TORONTO, Oct. 2 /CNW/ - Home Equity Income Trust (TSX: HEQ.UN) (the
"Trust" or "HOMEQ"), which pays cash distributions earned from a portfolio of
reverse mortgages originated by Canadian Home Income Plan (CHIP) today
announced record quarterly new mortgage originations for the three months
ended September 30, 2007.
During the quarter, the Trust achieved new mortgage originations of $34
million, exceeding Q3 2006 by 12%. For the trailing four quarters ended
September 30, 2007 originations grew 16% to $118 million and the portfolio
grew 14% to approximately $679 million. At September 30, 2007 the Trust had
$144 million of commercial paper outstanding and cash and cash equivalents of
$32 million. The Trust has been carrying higher cash balances than usual to
provide operational and origination flexibility. Despite difficult conditions
in the capital markets since mid-August, which resulted in a general reduction
in liquidity and associated increased debt costs, the Trust expects that
spread for the quarter will be between 3.60% and 3.70%, which is at the high
end of recent quarterly performance.
The risk to unitholders of the effects of capital market and interest
rate volatility, and the strategies in place to mitigate such risks are
referred to in the Trust's Management Discussion and Analysis and AIF.
Recently, capital markets have normalized to some extent as evidenced by the
increase in liquidity and reduction in commercial paper rates. However, the
difference between the rate on Government of Canada Treasury Bills, on which
mortgage rates are based, and the rate on Bankers Acceptances, on which the
Trust's debt and hedging investments are based, remains higher than historical
norms. Should this situation persist for an extended period, the Trust could
ultimately suffer from a reduction in spread. In addition, the extent to which
the Trust is exposed to refinancing risk could result in increasing debt
service costs, also ultimately causing a reduction in spread. At this time it
is not possible to predict the extent to which this situation will continue.
Management has taken steps to continue the growth and prosperity of the Trust
in these circumstances.
HOMEQ invests only in reverse mortgages and has no exposure to sub-prime
mortgages, second mortgages or collateralized debt obligations. Since its IPO
in 2002, the Trust has financed all of its new reverse mortgages through CHIP
Mortgage Trust ("CMT"). The Trust owns all the equity in CMT and the
operations of CMT are consolidated in the financial results of HOMEQ. CMT is
not a conduit and it does not provide funding to third party organizations.
CMT issues commercial paper rated R-1 High, senior medium term notes rated AAA
and subordinated medium term notes rated BBB. These ratings are provided by
Dominion Bond Rating Service ("DBRS"). They are supported by the strong
financial characteristics of CMT's mortgage portfolio and the equity of the
Trust provided by its unitholders. Further details on the ratings of the debt
of CHIP Mortgage Trust can be found on DBRS's website at www.dbrs.com.
The Trust anticipates issuing its unaudited Interim Financial Statements
and Management Discussion and Analysis for the quarter ended September 30,
2007 during the week of November 5, 2007. In that report the Trust will
provide additional details on its performance in the quarter, and will include
a reconciliation of its GAAP financial statements to Distributable Cash in
accordance with National Policy 41-201 Income Trusts and Other Indirect
Offerings (issued by the Canadian Securities Administrators on July 6, 2007).
The Trust will continue to include Normalized Income (previously referred to
as Distributable Cash) in its financial disclosure as it believes that it is a
relevant measure of performance. Since 2003, the Trust has calculated
Normalized Income as a measure of the Trust's operational performance and
profit capabilities from ongoing operations. It is the primary benchmark used
by management in the determination of distributions. The level of
distributions is incorporated by Standard and Poor's in the determination of
the Trust's SR-2 stability rating. This additional reporting does not
represent a change to the manner in which the Trust carries on business nor
does it affect its rating.
Further information on HOMEQ's financial performance and its investing
and funding activities, including the Trust's June 30, 2007 Interim Financial
Statements and Management Discussion and Analysis, can be found on the Trust's
web site at www.homeq.ca and on the SEDAR website at www.sedar.com.
Forward Looking Statements
Home Equity Income Trust from time to time makes written and verbal
forward-looking statements about business objectives, operations, performance,
and financial condition, including, in particular, the forecast of cash
distributions and the likelihood of HOMEQ's success in developing and
expanding its business. These may be included in the Annual Reports,
regulatory filings, reports to unitholders, press releases, Trust
presentations and other communications. These forward-looking statements are
based upon a number of assumptions and estimates that are inherently subject
to significant uncertainties and contingencies, many of which are beyond the
control of HOMEQ. Actual results may differ materially from those expressed or
implied by such forward-looking statements. HOMEQ does not undertake to update
any forward-looking statement, whether written or verbal, that may be made
from time to time.
About Home Equity Income Trust
Home Equity Income Trust provides unitholders with stable monthly cash
distributions from a portfolio of reverse mortgages originated by its wholly
owned subsidiary Canadian Home Income Plan Corporation ("CHIP"). The Trust's
units are rated SR-2 by Standard and Poor's, which assigns this rating to
funds that have "a very high level of cash distribution stability relative to
other rated Canadian income funds." As of June 30, 2007, the portfolio
generating cash returns to the Trust comprised approximately 6,560 reverse
mortgages with an accrued value of $654.6 million, secured by residential
properties across Canada worth approximately $1.8 billion. CHIP (www.chip.ca),
has been the main underwriter of reverse mortgages in Canada since pioneering
the concept in 1986.
HOMEQ's units trade on the Toronto Stock Exchange under the symbol
HEQ.UN. Additional information on HOMEQ, including annual and quarterly
reports and the Trust's distribution reinvestment plan, can be viewed at
For further information:
For further information: Steven Ranson, President and Chief Executive
Officer, (416) 413-4663; or Gary Krikler, Senior Vice President and Chief
Financial Officer, (416) 413-4679