(MENAFN - ProactiveInvestors - N.America) FirstService Corp. (TSE:FSV)(NASDAQ:FSRV) Monday announced that it has decided to opt out of a large property services agreement with a government sponsored entity in the US, saying the business has become unprofitable.
The company said that Field Asset Services (FAS), a unit of its property services division, has decided to transition out of the agreement, which was initially awarded in 2008 and was worth about four per cent of the company's revenues.
FirstService said the agreement was reset earlier this year "with a significantly increased scope in a very competitive environment."
The company said it attempted to provide services under the revised terms, but determined it "could not do so profitably at an acceptable quality standard."
After discussions with the client, FirstService said it was agreed that FAS would transition out of the contract as soon as August 1, 2012.
The company noted that the current annual run rate of revenues generated by the agreement is approximately 100 million, down 30 per cent from the prior year, as a result of industry-wide reductions in order volumes alongside declines in foreclosure activity in the US.
Excluding about 2 million in pre-tax reorganization charges, which will be taken in the third quarter, FirstService said the impact on its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is expected to be positive.
"We made the difficult decision to transition out of this contract in our property services division when it became clear it was not profitable," said FirstService founder and CEO Jay S. Hennick.
"Since winning this assignment back in 2008, our team consistently exceeded quality and service standards and was rewarded with increased volumes and share over the years.
"However, as market conditions changed and foreclosure volumes declined, the scope of the services expected increased without commensurate compensation.
"As a result, we exit a relationship representing about four per cent of our revenues but positively impact our EBITDA going forward."
FirstService provides a variety of services in commercial real estate, residential property management and property services.
The company manages more than 2.3 billion square feet of residential and commercial properties through its three service platforms: Colliers International, FirstService Residential Management and Property Services.
FirstService generates over 2.3 billion in annual revenues and has more than 23,000 employees worldwide.