Sun Residential Real Estate Investment Trust : Q1 2023 Management Discussion and Analysis

sunresidential

Management's

Discussion and

Analysis

First quarter 2023

March 31, 2023

(expressed in United States dollars)

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - MAR 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 May 2, 2023, and should be read in conjunction with our unaudited interim consolidated financial statements for the three months ended March 31, 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 months ended March 31, 2023 and is current to May 2, 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 months ended March 31, 2023 have been prepared in accordance with IFRS. Our accounting policies are described in our consolidated financial statements for the three months ended March 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.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - MAR 31, 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 - MAR 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 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 a "Class A" multi-family residential property located in Tallahassee, Florida comprising 12 buildings with 288 rental units.

SIGNIFICANT EVENTS AND HIGHLIGHTS

Our NAV per unit increased by approximately 1% to $0.108 at March 31, 2023, compared with $0.096 on December 31, 2022. At March 31, 2023, NAV was C$0.146 (based upon Bank of Canada rate of 1.3533 at that date). Please refer to "Reconciliation of Non-IFRS Measures" below.

Our property has performed well since it was acquired. Investment property revenue and net rental income have increased by 8.2% and 8.6% respectively for the three months ended March 31, 2023 compared with the same period the previous year. About 89% - 99% of the property has been leased since the property was acquired, and it is currently at 95% leased.

As of March 31, 2023, the value of our investment property remained unchanged from December 31, 2022, at $70.6 million.

We declared our inaugural quarterly distribution to unitholders on December 14, 2022, of C$0.00095 (0.095 Canadian cents) per unit which was paid on March 31, 2023 to unitholders of record as of the close of business on March 10, 2023. On May 2, 2023 we announced a distribution of C$0.00095 per unit to be paid on June 30, 2023 to unitholders of record at the close of business on June 12, 2023. This represents an annual rate of C$0.0038 (0.38 Canadian cents) per unit.

OUTLOOK

Outlook and 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 the company's ability to raise additional equity for acquisitions on attractive terms.

Evergreen at Tallahassee, our property, in which we have a 51% interest, has generated strong financial performance since acquisition. 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 financial performance.

The current environment is characterized by rising interest rates and inflationary cost pressures, which will likely lead to a prolonged dislocation in the market for multi-family residential properties. This has already resulted in reduced transaction volumes and higher cap rates for lower quality properties, a trend that is likely to continue as the market adjusts during the balance of the year. We may selectively acquire assets where we can add value by making operational improvements.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - MAR 31, 2023, MANAGEMENT'S DISCUSSION AND ANALYSIS 4

PERFORMANCE MEASURES
Business Metrics
				March 31		December 31
				2023		2022
Portfolio:
Total apartment units				288		288
Total square feet			276,664		276,664
Weighted average occupancy for the quarter			90%		91%
Occupancy at quarter-end				94%		89%
Rent collection - Period end				98%		98%
NOI Margin				55%		55%
Gross book value		$	75,601,752	$	75,551,342
Debt:
Debt to gross book value ratio			41.6%		41.6%
Weighted average contractual interest
	rate of mortgages			3.52%		3.52%
Weighted average mortgage debt term - years			6.7		6.9
Equity:
Units outstanding			203,338,999		203,338,999
Unitholders' equity		$	22,002,956	$	21,801,627
NAV per unit		$	0.108	$	0.107
	Operating results			Three months ended
				March 31
			2023		2022
	Revenue	$		1,395,353	$		1,289,831
	Net operating income	$		769,171	$		718,541
	Funds from operations	$		160,195	$		122,527
	FFO per unit	$		0.0008	$		0.0006
	Adjusted funds from operations	$		133,844	$		119,569
	AFFO per unit	$		0.0007	$		0.0006

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