Home Equity Income Trust (TSX: HEQ.UN)
TORONTO, Aug. 28 /CNW/ - In view of the recent publicity regarding non
bank conduits, management of Home Equity Income Trust ("HOMEQ" or the "Trust")
is reminding unitholders of the significant differences in its investing and
financing activities from such conduits.
HOMEQ invests in reverse mortgages originated by its wholly owned
subsidiary Canadian Home Income Plan ("CHIP"). CHIP has been in business for
over 20 years and has originated over 10,000 reverse mortgages. Each loan is
conservatively underwritten in accordance with strict guidelines. The average
new reverse mortgage is approximately $85,000 and has a loan to value of
approximately 30%. As of June 30, 2007, the Trust's portfolio was comprised of
approximately 6,560 reverse mortgages with an accrued value of $654.6 million
secured by residential properties across Canada worth approximately
$1.8 billion. The average loan to value of the portfolio is 36% and over 98%
of the portfolio has a loan to value of less than 70%. The portfolio is well
protected from declines in the value of residential real estate.
HOMEQ's business is performing at a record level. For the quarter ended
June 30, 2007 compared to the same quarter in 2006, revenue increased by 28%
to $13 million, net spread increased by 19% to $6 million and at 3.56% was at
the high end of recent quarterly performance, new mortgage originations
increased by 21% to $33 million and the portfolio balance at June 30 of
$654.6 million is an all time high.
HOMEQ does not invest in sub-prime mortgages, second mortgages,
collateralized debt obligations or the other types of financial investments
contained in the conduits recently mentioned in the media.
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
Home Equity Income Trust. 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 its portfolio
including the low loan to value of the mortgages and stable net interest rate
spread, and the equity of the Trust provided by its unit holders. Further
details on the rating of the debt of CHIP Mortgage Trust can be found on
DBRS's website at www.dbrs.com.
At June 30, 2007 the Trust had approximately $93.6 million of commercial
paper outstanding, representing approximately 13% of HOMEQ's total
capitalization, and cash and cash equivalents of $9.3 million. The commercial
paper program is backed by a $200 million liquidity facility provided by two
of the five largest Schedule I banks. The liquidity agreement provides CMT
with the ability to draw on the facility to fund maturing commercial paper.
The Trust considers CMT's liquidity facility to be superior to the type
typically provided to conduits as it does not have "market disruption" as a
condition precedent for a draw. CMT has never drawn on this facility.
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.
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