	$	0.0009	$	0.0003	$	0.0024	$	0.0016

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - SEPT. 30, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 5

FINANCIAL SUMMARY

		Three months ended		Nine months ended
		September 30			September 30
		2023		2022		2023		2022
Rental revenue	$	1,466,573	$	1,403,333	$	4,337,453	$	4,047,611
Property operating expenses		449,450		480,371		1,344,481		1,260,587
Net rental income		1,017,123		922,962		2,992,972		2,787,024
General and administrative
expenses		94,094		94,399		310,342		297,157
Interest expense		282,819		282,820		839,237		839,238
Other income		(38,222)		(11,137)		(119,705)		(15,402)
Fair value loss on
investment properties		10,658,017		181,714		10,756,179		191,866
Gain on foreign currency
translation		8,296		7,898		(63)		4,081
		11,005,004		555,694		11,785,990		1,316,940
Income (loss) before income taxes		(9,987,881)		367,268		(8,793,018)		1,470,084
Deferred income taxes		(1,323,819)		9,922		(1,234,829)		106,047
Net income (loss) and other comprehensive
income (loss)	$	(8,664,062)	$	357,346	$	(7,558,189)	$	1,364,037
Balance sheet metrics					September 30, 2023	December 31, 2022
Total assets					$	65,669,330	$	75,551,342
Non-current liabilities					$	32,604,770	$	33,839,599
Unitholders' equity					$	18,170,075	$	21,801,627

SUMMARY OF QUARTERLY RESULTS

		Three months	Three months	Three months	Three months
		ended		ended		ended		ended
	September 30, 2023	June 30, 2023	March 31, 2023 December 31, 2022
Rental revenue	$	1,466,573	$	1,475,527	$	1,395,353	$	1,412,622
Property operating expenses		449,450		486,649		408,382		1,198,925
Net rental income		1,017,123		988,878		986,971		213,697
General and administrative expenses		94,094		89,978		126,270		97,589
Interest expense		282,819		279,745		276,672		282,821
Other income		(38,222)		(46,192)		(35,291)		(21,914)
Fair value loss on
investment properties		10,658,017		46,493		51,669		(5,361,989)
Gain on foreign currency
translation		8,296		(8,048)		(310)		(616)
	$	11,005,004	$	361,976	$	419,010	$	(5,004,109)
Income (loss) before Income taxes		(9,987,881)		626,902		567,961		5,217,806
Deferred income taxes		(1,323,819)		45,087		43,903		645,602
Income (loss) and other
comprehensive income (loss)	$	(8,664,062)	$	581,815	$	524,058	$	4,572,204

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - SEPT. 30, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 6

Summary of quarterly results, continued

	Three months	Three months	Three months	Three months
		ended		ended		ended		ended
	September 30, 2022	June 30, 2022	March 31, 2022 December 31, 2021
Rental revenue	$	1,403,333	$	1,354,447	$	1,289,831	$	1,296,918
Property operating expenses		480,371		399,126		381,090		1,083,563
Net rental income		922,962		955,321		908,741		213,355
General and administrative expenses		94,399		98,373		104,385		110,358
Interest expense		282,820		279,746		276,672		282,821
Other expenses (income)		(11,137)		(2,706)		(1,559)		14,616
Fair value (gain) loss on
investment properties		181,714		4,352		5,800		(6,617,000)
Loss (gain) on foreign currency
translation		7,898		(5,431)		1,614		2,857
	$	555,694	$	374,334	$	386,912	$	(6,206,348)
Income before Income taxes		367,268		580,987		521,829		6,419,703
Deferred income taxes		9,922		51,083		45,042		797,490
Income and other
comprehensive income	$	357,346	$	529,904	$	476,787	$	5,622,213

Please refer to "Non-IFRS Measures" above and "Reconciliation of Non-IFRS Measures" below.

		Three months		Three months		Three months		Three months
		ended		ended		ended		ended
	September 30, 2023	June 30, 2023	March 31, 2023	December 31, 2022
Net income (loss) attributable to:
Unitholders	$	(3,801,441)	$	257,120	$	201,329	$	1,978,700
Non-controlling interest		(4,862,621)		324,695		322,729		2,593,504
Net income (loss)	$	(8,664,062)	$	581,815	$	524,058	$	4,572,204
Net income (loss) attributable to
unitholders	$	(3,801,441)	$	257,120	$	201,329	$	1,978,700
Fair value loss on
investment property		10,658,017		46,493		51,669		(5,361,989)
Realty taxes not accounted
under IFRIC21		(217,800)		(217,800)		(217,800)		570,600
Non-controlling interest		(5,115,706)		83,940		81,404		2,347,781
Deferred income taxes		(1,323,819)		45,087		43,903		645,602
Loss (gain) on foreign currency
translation		8,296		(8,048)		(310)		(616)
FFO	$	207,547	$	206,792	$	160,195	$	180,078
Capital expenditures		(58,017)		(46,493)		(51,669)		(288,011)
Non-controlling interest		28,428		22,782		25,318		141,125
AFFO	$	177,958	$	183,081	$	133,844	$	33,192
FFO per unit	$	0.0010	$	0.0010	$	0.0008	$	0.0009
AFFO per unit	$	0.0009	$	0.0009	$	0.0007	$	0.0002

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - SEPT. 30, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 7

Summary of quarterly results, continued

		Three months		Three months		Three months		Three months
		ended		ended		ended		ended
	September 30, 2022	June 30, 2022	March 31, 2022	December 31, 2021
Net income attributable to:
Unitholders	$	132,718	$	201,005	$	169,915	$	2,413,921
Non-controlling interest		224,628		328,899		306,872		3,208,292
Net income	$	357,346	$	529,904	$	476,787	$	5,622,213
Net income (loss) attributable to
unitholders	$	132,718	$	201,005	$	169,915	$	2,413,921
Fair value loss on
investment property		181,714		4,352		5,800		(6,617,000)
Realty taxes not accounted
under IFRIC21		(190,200)		(190,200)		(190,200)		572,400
Non-controlling interest		4,158		91,066		90,356		2,961,854
Deferred income taxes		9,922		51,083		45,042		797,490
Loss (gain) on foreign currency
translation		7,898		(5,431)		1,614		2,857
FFO	$	146,210	$	151,875	$	122,527	$	131,522
Capital expenditures		(181,714)		(4,352)		(5,800)		-
Non-controlling interest		89,040		2,132		2,842		-
AFFO	$	53,536	$	149,655	$	119,569	$	131,522
FFO per unit	$	0.0007	$	0.0007	$	0.0006	$	0.0006
AFFO per unit	$	0.0003	$	0.0007	$	0.0006	$	0.0006

Results of operations - three months ended September 30, 2023

Rental revenue includes all rental income earned from the property, including residential tenant rental income and all other miscellaneous income paid by the tenants under the terms of their existing leases. It also includes services to our tenants under rental contracts including maintenance services, utilities, parking, leisure amenities, laundry, pet fees, waste disposal and other services at the property.

Rental revenue increased 4.5% for the three months ended September 30, 2023 compared with the same period the previous year. This increase is reduced from the increases in previous quarters and reflects additional units becoming available in the south Tallahassee submarket.

Property operating expenses

Property operating expenses declined 6.4% from the same period the previous year, in large part due to repair and maintenance costs being $35,000 lower than in the prior year. This was primarily due to timing differences-in the previous two quarters repair and maintenance costs were 39% ($61,000) higher than in the previous year. Total property operating expenses were 30.6% of rental revenue for the three months ended September 30, 2023, compared to 34.2% of rental revenue in the same period the previous year. As a result, net rental income increased by 10.2% for the three months ended September 30, 2023 compared with the same period the previous year.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - SEPT. 30, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 8

		Three months ended
		September 30
		2023		2022	Change %
Property employee wages and benefits	$	95,502	$	103,325	-8%
Utility costs		51,433		51,103	1%
Property insurance		64,492		53,785	20%
Repairs and maintenance costs		120,413		154,220	-22%
Management fee		43,732		42,168	4%
Building services		49,274		43,853	12%
Other property-based costs		24,604		31,917	-23%
	$	449,450	$	480,371	-6%

General and administrative expenses

General and administration costs consist of the costs of operating our head office in Toronto as well as costs associated with maintaining a listing on the TSX Venture exchange. Filing and listing fees include regulatory costs, news releases, transfer agent fees, and other costs related to the ongoing listing of our trust units on the TSXV. Office administration and other costs include rent, travel, communications, and bank charges. Legal costs increased from the previous year, but in the aggregate total general and administration expenses were essentially unchanged from the previous year.

		Three months ended
		September 30, 2023
		2023		2022	Change %
Salaries and consulting	$	29,951	$	44,447	-33%
Legal and audit		41,190		24,833	66%
Filing and listing fees		2,725		4,634	-41%
Insurance		9,575		9,272	3%
Office administration and other		10,653		11,213	-5%
	$	94,094	$	94,399	0%

Results of operations - nine months ended September 30, 2023

Rental revenue includes all rental income earned from the property, including residential tenant rental income and all other miscellaneous income paid by the tenants under the terms of their existing leases. It also includes services to our tenants under rental contracts including maintenance services, utilities, parking, leisure amenities, laundry, pet fees, waste disposal and other services at the property.

Rental revenue increased 7.2% for the nine months ended September 30, 2023 compared with the same period the previous year. This reflects the current strength in the rental market, including higher rents, although the market has weakened in the last quarter as additional supply has become available.

Property operating expenses

		Nine months ended
		September 30
		2023		2022	Change %
Property employee wages and benefits	$	288,583	$	264,419	9%
Utility costs		145,004		138,975	4%
Property insurance		186,389		155,090	20%
Repairs and maintenance costs		337,431		309,889	9%
Management fee		129,886		121,520	7%
Building services		152,884		165,148	-7%
Other property-based costs		104,304		105,546	-1%
	$	1,344,481	$	1,260,587	7%

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - SEPT. 30, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 9

Property operating expenses are comprised mainly of building common area and maintenance expenses, payroll, insurance, and other costs associated with the management and maintenance of our income producing property. Employee wages and benefits are higher for the nine months ended September 30, 2023 compared to the prior year due to staff vacancies in the prior year, and increased salaries. Repair and maintenance costs include additional spending for pool/spa maintenance, HVAC repairs and painting. Maintenance costs have increased compared to the prior year due to increased tenant turnover.

Property operating expenses increased 7.4% from the same period the previous year, due to inflationary cost increases in multiple areas. Property operating expenses were 31.0% of rental revenue for the nine months ended September 30, 2023 compared with 31.1% of rental revenue in the same period the previous year.

General and administrative expenses

		Nine months ended
			September 30
		2023		2022	Change %
Salaries and consulting	$	98,458	$	136,987	-28%
Legal and audit		107,067		68,591	56%
Filing and listing fees		36,736		26,991	36%
Insurance		28,579		29,251	-2%
Office administration and other		39,502		35,337	12%
	$	310,342	$	297,157	4%

General and administration costs consist of the costs of operating our head office in Toronto as well as costs associated with maintaining a listing on the TSX Venture exchange. Filing and listing fees include regulatory costs, news releases, transfer agent fees, and other costs related to the ongoing listing of our trust units on the TSXV. Office administration and other costs include rent, travel, communications, and bank charges. The increases from the prior year are primarily due to higher legal and audit costs.

Interest

Interest costs consist of interest expense on the mortgage loan obtained to acquire the Evergreen at Southwood property. (See "Liquidity and capital resources" below.)

Other income

Other income consists of interest income from cash held on deposit at a major Canadian chartered bank. (See "Cash and cash equivalents" below.)

Fair value adjustment to investment property, income producing

We use the fair value model to account for the income producing investment property. Income producing investment property includes land and buildings held to earn rental income and capital appreciation. Investment property is initially recognized at its purchase price, including directly attributable acquisition costs. Subsequent to initial recognition, investment property is carried at fair value, with changes in the fair value of the investment property recognized in net income in the period in which they arise.

As of September 30, 2023 the fair value of the property was calculated using a capitalization rate of 5.25%, based on management's assessment. As of December 31, 2022, the fair value of the property was calculated using a capitalization rate of 4.875% as determined by an external valuator at that date. The increase in the capitalization rate represents the market impact of higher interest rates and a general softening of the real estate market. In addition, the stabilized net operating income used to determine the valuation has been reduced by 8.5% to $3,150,000 to reflect management's current assessment.