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Portfolio Characteristics
Wtd. Avg. DBRS Refi 1.12x Wtd. Avg. DBRS Refi DSCR 1.12x
DSCR Trust Whole Loan
Wtd. Avg. DBRS Debt 9.1% Wtd. Avg. DBRS Debt 9.1%
Yield Trust Yield Whole Loan
Table of Contents
Wtd. Avg. DBRS Exit Debt 11.1% Wtd. Avg. DBRS Exit Debt 11.1%
Structure Summary 1 Yield Trust Yield Whole Loan
Transaction Overview 2 Largest Five Loan Concentration 49.6% Wtd. Avg. DBRS NCF Variance -6.2%
Rating Considerations 2
Loan Structural
Features 3 Participants
Unique Structural
Features 4 Depositor Institutional Mortgage Securities Canada Inc.
DBRS Sample 5 Mortgage Loan Sellers Institutional Mortgage Securities Canada Inc.
Underlying Collateral 7
Master Servicer Mildland Loan Services, a division of PNC Bank National Association
Owernship &
Management 8 Special Servicer Mildland Loan Services, a division of PNC Bank National Association
Loan Summary – Custodian Computershare Trust Company of Canada
Top Five Loan Details 9
Placement Agent TD Securities Inc.
Additional Loans 21
Servicing 21
Surveillance 21
CMBS Methodology 21
The collateral for this transaction consists of 16 fixed-rate loans secured by 16 retail properties. All
of the underlying loans are shadow-rated investment grade by DBRS based on the credit ratings of
the transactions two sponsors, RioCan REIT (RioCan) and Calloway REIT (Calloway). Proceeds for
each shadow-rated loan are floored at the respective sponsor rating within the pool and, the 16 loans
in the transaction all have ten-year terms and amortize subject to a 30-year schedule. In addition, each
individual loan has a full-recourse guarantee provided by the respective sponsor.
Rating Considerations
Strengths:
• The transaction has strong, experienced sponsorship from two of Canada’s largest REITs and retail
landlords.
• The loan pool benefits from strong, investment grade tenants including Wal-Mart, Canada Safeway,
Shoppers Drug Mart, Rona, Metro and Dominion (Loblaw Companies Limited).
• The subject properties have historically reported stable occupancy rates and most recently reported
a weighted-average occupancy of 98.4%1.
• The properties are generally well maintained and exhibit good curb appeal. By loan balance,
39.2% of the properties securing the loan pool have been constructed since 2000.
Challenges:
• The loan pool is concentrated by property type and sponsorship.
• Four loans (16.0% of the pool) are located in rural or tertiary markets.
• The Wal-Mart leases all have at least two, and in most cases 16, five-year extension options in-place
at the current terms, reducing the potential for increased cash flow at many of the properties in
the future.
• As in many markets, spending in Canada declined during the recession due to reduced disposable
income levels and higher unemployment. Retail sales from 2009 reflected this, totaling $415.4
billion at year end, off 2.6% from 2008 (Colliers International Realty Advisors Inc.).
• A few of the properties have relatively low barriers to entry for new retail competition in the mar-
ketplace as nearby vacant land is readily available.
• Ratings volatility associated with Classes D and E may be higher as the ratings are directly corre-
lated to the ratings of RioCan and Calloway because of the recourse covenants on the loans. The
majority of the loans would not in and of themselves be considered investment-grade without the
recourse guarantee of the sponsor.
• There was limited tenant sales data provided for the underlying properties.
Stabilizing Factors:
• DBRS takes into account concentrations when assessing the credit quality of underlying transac-
tions and the increased risk brought about by this concentration correlation has been factored into
the ratings by subsequently increasing the individual loan probability of default.
• The pool is concentrated in Canada’s two largest provinces, 40.3% in Ontario and 27.6% in
Québec.
• The majority of the transaction (84.0% of the pool) is located in urban or suburban markets.
1
Occupancy figures includes Contingent lease for largest tenant at Sandalwood Square Centre. See the DBRS loan
summary for Sandalwood Square Shopping Centre on page 18.
2 Presale Report Structured Finance: CMBS
IMSCI 2011-1 • Wal-Mart, rated ‘AA’ by DBRS, represents 37.2% of the total NRA in the transaction, and all six
January 25, 2011
of these Wal-Mart stores have been constructed, expanded and/or renovated since 2002. The
locations are generally favourable, drawing customers from reasonable sized trade areas that face
limited direct competition. In addition, the weighted-average REFI DSCR for these six loans of
1.16x and the exit debt yield of 11.5% both mitigate against the risk of stagnant cash flow.
• Many of the assets contractual base rent is provided by investment-grade tenants and in certain
instances, these tenants are on long-term leases adding to the stability of the underlying cash flows.
• Royal Bank of Canada reports Canadian YE2010 retail sales are projected to bounce back with an
increase of 4.8% over YE2009.
• The vast majority of leases at the subject are NNN, minimizing the risk of rising operating costs.
Between
2000 & 2005
7%
Québec
Between 1990 & 2000
15% 27.6%
Amortization: All 16 underlying loans are structured with 30-year amortization schedules and 10-year
loan terms. The first payment dates commence on February 1, 2011 with scheduled maturity dates on
February 1, 2021. The loans all pay to a weighted-average coupon of 5.313%
Ownership Type: Each loan is secured by a first priority mortgage on the fee interest of the associated
retail property.
Transfer: With the exception of the allowances to follow, any direct or indirect sale, transfer or pledge
of the borrowers, or any other loan parties, requires the consent of the servicer and rating agency con-
firmation. However, the following permitted transfers require only rating agency notification: a) the
provided full-recourse guarantee of the related sponsor continues in full force and the related sponsor
or an affiliate retain control property management at the property b) on an arms-length transfer, the
related sponsor or an alternate professional management company, acceptable to the servicer in its sole
discretion, becomes the manager of the property. Additional information on transfer restrictions can
be found in the Offering Memorandum.
Recourse: Each loan is guaranteed on a full recourse basis by either RioCan or Calloway. RioCan is
the beneficial owner of 12 underlying properties and an affiliate of Calloway is the beneficial owner
of four assets within the transaction for which Calloway will provide the guarantee. RioCan and
Calloway have a DBRS credit rating of BBB (high) and ‘BBB’, respectively.
3 Presale Report Structured Finance: CMBS
IMSCI 2011-1 Prepayment: None of the mortgage loans are permitted to fully or partially prepay the outstanding
January 25, 2011
principal balance prior to the scheduled maturity date (February 1, 2021). As a result, the issuer
does not expect to collect any prepayment premium or yield maintenance charge on any mortgage
loan. The borrower does have the right to pledge defeasance collateral consisting of non-callable
Government of Canada bonds in exchange for the release of the underlying property.
Events of Default: Events of default include, among other items: a) if any payment of the mortgage
loan is not paid when due; b) if any taxes or other charges are not paid when due; c) if any party trans-
fers or encumbers the collateral in violation of the loan agreement; d) if a material default has occurred
in any other provision or requirement under the respective mortgage.
The Value Village Lease Reserve relates to the Sandalwood Square Shopping Centre loan where the
new lease to the property’s largest tenant is contingent upon the tenant obtaining a municipal business
license by February 2011. The reserve had a $650,000 balance at loan closing and is to be used to
cover any necessary tenant improvements, rental concessions and leasing commissions in the event
that the business license is not obtained and the lease is terminated. The lease provides for Value
Village to take possession on March 15, 2011 and to commence rental payments on July 15, 2011. For
additional details on the reserve, please see the DBRS loan summary for Sandalwood Square Shopping
Centre on page 18.
The Cara Lease Reserve pertains to the Cara 97th Street Edmonton loan as the lease at the subject
property provides the tenant the right, prior to August 1, 2012, to demolish and reconstruct the
building at the property. Should the tenant exercise this right, the borrower is obligated to provide the
tenant with a construction allowance in the amount of $725,000 plus interest, payable in installments
as construction proceeds. If the tenant opts not to reconstruct the building, the borrower is obligated
to pay the tenant $55,000. Per the lease agreement, the tenant is to continue to pay rent throughout
the construction period if they opt to reconstruct the building. A $750,000 letter of credit has been
pledged at closing as additional security to satisfy the landlord’s obligations under this construction
allowance in the event the tenant opts to reconstruct the building.
Substitution: Subject to the approval of the master servicer, the borrowers are permitted to obtain a
release from the underlying mortgage by providing a replacement property as security provided the
new collateral is in the same asset class, satisfies the same underwriting requirements from origination
(including maximum LTV and minimum DSCR requirements), as well as additional stated criteria.
Any substitution is subject to a rating agency confirmation per the loan documents. It is the opinion of
DBRS that permitting substitution requirements have the potential to limit any positive ratings migra-
tion that otherwise would be expected for improved credit metrics and amortization.
Additional Debt: As of issuance, there is no additional debt outstanding within the transaction. With
the exception of the allowances to follow, the mortgage loan documents generally do not permit any
mortgages, charges or other financial encumbrances to be incurred on any of the underlying proper-
ties. However, additional debt can be added in the event a permitted, arms-length transfer of the
Class X Certificates: There are two interest-only certificates in the transaction, Class XA and Class
XB. Class XA holders will receive the lesser of 65% of the total monthly scheduled notional interest
payments or the Class X notional interest payment and Class XB is entitled to any remaining Class X
notional interest payment.
DBRS Sample
DBRS conducted a detailed analysis of all 16 loans in the pool and a site inspections were performed
at 12 of the properties (79.0% of the pool by loan balance). The results of this analysis are outlined
below.
Kildonan Crossing Shopping Centre 10.5% Urban 97.2% Canada Safeway 32.1% Average
Welland SmartCentre 10.0% Suburban 100.0% Wal-Mart 64.8% Average
Sherbrooke SmartCentre 10.0% Suburban 100.0% Wal-Mart 63.6% Average
Fallingbrook Shopping Centre 9.8% Suburban 96.5% Metro 33.8% Average
Sandalwood Square Shopping Centre1 9.2% Suburban 100.0% Value Village 30.2% Average
Jasper Gates Shopping Centre 8.3% Urban 95.3% London Drugs 31.8% Average
Valleyfield SmartCentre 6.8% Suburban 100.0% Wal-Mart 66.4% Average
RioCan Durham Centre II 6.4% Suburban 100.0% Solutions 19.3% Did Not Inspect
Trinity Conception Square 6.0% Rural 95.5% Wal-Mart 31.4% Did Not Inspect
RioCan Vaudreuil-Dorion 5.6% Suburban 100.0% Bureau en Gros 26.1% Average
Lethbridge Towne Square 5.3% Suburban 93.5% London Drugs 32.3% Did Not Inspect
Magog SmartCentre 5.2% Tertiary 100.0% Wal-Mart 100.0% Average
New Liskeard Wal-Mart Centre 3.3% Rural 100.0% Wal-Mart 93.4% Did Not Inspect
Shoppers on Argyle 1.6% Tertiary 100.0% Shoppers Drug Mart 100.0% Average
Cara 107th Avenue Edmonton 1.3% Suburban 100.0% Swiss Chalet 73.3% Average
Cara 97th Street Edmonton 0.8% Suburban 100.0% Swiss Chalet 100.0% Average
1
Property is currently 100% leased with Value Village lease in conditional status. See the DBRS loan summary on page 18.
DBRS net cash flow variances in this transaction were primarily driven by higher than contractual
management fees, increased allowances for tenant improvements and leasing commissions as well
as lower expense reimbursements. In certain instances, DBRS also applied a higher vacancy rate
to non-anchor space when updated local market data was not available. This approach is consis-
tent with the DBRS published underwriting methodology which can be found on at www.dbrs.com
under Methodologies. In the case of expense reimbursements, many of the leases at the RioCan
assets have contracted fees or surcharges paid by the tenant that can in certain instances, create
an expense recovery ratio in excess of 100%. DBRS looked to the observed recovery ratios in the
historical financials at all the underlying properties when underwriting the expense reimbursements
and capped the recoverable expense ratio at 100% where applicable before applying the underwrit-
ten vacancy. DBRS recognizes the RioCan fees are contractual and that it is likely that several of the
loans could report higher recovery ratios post issuance. The weighted-average net cash flow variance
for the loan pool was -6.2%.
Loan Summary
DBRS
DBRS DBRS DBRS DBRS Exit
Shadow Term Refi Debt Debt
Loan Name Loan Amount % of Pool Rating DSCR (x) DSCR (x) Yield Yield
Kildonan Crossing Shopping Centre $21,700,000 10.5% BBB (high) 1.34 1.10 8.9% 10.9%
Welland SmartCentre $20,700,000 10.0% BBB 1.45 1.19 9.6% 11.8%
Sherbrooke SmartCentre $20,500,000 10.0% BBB 1.35 1.10 9.0% 10.9%
Fallingbrook Shopping Centre $20,200,000 9.8% BBB (high) 1.37 1.12 9.1% 11.1%
Sandalwood Square Shopping
Centre $19,000,000 9.2% BBB (high) 1.37 1.11 9.1% 11.1%
Jasper Gates Shopping Centre $17,000,000 8.3% BBB (high) 1.30 1.06 8.6% 10.5%
Valleyfield SmartCentre $14,100,000 6.8% BBB 1.40 1.15 9.3% 11.4%
RioCan Durham Centre II $13,200,000 6.4% BBB (high) 1.30 1.06 8.6% 10.5%
Trinity Conception Square $12,300,000 6.0% BBB (high) 1.38 1.12 9.1% 11.1%
RioCan Vaudreuil-Dorion $11,500,000 5.6% BBB (high) 1.27 1.03 8.4% 10.3%
Lethbridge Towne Square $10,900,000 5.3% BBB (high) 1.35 1.10 8.9% 10.9%
Magog SmartCentre $10,700,000 5.2% BBB 1.62 1.32 10.8% 13.1%
New Liskeard Wal-Mart Centre $6,800,000 3.3% BBB (high) 1.36 1.11 9.0% 11.0%
Shoppers on Argyle $3,200,000 1.6% BBB (high) 1.37 1.12 9.1% 11.1%
Cara 107th Avenue Edmonton $2,600,000 1.3% BBB (high) 1.28 1.05 8.5% 10.4%
Cara 97th Street Edmonton $1,600,000 0.8% BBB (high) 1.41 1.08 9.4% 11.4%
Property Summary
Loan Balloon
per Loan
Prov- Year SF/ per SF/
Loan Name Property Type City ince Built SF/Units Units Units
Kildonan Crossing Shopping Centre Anchored Retail Winnipeg MB 1988 179,033 $121 $99
Welland SmartCentre Anchored Retail Welland ON 2005 203,824 $102 $83
Sherbrooke SmartCentre Anchored Retail Sherbrooke QC 2005 210,307 $97 $80
Fallingbrook Shopping Centre Anchored Retail Ottawa ON 1988 97,109 $208 $170
Sandalwood Square Shopping Centre Unanchored Retail Mississauga ON 1989 107,060 $177 $145
Jasper Gates Shopping Centre Weakly Anchored Edmonton AB 1989 94,461 $180 $147
Valleyfield SmartCentre Anchored Retail Valleyfield QC 2002 161,236 $87 $72
RioCan Durham Centre II Unanchored Retail Ajax ON 1995 67,274 $196 $161
Trinity Conception Square Anchored Retail Carbonear NL 1979 182,433 $67 $55
RioCan Vaudreuil-Dorion Unanchored Retail Vaudreuil-Dorion QC 07-09 76,529 $150 $123
Lethbridge Towne Square Unanchored Retail Lethbridge AB 1990 79,396 $137 $112
Magog SmartCentre Anchored Retail Magog QC 2007 101,854 $105 $86
New Liskeard Wal-Mart Centre Anchored Retail New Liskeard ON 1997 110,522 $62 $50
Shoppers on Argyle Anchored Retail Caledonia ON 2006 17,024 $188 $154
Cara 107th Avenue Edmonton Unanchored Retail Edmonton AB 1980 11,963 $217 $178
Cara 97th Street Edmonton Unanchored Retail Edmonton AB 1980 8,690 $184 $151
Borrower Concentrations
Borrower Name DBRS Rating % of Pool
All 16 loans are sponsored by either RioCan or Calloway, both rated investment-grade by DBRS.
These respective entities are the two largest operators of retail properties in the Canadian market.
Each REIT focuses primarily on acquiring and operating larger format retail centres anchored by well
known and successful tenants. In addition, both established trusts provide full-recourse guarantees
for each of their respective loans.
RioCan Property Services internally manages all of RioCan’s assets within the transaction. The four
Calloway sponsored properties are also all internally managed.
RioCan REIT
RioCan was originally formed in 1995 and today is Canada’s largest REIT with a total capitalization
of approximately $10 billion as of September 30, 2010. It has a portfolio comprising of 289 income-
producing retail properties, including 11 under development, with a total net rentable area of more
than 66 million square feet. The portfolio primarily consists of unenclosed community shopping
centres with tenants that focus on the provision of daily necessities. RioCan’s assets are well located
in select markets across Canada, but mainly in Ontario, Québec and Alberta. The portfolio has a focus
on growing urban markets but also consists of established properties serving smaller communities.
As of Q3 2010, the average occupancy for RioCan’s overall portfolio was 97.1%, with 85% of gross
rents generated by national tenants.
Recently, the trust has expanded into new U.S. markets through joint ventures with Cedar Shopping
Centres Inc. and Inland Western Retail REIT. On August 11, 2010, DBRS confirmed the rating of
RioCan at BBB (high), with a Stable trend.
Calloway REIT
As of September 30, 2010, Calloway’s portfolio totaled 24.2 million square feet and consisted of 119
properties with an additional ten under development. The REIT’s centres focus on value-oriented
retailers with Wal-Mart serving as the primary anchor at 74 of these properties. Using Wal-Mart to
attract both customers and other well known retailers to their centres is a strategy the REIT plans to
continue as it continues to expand its portfolio. Calloway was formed in 2001 and as of Q3 2010,
Calloway’s portfolio reported an overall average occupancy of 99.2%. On June 28, 2010, DBRS con-
firmed the rating of Calloway at ‘BBB’, with a Stable trend. As previously mentioned, Calloway will
handle all management responsibilities internally for properties included in this transaction.
Calloway has a business relationship with SmartCentres, which is a leading owner and developer of
unenclosed, large-format shopping centres in Canada, and helps Calloway execute its core leasing
strategy. It should be noted both companies share a common ownership (for more information see
DBRS’s rating report on Calloway REIT).
Loan psf/Unit
121
Percentage
of the Pool (%)
10.5%
Loan Maturity/ARD
February 2021
Amortization
30 Years
Refinance DSCR
1.10x
Debt Yield
8.9%
The property is located at the intersection of Regent Avenue West and Lagimodiere Boulevard, approx-
imately six kilometres west-northwest of the Winnipeg CBD. Directly to the north of the subject is a
IMSCI 2011-1 shopping centre anchored by a Sobeys grocer and a Rona home improvement store. One block east
January 25, 2011 of the subject is Kildonan Place, a 460,000 sf regional shopping centre anchored by Zellers and Sears.
Adjacent to Kildonan Place is Crossroads Station Shopping Centre, a big-box power centre anchored
The Winnipeg retail market has been fairly strong since the end of 2009, with an average vacancy
rate between 3.5% and 3.9%, according to Royal LePage and Avison Young. Comparable market
rental rates for the in-line space with less than 5,000 sf ranges from $10 to $25 psf, and $12 psf for
the grocery anchor. The subject’s average rental rate of approximately $17 psf, excluding the grocery
anchor, falls within market parameters for comparable stores. Safeway’s rental rate is significantly
below market.
RioCan REIT, rated BBB (high) by DBRS, provides a full-recourse guarantee for the loan. RioCan
Property Services serves as the property manager for the loan collateral.
DBRS ANALYSIS
The property is highly visible and has excellent access from the frontage road and Lagimodiere
Boulevard, a six-lane highway, as well as from Regent Avenue West. Lagimodiere Boulevard is a
major north-south thoroughfare which provides direct access north to Highway 101. There is ample
parking provided in the main lot centered in front of the Safeway grocery, as well as additional spaces
in front of and surrounding each of the buildings and outparcels. Additional access to the property is
provided on all four sides of the site. The property has been well maintained and there was no visible
deferred maintenance.
DBRS Viewpoint
Though the center is of older vintage than the nearby big-box power centre, the smaller service and
restaurant tenants at the subject complement the surrounding large-format retailers. The Safeway
has competition from the nearby Sobeys, but both stores are established and neither is a large enough
format to dominate the market. In addition, Safeway exercised an extension option in 2009, showing
its commitment to the space. The third largest tenant, The Bargain Shop, will be consolidating its
presence in the market and vacating the Kildonan store in early 2011, two years prior to lease expiry.
The Bargain Shop is paying $6.50 psf for a 12,500 sf space located in a desirable location in the centre
directly next to the Safeway. The borrower has stated interest from a few different retailers to lease
the entire space for $19 to $20 psf, but no firm commitments have been made. Over the course of the
ten-year term, the loan will amortise down approximately 20% to $99.30 psf, which is an attractive
debt level given the in-place rents of $16.86 psf.
Downside Risks:
• The second largest tenant, The Bargain Shop, which represents 7.0% of the NRA, will be vacating
the centre on January 31, 2011.
Loan psf/Unit
102
Percentage
of the Pool (%)
10.0%
Loan Maturity/ARD
February 2021
Amortization
30 Years
Refinance DSCR
1.19x
Debt Yield The collateral is a 203,824 sf power centre located in Welland, Ontario. The subject property consists
9.6% of three buildings constructed between 2005 and 2009. Wal-Mart serves as the centre’s primary anchor
Exit Debt Yield and is subject to a lease that does not expire until 2026, five years after loan maturity. Additional
11.8%
tenants include Rona, Mark’s Work Wearhouse and Dollar Giant. All four tenant leases commenced
between January 2006 and August 2009 and the subject is currently 100% occupied. In addition, a
101,000 sf Canadian Tire ( non-collateral) serves as a shadow anchor for the subject property.
Welland is located just southwest of Niagara Falls and approximately 130 kilometres south of Toronto
and 25 kilometres west of the U.S. border. The property is situated in the north eastern section of
Welland, immediately west of Highway 406. The City of Welland lies within the Regional Municipality
of Niagara and is bisected by the Welland Canal which connects Port Courbourne (Lake Erie) to Port
Weller (Lake Ontario). The western half of Welland has expanded in recent years, nearly merging with
the nearby town of Fonthill. According to Financial Post Markets (FPM), the population of Welland
will reach 53,000 in 2011 and have an average household income of $63,910 (20% below the national
average). Currently, the city’s largest employer is Canadian Tire’s financial services division, employ-
ing an estimated 1,600 people within its two call centers.
The Wal-Mart at the subject is the only location in Welland, with the nearest store located in Niagara
Falls, Ontario (approximately 20 kilometres away). Wal-Mart is scheduled to complete a 36,260
expansion of its space by March 2011, bringing its total square footage at the property to 168,374 sf.
Since Wal-Mart financed the expansion itself, there is no additional rental income for the new space.
Seaway, a 120-store regional mall, is Welland SmartCentre’s biggest competitor in the area. The
recently renovated mall is less than 2.5 kilometres west of the subject and was the former home to the
IMSCI 2011-1 city’s Wal-Mart until the tenant relocated to the subject property. Seaway is now anchored by Sears,
January 25, 2011 Zellers, Winners, Shoppers Drug Mart and Cineplex Odeon.
DBRS ANALYSIS
The subject property is located on the island portion of Welland, which is surrounded by Welland
Canal, a major transportation route between Lake Ontario and Lake Erie. The development is located
just off Highway 406, the major north-south thoroughfare connecting Welland to Niagara Falls, pro-
viding the retail centre with excellent visibility and convenient access. At the time of inspection the
centre was very busy and the property’s 1,143 parking spaces appeared to be sufficient. DBRS also
noted that construction activity relating to Wal-Mart’s expansion did not appear to negatively affect
traffic to the store. Wal-Mart’s old signage had been recently removed and the company’s new logo
had been moved to a new location.
There is limited commercial development in the immediate vicinity as the property is located in an area
of Welland that has been experiencing growth in recent years. The property is located on Woodlawn
Road, a major east-west route in the city, which also runs along the south end of neighbouring Seaway
Mall. The property condition report noted no major deferred maintenance items at the property. The
subject exhibits good curb appeal and is representative of a standard new format power centre.
DBRS Viewpoint
The subject power centre is located in a growing market in Southern Ontario near other well estab-
lished retail locations and exhibits good curb appeal. Two of the properties four tenants, Wal-Mart
and Rona (combined 84.4% of base rent), are on long-term leases that extend well beyond the loan
term, providing stability for the loan’s cash flow. In addition, both tenants are rated investment grade
by DBRS. The collateral is the first phase of the development with a designated area for an additional
250,000 sf to be added (not security for this loan). According to the issuer, construction on the next
phase is slated to begin in late 2012. The subject also benefits from a strong non-collateral shadow-
anchor, Canadian Tire, serving as a major draw to the centre.
While there is vacant land in close proximity to the subject, the property’s experienced sponsorship
and strong tenant roster help mitigate the risk of increased competition in the future. The investment
by Wal-Mart into its space also exhibits the tenant’s dedication to the centre and the local market. The
ten-year loan amortizes on a 30-year schedule, reducing the loan’s exposure to $83 psf at maturity.
Downside Risks:
• Wal-Mart’s lease consists of 16, five-year renewal options at the same terms currently in-place,
reducing the potential for increased cash flow at the property in the future.
• The additional phases (totalling 250,000 sf) planned at the development could compete with the
subject property.
Loan psf/Unit
97
Percentage
of the Pool (%)
10.0%
Loan Maturity/ARD
February 2021
Amortization
30 Years
Refinance DSCR
1.10x
Debt Yield
9.0%
Exit Debt Yield This loan is secured by the fee interest in a 210,307 sf power centre located in Sherbrooke, Quebéc.
10.9%
The subject property consists of five buildings constructed between 2005 and 2010. Wal-Mart serves
as the centre’s primary anchor and is subject to a lease that does not expire until 2025, four years
after loan maturity. Additional tenants include The Brick, Best Buy and L’Equipeur (aka Mark’s Work
Wearhouse). TD Bank is scheduled to take occupancy of its new building upon completion of the
tenant’s build out in March 2011, at which point the retail centre will be 100% occupied. The collat-
eral is part of a larger development which includes a Home Depot and Canadian Tire.
The City of Sherbrooke is located approximately 148 kilometres east of Montréal and 102 kilometres
west of the U.S. border. The property is situated on the north side of Autoroute 410, at the junction of
Autoroute 410 and Autoroute 10, providing for excellent visibility and convenient access. Together,
Sherbrooke, the Town of Magog and six surrounding boroughs combine to form the Sherbrooke
Census Metropolitan Area which has a population of approximately 195,000. Sherbrooke is the
primary economic, political and cultural centre of Québec’s Eastern Townships. It is home to several
higher learning institutions with a combined annual enrolment of 40,000 students. The area has also
continued to build on its reputation in recent years as a tourism destination for outdoor enthusiasts.
The Wal-Mart at the subject is the only location in Sherbrooke, with the nearest store located in
Magog (approximately 23 kilometres away) which is also included in this transaction. Carrefour de
L’Estrie, a 900,000 sf regional mall, is Sherbrooke SmartCentre’s biggest competitor in the area. Built
IMSCI 2011-1 in 1973, the mall is 2.5 kilometres from the subject and is occupied by Sears, The Bay, Sports Experts,
January 25, 2011 Zellers, Super C, Rona, among others.
DBRS ANALYSIS
The subject property is well located within the City of Sherbrooke, near the intersection of two major
highways which provides convenient access for both Sherbrooke locals and residents of neighbour-
ing townships. The excellent signage at the property further enhances the visibility of the subject. At
the time of inspection, the centre was very busy and the property’s 1,051 parking spaces appeared to
more than adequately meet shopper demand. Besides the autoroutes to the west, there is limited com-
mercial and residential development in the immediate area. The retail corridor continues south along
Autoroute 410 and there is vacant land to the north and east of the subject. The property condition
report noted no deferred maintenance at the property. The subject exhibits good curb appeal and is
representative of a standard new format power centre.
DBRS Viewpoint
The subject power centre is located in a secondary market and faces limited competition within its
trade area. The property was recently constructed and has excellent frontage along Autoroute 410.
Seven tenants make up the property’s rent roll, ranging in size from 1,530 sf to 133,667 sf. Two of
these tenants, Wal-Mart and The Brick (combined 61.0% of the base rent), have leases extending at
least three years beyond the loan term, providing stability for the loan’s cash flow through the loan
term. In total, four of the tenants have been in occupancy since 2005, with the remaining tenants
moving in between June 2009 and March 2011. The collateral also benefits from two strong shadow-
anchors, Home Depot and Canadian Tire, each serving as major draws to the centre.
While there is developable land in close proximity to the subject, the property’s experienced sponsor-
ship and strong tenant roster help mitigate the risk of increased competition in the future. In addition,
Wal-Mart has room to expand its space at the property if the need arises, reducing the risk of the
anchor vacating after loan maturity. The ten-year loan amortizes on a 30-year schedule, reducing the
loan’s exposure to $80 psf at maturity. The loan benefits from full recourse to a BBB rated entity.
Downside Risks:
• Wal-Mart’s lease consists of 16, five-year renewal options at the same terms currently in-place,
reducing the potential for increased cash flow at the property in the future.
• The barriers to entry for new retail competition in the marketplace are low, as vacant land in the
surrounding area is abundant.
Loan psf/Unit
208
Percentage
of the Pool (%)
9.8%
Loan Maturity/ARD
February 2021
Amortization
30 Years
Refinance DSCR
1.12x
Debt Yield
9.1%
Exit Debt Yield The loan is collateralized by a 97,109 sf anchored retail centre located in Ottawa, Ontario. The subject
11.1%
is currently 96.5% occupied by 20 tenants that represent a mix of local, regional and national retail-
ers and restaurants. The collateral consists of six buildings constructed between 1987 and 1992. The
major draws to the centre are a 32,785 sf Metro (rated ‘BBB’ by DBRS) grocery store and a 21,852 sf
Shoppers (rated A (low) by DBRS). Metro’s lease expires in August 2017 and its most recent reported
sales figures are very high at over $600 psf. Shoppers’ lease expires in May 2022, more than one year
after loan maturity. Other national tenants include The Beer Store, Tim Horton’s, Rogers Video and
Subway. Average in-place rents are approximately $27 psf for non-grocery tenants.
The centre is located at the intersection of Tenth Line Road and Charlemagne Boulevard in the Orleans
neighbourhood of Ottawa, approximately 20 km east of the CBD. According to Cushman &Wakefield
Ltd., the average Q2 2010 vacancy rate for neighbourhood shopping centres in Orleans, like the
subject property, was 4.7%. This rate is slightly higher than the overall Ottawa retail vacancy rate of
2.9% for the same time period. Absorption was highest in the Orleans neighbourhood due to the new
construction at Orleans Central, a former Canadian Tire site located adjacent to the subject property.
Comparable market rental rates for the in-line space (less than 5,000 sf) range from $24 to $32 psf,
and $15 to $18 psf for the grocery anchor. The subject’s average rental rates are inline with these
market parameters.
IMSCI 2011-1 RioCan REIT, rated BBB (high) by DBRS, provides a full-recourse guarantee for the loan. RioCan
January 25, 2011 Property Services serves as the property manager for the loan collateral.
The centre is located in a high traffic area along Tenth Line Road, a major four-lane thoroughfare
which provides access to Highway 174 which is just two km to the north. Highway 174 provides easy
access to downtown Ottawa. There are a number of newer-built big-box retailers, including Home
Depot, located south of the subject on Innes Road in a power-centre development, RioCan Orleans.
The subject buildings are older brick construction, and many of the tenants have been in place since
1997. The exteriors are generally well-maintained. The interior build-out varies from store to store.
Some of the nationals chain retailers have been renovated recently (i.e. Shoppers Drug Mart, Pizza
Pizza), while many of the non-chain stores have older, original interiors.
DBRS Viewpoint
Though the centre is less flashy than the newer big-box power centre format centres in the market,
the majority of the tenant roster at Fallingbrook has been in occupancy for over ten years. Shoppers
nearly doubled their leased square footage at the centre when they signed a fifteen year lease extension
in 2007. Metro grocery was recently converted from the Loeb brand and demonstrates Metro’s com-
mitment to remaining in the market. The only vacancy at the centre is from a former CIBC branch,
which built a new pad-site at the nearby borrower-owned power centre, RioCan Orleans. The combi-
nation of anchor tenant expansion and extremely high grocery sales indicates that the property should
continue to perform well over the loan term. The loan amortizes down by approximately 18% over
the term to a balloon balance of $170 psf.
Downside Risks:
• The largest tenant, Metro, is operating on a lease that expires in 2017, which is three years prior
to loan maturity.
• The current and balloon loan per square foot are both high at $208 and $170, respectively.
Loan psf/Unit
177
Percentage
of the Pool (%)
9.2%
Loan Maturity/ARD
February 2021
Amortization
30 Years
Refinance DSCR
1.11x
Debt Yield
9.1%
The loan is collateralized by a 107,060 sf anchored retail centre located in Mississauga, Ontario. The
subject is currently 100% leased (Value Village lease has a continguency; see comments below) to 32
tenants representing a mix of local, regional and national retailers and restaurants. The collateral
consists of five buildings constructed in 1989.The largest tenant at the centre is Value Village, which
recently signed a ten-year lease that expires in June 2021, just after loan maturity. The lease is contin-
gent upon Value Village obtaining a municipal license prior to February 2011. A reserve was required
at loan closing in conjunction with the Value Village lease, which is discussed further below. Value
Village, also known as Savers, Inc. in the United States, is a for-profit thrift and second-hand clothing
retailer that has been in operation since 1954. The remaining tenant roster is comprised of national
retailers such as Rogers Video, CIBC, McDonald’s, The Beer Store and the Bank of Montreal, as well
as a number of local restaurant and convenience store operators. Excluding Value Village, no single
tenant accounts for more than 5.4% of the NRA.
IMSCI 2011-1
January 25, 2011
The centre is located at the intersection of Bristol Road East and Hurontario Street in Mississauga,
approximately 20 kilometres from downtown Toronto in the western section of the GTA. This location
provides access to both Highways 401 and 403, less than two kilometres north and east of the subject
property. Land uses to the north and west consist mostly of small and large scale industrial develop-
ment. To the south and east lie several densely developed residential subdivisions which represent a
large customer base for the subject property.
Comparable market rental rates for the in-line space with less than 5,000 sf ranges from $20 to $25
psf; the larger 32,282 sf Value Village space ranges from $10 to $18 psf. The subject’s average rental
rate of approximately $22.78 psf, excluding the Value Village space, falls within market parameters
for comparable stores. The Value Village rental rate is considered to be at market.
RioCan REIT, rated BBB (high) by DBRS, provides a full-recourse guarantee for the loan. RioCan
Property Services serves as the property manager for the loan collateral.
DBRS ANALYSIS
The centre exhibits good access and visibility at the intersection of Hurontario and Bristol Road
East. This location is a short drive from the Highway 401, which exits directly onto Hurontario, and
provides access to the GTA. There are large residential developments in the immediate area. The sub-
ject’s 32 separate retail stores are spread out in a circle formation, with parking in the middle of the
site. The subject was found to be highly visible with a large amount of automobile traffic passing the
site each day. The tenancy consisting largely of services like banks, restaurants and convenience stores.
DBRS Viewpoint
The centre is well located in close proximity to dense residential properties and offers a variety of
small-format shops that cater to the neighbourhood residents. Once Value Village and Mississauga
Wellness have taken possession of their space, the center will achieve occupancy of 100%. A reserve
was required at closing in the event that Value Village is unable to obtain a municipal licensee prior to
February 2011. The borrower was required to reserve $650,000 to cover costs of finding a replace-
ment tenant. This reserve represents approximately one and a half years of Value Village base rental
payments and may be used to cover leasehold improvements, tenant inducements and leasing commis-
sions. Though the majority of the leases are scheduled to expire during the loan term, more than half
of the tenant roster has been at the centre since 2000 or earlier. The centre has achieved consistently
high occupancy in excess of 95% by attracting and retaining tenants that cater to and depend on the
19 Presale Report Structured Finance: CMBS
IMSCI 2011-1 neighbourhood consumers. In addition, the surrounding area is home to three schools and a number
January 25, 2011
of corporate offices. The centre does not compete with destination-type retailers that attract consum-
ers from outside of the market, but the land density of the neighbourhood provides the traffic and
demand necessary to sustain the service and restaurant tenants that occupy the subject property. The
loan amortizes down by approximately 18% over the term to a balloon balance of $145 psf.
Downside Risks:
• Following the departure of Price Chopper in October 2010, the property does not offer a tradi-
tional anchor draw, nor is a shadow-anchor present on site.
The remaining eleven loans in the pool are a mix of anchored multi-tenant shopping centres, invest-
ment-grade single-tenant properties and unanchored properties. The tenancy is a wide mix of national,
regional, and local retailers, with a good portion of the tenant roster coming from investment-grade
tenants on long-term leases. Wal-Mart, rated ‘AA’ by DBRS, represents 40.5% of the remaining collat-
eral’s square footage. The fourteenth largest loan in the pool, which represents 1.6% of the allocated
loan balance, is a stand alone Shoppers, rated A (low) by DBRS.
The remaining properties are located in markets that are generally a mixture of suburban, tertiary
and rural. Three of the remaining eleven assets are located in Edmonton, with two being unanchored
properties; however, these two loans are the smallest in the transaction (combined 2.0% of the pool
balance). Only one of the Edmonton loans, Jasper Gates Shopping Centre, is located in a section
of that market that is densely populated enough to be modeled as urban. Of the centres located in
the most remote markets, Trinity Conception Square (Carbonear, New Foundland), New Liskeard
Wal-Mart (New Liskeard, Ontario), Magog SmartCentre (Magog, Québec) and the Shoppers on
Argyle (Caledonia, Ontario), all four properties feature an investment-grade largest tenant and three
of the four properties are anchored by Wal-Mart.
Nine of the eleven properties are sponsored by RioCan. The remaining two loans are both sponsored
by Calloway.
Servicing
Master and special servicing responsibilities will be handled by Midland Loan Services (Midland),
a division of PNC Financial Services Group. Midland is one of the largest CMBS servicers and is
headquartered in Overland Park, Kansas. As of September 30, 2010, Midland had a CMBS servic-
ing portfolio totalling 363 transactions with an outstanding principal balance of $137.5 billion.
Separately, Midland’s an active special servicer in 158 CMBS transactions ($68.3 billion). DBRS has
had many years of positive interaction with Midland as servicer in both U.S. and Canadian CMBS
transactions. As of December 31, 2010, Midland served as master servicer for 36 Canadian CMBS
transactions ($10.3 billion) and special servicer for 33 Canadian CMBS transactions ($9.8 billion).
Surveillance
DBRS will perform monthly analytics, surveying the portfolio for delinquencies, prepayments, loan
trigger events, and any corresponding DSCR volatility. Any ratings actions, inclusive of confirmations,
will be sent via DBRS letter to the custodian.
DBRS begins its rating process by sampling the loan pool. Some CMBS transactions consist of a sin-
gle-borrower, or single loan, or multiple large loans, with very little diversification and high asset and
market correlations. Because of the concentration of these small pools of loans, DBRS will generally
review or sample all loans within the pool as the event risk associated with any one asset is higher than
a truly diversified pool. DBRS performs site inspections and management meetings (when available)
Adjustment Factors
The direct sizing parameters can be adjusted for several different factors, some quantitative, and others
that reflect an analyst’s assessment of property qualities.
Concentration Risk
DBRS recognizes that all pools have different concentration characteristics which may erode the benefit
of diversification. Concentration is difficult to capture systematically. The direct sizing approach
assumes a single loan and single asset and therefore the parameters can be adjusted at the loan level
within the ranges found in Appendix D of the CMBS Rating Methodology, which can be found at
www.dbrs.com under Methodologies, to account for the varying degrees of concentration such as
multiple loans, with multiple properties, across multiple geographic areas or a combination thereof.
Sponsorship Strength
DBRS defines a strong sponsor as one that is financially capable of doing that which is economi-
cally advisable and structured in a way that does not preclude or diminish the likelihood of capital
contributions in the event of economic stress. Although financial capability does not suggest that a
borrower will cover debt service payment shortfalls unless there is significant equity to protect, neither
will they cover refinancing shortfalls in an over-levered asset. , DBRS generally recognizes strong
sponsors are less likely to default due to a short-term cash flow shortfall and less likely to exacerbate
the losses in the event that their equity has eroded. An analyst’s assessment of sponsorship strength
may cause an adjustment within the property underwriting to determine DBRS stabilized NCF. For
example, a sponsor who has expansive networks and management expertise will often be able to
attract tenants and keep vacancy to a minimum and thus the property may outperform the market
as a result. Alternatively, a strong sponsor may have greater access to capital and therefore a lower
refinance constant could be applied to the DBRS stabilized NCF as they may be able to obtain more
favourable rates.
Single Tenant
DBRS recognizes further risk associated with properties that are leased by a single tenant. Often such
arrangements can be mitigated by a loan’s structural features (e.g. reserves, letter of credits, guaranteed
leases that extend well beyond the loan maturity, etc.). However, such concentrations in a property’s
cash flow otherwise present a significant event risk that justifies an adjustment to a loan’s probability
of default, over and above the cash flow volatility adjustments already taken.
Market
DBRS recognizes that in times of economic stress, real estate capital focuses on more highly populated
markets with comparatively higher transparency. As such, defaulted loans in tertiary or rural markets
will experience significantly higher losses, due to a limited investor base and market inefficiencies.
Markets are systematically categorized based on population density within a given postal code. DBRS
has measured the impact of market liquidity on credit loss which shows that loans located in dense
urban locations are likely to experience lower losses and as markets become more sparsely populated,
rural and/or illiquid the loss increases.
Owner Occupied
DBRS recognizes the additional risk inherent in having an owner occupied or partially owner occupied
property. The risks associated with interruptions in a property’s revenue stream are compounded by
risks associated with the borrower’s operating business. If the space is occupied by a business that is
the borrower’s life blood, the probability that the borrower will continue to fund debt service, despite
a downturn, is greater. However, loss given default would be inflated because the result could be
negative cash flow compounded by a specialty use build-out. As such, DBRS will use the higher end
of the direct sizing parameters to account for owner occupied properties.
The leasehold interest, whose term is finite, is viewed as a wasting asset that becomes totally worthless
when occupancy rights revert to the freeholder at the termination of the ground lease. DBRS insists
on an amortization term expiring 10 years prior to the ground lease termination and will adjust its
debt constant in the model as if structured with a shorter schedule. In addition to the refinance aspect,
DBRS considers more factors that may cause a property subject to a ground lease to have lower cash
flow stability resulting in a higher probability of default and potentially increased loss severity. Factors
DBRS considers include contractual ground rent escalations, leasehold mortgagee’s notice of default
and right to cure provisions and the leasehold mortgagee’s rights to become the borrower in the event
of enforcement.
Recourse
Loans that have enforceable recourse to a financially capable guarantor are expected to have lower
probability of defaults. In the event the recourse is to an investment-grade rated entity, it would imply
that the unsecured debt would be rated investment-grade. As such, mortgages carrying a full recourse
covenant from an investment-grade rated entity will be floored at the guarantor’s rating. While gen-
erally viewed as a positive, it is difficult to quantify the impact of recourse. Therefore, loans with
recourse to non-investment grade rated guarantors are considered on a case-by-case basis.
Ratings
DBRS CMBS ratings address the risk that an issuer will fail to satisfy its financial obligations in accor-
dance with the terms under which an obligations has been issued. DBRS does not rate to the expected
or scheduled maturity date set forth by the issuer and therefore, while DBRS will identify transactions
and certificates that have considerable extension risk, the ratings are not impacted as loans extend.
DBRS ratings on interest-only certificates address the likelihood of receiving interest based on the
The methodology providing DBRS’s processes and criteria is available by contacting us at info@dbrs.
com or by clicking on Methodologies at www.dbrs.com.
26