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Securitization - CMBS

Merrill Lynch Financial Assets Inc.


Series 2006 - Canada 18
Report Date: March 13, 2006 Commercial Mortgage Pass-Through Certificates

Analysts: Credit Rating Report


Tim Westlake
416-593-5577 x2320
twestlake@dbrs.com

Karen Gu All figures in Canadian dollars, unless otherwise noted.


416-593-5577 x2334 Subordination
kgu@dbrs.com Class Description Rating Action Class Amount Per Cent Provisional Rating
Class A-1 Provisional Rating – Finalized $60,000,000 11.640% AAA
Jack Toliver Class A-2 Provisional Rating – Finalized $192,000,000 11.640% AAA
312-332-0889
Class A-3 New Rating $269,500,000 11.640% AAA
jtoliver@dbrs.com
Class XP-1 Provisional Rating – Finalized $566,999,000 -- AAA
Class XP-2 Provisional Rating – Finalized $1,000 -- AAA
Class XC Provisional Rating – Finalized $590,200,380 -- AAA
Class B Provisional Rating – Finalized $14,100,000 9.251% AA
Class C Provisional Rating – Finalized $12,500,000 7.133% A
Class D Provisional Rating – Finalized $16,279,000 4.375% BBB
Class E Provisional Rating – Finalized $3,688,000 3.750% BBB (low)
Class F Provisional Rating – Finalized $4,427,000 3.000% BB (high)
Class G Provisional Rating – Finalized $2,951,000 2.500% BB
Class H Provisional Rating – Finalized $1,475,000 2.250% BB (low)
Class J Provisional Rating – Finalized $1,476,000 2.000% B (high)
Class K Provisional Rating – Finalized $1,475,000 1.750% B
Class L Provisional Rating – Finalized $2,951,000 1.250% B (low)
Class M Provisional Rating – Finalized $7,378,380 0.000% NR

NR = not rated. Note: The X balance is notional.

Table of Contents
Deal Overview 1-8 Dominion Place 24
Top Ten and Shadow-Rated Loan Review 9 White Rock U-Lock 26
TransGlobe Pooled Senior Loan 9 Regency Retirement Residence 27
Anchored Retail Portfolio 11 Brant Plains Plaza 29
Halifax Marriott 12 Additional Shadow-Rated Loans 31
3300 Rutherford Road 14 Surveillance 31
ICI Portfolio 16
Entrust Tower 18
Evergreen Pooled Interest 20
Preston Crossing - Phase II 22
Information comes from sources believed to be reliable, but we cannot guarantee that it, or opinions in this Report, are complete or accurate. This Report is not to be construed as an
Page 1 offering of any securities, and it may not be reproduced without our consent.

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Securitization - CMBS

Transaction Overview

The collateral consists of 83 fixed-rate loans secured by 158 multi-family and commercial properties.
Four loans, representing 7.2% of the pool, are shadow-rated investment grade by DBRS. Preston
Crossing – Phase II (2.5% of the pool) is shadow-rated AA, Regency Retirement Residence (2.2% of
the pool) is shadow-rated BBB, Bolton Country Shopping Centre (1.4% of the pool) is shadow-rated
BBB, and Brant Plains Plaza (1.1% of the pool) is shadow-rated BBB (high). Subordination for each
shadow-rated loan is floored at its respective rating. For further details, refer to the Top Ten & Shadow-
Rated Loan Review section on pages 9 through 31.

In addition, three loans are floored at BB (low) based on the rating of the Guarantor, Allied Properties
Real Estate Investment Trust (“Allied REIT”), which provides full recourse guarantee to each of these
loans. These loans are Simcoe and Adelaide (1.5% of the pool), 602-604 & 606 King West (1.4% of
the pool), and Richmond and Bathurst (1.1% of the pool).

The remaining loans were analyzed to determine the indicative conduit ratings, reflecting the long-term
probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances
were measured against DBRS’s normalized net cash flow and its respective actual constants, DBRS
identified four loans (1.5% of the pool) with a term debt service coverage ratio (DSCR) below 1.10
times(x), indicating less likelihood of mid-term default. Additionally, given the current low interest rate
environment, DBRS applied its refinance constants to the balloon amounts. One loan (0.9% of the
pool) had a refinance DSCR below 1.00x.

A combined analysis of the shadow-rated loans and the indicative conduit loan credit enhancement
results in the transaction’s ratings.

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Rating Considerations
Strengths
• Four loans, representing 7.1% of the pool, are shadow-rated investment grade by DBRS.
• Based on DBRS’s site inspections, 25.5% of the sample was considered to have excellent property
quality and 14.2% of the sample to have above-average property quality.
• Forty-six loans (52.1% of the pool) provide for full or partial recourse to the guarantors.
• The subject properties are predominantly located in urban locations (73.8% of the pool) where access
to refinancing capital may be more readily available.
• The pool is diversified with 83 loans secured by 158 commercial and multi-family properties, and no
single property type represents more than 29.6% of the pool balance.
• Geographically, the pool is diverse with properties located across nine provinces in Canada.
• Three loans, representing 21.0% of the pool including TransGlobe Pooled Senior Loans (10.3% of
the pool), Anchored Retail Portfolio (7.2% of the pool), and ICI Portfolio (3.5% of the pool), are
collateralized by multiple properties that add to the diversity of the top ten loans. There are a total of
78 properties that collateralize the top ten loans.

Challenges
• The top ten loans represent 44.2% of the pool.
• Twenty loans (14.3% of the pool) are encumbered with subordinate debt.
• Nineteen loans, representing 28.3% of the pool balance, have a DBRS-stressed loan-to-value (LTV)
greater than 90%.
• Three loans (6.9% of the pool) are secured by hotels, a property type that is considered more volatile.
• Four loans (6.6% of the pool) are secured by retirement homes.
• One loan (0.9% of the pool) has balloon balance refinance DSCR less than 1.00x.

Stabilizing Factors (corresponding to Challenges)


• Eighteen loans (12.7% of the pool) that have subordinate debt have subordination and standstill
agreements in place; one additional loan with subordinate debt (0.2% of the pool) has subordination
agreements in place.
• Ten loans (7.9% of the pool) are encumbered with subordinate debt and have subordination and
standstill agreements in place. One loan (10.4% of the pool) has B-Notes held outside of the pool. Of
the remaining eight loans, four loans (3.6% of the pool) are secured by multi-family properties that are
located in strong rental markets. Two loans (1.3% of the pool) are secured by anchored retail properties
with anchor tenant leases expiring in 2020.
• Two hotel properties (1.85% of the pool) have full recourse guarantee from well-capitalized sponsors.
The other hotel property (5.1% of the pool) is a well-located, excellent quality asset that benefits from
strong management.
• The four retirement properties benefit from strong sponsorship of Chartwell Seniors Housing Real
Estate Investment Trust (“Chartwell REIT”) and Chartwell Master Care LP. Of these four, two (4.4%
of the pool) are well-located in strong markets and have excellent property qualities. One retirement
loan (2.2% of the pool) is shadow-rated BBB investment grade by DBRS.
• The loan is secured by a multi-family property located in a stable rental market. Additionally, the loan
provides full recourse to the guarantor, Lanesborough Real Estate Investment Trust, which is a public
REIT.

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Securitization - CMBS

Portfolio Characteristics
Trust amount $590,200,380
Number of loans 83
Number of properties 158
Interest rate 5.238%
Wtd. average remaining term 104
Wtd. average remaining amortization 316
Wtd. average issuer DSCR 1.45x
Wtd. average issuer LTV 70.5%
Wtd. average DBRS term DSCR* 1.38x
Wtd. average DBRS Refi DSCR* 1.33x
Wtd. average DBRS LTV* 82.3%
Largest loan concentration 10.4%
Largest three loans concentration 22.7%
Largest five loans concentration 30.6%
Largest ten loans concentration 44.2%

Participants
Issuer Merrill Lynch Financial Assets Inc.
Mortgage loan sellers Merrill Lynch Capital Canada Inc. (48.5%)
Column Canada Financial Corp. (21.1%)
Colliers International Mortgage Corporation (13.9%)
GMAC Commercial Mortgage of Canada, Limited (13.4%)
General Electric Capital Canada Inc. (3.1%)
Master servicer GMAC Commercial Mortgage of Canada, Limited
Special servicer GMAC Commercial Mortgage of Canada, Limited
Custodian Computershare Trust Company of Canada
Underwriter Merrill Lynch Canada Inc.
Credit Suisse Securities (Canada) Inc.

Property Type Concentration


Geographic Concentration

Alberta
17.1%
British Columbia Self Storage Anchored Retail
4.2%
Manitoba 3.4% 17.8%
0.8%

Various New Brunswick Industrial


1.1% Office
21.6% 3.4%
25.7%
Nova Scotia
MHC
6.0% 4.9%

Newfoundland
Hotel-FS
1.6% 6.5%
Saskatchewan
0.7%
Hotel-LS
0.4%
Quebec Multi-family
7.8% Ontario
39.2% 19.6% Unanchored Retail
Retirement Home 11.8%
6.6%

* The loan amount used to calculate the DSCRs and LTV is reflective of the trust amount and any pari passu or subordinate notes.
Page 4 LTV = loan-to-value.

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Securitization - CMBS

Loan Structural Features

Pari Passu and Co-ownership Interests: One loan (10.4% of the pool) is a Pari Passu Senior
Companion Loan, one loan (3.0% of the pool) is Pari Passu Co-ownership Interest, and one loan
(0.3% of the pool) is a Senior Co-ownership Interest. All three loans are identified in the chart
below.
Property Name Senior Notes Deal ID Master and Special Servicer

TransGlobe Pari Passu Pooled Senior Loan $74,800,069 MLFAI 2005-Canada 17 Midland Loan Services, Inc.
TransGlobe Pari Passu Pooled Senior Loan $61,200,056 MLFAI 2006-Canada 18 Midland Loan Services, Inc.
Evergreen Pooled Interest $17,958,784 MLFAI 2006-Canada 18 GMAC Commercial Mortgage of Canada, Limited
Evergreen Pooled Interest $4,489,696 TBD TBD
Century Place Pooled Senior Interest $1,982,706 MLFAI 2006-Canada 18 GMAC Commercial Mortgage of Canada, Limited

Note: The top line represents the transaction by which the whole loan will be administered.

• Interest Only: One loan – 1575 Henri Bourassa O. (Control No. 14, 1.9% of the pool) provides for
partial interest-only payments for the first two years of the loan term.

• Leasehold: Two loans – Halifax Marriott (Control No. 3, 5.1% of the pool) and Preston Crossing –
Phase II (Control No. 8, 2.5% of the pool) – have collateral that is subject to a land lease. Two loans
– ICI Portfolio (Control No. 5, 3.5% of the pool) and Days Inn Kingston Road (Control No. 55, 0.4%
of the pool) – are secured by properties that comprise both fee simple interest and lease hold interest.
In each instance, the mortgagee has notice and cure rights.

• Additional Debt: Two loans – TransGlobe Pooled Senior Interest (10.4% of the pool), Century Place
Pooled Senior Interest (0.3% of the pool) – have a subordinate B-Note in place, held outside the trust.
Eighteen loans – Rideau Place on-the-River (Control No. 12, 2.2% of the pool), Whitemud Crossing
(Control No. 13, 2.0% of the pool), 1575 Henri-Bourassa O. (Control No. 14, 1.9% of the pool),
Torbay & Freshwater Apartments (Control No. 17, 1.5% of the pool), Broadview Meadows (Control
No. 36, 0.9% of the pool), Nottingham Centre (Control No. 39, 0.8% of the pool), Sunset Estates
(Control No. 46, 0.7% of the pool), Dundee Sunridge (Control No. 53, 0.5% of the pool), Dillman
Place (Control No. 59, 0.4% of the pool), Harlington Crescent (Control No. 61, 0.4% of the pool),
Century Place Pooled Senior Interest (Control No. 66, 0.3% of the pool), 22 King Street South & 17
Regina Street (Control No. 70, 0.3% of the pool), Bernard Avenue Mixed Use (Control No. 71, 0.3%
of the pool), Lakewood Estates (Control No. 78, 0.2% of the pool), Holiday Harbour (Control No. 79,
0.2% of the pool), Lakeview Court (Control No. 80, 0.1% of the pool), 1204-1206 Eglington Ave West
(Control No. 82, 0.1% of the pool), and 1208-1210 Eglinton Ave West (Control No. 83, 0.1% of the
pool) – have secured subordinate debt in place subject to a subordination and standstill agreement. One
loan – Bloor Street Apartments (Control No. 76, 0.2% of the pool) – has only a subordination
agreement in place. One loan – Bolton Country Shopping Centre (Control No. 21, 1.4% of the pool)
– does not have a subordination and standstill agreement in place.

Twenty loans (24.0% of the pool) – 3300 Rutherford Road (Control No. 4, 4.4% of the pool);
Evergreen Pooled Pari Passu Interest (Control No. 7, 3.0% of the pool); White Rock U-Lock (Control
No. 10, 2.3% of the pool); Regency Retirement Residence (Control No. 11, 22% of the pool); Rideau
Page 5

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Place on-the-River (Control No. 12, 2.2% of the pool); 1575 Henri Bourassa O. (Control No. 14, 1.9%
of the pool); Torbay & Freshwater Apartments (Control No. 17, 1.5% of the pool); Centennial
Retirement Home (Control No. 26, 1.2% of the pool); Jackson Creek Retirement Home (Control No.
34, 1.0% of the pool); Nottingham Centre (Control No. 39, 0.8% of the pool); Sunset Estate (Control
No. 46, 0.7% of the pool); Applefest Lodge (Control No. 49, 0.6% of the pool); Days Inn Kingston
Road (Control No. 55, 0.4% of the pool), Dillman Place (Control No. 59, 0.4% of the pool);
Harlington Crescent (Control No. 61, 0.4% of the pool); 22 King Street South & 17 Regina Street
(Control No. 70, 0.3% of the pool); Kinsdale Apartments (Control No. 75, 0.2% of the pool);
Lakewood Estates (Control No. 78, 0.2% of the pool); Holiday Harbour (Control No. 70, 0.2% of the
pool); and Holiday Harbour (Control No. 80, 0.1% of the pool) – specifically allow for subordinate
secured debt in the future, only if certain LTV and DSCR tests are met. Three loans (1.1% of the pool)
– Broadview Meadows (Control No. 36, 0.9% of the pool), 1204-1206 Eglinton Ave West (Control No.
82, 0.1% of the pool), and 1208-1210 Eglinton Ave West (Control No. 83, 0.1% of the pool) –
specifically permit the borrower to encumber the property with subordinate secured debt in the future,
only if certain LTV and DSCR tests are met and subject to subordination and standstill agreements.
The inherent risk of additional indebtedness has been factored into DBRS’s sizing of each loan.

• Seismic Risk: No loans have a probable maximum loss (PML) over 20%.

• Substitution: Two loans, 1575 Henri-Bourassa O. (Control No. 14, 1.9% of the pool) and 560
Birchmount Road (Control No. 27, 1.2% of the pool), allow for substitution of collateral subject to,
among other things, rating agency confirmation.

DBRS Inspection Sample

DBRS’s sample included the 25 largest loans and a random sample per loan seller based on property
type and geographic location. Site inspections were performed on 74 of the 158 properties
(approximately 73.0% of the pool by loan balance). For 37.7% of the pool, DBRS completed meetings
with the on-site property manager, leasing agent, or a representative of the borrowing entity. DBRS’s
resulting property quality scores are highlighted in the chart below.

Property Quality Sample

30.0%

25.0%
Average
60.4% 20.0%

15.0%
Above Average
14.2% 10.0%

5.0%

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Excellent
25.5% % of Pool % of Sample

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Securitization - CMBS

DBRS Cash Flow Analysis

Cash flow re-underwriting and a cash flow stability and structural review was completed on all 38 loans,
representing 76.4% of the pool by loan balance.

DBRS underwrote current in-place rent with the exception of leases with rents that were viewed as
being above market, which were adjusted down to the market. Generally, most expenses were
underwritten in-line with historical amounts. Real estate taxes and insurance premiums were inflated
if a current bill was not provided and appropriate capital expenditures and leasing costs were deducted
to arrive at the DBRS net cash flow. No upside potential, such as anticipated rental increases or
prospective tenant rent, was recognized unless a mitigating reserve or letter of credit was in place to
cover the gap between the lease and rent commencement dates.

DBRS’s conduit sample average net cash flow variance was 4.1%.

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Top Ten Loans


DBRS DBRS
Loan Issuer DSCR DBRS Term Property
Property Name % of Pool Shadow Balloon
Amount (x) DSCR (x) Quality
Rating DSCR (x)
1.17(1) 1.16 (1) 1.07(1)
TransGlobe Pooled Senior Loan 61,200,056 10.4% -- Average
1.34(2) 1.29 (2) 1.21 (2)
Anchored Retail Portfolio 42,256,196 7.2% -- 1.41 1.37 1.19 Average
Halifax Marriott 29,861,150 5.1% -- 1.69 1.57 1.41 Excellent
3300 Rutherford Road 26,000,000 4.4% -- 1.35 1.35 1.40 Excellent
ICI Portfolio 20,632,616 3.5% -- 1.28 1.18 1.18 Average
Entrust Tower 19,435,689 3.3% -- 1.27 1.20 1.19 Excellent
Evergreen Pooled Interest 22,448,480 3.0% -- 1.55 1.52 1.31 Average
Preston Crossing – Phase II 13,673,749 2.5% AA 1.49 1.33 1.26 Above Average
Dominion Place 14,420,000 2.4% -- 1.24 1.24 1.14 Average
White Rock U-Lock 13,656,896 2.3% -- 1.34 1.28 1.18 Excellent
Total 260,095,136 44.2% 1.79 1.31 1.22
(1) The loan amount used to calculate the DSCRs is reflective of the trust amount and any pari passu or subordinate notes.
(2) The loan amount used to calculate the DSCRs is reflective of the A-note or senior interest only.

Top Ten Loans Continued

Loan Balloon Loan


Property Name Property Type City Province Year Built SF/Unit PSF/Units ($) PSF/Units ($)

TransGlobe Pooled Senior Loan Multi-family Various Various 1963 2,491 54,597 44,723
Anchored Retail Portfolio Anchored Retail Various Various 1927 - 2003 369,618 114 94
Halifax Marriott Hotel-FS Halifax NS 1985 352 84,833 64,246
3300 Rutherford Road Anchored Retail Vaughan ON 2005 141,842 183 136
ICI Portfolio Unanchored Retail Various Various 1969 - 2002 200,803 103 77
Entrust Tower Office Kanata ON 2000 146,710 132 99
Evergreen Pooled Interest MHC Edmonton AB 1970 696 32,254 21,207
Preston Crossing – Phase II Anchored Retail Saskatoon SK 2004 170,904 86 76
Dominion Place Office Calgary AB 1980 128,767 112 100
White Rock U-Lock Self Storage Surrey BC 1999 140,678 101 81
Note: The loan amount used for the calculation is reflective of the trust amount and any pari passu or subordinate notes.

Borrower Concentrations (multiple assets with aggregated loan amount > 5% of total pool)

Sponsor Name DBRS Rating # of Loans ($ millions) % of Pool Recourse/SAE

Chartwell Master Care LP and


Chartwell Seniors Housing Real BB 4 39.2 6.7% 100% recourse
Estate Investment Trust
Total 39.2 6.7%
Page 8 Note: This rating is based on public information.

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TransGlobe Pooled Senior Loan

This $61,200,056 Senior Pari Passu Note is part of an aggregate loan in the amount of $150,199,250
that is secured by a blanket First Mortgage charge over 28 multi-residential properties with a total of
2,491 apartment units. The properties are located in the Ontario (80.1% of the portfolio) and Nova
Scotia (19.9% of the portfolio) with suite distribution in the following cities:
• Halifax; 505 units
• Kitchener; 472 units
• Waterloo; 123 units
• Cambridge; 131 units
• Guelph; 184 units
• London; 143 units
• Burlington; 71 units
• Mississauga; 132 units
• Toronto; 184 units
• Ajax; 96 units
• Bowmanville; 52 units
• Cornwall; 202 units
• Ottawa; 196 units

The loan, which is structured on 30-year amortization with a ten-year term, provides partial recourse
limited to $25 million to PD Kanco LP (“PD Kanco”).
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Merrill Lynch has divided the loan into two Senior Loans totalling $136.5 million and a $13.2 million
Subordinate B Note. The Senior Loan has two Pari Passu parts; the A-1 with a current balance of
$74.8 million was securitized in Merrill Lynch 2005-Canada 17 (“C17”) in November 2005, the A-2
with a current balance of $61.2 million is included in this current transaction. The loan is being
administered according to the C17 pooling and servicing agreement. A co-lender agreement has been
executed between A-1, A-2, and B Notes that ensures a sequential pay structure and equal priority
between the A-1 and A-2 notes.

In assessing the credit quality of this loan, DBRS has reviewed the local markets in which loan collateral
is located and has appropriately re-underwritten the pool of assets consistent with Canadian Mortgage
and Housing Corporations’ (“CMHC”) 2005 occupancy statistics in the corresponding markets.
Similarly, expenses have been underwritten to industry standard per suite amounts to ensure ongoing
sustainability of the cashflow. Additionally, a review of PD Kanko’s management acumen has been
completed to ensure management has sufficient capacity to manage a portfolio of this size located in
several markets across central and eastern Canada.

Site tours indicate that properties are typically average to above average in quality and that maintenance,
repairs, and capital projects are being completed as required.

Discussions with site managers indicate that occupancy levels are typically higher than market-specific
CMHC statistics. This outperforming of the market on occupancy and rental rates is increasingly
common for large landlords with professional leasing and management teams in place and has been
experienced in all major markets across Canada.

DBRS Viewpoint
The Senior A Note of the Loan has a DSCR of 1.16x, and benefits from the underlying stability of
the multi-residential sector in Canada, the strong management acumen of TransGlobe, the diversity of
markets in which collateral is located, the $25 million guarantee to the loan, and the subordinate B Note
to absorb first loss if any were to occur. Defeasance of the loan is permitted with collateral including
non-callable Government of Canada obligations, or such other bonds or cash collateral satisfactory to
the transaction's (C17) Servicer (Midland Loan Services, Inc.) in its sole discretion. As a result, positive
credit migration may not be realized in the event that this loan is defeased. However, in the event the
loan were to be defeased, a rating confirmation that such defeasance would not cause a downgrade of
any classes of certificates with respect to the pool is required, thus precluding any negative credit
migration.

Downside Risk
• A majority of properties were developed in the 1960s and 1970s.

Stabilizing Factors and Upside Potential


• A significant portion of the Canadian multi-family inventory was developed in the 1960s and 1970s.
Provided that the assets have been well maintained and the ongoing maintenance, repairs, and capital
projects are completed as required, this poses no real concern.
• The Borrowing group, TransGlobe, has a very good reputation for maintaining their assets at a high
level and managing them with professional teams.

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Anchored Retail Portfolio

The loan is secured by 14 retail properties, of which 13 are located in the province of Québec and one
is in Ontario. Of the 13 Québec assets, seven are located in the Greater Montréal Area [(49.1% of net
rental income (NRI)].
The major tenancy in the portfolio is Jean Coutu pharmacies [34.2% of gross leasable area (GLA) and
within Canada, operating 321 stores in the country. The Jean Coutu Group (“Jean Coutu”) is also the
seller of the properties. Jean Coutu is currently paying net rents in the $6.63 to $19.26 per square foot
(psf) range depending on the location, with a weighted average of $13.93 psf, increasing 7% every five
years. The portfolio is 96.1% leased and occupied, which is in-line with market vacancy for strip retail
properties. In addition, the portfolio has a diversified tenant base, which includes Metro-Richelieu and
IGA grocery chains, SAQ (provincially-run liquor store), and National Bank. There is no significant
lease rollover in any year during the loan term. The weighted average rent in place for all tenants in the
portfolio is $13.20 psf, which is consistent with market rents.
The active principal sponsor of the borrowing entity is Delek-Belron International Limited (“Delek”),
which holds 45% of ownership stake in the properties. The remaining ownership interest is allocated
45% to Blenheim Properties and 10% to Bander Investments. Delek is 89% owned by the Delek
Group, which owns approximately 1.5 million sf of real estate assets in Canada. The property is
managed by Cogir Management Corporation (“Cogir”), a Québec-based real estate management
company with approximately nine million sf of commercial, industrial, and office property under
management.

DBRS Viewpoint
The portfolio is largely occupied by a national tenant, Jean Coutu Pharmacies, whose lease term is at
least five years beyond the loan term. The property is well-diversified with no single property
contributing more than 16.4% of NRI. Additionally, the portfolio benefits from strong management
and well-capitalized sponsors.

Downside Risk
• Approximately 50% of the properties are located in tertiary and rural markets.

Stabilizing Factors and Upside Potential


• The properties are well occupied and tenant mixes adequately serves the markets well.
• The property manager has extensive knowledge and experience in the markets.
Page 11

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Halifax Marriott

The loan is collateralized by a leasehold interest in a 352-room, six-storey, full-service hotel located in
Halifax, Nova Scotia. Amenities at the property include a restaurant, pub, indoor heated pool, fitness
centre, spa, and business centre. There are eight meeting rooms available, totaling over 17,000 sf, which
can be configured to accommodate meetings and functions for 20 to 850 people. The hotel was
constructed in 1985 and has been operating as the Casino Nova Scotia Hotel. The subject property is
the only hotel in the Halifax central business district (CBD) and is connected, via an above-ground
enclosed walkway, to the Casino Nova Scotia. The borrower, Westerkirk Harbourfront Inc.
(“Westerkirk”), is acquiring the property from Caesar’s Entertainment Inc. (“Caesar’s”) for $52 million,
equating to approximately $22 million of cash equity remaining in the transaction. From 2001 to 2004,
Caesar’s invested over $11.5 million in capital expenditures, including the pool, fitness facility, and spa.

The property is the only hotel in the Halifax CBD


Halifax Marriott Historical Performance with direct access to the Atlantic Ocean, via the
Year Occupancy ADR RevPar Halifax Harbour, and Purdy’s Wharf, Halifax’s most
prominent office complex. The property’s primary
2002 80.5% $133.06 $107.05
competition comes from hotels located within a two
2003 78.7% $139.08 $109.38 kilometre radius, including a Westin and Four Points
2004 77.7% $143.01 $111.14 Halifax. While these comparable hotels pose
T-12 (June 2005) 76.1% $141.88 $110.88 competition for tourists visiting the area, they do not
offer direct access to the Casino or office complex.
Marriott is an international flag with existing business clientele relationships throughout North
America. The Marriott name and amenities appeal to guests that the “Casino Hotel” might not
otherwise attract.

The subject’s competitive set is comprised of 1,725 rooms within a two kilometre radius, 90% of which
are full service. The market reports an average occupancy of 72.5% and average daily rate (ADR) of
$138.60. The subject’s trailing 12-month period shows occupancy and revenue per available room
(RevPar) penetration at 76.1% and 109.3%, respectively.

The ground lease on the property is granted by ground lessor, Waterfront Development Corporation
Limited, and runs through 2022 with three consecutive ten-year renewal options extending the term to
2052. Current land rent for the lease is calculated annually with the base amount being $250,000 plus
an annual incremental amount of 1.75% of annual gross revenue of the hotel. At lease renewal in

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March 2022 and each subsequent ten-year renewal, land rent will be determined subject to a prescribed
formula. Although this formula is intended to preserve the existence of a leasehold estate, the reset
formula is capable of increasing the rental rate to an amount that is several multiples of the current
level.

Westerkirk is a well-capitalized private investment firm established to invest and manage long-term
investments in real estate and other industries.

DBRS Viewpoint
The Halifax Marriott has undergone significant capital improvements in recent years, including a new
pool and spa. Marriott has required the sponsor, Westerkirk, to reserve $4.5 million to finance the re-
flagging costs as well as upgrades to the room amenities, including new bedding, installing plasma
televisions in all guest rooms, and renovating the lobby area. The planned renovations are to be
completed in stages in such a way as to not adversely affect the performance of the hotel. The property
is well located and enjoys the benefit of being the only hotel with direct waterfront access, proximity
to the 700,000 sf Purdy’s Wharf office complex, and the Casino Nova Scotia. Combined, they are
significant and diverse demand generators.

DBRS has reviewed the ground lease to ascertain its potential impact on ultimate principal repayment
and its impact on property cash flow and asset value. Land Valuation Process associated with future
lease renewals defines that land valuation will be determined assuming the property’s current use. This
value component is then multiplied against an interest rate component tantamount to the yield on
CMHC paper. Although it is not likely the intention of the ground lease, exposure to an index that has
fluctuated between 3.77% and 7.94% in the past ten years but that has spiked as high as 17.94% in
1981, has the potential to erode a significant portion of the leasehold value collateralizing this loan. A
rising interest rate environment has the ability to have the compounded effect of increasing the cost of
capital and eroding the economic value of the underlying security.

The good news is that the leverage on this particular asset is not excessive and the 25-year amortization
schedule reduces the outstanding debt on this asset to less than $65,000 per key prior to balloon. In
an effort to assess the durability of this asset, DBRS has completed a refinance stress scenario of the
loan balance at the time of the land lease renewal in March 2022. The analysis contemplates revenue
remaining constant to current revenue, a land rent equal to 4.17x current land rent, a 14% interest rate,
and a 20-year amortization on the loan balance that fully amortizes the loan ten years prior to end of
land lease in 2052. Under this stress scenario, debt service is still covered by current cash flow.
Therefore, although not viewed as favourably as a freehold interest, the risks associated with the
leasehold interest in the property appear substantially mitigated.

Downside Risks
• A Marriott Courtyard is planned for development approximately two kilometres from the subject.

Stabilizing Factors and Upside Potential


• The new hotel is not expected to impact the performance of the subject property due to the subject’s
superior location adjacent to the harbour and historical performance.

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3300 Rutherford Road

The subject is a recently constructed (2005), 141,842 sf food-anchored retail centre located in Vaughan,
Ontario known as the Highland Centre. The property is anchored by Highland Farms (“Highland”)
supermarket (72.8% of GLA and 63.5% of NRI with lease expiry in 2020 plus one two-year and three
five-year renewal options at the same terms and conditions as the current lease). The remaining
tenancy comprises mainly local retailers in addition to a pad site restaurant occupied by The Keg (6.2%
of GLA and 11.1% of NRI with lease expiry in 2021).

The property is currently 85% leased and occupied. The remaining 15% of the space is currently under
a head lease with Highland at a rental rate of $25 psf. However, Highland will be released from the
lease obligation upon leasing up the space to a satisfactory tenant at a minimum net rental rate of $22
psf. As such, DBRS marked the rental rate down to $22 psf and took out a market vacancy of 5%.

The property is located in the high-traffic intersection of Rutherford Road and Sweetriver Boulevard
across the road from Vaughan Mills Shopping Centre, which is a newly built, 1.2 million sf regional
shopping centre featuring brand name retailers such as Tommy Hilfiger, Holt Renfrew, Old Navy,
H&M, Roots, HomeSense, and Winners.

The city of Vaughan is situated in the northwest quadrant of the Greater Toronto Area (GTA) having
a population of 244,462 with an average household income 31% above the national average, according
to Financial Post Markets Canadian Demographics 2006. It is one of the fastest growing municipalities
within the GTA, experiencing an annual population growth rate of 5.26% over the past five years. The
retail sales remain strong in the city at 29% above the national average.

The loan is full recourse to the borrowing entities, CCIL Ltd and LCIL Ltd, and to the guarantor
companies, Charles Coppa Investments Ltd and Louis Coppa Investments Ltd, on a joint and several
basis to a total aggregate of $6.5 million. The guarantor companies own and control the operating
company and tenant, Highland Farms Inc. Highland, a successful grocery chain that has been in
business since 1969 with five locations within the GTA. Total sales were $151 million in 2005.

The loan permits a future subordinate debt with a condition of an aggregate minimum DSCR of 1.35x
and maximum LTV of 75%.

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DBRS Viewpoint
The property benefits from its excellent location in a growing market with close proximity to a regional
mall.

Downside Risk
• There is a vacant space (15% of GLA) currently under a head lease to Highland.
• The subject is a new property lacking operating history.

Stabilizing Factors and Upside Potential


• Given the strong retail market in the city of Vaughan, it is expected the subject should achieve
stabilization.
• The subject is anchored by a new 103,289 sf national grocer, which has a proven performance history
in the GTA.

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ICI Portfolio

The collateral consists of 25 individual unanchored


Province No. of Properties retail properties located in various markets across
Ontario 18 five provinces with total rentable area of 200,803 sf.
Alberta 3
New Brunswick 2
The portfolio consists of a mixture of 13 single-
tenant and 12 multi-tenant retail properties ranging
British Columbia 1
from 3,595 to 38,993 sf. The properties were
Manitoba 1 constructed between 1950 and 2002. The majority
of the properties are situated on strong retail
arteries in prime locations within their respective trade areas. The portfolio has a balanced lease rollover
schedule throughout the loan term.

The portfolio is 89% leased and occupied, featuring a mix of national, regional, and local tenants
including 14 ICI Paints (Canada) Inc (“ICI”), which represents 34.8% of NRA and 42.3% of NRI with
separate lease expiries extending from 2006 to 2015. ICI has been a long-term tenant at many of the
properties and is the seller of the transaction. The parent company, ICI Group, is one of the world's
largest producers of specialty products and coatings. In Canada, ICI paint brands are the number-one
selling paints and coatings brands.

The portfolio has an average contractual rent in-place of $12.47 psf, which is in-line with market rates
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of $7 to $23 psf. The current 11% overall vacancy is primarily due to the recent departure of two large
tenants.

The sponsor of the borrowing entity is a joint venture partnership between Abacus Real Estate
Investments Ltd (“AbREIL”) and Kimco Realty Corporation (“Kimco”). AbREIL, which is the
managing partner holding 20% of the interest in the properties, is a subsidiary of Abacus Capital
Corporation, a Canadian merchant banking group that has significant experience in real estate
acquisition and management with over $194 million investments in Ontario and Québec including
industrial, office, retail, and multi-residential. Kimco, which holds 80% of beneficial interest in the
properties, is the largest publicly-traded owner and operator of neighborhood and community
shopping centers in North America owning more than 800 properties, over 114 million sf, in the U.S.
and 32 retail properties, nearly four million sf, in Canada.

DBRS Viewpoint
The portfolio is part of a 29 property purchase transaction at a total purchase price of $30 million.
The allocated purchase price to the portfolio is $26.9 million, which indicates more than $6.9 million
cash equity invested in this portfolio.

Most of the properties are well located on strong retail arteries with good accessibility and visibility.
The portfolio benefits from geographic diversification and balanced lease rollover. Although the
properties are unanchored retail centres, they benefit from strong management and a financially
capable sponsor.

Downside Risk
• Some properties are old and appeared to be poorly maintained.
• The overall portfolio vacancy is above market.

Stabilizing Factors and Upside Potential


• The new owner has extensive real estate management experience and has sufficient capital for any
outstanding maintenance requirements.
• The vacancy is primarily a result of the recent departure of two large tenants (5% of NRA) from two
properties, which are located in Moncton, New Brunswick and Burnaby, British Columbia. Both
properties are located on the major commercial arterials, benefiting from a good mix of retail and
commercial uses in the immediate areas. With experienced new management in place, it is expected
these vacant spaces to be leased-up in the near future. DBRS underwrote to leases-in-place reflecting
the above-market vacancy.

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Entrust Tower

The loan represents acquisition financing for a five-storey, 146,710 sf, Class A suburban office building
fully leased on a triple net lease-basis to Entrust, Inc. (“Entrust”). The structure was built in 2000
and is located in the Kanata North Business Park, considered the heart of Ottawa’s technology centre.
The building is improved with extensive finishes including an uninterrupted power supply, separately
cooled raised-floor computer labs, a large reception area, cafeteria, and a sophisticated security system.

Entrust was founded in 1994 as Nortel Networks’ Secure network group. Entrust has been a separate
entity since 1998. Entrust provides security encryption software to over 50 countries, including the U.S.
and Canada. The tenant’s lease commenced in 2000 with an expiration date of November 30, 2015,
approximately one month before loan maturity; however, Entrust has two five-year renewal options at
the then market rates.

The subject is located within the Kanata North Business Park, approximately 20 kilometres west of
Ottawa. The area also houses other technology firms, including Cisco Systems, Canadian Marconi, and
Alcatel. The improvements were constructed specifically for the tenant and boasts, among other
attributes, very high security with limited access to most of the building. Insite Altus reports the
average market rent to be $12.02 psf for Class A space in Kanata; Entrust currently pays $15.40 psf.
The premium is attributable to the high cost of the finishes within the building. Also, the Class A
market vacancy has steadily decreased, from over 26% in 2004 to 13% as of the first quarter of 2006.
Although vacancy is still high for Class A space, the subject is located within a larger business park
focused on the technology sector that the appraiser indicated reports better occupancy compared to
the overall market.

The borrower is Dundeal Canada LP with limited partner Dundee REIT forming Dundee Properties
Limited Partnership, which also provides full recourse for the loan. At closing, the borrower will have
approximately $12.5 million of hard equity remaining in the transaction. The partnership has a
combined net worth of over $450 million and holdings valued over $1 billion that include office,
industrial, and retail properties.

DBRS Viewpoint
The subject building is located within a well-performing business park with good visibility and access
from major thoroughfares. Entrust, the sole tenant, is a well-known worldwide software company that

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provides services that are vital to the security and functionality of some of the largest countries in the
world. Entrust’s lease is co-terminus with the loan term; however, they have two five-year renewal
options. Also, the subject property was built-to-suit for Entrust and includes high security,
uninterrupted power, and extensively upgraded finishes.

Downside Risks
• The loan suffers from single tenant event risk with a lease expiry prior to the loan maturity.

Stabilizing Factors and Upside Potential


• Entrust has two five-year renewal options. The subject is located in an area that has consistently
drawn some of the world’s foremost technological companies. The subject offers amenities such as
high security and necessary power needs, to attract similar users.
• The loan is fully guaranteed by Dundee Properties Limited Partnership, which reports a net worth
over $450 million.

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Evergreen Pooled Interest

The Senior Pari Passu A Note in the amount of $17,958,784 is part of the aggregate loan in the amount
of $22,500,000 that is secured by a first mortgage on a 696-pad manufactured home park in northeast
Edmonton that was developed in 1970. The loan is a non-recourse loan that is structured on a 30-year
amortization with a ten-year term.

The property is considered to be in average condition, being fully serviced with paved roadways, street
lighting, and a children's recreation area. Full municipal services are provided, including water, sewer,
gas, telephone, and electricity. Additionally, each pad has a paved parking pad. The property has
common buildings including a management office/community centre, an independent gas station, an
auto repair shop, and a few small retail stores located near the entrance to the park.

The subject has good proximity to local services, transportation routes as well as full city bus service,
and is two kilometres east of the Manning Freeway, which provides easy access through central
Edmonton.

During the past three years, the park has maintained strong occupancy of 95% to 100%, an occupancy
level consistent with manufactured home communities across the Edmonton census metropolitan area
(CMA). The subject’s monthly rents range from $355 to $395 per pad with average rent being $359, a
level considered to be at market by the appraiser.

The Borrower for the loan is a bare trustee for WCP Holdings Ltd., a wholly-owned subsidiary of
Parkbridge Lifestyle Communities Inc. ("Parkbridge"). Parkbridge is a publicly-traded company (TSX:
PRK) that specializes in four distinct business sectors: adult lifestyle communities, manufactured
housing communities, destination R.V. resorts, and marinas. Approximately 75% of the company's
assets consist of manufactured housing communities. Parkbridge indicates a net worth of $89 million
on assets of $178 million as of June 30, 2005. The loan will be indemnified by Parkbridge.

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DBRS Viewpoint
The property is an average quality manufactured home park in Edmonton, a market in which
manufactured home parks have traditionally preformed well.

The loan exposure of $32,000 per pad is considered high; however, it is supported by historic
occupancy levels and current in-place rents.

An independent gas station is on site that uses above-ground storage tanks to store its fuel inventory.
These tanks do not have secondary containment systems in place, which is now a regulated requirement
when installing tanks of this nature. In determining ultimate subordination levels for this loan, the
severity of loss has been increased to account for the absence of secondary containment.

Downside Risk
• The loan exposure is considered high given its location and quality.
• No secondary containment systems in place for above-ground storage tanks.

Stabilizing Factors and Upside Potential


• The proven stabilized occupancy and in-place rents support the corresponding debt service on the
loan: 1.52x during the term and 1.31x at balloon.
• Severity of loss has been adjusted to compensate for additional risk associated with a potential site
contamination.

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Preston Crossing - Phase II

The subject collateral is a 170,904 sf portion of Preston Crossing Shopping Center located in
Saskatoon, Saskatchewan. Preston Crossing is a power centre development being constructed in five
phases of which the subject property is the second phase. Phase I was completed in 2002 and Phase
II was recently completed in the spring of 2005. Phase I & II combined include 454,084 sf of retail
space, which represents about 60% of the total development. The remaining phases have yet to be
developed. Phase I is located on the south parcel of land and is 100% leased to national tenants. Phase
II is spread over both the north and south parcels of land.

Phase II, the subject, is anchored by a 132,033 sf Wal-Mart (77.3% NRA, 65.5% NRI) signed through
2025. Wal-Mart is located on the south parcel along with an unbuilt pad site. Other tenants in the
subject property are Old Navy (14,897 sf) and PetSmart (17,974 sf). Old Navy and PetSmart, located
on the north parcel, are signed through 2009 and 2015, respectively. Wal-Mart, PetSmart, and the
unbuilt pad are single tenant spaces, while Old Navy is the end unit of the multi-tenant building that
is part of Phase I.

Phase II is 96.5% occupied with vacancy limited to approximately 6,000 sf of as-yet-unbuilt space. The
lender has held back $1.06 million in escrow until the pad site is built out and a tenant has taken
occupancy and is paying rent. The minimum lease requirement for the escrow release is a ten-year term
at $25 psf for a minimum of 6,000 sf. Negotiations are continuing with a leading restaurant for the
development of a restaurant pad (6,000 sf at $25 psf). In the meantime, the Borrower is in discussions
with a national donut chain and a local Credit Union.

The property is subject to a leasehold interest granted by the University of Saskatchewan for a term of
50 years ending December 31, 2052. The groundlease is structured such that payment of the land rent
is subordinate to mortgage debt service payments. Payment on the groundlease is $444,600 per year
and escalates 10% every ten years starting in 2013. The lease is also renewable for a further 25 years
in 2052.

The beneficial owner for this transaction is Harvard Developments (“Harvard”). Harvard is a part of
the Hill Companies, an operating entity of the Hill Family. The Hill Family portfolio includes
commercial and residential properties across Canada and the U.S.

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DBRS Viewpoint
Preston Crossing is located in the northeast portion of Saskatoon, near the university and
approximately four kilometres northeast of the CBD. The site is recently constructed with ample
parking and excellent access from the interchange at Circle Drive and Preston Avenue. Overall retail
market vacancy for Saskatoon suggests the market is performing well, with occupancy rates between
95% and 96%.

Although the property is subject to a ground lease with future rent escalations, DBRS has underwritten
to the in-place ground rent given the mortgage loan matures prior to any escalation periods and
revenue growth from contractual future rent bumps will likely offset the next adjustment in 2013.

Downside Risks
• The subject was recently completed and lacks operating history.

Stabilizing Factors and Upside Potential


• Anchor tenant Wal-Mart has significant drawing power and accounts for 65.5% of the economic rent.
Wal-Mart is on a long-term lease that extends beyond the loan term until 2025.

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Dominion Place

This $14.42 million loan is secured by a first mortgage on a nine-storey Class B office building located
southwest of Calgary’s downtown core. The property is a 0.97 acre site improved with a 128,767
square foot structure constructed in 1980. The building is of average quality and currently tenanted
by over 20 tenants at an occupancy level of 95.1%. Suite and hallway finished vary from above average
to below average throughout the property. On-site parking is provided by 204 underground spots.

The loan is a non-recourse loan and is structured on a 25-year amortization with a five-year term. Loan
exposure is $112 psf.

Major tenants at the property include TD Bank (27.2% of NRS, 25.7% of NRI, with lease expiry in
2008), The Alberta Ballet (15.8% of NRA, 9.0% of NRI, with lease expiry in 2014), Platinum Equities
(6.6% of NRA and 8.7% of NRI, with lease expiry in 2011), and Great West Life (6.7% of NRA and
6.6% of NRI, with lease expiry in 2009). Lease terms at the property are short-term in nature with
71.6% of space expiring by the end of 2010. The office market in Calgary is currently performing very
well with low vacancy and increasing rents. Class B space in the belt line is currently 94% occupied.
This performance is projected to continue so long as supply remains in balance.

However, with several floors being at a below-average quality of finish, significant capital expenditure
is likely to be required to re-tenant this space at time of lease rollover. With a current DSCR of 1.26x,
this cash expenditure to refurbish space may cause significant stress on property cash flow and
ultimately impact loan performance.

DBRS Viewpoint
The property is a Class B office building currently in a strong market. The building is well occupied
with several high-quality tenants. However, significant tenant rollover occurs throughout the loan term.
The subject is in need of internal upgrading of common areas and tenant space as leases roll over in
order to compete with new supply.

Downside Risk
• Newly constructed space changes supply dynamics of Calgary office market.
• Construction costs to refurbish space will increase as construction resources are stretched due to new
construction activity throughout Calgary.

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Stabilizing Factors and Upside Potential


• The Calgary economy continues to expand and attract new industry to support the burgeoning oil
and gas industry.

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White Rock U-Lock

Located in Surrey, British Columbia, the subject is a self-storage facility that was built in three phases.
Phase I was built in 1999 as a two-storey facility, Phase II was built in 2002 as a three-storey facility,
and Phase III, also three-storey, was recently completed in 2005. The subject currently contains
135,833 sf, however, an additional 4,168 sf will be completed in early 2006, for a total of 140,001 sf.
The subject contains 1,422 units, ranging in size from 20 sf up to 450 sf as well as an office/reception
area in Phase I. Occupancy is approximately 81%. Amenities include climate-controlled, fully
monitored, sprinklered units with individual entrance codes. On-site boxes and moving supplies are
available. The property is considered to be in above-average condition.

The subject is located in South Surrey, approximately 25 miles from the city of Vancouver. Surrey is
one of the fastest growing communities in the province. The subject neighbourhood has experienced
significant residential growth in both single-family and multi-family units. The average household
income of South Surrey, according to the 2001 census, is over $82,000 per year. According to the
appraisal, within the primary trade area, there is only one other self-storage facility, which has a smaller
rentable area than the subject and is of an older vintage.

The main principal behind the transaction is John Madsen, who is the President of the Canadian Self
Storage Association and has been in the self-storage industry for almost 30 years. Having developed 20
storage facilities, Mr. Madsen has extensive experience and knowledge in operating this type of
property.

DBRS Viewpoint
The subject benefits from a lack of competition in the immediate area and high land costs that prohibit
future competitive facility development. The demographics in the immediate area are very strong, with
an average household income well above the provincial and national level. DBRS inspected the
property and found it to be of superior quality, both aesthetically and functionally.

Downside Risks
• Phase II lacks historical performance, and a new expansion is to open in 2006.

Stabilizing Factors and Upside Potential


• Given the rapid lease-up of Phase II, the lack of competition and available land, and the strong
management, stable performance is expected.

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Regency Retirement Residence

This $13.26 million loan is secured by a first mortgage on a state-of-the-art, newly constructed
independent living centre in the Port Credit area of Mississauga, Ontario. The loan is structured on a
27-year amortization schedule, has a seven-year term, and provides full recourse to Chartwell REIT,
which has approximately $7.1 million cash equity in front of the loan.

Loan security consists of a 1.2 acre site that was developed in 2003 with an 82-unit, four-storey
structure having 49 studios (averaging 380 sf), 25 one-bedroom units (averaging 605 sf), and eight two-
bedroom units (averaging 847 sf). On-site parking is provided by 35 surface-level parking stalls.

Residents at the property are healthy and lead active lives, taking residency at the property is a lifestyle
choice and not a health care need as required by residents of long-term care facilities.

Each unit is modern and contains a kitchenette and full bathroom. All units have individually
controlled heating and air conditioning. On-site amenities include a reception area, common dining
room, an activity room with a greenhouse area, a hair salon, a medication room, an examining room,
elevators, a sun porch lounge, laundry room, library, theatre/chapel, shower room, whirlpool, and an
exercise facility.

The subject property is located on the northeast corner of High Street West and Mississauga Road.
The immediate area is mainly residential in nature with commercial properties located within a short
distance. Properties in the neighbourhood to the north consist mainly of older, well-maintained, single
family dwellings.

The borrowing entity for the loan is CSH Regency Inc. Guarantors to the loan are CSH Trust and
Chartwell Master Care LP, which together have approx $1,017 million in assets and $307 million in net
equity. Chartwell REIT, which is Canada’s second-largest seniors’ housing provider, owns 100% of
CSH Trust, and CSH Trust owns 100% of Chartwell Master Care LP. The loan is full recourse against
each of the guarantors and the borrower.

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DBRS Viewpoint
The property is a high-quality asset located in an affluent neighbourhood, which has a seniors
population capable of affording residency in a retirement community. There is little direct competition
in the area. The property is of excellent quality and was developed to a high industry standard that
provides a warm atmosphere upon entering. The property has leased up well since being originally
marketed in 2003, and is now stabilized at 94% occupancy.

Given the recourse, management expertise, quality of the asset, and the credit characteristics associated
with this loan (term DSCR of 2.08x and refi DSCR of 1.70x), DBRS recognizes the trust asset
associated with this loan to be of BBB credit quality.

Downside Risks
• The loan per unit of $162,000 is high.
• The competing site is currently under development.

Stabilizing Factors and Upside Potential


• The property is located in an affluent area with a seniors population that can afford a luxury living
alternative. The property is 100% guaranteed by Chartwell REIT, which has more than $7 million cash
equity invested in the property.
• Highly urbanized area with limited land available for development.

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Brant Plains Plaza

The collateral is a 54,899 sf retail/office mixed use property located in Burlington, Ontario. The
property comprises a retail plaza, a provincial court house building, and a municipal court house
building, which were built in 1992, 1995, and 2001, respectively.

The property is currently 100% leased and occupied by two office tenants (48.4% of GLA and generate
46.1% of NRI) and 15 retail tenants. Two office tenants include the Provincial Court House (29.7% of
GLA and 27.3% NRI with lease expiry in 2007) and the Municipal Court House (18.6% of GLA and
18.8% of NRI with lease expiry in 2016). There is an early termination option in 2011 stipulated to the
Municipal Court House lease. Retail tenants consist of a mix of national and local retailers, including
Tim Hortons and Subway. The largest retail tenant is Smitty’s Family Restaurant, which occupies 11.7%
of GLA and generates 14.6% of NRI with lease expiry in 2010. The average rental rates of the subject
are $16.07 psf for court houses and $17.59 psf for retail space, which are considered to be in-line with
the market according to the appraiser. All lease expiries are fairly diversified throughout the loan term;
however, significant rollover will occur in 2007 primarily due to the Provincial Court House lease
expiry.

The property is located at a very busy intersection of Brant Street and Plains Road East with a close
proximity to the interchange of highway QEW, highway 403, and highway 407. The city of Burlington
is situated in southern Ontario, approximately 50 kilometres west of Toronto. The city has an estimated
population of 173,800 and enjoyed a high population growth rate of 2.1% over the past five years. In
addition, the average household income is $91,700, which is 34% above the national average according
the Financial Post Markets Canadian Demographics 2006. The retail market in Burlington continues to
perform well with market vacancy below 5%, whereas the Class B office market vacancy is 11.6%
according to InSite.

The sponsors of the borrowing entity are four real estate investors each holding 25% of the interest
in the properties. Two of the sponsors have been actively involved in real estate development and
management for 20 years through the Torgan Group (“Torgan”). Torgan has developed and owned
more than 50 properties totaling 1.6 million sf within the GTA and is currently managing 36 properties
located in Ontario including the subject.

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DBRS Viewpoint
The subject is an attractive, well-developed property that benefits from the excellent location in a high
growth market. Given the strong cash flow fundamentals with term DSCR of 1.84x and refi DSCR of
1.80x, DBRS recognizes the trust asset associated with this loan to be of BBB (high) credit quality.

Downside Risk
• There will be 38% of GLA rolling over in 2007.
• The Municipal Court House lease is stipulated with an early termination option in 2011.

Stabilizing Factor
• The rollover is primarily due to the lease maturity of Provincial Court House, which is expected to
renew its lease because of its preference to be adjacent to the Municipal Court House.
• The Municipal Court House has been a tenant since the building was built in 2001 and has recently
requested an expansion of 2,000 sf, indicating a commitment to the subject property.

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Merrill Lynch Financial Assets Inc. Series 2006 - Cda 18 - Credit Rating Report Dominion Bond Rating Service
Securitization - CMBS

Additional Shadow-Rated Loans

DBRS has shadow rated one additional loan – Bolton Country Shopping Centre (1.4% of the pool) –
BBB based upon investment-grade sponsor RioCan REIT that provides full recourse guarantee to the
loan.

Three loans – Simcoe & Adelaide (1.5% of the pool), 602-604 & 606 King Street West (1.3% of the
pool), and Richmond and Bathurst (1.1% of the pool) – are floored at BB (low) based upon the rating
of the sponsor Allied REIT that provides full recourse guarantees to the loans.

Surveillance

DBRS will perform monthly analytics, surveying the portfolio for delinquencies, prepayments, loan
trigger events, and corresponding DSCR volatility. Additionally, DBRS will publish performance
update reports summarizing credit issues and the impact on the outstanding ratings of this transaction.

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Merrill Lynch Financial Assets Inc. Series 2006 - Cda 18 - Credit Rating Report Dominion Bond Rating Service