Report:
Shin Kong Life Insurance Tun Hwa Building Real Estate Asset Trust

This report does not constitute a recommendation to buy, hold, or sell securities.

RATING DETAILS

Trust: Land Bank of Taiwan (global scale rating 'A-/Stable/A-2', national scale rating 'twAA/Stable/
twA-1+') as Trustee for Shin Kong Life Insurance Tun Hwa Building Real Estate Asset Trust (the SPT).

Entrusted Property: Tun Hwa building

Property type: Office building

Closing Date: June 22, 2005

Originator: Shin Kong Life Insurance Co. Ltd. (SKL; global scale rating 'BBB/Stable/--', national scale rating 'twAA-/Stable/--')

Trustee: Land Bank

Account Bank: Land Bank

Property Manager: New Light International Co. Ltd.

Property insurance company: Shin Kong Insurance Co. Ltd (global scale rating 'BBB+/Stable/--', national scale rating 'twAA-/Stable/--')

Arranger: Industrial Bank of Taiwan (IBT; national scale rating 'twA/Negative/twA-1')

Appraiser: Debenham Tie Leung (DTZ)

Property value by Appraiser: Taiwan dollar (NT$) 3,739,890,000 (as of April 10, 2009)

RATIONALE

Taiwan Ratings Corp. today assigned its 'twAAA', 'twA' and 'twBBB' on the Class A, B, and C certificates, respectively, issued by the SPT. The notes are collateralized by one office building located in Taipei City. Our ratings address the full and timely payment of interest and full repayment of principal on or before the final legal maturity date in December 2013.

The ratings on the Class A, B, and C certificates are based on the following:

• The location and quality of the property that secures the certificates;
• Adequate loan-to-value ratios (LTV) and debt-service coverage ratios (DSCR) of respective classes;
• The property value underwritten assuming stabilized net cash flow (as defined under Credit Evaluation);
• The servicer quality of the property manager, New Light International; and
• The office building environment in Taipei

Strengths

• The property is located in a well-developed area near the intersection of main streets. It also has quick access to public transportation, including various bus stops just in front of the building and a distance of less than 200 meters to the nearest subway station.
• The historical vacancy performance in this district is better than other areas in Taipei City and the office building supply will remain limited in this district in the near future. Consequently, we expect this property to maintain its above-average performance in the near future.
• The various reserve accounts are set side initially and will be replenished to the required level in accordance with the trust agreement. These accounts will not only cover expenses occurred during the collection period but also cover the interest or principal shortfall, if any, in any distribution dates.
• Any excess rental income will be used to pay down the most senior note, up to NT$37.5 million for each distribution date, which in turn gradually reduces the outstanding principal and interest payment. This turbo amortization structure can gradually ease the liability burden of this transaction.

Weakness and Concerns

• The building is one of the older buildings in this district (24 years old).
• The vacancy rate in recent months has increased higher than the average property performance. In addition, recently developed suburban areas with lower rent, like Taipei's Neihu district, may have some negative effect on the property.
• There is only one building with limited tenants in the portfolio. Any tenant's violation or cease of lease contracts may have a negative effect on this deal.
• The principal repayments of the tranches rely on the property's liquidation which may not be fully redeemed unless the buildings are successfully disposed of by the final legal maturity date.

Mitigations

• The exterior and interior of the property are still well maintained.
• The recent high vacancy rate and negative impact from other suburban areas could be offset by the SPT's various reserve accounts, experienced property manager, and superior property location in Taipei.
• The property liquidation risk is partly offset by an appropriate level of stress on the value of the buildings.

TRANSACTION OVERVIEW

At the closing date, the Originator transferred the ownership of Tun Hwa building to the trust. On the closing date, Land Bank, the trustee on behalf of the trust issued Taiwan dollar denominated class A trust certificates ['twAAA'], class B trust certificates ['twA'], class C trust certificates ['twBBB'], and unrated subordinated trust certificates. Proceeds from the issuance of the class A, class B, and class C certificates and the unrated subordinated trust certificates were paid to SKL in exchange for the transfer of the property.

The class A, B, and C certificates pay fixed interest semi-annually. Interest payment and principal repayment on these certificates will be funded by rental collections, proceeds from the disposal of the property, and other income from trust assets. Payment on the certificates is on a sequential basis. Excess funds after paying interest and topping up reserves will be used to pay down the principal of the most senior trust certificates up to NT$37.5 million with any shortfall carried forward to the next payment date. If there is still remaining rental income, it will be paid to the unrated subordinated trust certificates with no stated coupon.

COLLATERAL CHARACTERISTICS

Collateral Description

Tenancy Mix

The property currently has 17 tenants representing seven different industries. The biggest tenant and industry represent about 11.1% and 21.7% of total available floor space, respectively. Though the performance of the property has been stable for the past few years, the vacancy rate increased to about 23% in the second quarter of 2009 mainly due to the recent economic slowdown. We do not expect this higher-than-average vacancy rate to be significantly lower than its average in coming months unless economic conditions show significant improvement, which is already taken into account in our credit analysis.

Property Manager

The property manager, New Light International, entered into an agreement with the trust to maintain and repair the entrusted properties, and prepare a projection of annual capital expenditures on each anniversary of the transaction. The Shin Kong group set up the property manager in 2005 to handle real estate securitizations. The company was established by former employees of SKL and Shinkong Life Real Estate Service Co. (SKRE). New Light International currently manages six properties (including properties under SKL's second and third REAT and first REIT). The company is outsourcing the repair and maintenance of Tun Hwa building to Shin Kong Life Real Estate Service Company, which was established in 1988 and currently has 193 buildings under management.

CREDIT EVALUATION

TRC's approach on class A, B and C is to assess the ability of the entrusted property to generate the sufficient stabilized net cash flow and proceeds from the property liquidation to timely meet the interest payments and principal of the rated notes by the final legal maturity date, respectively.

Net cash flow (NCF) is defined as the amount remaining when tax, all operating expenses and capital expenditures are deducted from the total revenues of the property. Taiwan Ratings attempts to derive an estimate of the "stabilized net cash flow" that the property can be expected to sustain beyond the life of the securitized transaction. The stabilized NCF should not be only based on a forecast of revenues and expenses during the life of a securitized transaction. Nor should it be based on a property's performance in the worst-case scenario. Taiwan Ratings determines the NCF based on a comprehensive analysis of a wide variety of information, including but not limited to historical performance, plans for future revenues/expenses, the competitiveness of the property, the demand and supply balance of the real estate market, the economic conditions, future prospects, real estate appraisal report and engineering report.

The property value underwritten by TRC is derived by using the direct capitalization method, in which the property value is determined by applying the capitalization rate to the underwritten NCF. The appropriate capitalization rate is determined considering several factors, such as market competition and economic projection. Considering the aforementioned factors, TRC's assumption on the capitalization rate in this deal is 4.5%.

Taiwan Ratings has determined its opinion of the stabilized net cash flow of about NT$99 million and assess capital value of about NT$2.21 billion million for Tun Hwa property. The stabilized net cash flow represents a discount of about 25.56% to property's average rental income of about NT$133 million, and a discount of 40.91% to the independently assessed market value of the subject property of NT$3.74 billion conducted by DTZ as of April 10, 2009.

Debt Sizing

In assessing Taiwan Ratings' opinion of the amount of debt that can be rated at a particular credit rating level, we consider LTV and DSCR thresholds at their respective rating levels. Thresholds for various rating categories reflect the characteristics of the property as well as other transaction features, such as tenor composition and turbo amortization feature.

The application of the DSCR threshold in the debt-sizing process incorporates an assumed interest rate referred to as the 'refinance constant'. In this transaction, the refinance constant accessed by Taiwan Ratings is 5.00 %. This refinancing rate reflects the characteristics of this portfolio, the nature of office building & associated competitive forces in Taiwan, local investment yield and bank loan market.

The table below details the total debt issuance amount against LTV and DSCR levels based on Taiwan Ratings opinion of the stabilized cash flow, property value and refinance rate.

STRUCTURAL REVIEW

Payment Priority in distribution date

The income from office building, parking lot as well as other associated revenue will be paid to rated notes on the sequential basis in each distribution date. If there is any excess income left after paying the interest payment of rated notes as well as topping up the various reserve accounts, the surplus can be used to redeem the most senior tranche, up to NT$37.5 million, in each distribution date. If there is still remaining after paying the principal, such amount will be paid to the equity holder.

Expenses in collection period

The expense, such as capex, tax and insurance fee, occurred during the collection period will be paid by their corresponding reserve accounts. These accounts will be replenished in a distribution date based on the predetermined formula in accordance with the trust agreement. If these accounts do not have sufficient money to pay for the expense, a number of other reserve accounts will be used in turn to cover such shortfall.

Insurance for property

Shinkong Insurance Co. Ltd. provides insurance covering fire, earthquake, typhoon, flood, explosion, loss of rental during reinstatement period, and third party liabilities during transaction life. The insurance company's credit rating is adequate to support the transaction.

Disposal of Property

The certificates have an expected maturity date in June of 2012 and a legal final maturity date in December of 2013. The property disposal process will commence one year before the expected maturity of the certificates. In accordance with the transaction documents, the appraisal report will be issued annually and a valuer authorized by the trustee will release the property appraisal report before the first bid for the disposal process If 90% of the appraisal property value is higher than the interest and principal of the rated notes as well as the associated cost, then such a price is the floor price for bidding. Otherwise, the bidding price should be determined by the note holder meeting or 90% of the appraisal property value is adopted if there is no consensus at the note holder meeting or the meeting is unable to be held for some reason. If the first bid fails, the SPT will hold the other two bids using a similar process but with higher discount compared with the first bid. If the property still fails to be disposed of after the third bid, a certificate holder meeting will be called to determine the appropriate action.

In addition to the disposal of the property started from one year before the expected maturity date, other events may also trigger the disposal of the property including but not limited to non-payment of interest due on class B and C certificates (even given that Class A certificates are still outstanding), the DSCR falling below 1.15x, and other events causing a material adverse impact on the most senior class of certificate holders. If any such event happens, the note holder meeting should be held in order to decide whether to issue the disposal notice. Once the disposal notice is issued, the disposal of property will also begin.

Additionally, when the interest payment of the most senior rated tranche has been deferred for two business days, the principal of the rated tranches fails to be fully redeemed on legal maturity date, or any trust termination order from regulators or courts is noticed, the liquidation procedure will also adopt the bidding process as outlined above. Proceeds from liquidation will apply post-enforcement waterfall where the more senior certificates will be redeemed before the junior certificates.

Reserve Accounts

Other than the general account that receives the rental income and other revenue from the office building, the transaction set up nine reserve accounts. Among of these account, the general, penalty, liquidity reserve and liquidation account can in turn help to cover any senior expenses shortfall when their corresponding reserve accounts do not have sufficient money to pay for expenses during the whole transaction life. The penalty, liquidity reserve, interest reserve and liquidation account can in turn help to cover rated interest shortfall, if any, on any distribution dates. More detailed information about the various reserve accounts is given below:

Penalty account: Penalty payments from tenants will be deposited into this account and can be used for the payment shortfall of third party fees and expenses, and the principal and interest of the certificates.

Liquidity reserve account: A reserve of about NT$20 million was funded at closing by the originator and will be replenished up to the amount of either six months of rental payments of the largest tenant or six times the average monthly rental payment, whichever is larger. If the money in this account is higher than the aforementioned required amount, the surplus will be wired to the general account. This reserve not only provides a buffer in the event that a tenant terminates the lease contract but also mitigates the period that the property manager takes to find a new tenant. As of August 31, 2009, there was about NT$11 million in this account.

Interest reserve account: A reserve of about NT$21 million was set aside at closing by the originator and will be replenished to cover six months of interest payments on the outstanding rated notes. If the money in this account is higher than the required amount, the surplus will go to the general account. This account can be used to cover the rated interest shortfall, if any. As of August 31 2009, there was about NT$18 million in this account.

Liquidation account: Proceeds from the liquidation of the properties will be deposited into this account and can be used for the payment shortfall of third party fees and expenses, and the principal and interest of the certificates.

Tax and insurance reserve account: An amount of about NT$16 million was set aside at closing by originator to only cover insurance premiums, land value tax, and property tax to be incurred during the first year of the transaction. The reserve will be replenished by an amount estimated by the property manager sufficient to cover the relevant expenses for the subsequent 12 months. Any surplus in this account will be retained and will not flow to the general account. As of August 31, 2009, there was about NT$18 million in this account.

Capital and maintenance expenditure reserve account: Capital expenditure is estimated according to the engineering report prepared by CB Richard Ellis. An initial reserve of about NT$20 million was deposited at closing by the originator to only cover expected capital expenditure for the first year of the transaction. On each of the distribution dates, the reserve will be replenished by 50% of the amount estimated by the property manager sufficient to cover capital expenditure for the subsequent 12 months, subject to a minimum amount of NT$3.5 million annually, no matter how much money is left in this account. As of August 31, 2009, there was about NT$1 million in this account.

Building management reserve account: Management fees collected from the tenants will be credited to this account. The reserve will be only withdrawn to make payments for utilities and miscellaneous expenses of the building and will be replenished on each payment date in accordance with the trust agreement. If the reserve fails to cover the above expenses, the shortfall will be made up from the general account. On the contrary, if it's higher than the required amount, the surplus will flow to the general account.

Contract deposit account: The contract deposits from the tenants were transferred to the trust. The deposits will be returned to the tenants in full or in part according to the tenancy agreement.

Insurance proceeds account: The building is covered by third party liability insurance and fire insurance, which indemnifies restoration costs and losses due to the interruption of rental receipts. Any proceeds from insurance claims will be deposited into this reserve account and will be either applied toward rental income or the restoration of the buildings. Notwithstanding, insurance proceeds will be distributed to the general account when: (1) the proceeds exceed 3% of the total issuance amount of NT$3.08 billion (excluding proceeds covering interruption of rental receipts); and (2) if the building cannot be restored within six months of the expected maturity of the certificates or the long period of time to recover the property makes the insurance proceeds unable to cover the rental loss.

Property Manager Replacement

In the event that the property manager fails to satisfactorily perform its duties or becomes insolvent, it can be terminated. However, any such termination can only occur upon assignment of a replacement property manager. For the property manager's resignation, it cannot resign unless the servicer has noticed the trustee in writing six months before resignation, already found the successor who is willing to take over the responsibility following the original related documents, and received the approval from the trustee as well as having already informed the rating agency.

Trustee Replacement

If the trustee termination event is triggered, the note holder meeting should be held in order to determine whether to terminate the trustee. For the trustee resignation, it cannot resign unless it has already gained the approval from the note holder meeting and already found an eligible successor who is willing to take over the unchanged responsibility.

LEGAL ISSUES

Taiwan Ratings has received satisfactory legal opinion addressing the feature of true sale and bankruptcy remoteness in this transaction.

SURVEILLANCE

Continual surveillance will be maintained on the transaction until the notes mature or are otherwise retired. To do this, regular company appraisal reports detailing the performance of the underlying collateral are analyzed, supporting ratings are monitored, and regular contact is made with the owner or property manger to ensure that minimum servicing standards are being sustained and that any material changes in the operations are communicated and accessed.

RELATED RESEARCH

• Principals-Based Rating Methodology For Global Structured Finance Securities, May 29, 2007
• Australian Commercial Mortgage-Backed Securitization - The Rating Process, April 6, 2001
• CMBS Property Evaluation Criteria, January 2004
• Japanese CMBS Real Estate Evaluation Guidelines, March 12, 2007
• Standard & Poor's Industrial Special Risks Insurance Requirements Change For Australian CMBS Transactions, November 27, 2002