Home Equity Income Trust Announces First Quarter 2008 Financial Results

Highlights of Q1 2008 compared to Q1 2007

    
    -   Originations grew by 10% to $28 million;
    -   The mortgage portfolio grew by 17% to $738 million;
    -   Net income before income taxes and unrealized gains on derivative
        instruments decreased by 4%
    

TORONTO, May 8 /CNW/ - Home Equity Income Trust (TSX: HEQ.UN (HOMEQ or Trust)), which pays cash distributions earned from a portfolio of reverse mortgages originated by Canadian Home Income Plan (CHIP), today announced its financial results for the quarter ended March 31, 2008.

Current results continue the Trust's recent trend of significant business expansion. The aggregate of new mortgage originations and accrued interest is significantly outpacing repayments, resulting in acceleration in the rate of growth of the mortgage portfolio. During the trailing four quarters ended March 31, 2008 the portfolio grew 17% or $105 million to $738 million, in comparison to growth of 15% or $81 million during the comparable period in 2007.

During the quarter, mortgage originations of $28 million achieved a record Q1 high, 10% over Q1 2007, and trailing four quarter originations grew to $130 million, 19% higher than the period ended Q1 2007. "Our product continues to gain acceptance and recognition, our customer demographic is growing, our product mix is expanding and we are improving our sales and marketing capabilities", said Steven Ranson, President and CEO.

Mr. Ranson continued, "Our team of sales professionals, which was expanded in late 2007, continues to show encouraging potential. Through research and experience we have determined the appropriate characteristics, skills and experience required in a sales person, and we have established recruiting and training regimens designed to attract, develop, retain and motivate top sales talent. We believe that the competence and experience of our sales force is a significant competitive advantage in our unique business."

As has been well publicized, difficult conditions in the capital markets have persisted since August 2007 resulting in a systemic reduction in market liquidity and a corresponding increase in debt costs. "During Q4, 2007 and Q1, 2008 we focused on initiatives and strategies which have enabled us to maintain normal operations and growth. Our exposure to short term refinancing risk has for the time being been addressed by raising term debt well in advance of our cash requirements", stated Mr. Ranson.

Debt transactions carried out in the latter part of 2007 were at higher costs than in the past, which has put downward pressure on the Trust's spread percentage which dropped from 3.56% in Q1 2007 to 3.27% in Q1 2008. Various pricing initiatives undertaken in the past two quarters, however, are now having a somewhat positive impact on spread percentage as indicated by the increase from the 3.21% achieved in Q4, 2007.

As a result of conservative underwriting policies, the portfolio currently has an average loan-to-value of 36%, and less than 5% of the portfolio has a loan-to-value of over 70%, which would reduce the impact of a drop in residential real estate should that occur. The real estate securing the mortgages is diversified by property type, location and province.

"It continues to be extremely difficult to predict the duration and extent to which the current capital market environment will persist. We are reviewing various funding sources to ensure the Trust continues to have long term access to cost effective funds to finance our encouraging growth potential. We have taken steps to support ongoing profitable operations and are satisfied with the outcome thus far. We will continue to pay attention to growing the business while managing the business risks identified in the Trust's Management Discussion and Analysis and Annual Information Form", Mr. Ranson concluded.

Quarterly Financial Statements

The Q1 2008 annual financial statements are available on the Trust's website at www.homeq.ca and www.sedar.com.

HOMEQ will hold a conference call to discuss these financial results today, May 8, 2008 at 11.00 am (Eastern).

Available on the call to answer questions will be Steven Ranson, President and Chief Executive Officer, and Gary Krikler, Senior Vice President and Chief Financial Officer.

To participate in the conference call, please dial 416-640-3404 or 1-866-322-1159.

A live audio webcast (listen-only mode) of the conference call will be available at www.vcall.com and will be subsequently posted at www.homeq.ca.

An archived recording of the call will be available at 888-203-1112 (conference ID 7457509) from two hours after the completion of the call until midnight May 10, 2008.

Non-GAAP Measures

The Trust uses a number of financial measures to assess its performance. Some measures are calculated in accordance with GAAP, such as operating margin and net income. Other measures such as distributable cash and net spread are non-GAAP measures. These measures do not have standardized meanings under GAAP and may not be comparable to similar measures used by other trusts and companies.

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. 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 March 31, 2008, the portfolio generating cash returns to the Trust comprised approximately 6,800 reverse mortgages with an accrued value of $738 million, secured by residential properties across Canada worth approximately of $2.1 billion. CHIP (www.chip.ca), has been the main underwriter of reverse mortgages in Canada since pioneering the concept in 1986.

The Trust'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 www.homeq.ca.

Contacts

Steven K. Ranson
President and Chief Executive Officer
(416) 413-4663
sranson@homeq.ca

or Gary Krikler
Senior Vice President and Chief Financial Officer
(416) 413-4679
gkrikler@homeq.ca