Sun Residential Real Estate Investment Trust : Q1 2024 Financial Statements

sunresidential

Interim

Consolidated

Financial

Statements

First quarter 2024

March 31, 2024

(unaudited)

(expressed in United States dollars)

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - Q1 2024 INTERIM CONSOLIDATED FINANCIAL STATEMENTS	1
Consolidated Statements of Financial Position
(in United States dollars)
			March 31		December 31
	Notes		2024		2023
Non-current assets
Investment properties	4	$	60,299,658	$	60,250,000
Current assets
Cash and cash equivalents	5		3,422,236		3,759,747
Deposits and reserves			597,367		180,861
Prepaid expenses and other assets			52,944		64,575
			4,072,547		4,005,183
		$	64,372,205	$	64,255,183
Non-current liabilities
Mortgage payable	6	$	31,440,000	$	31,440,000
Deferred income tax liability	11		1,050,906		984,346
			32,490,906		32,424,346
Current liabilities
Accounts payable and accrued liabilities		257,201		315,207
		$	32,748,107	$	32,739,553
Unitholders' equity
Unitholders' capital	7	$	15,252,829	$	15,252,829
Accumulated other comprehensive loss			(102,206)		(102,206)
Retained earnings			2,561,023		2,443,180
			17,711,646		17,593,803
Non-controlling interest	14		13,912,452		13,921,827
			31,624,098		31,515,630
		$	64,372,205	$	64,255,183

Approved on behalf of the board of trustees
"Robert C. Wetenhall Jr."	"Daniel Argiros"
Trustee	Trustee
The accompanying notes are an integral part of these consolidated financial statements.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - Q1 2024 INTERIM CONSOLIDATED FINANCIAL STATEMENTS

2

Consolidated Statements of Net Income and Comprehensive Income (in United States dollars)

			Three months
			ended March 31
	Notes		2024		2023
Rental revenue	9	$	1,448,598	$	1,395,353
Property operating expenses	10		357,984		408,382
Net rental income			1,090,614		986,971
General and administrative expenses	10, 13		118,483		126,270
Interest expense			279,746		276,672
Other income			(32,872)		(35,291)
Fair value loss on investment propertie	4		-		51,669
Loss (gain) on foreign currency translation		877		(310)
			366,234		419,010
Income before income taxes			724,380		567,961
Deferred income taxes	11		66,560		43,903
Net income and comprehensive
income		$	657,820	$	524,058
Net income and comprehensive
income attributable to:
Unitholders			260,495		201,329
Non-controlling interest	14		397,325		322,729
Net income and comprehensive
income		$	657,820	$	524,058

The accompanying notes are an integral part of these consolidated financial statements.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - Q1 2024 INTERIM CONSOLIDATED FINANCIAL STATEMENTS	3
Consolidated Statements of Changes in Unitholders' Equity
(in United States dollars)
				Accumulated
				other
	Trust	Unitholders'	Retained	comprehensive	Non-controlling
	units	capital	earnings (deficit)	income (loss)	interest		Total
					(note 14)
Balance, December 31, 2022	203,338,999	$15,252,829	$6,651,004	($102,206)	$19,539,046	$41,340,673
Net income for the period	-	-	201,329	-	322,729		524,058
Distributions to non-controlling interest	-	-	-	-	(357,700)		(357,700)
Balance, March 31, 2023	203,338,999	$15,252,829	$6,852,333	($102,206)	$19,504,075	$41,507,031
Net income for the period	-	-	(3,974,951)	-	(5,097,148)	(9,072,099)
Distributions to unitholders (note 7)	-	-	(434,202)	-			(434,202)
Distributions to non-controlling interest	-	-	-	-	(485,100)		(485,100)
Balance, December 31, 2023	203,338,999	$15,252,829	$2,443,180	($102,206)	$13,921,827	$31,515,630
Net income for the period	-	-	260,495	-	397,325		657,820
Distributions to unitholders (note 7)	-	-	(142,652)	-	-		(142,652)
Distributions to non-controlling interest	-	-	-	-	(406,700)		(406,700)
Balance, March 31, 2024	203,338,999	$15,252,829	$2,561,023	($102,206)	$13,912,452	$31,624,098

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - Q1 2024 INTERIM CONSOLIDATED FINANCIAL STATEMENTS

4

Consolidated Statements of Cash Flows
(in United States dollars)
			Three months
			ended March 31
Notes		2024		2023
Operating activities
Net income		$	657,820	$	524,058
Adjustments for non-cash items
Fair value loss on investment properties	4		-		51,669
Interest expense			279,746		276,672
Unrealized foreign currency (gain) loss			573		(2,914)
Deferred income tax expense	11		66,560		43,903
Interest paid			(279,746)		(276,672)
Changes in non-cash operating assets
and liabilities	12		(462,889)		(383,357)
			262,064		233,359
Investing activities
Additions to investment properties	4		(49,658)		(51,669)
			(49,658)		(51,669)
Financing activities
Distributions to unitholders	7		(142,652)		(142,436)
Distributions to non-controlling interest			(406,700)		(357,700)
			(549,352)		(500,136)
Net increase (decrease) in cash and cash equivalents			(336,946)		(318,446)
Effect of exchange rate on cash and cash equivalents			(565)		2,707
Cash and cash equivalents, beginning of period			3,759,747		4,683,506
Cash and cash equivalents, end of period		$	3,422,236	$	4,367,767

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - NOTES TO Q1 2024 INTERIM CONSOLIDATED FINANCIAL STATEMENTS 5

1. Organization and nature of operations
   Sun Residential Real Estate Investment Trust (the Trust or Sun) is an unincorporated open-ended real estate investment trust established pursuant to a declaration of trust dated January 22, 2019, which was 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.
   The business operations of Sun commenced on January 28, 2020, when it completed financing and concurrently acquired a 51% interest in a multi-family residential property comprising 12 buildings with 288 rental units as well as various amenities for tenants, located in Tallahassee, Florida.
   The units trade on the Toronto Venture Exchange (TSXV), under the symbol SRES. Sun's registered office and principal place of business is 130 King Street West, Suite 2300, Toronto, Ontario M5X 2A2.
2. Basis of presentation
   (a) Statement of compliance

These interim consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards), including International Accounting Standard IAS 34, Interim Financial Reporting, and using accounting policies described below. These interim consolidated financial statements should be read in conjunction with Sun's audited consolidated financial statements for the year ended December 31, 2023.

These consolidated financial statements were approved by the Board of Trustees on April 30, 2024.

(b) Basis of measurement

These interim consolidated financial statements have been prepared on a historical cost basis except for investment properties, which are measured at fair value.

(c) Functional and presentation currency

These interim consolidated financial statements are presented in United States dollars, which is Sun's functional currency.

(d) Principles of consolidation

These consolidated financial statements include the accounts of Sun's subsidiaries, which are 100%- owned unless otherwise noted: SunResREIT US Inc. (jurisdiction of incorporation: Delaware), Sun Tudor, LLC (Florida), Sun Tudor, LP (Florida), and 51%-owned Westdale Evergreen Southwood, LLC (Texas). Subsidiaries are entities controlled by Sun. The financial statements of subsidiaries are prepared for the same reporting periods as for Sun, using consistent accounting policies.

All intercompany balances, transactions and unrealized gains and losses arising from intercompany transactions are eliminated upon consolidation.

e) Significant accounting judgements, estimates and assumptions

The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the reporting date and the reported amounts of revenues and expenses during the reporting period.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - NOTES TO Q1, 2024 INTERIM CONSOLIDATED FINANCIAL STATEMENTS 6

2. Basis of presentation (continued)

(e) Significant accounting judgements, estimates and assumptions (continued)

The most subjective of these judgements, estimates and assumptions relate to:

Fair value of investment properties - Investment properties are carried at fair value, as determined by external independent appraisers or by Sun management. Valuation of investment properties is one of the principal estimates and uncertainties in these consolidated financial statements. The stabilized net operating income, capitalization rate and expected cost to complete for property under development, are the most significant assumptions used in determining fair value. The uncertainty caused by recent rising interest rates, and current and expected higher inflation has affected the availability of reliable market data. Therefore, a high degree of estimation has been used by management in assessing the stabilized net operating income (SNOI) and capitalization rate used to determine the fair value of the investment properties.

Property classification - Significant judgement is required in determining whether a property should be classified as investment property (IAS 40) rather than property, plant and equipment (IAS 16). It has been determined that the ancillary services provided to the occupants of the income producing investment property are considered to be insignificant to the arrangement as a whole, and accordingly the property has been classified as investment property.

Determination of control - Significant judgement is required in determining whether Sun has control over Westdale Evergreen Southwood LLC. Sun owns 51% of Westdale Evergreen Southwood LLC indirectly through its 100% owned subsidiary SunResREIT US Inc. In determining that Sun has control over Westdale Evergreen Southwood LLC, factors considered include the ability to set the budget, make management decisions and other contractual provisions that enable Sun to exercise control.

Income taxes - The determination of Sun's income taxes requires interpretation of laws and regulations involving multiple jurisdictions. In some cases, the ultimate tax determination is uncertain. Furthermore, deferred income tax balances are recorded using enacted or substantively enacted future income tax rates. Changes in enacted income tax rates are not within the control of management. However, any changes in income tax rates may result in actual income tax amounts that differ significantly from estimates recorded. Judgement is also required in determining whether deferred income tax assets should be recognized on the consolidated statements of financial position. Deferred income tax assets are recognized to the extent that Sun believes it is probable that the assets can be recovered when future taxable profit will be available against which the temporary differences can be utilized.

3. Summary of material accounting policies

These condensed consolidated interim financial statements follow the same accounting policies as described in the consolidated financial statements for the year ended December 31, 2023.

(a) Investment properties

Sun accounts for investment properties using the fair value method. Investment properties include land and buildings held to earn rental income and capital appreciation, as well as those under development. Investment properties are initially recognized at their purchase price, including directly attributable acquisition costs. Subsequent to initial recognition, investment properties are carried at fair value, with changes in the fair value recognized in net income in the period in which they arise.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - NOTES TO Q1, 2024 INTERIM CONSOLIDATED FINANCIAL STATEMENTS 7

3. Summary of material accounting policies (continued)

(b) Property asset acquisition

At the time of acquisition of a property, Sun evaluates whether the acquisition is a business combination or asset acquisition. IFRS 3, Business Combinations (IFRS 3), is only applicable if it is considered that a business has been acquired. A business, according to IFRS 3, is defined as an integrated set of activities and assets conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities. In determining whether an acquired property meets the definition of a business, Sun assesses whether substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If such a concentration exists, the transaction is not viewed as an acquisition of a business and no further assessment of the business combination guidance is required. This is relevant where the value of the acquired entity is concentrated in one property, or a group of similar properties. When an acquisition does not represent a business as defined under IFRS 3, Sun classifies these properties as an asset acquisition. Identifiable assets acquired and liabilities assumed in an asset acquisition are measured initially at their relative fair values at the acquisition date. Acquisition-related transaction costs are capitalized to the property.

(c) Revenue recognition

Revenue from investment properties includes all rental income earned, including residential tenant rental income, maintenance fee income, laundry income, pet income and all other miscellaneous income paid by the tenants under the terms of their existing leases. Revenue is recorded using the straight-line method of rental revenue recognition for lease income whereby any contractual free-rent periods or rent increases over the term of a lease are recognized in earnings evenly over the lease term. Rental payments received in advance are deferred in accrued liabilities until earned. Non-lease income are obligations to provide ongoing services to its tenants under the rental contracts. These services include maintenance services, utilities, parking, leisure amenities, laundry, pet fees, waste disposal and other services (property services).

Performance obligations related to these property services are satisfied over time as services are provided during the period that tenants occupy the premises. Revenue is recognized as the services are provided over time, at the best estimate of the amounts earned for those services. The consideration received from tenants under the lease arrangements is allocated between the leased premises and property services based on estimated relative stand-alone selling prices (see note 9).

(d) Non-controlling interest

Non-controlling interest represents equity interests of subsidiaries owned by other investors. The share of net assets, net retained earnings and accumulated other comprehensive income of these subsidiaries attributable to a non-controlling interest is presented as a component of equity.

The non-controlling interest arising from acquisitions is initially measured at the fair value of the non- controlling interest.

(e) Cash and cash equivalents

Cash and cash equivalents consist of demand deposits and bank deposits that are available on 30 days' notice at a major Canadian bank and a United States bank. Cash and cash equivalents are measured at amortized cost.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - NOTES TO Q1, 2024 INTERIM CONSOLIDATED FINANCIAL STATEMENTS 8

3. Summary of material accounting policies (continued)

(f) Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly market between arm's length participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation methods used to determine fair value:

• Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
• Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals.
• Level 3 inputs are not observable and are supported by little or no market activity.

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest to Level 3 inputs. All financial instruments are classified and measured at amortized cost. For current assets and liabilities, their fair value approximates amortized cost due to their short-term maturities.

(g) Financial instruments

Financial instruments are measured at fair value on initial recognition. The classification and measurement of financial assets consists of the following categories: (i) measured at amortized cost, (ii) fair value through profit or loss (FVTPL), and (iii) fair value through other comprehensive income (FVTOCI). Financial assets classified at amortized cost are measured using the effective interest rate method. Financial assets classified as FVTPL are measured at fair value with gains and losses recognized in the consolidated statements of net income and comprehensive income.

The classification and measurement of financial liabilities consists of the following categories: (i) measured at amortized cost and (ii) FVTPL. Financial liabilities classified as amortized cost are measured using the effective interest rate method. Financial liabilities classified as FVTPL are measured at fair value with changes in fair value attributable to changes in the credit risk of the liability presented in other comprehensive income and the remaining change in fair value presented in the consolidated statements of net income and comprehensive income.

The following summarizes Sun's classification and measurement of financial assets and liabilities:

Type	Measurement
Cash and cash equivalents	Amortized cost
Accounts payable and
accrued liabilities	Amortized cost
Mortgage payable	Amortized cost

(h) Deposits and reserves

Deposits and reserves include lender-required escrow reserve funds held for property insurance and realty taxes.

SUN RESIDENTIAL REAL ESTATE INVESTMENT TRUST - NOTES TO Q1, 2024 INTERIM CONSOLIDATED FINANCIAL STATEMENTS 9

3. Summary of material accounting policies (continued)

(i) Mortgage payable

Mortgage payable is recognized at amortized cost using the effective interest rate method. Under the effective interest rate method, any transaction fees, costs and discounts directly related to the mortgage are recognized with interest expense in the consolidated statements of net income and comprehensive income over the expected term of the mortgage. Mortgage maturities and repayments due more than 12 months after the date of the consolidated financial statements are classified as non-current.

(j) Trust units

Sun's units are redeemable at the holder's option under certain conditions and therefore are considered to be puttable instruments in accordance with IAS 32, Financial Instruments. Puttable instruments are required to be accounted for as financial liabilities, except where certain conditions are met in which case the puttable instruments may be presented as equity. Sun's units meet the exemption conditions of IAS 32 and are presented as equity. As a result of the redemption feature, the units meet the definition of a financial liability under IAS 32 and may not be considered as equity for the purposes of calculating net income on a per unit basis in accordance with IAS 33, Earnings Per Share.

(k) Income taxes

Sun is a mutual fund trust under the Canada Income Tax Act. Under that legislation, a mutual fund trust that is not a Specified Investment Flow-Through Trust (SIFT) may deduct distributions of taxable income paid to unitholders. The income tax obligations related to such distributions are those of the unitholders therefore, no income taxes are provided on such amounts.

Sun's subsidiaries in the United States have varying statutory rates of taxation. Judgement is required in the estimation of income taxes and income taxes that may be exigible where activities relating to those subsidiaries are considered to be taxable under municipal, state or federal tax laws of the United States.

Deferred income taxes are recognized using the asset and liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income taxes are determined using tax rates and laws that have been enacted or substantively enacted by the date of the financial statements, and are expected to apply when the deferred income tax assets are realized or the deferred income tax liabilities are settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. The carrying amount of a deferred tax asset would be reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Any such reduction would be reversed to the extent that it becomes probable that sufficient taxable income will be available.

(l) Realty taxes

Under IFRS Interpretations Committee Interpretation 21, Levies (IFRIC 21), realty taxes payable by the Trust are considered levies. Based on the guidance of IFRIC 21, Sun recognizes the full amount of annual U.S. realty tax liabilities at the point in time when the realty tax obligation is imposed.