Sun Residential Real Estate Investment Trust : Q2 2023 Management Discussion and Analysis

sunresidential

Management's

Discussion and

Analysis

Second quarter 2023

June 30, 2023

(expressed in United States dollars)

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - JUNE 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 August 1, 2023, and should be read in conjunction with our unaudited interim consolidated financial statements for the three months and six ended June 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 six months ended June 30, 2023 and is current to August 1, 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 six-month periods ended June 30, 2023 have been prepared in accordance with IFRS. Our accounting policies are described in our consolidated financial statements for the periods ended June 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 - JUNE 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 - JUNE 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 8.9% and 1.0%, respectively, for the three months ended June 30, 2023 compared with the same period in the previous year. Occupancy, which currently stands at 95%, has fluctuated between 89% and 99% since the property was acquired.

On June 15, 2023, we paid $850,000 in cash to acquire 4815 Tudor Drive, an abandoned apartment building located in Cape Coral, Florida. 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 June 30, 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 $0.109 at June 30, 2023, C$0.147 (based upon Bank of Canada rate of 1.3524 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, we recently 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 - JUNE 30, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 4

PERFORMANCE MEASURES
Business Metrics
		June 30		December 31
		2023		2022
Portfolio:
Total apartment units		288		288
Total square feet		276,664		276,664
Weighted average occupancy for the quarter		93%		91%
Occupancy at quarter-end		95%		89%
Rent collection - Period end		99%		98%
NOI Margin		52%		55%
Gross book value	$	75,940,815	$	75,551,342
Debt:
Debt to gross book value ratio		41.4%		41.6%
Weighted average contractual interest
rate of mortgages		3.52%		3.52%
Weighted average mortgage debt term - years		6.4		6.9
Equity:
Units outstanding		203,338,999		203,338,999
Unitholders' equity	$	22,114,236	$	21,801,627
NAV per unit	$	0.109	$	0.107