Fiscal 2008 delivered another strong year of revenue growth across all our service divisions in a period highlighted by a number of acquisitions and continued strong internal growth led by our experienced management teams. Overall, FirstService completed 15 strategic acquisitions, adding depth and breadth to our service offerings as we expanded to new markets in North America and internationally.
Our strategic vision for the global real estate services industry combined with a disciplined operating philosophy, positions FirstService to capitalize on profitable growth opportunities while effectively managing the impact of changing market conditions. In 2008 our total revenue grew by an impressive 33%, with acquisitions contributing 21%, internal growth accounting for 9% and the remaining 3% arising from the impact of foreign exchange.
As our fiscal year closed, with the US centered credit crunch extending into several other markets around the world, FirstService took important steps to ensure sustained growth and profitability in the current business cycle while securing additional resources to fuel further expansion as opportunities emerge.
A YEAR OF GROWTH, OPPORTUNITY AND CHANGE
Fiscal 2008 marked the 13th consecutive achievement of year-over-year growth in revenues as we continued on our path to achieve long-term annual internal growth of 8% and average annual total growth, including acquisitions, of at least 20%. Although fiscal 2008 became increasingly challenging, with earnings and earnings per share 3% below those of the prior year, our annualized share price appreciation of 21% over this 13 year period continues to reflect our long-term objective of achieving 20% earnings growth.
All three of our operating platforms exceeded revenue growth targets for the year and made significant strides in terms of achieving longer term strategic goals and benchmarks. At year's end, FirstService was clearly positioned as a global real estate services company with market-leading brands in three core service platforms - commercial real estate, residential property management and property services - each characterized by diversity, balance and depth.
Each of our service platforms is diversified across a wide geography and revenue mix with no significant client concentration.
We have balance between recurring contractual revenue (65%) and transactional or fee for service revenue streams (35%).
We have depth through experienced management teams who own direct equity in the service lines they operate, allowing them to react proactively to changing market conditions.
COMMERCIAL REAL ESTATE
FirstService Commercial Real Estate is the 4th largest full service commercial real estate services company in the world. It is our largest division by revenue and reaches a diverse client base through 186 offices in 36 countries, leveraging a broad service delivery platform across all markets.
Fiscal 2008 was, by many accounts, a remarkable year. We expanded internationally, making several important strategic acquisitions, enhancing our footprint and slate of services. Overall, our commercial real estate division surpassed our annual growth target of 20% by growing 34% this past year, with our internal organic growth matching our projections of 8%. We completed 8 acquisitions which added 21% to our revenue growth in fiscal 2008 including strategic additions in the United States, Eastern Europe and Russia.
In June 2007, we added Colliers Monroe & Friedlander to our growing real estate platform. Colliers Monroe & Friedlander is a market leader in Hawaii and an important gateway to the Pacific Rim, positioning us to further capitalize on our significant and growing business in Asia-Pacific.
In July, we increased our presence in two rapidly emerging global markets with an investment in Colliers Southeast Europe, complementing our existing operations in Central Europe and also, an increased investment in Colliers Brazil.
In September, we completed a key acquisition in the Northeastern US market. Boston-based Meredith & Grew, one of New England's largest and most respected real estate services firms, adds strength in this important regional market and carries on business now as Colliers Meredith & Grew.
In November, we made strategic investments in Colliers Russia and Colliers Ukraine. This investment expanded our presence in key strategic global markets, as well as increasing our regional leadership in Eastern Europe, which now includes operations in 13 countries and 16 cities. Most important, this investment rounded out our presence in all high growth "BRIC" markets - Brazil, Russia, India and China.
Although we enjoyed healthy markets in many of our regions for most of fiscal 2008, a downturn in several key markets in the latter part of the year, particularly our 4th quarter, contributed to a decrease in EBITDA and margin, compared to a very robust 4th quarter in the prior year.
The economic slowdown and liquidity crisis in the US significantly impacted revenue and margins in our US commercial real estate and mortgage brokerage operations. These economic and financial conditions also began to impact our brokerage businesses in the Australian and Hong Kong markets in our 4th quarter. Our businesses in other markets including Canada, Eastern Europe, Asia and Latin America, remained strong throughout the year.
The year closed with some near-term challenges, but we are confident that we are right on track with our strategy to continue our ascension as one of world's leading brands in commercial real estate services. Though market conditions led to a disappointment in profitability from this division in the latter part of the year, we achieved some key milestones in fiscal 2008. Looking forward, we are confident that, as the credit markets stabilize over the next 12 to 18 months, we will be in a strong position to fully capitalize on opportunities and our performance will again reflect our long-term objectives for revenue growth, margins and profitability in each of our markets. Our growth strategy will continue to be focused on expanding our global network while driving internal growth through new service offerings in existing markets.
RESIDENTIAL PROPERTY MANAGEMENT
FirstService continued to grow its presence as the largest provider of residential property management services to homeowners in North America. Our operations now oversee more than 3,700 multi-unit properties containing over 900,000 homes from 45 offices across 18 US states. Our residential property management division operates under the FirstManagement Partners brand, administering annual operating budgets in excess of $5 billion and providing management services to a diverse, but select client base, including some of the most exclusive and high profile condominiums, co-operatives and gated communities in the US.
Our Residential Property Management platform exceeded expectations and outpaced last year's track record with revenues growing by 29% over the prior year: 9% through internal growth and 20% by way of acquisitions. This platform has delivered a very impressive compound annual growth rate of 28% over the last 11 years.
In 2008 our total revenue grew by 33%.
All three operating platforms exceeded annual revenue
growth targets and made significant strides toward
achieving longer term strategic goals.
In fiscal 2008 we added 5 acquisitions and about $13 million in annual EBITDA. The most notable and significant acquisitions were Planned Companies in the northeastern US region, Premier Communities in Texas and the highly coveted Merit Companies in California. We consider each of them to be a strategic acquisition, enabling us to gain access to new markets for residential property management services and, in the case of Planned Companies, to complement existing markets with further ancillary services.
In fiscal 2008, we continued to generate solid growth in property management revenues with net new contract wins in each market driven by market share gains from our competitors, self-managed communities converting to professional management and new housing developments in many markets.
We have a clear advantage in the mid and hi-rise condominium market with leading-edge technology, processes and experience. With our breadth and depth of service offerings and management experience, we are also the national leaders in the management of large-scale active adult and master planned communities. While the economic slowdown in the US has resulted in fewer development projects and reduced residential resale activity, we continued to generate ancillary service revenues as we adapted to the changing market environment with new innovative service offerings.
The size and scale of our operations across the US enables us to incorporate economies of scale, integration and best-practice sharing across the organization. We are also investing aggressively in technology and employee training programs. This enables us to continue to create value for our clients and differentiate ourselves from the competition. We expect our competitive advantage will continue to drive a consistent level of new units to our management teams over the coming years.
We are truly the market leaders in this industry and will to continue to invest strategically through acquisitions in new key markets while achieving consistent internal growth one new contract at a time.
PROPERTY SERVICES
FirstService operates North America's largest provider of property services through franchise and contractor networks. Our well-known franchise brands include California Closets, Paul Davis Restoration, CertaPro Painters, College Pro Painters, Pillar to Post and Handyman Connection and Floor Coverings International. Our operations include 1,800 franchisees in the US and 14 other countries generating over $1 billion in system-wide sales from over 300,000 residential customers annually.
In October 2007 we acquired Field Asset Services (FAS), one of North America's leading providers of property preservation, maintenance and repair services for properties that have been acquired through foreclosure. Clients include some of America's largest and most respected residential mortgage lenders and services companies. FAS operates highly sophisticated centralized customer service centers that oversee and administer on-site services provided by a network of 12,000 independent contractors. On an ongoing basis, FAS manages and administers more than $1.5 billion in client assets and over 30,000 residential properties under foreclosure.
Our property services platform experienced tremendous revenue growth of 44% in fiscal 2008. Internal growth was 9% - a significant achievement considering the downturn in the US housing market, which has led to widespread reductions in home resale activity and in home improvement spending. FirstService discovered an opportunity as the economic cycle slowed and capitalized by making a strategic play for FAS. This acquisition helped us grow our property services platform a further 35% over the prior year.
Looking ahead to the balance of calendar 2008, we expect continued slow growth in some of our franchise networks as the US economy remains in a downturn with consumer confidence at a 25 year low. We expect, however, that FAS will continue to experience rapid growth during this time, adding a counter-cyclical balance to our property services platform.
CORPORATE INITIATIVES
During fiscal 2008, FirstService made the strategic decision to divest its Integrated Security division to sharpen its focus on global real estate services.
In April 2008, just after our fiscal 2008 year-end, we reached an agreement with ADT Security, a unit of Tyco International, to sell our security business. Until the expected closing in June or July 2008, our security business will continue to run under our direction with day-to-day operations carried on by the current management teams.
The decision to divest our security business is consistent with our disciplined operating philosophy. Our security platform had reached a point where we believed that we could no longer grow the business through acquisitions that met our company's disciplined criteria. This transaction, valued at $187.5 million, will also allow us to reinvest the proceeds from the sale to drive further growth in our three other strategic real estate service platforms.
In June 2007, our Board of Directors declared a stock dividend of 7% cumulative preference shares with a stated value of US$25.00 and carrying a fixed cumulative annual dividend of US$1.75 payable quarterly. One preferred share was provided to common shareholders for every five common shares held. The shares trade in US dollars on the Toronto Stock Exchange. The rationale for the dividend was to distribute a limited amount of free cash flow generated by FirstService to shareholders, but provide shareholders with the option of continuing to hold the preferred shares received as part of the dividend and the quarterly cash dividends on those shares or, alternatively, sell the yield-driven preferred shares and remain invested in FirstService common shares for capital appreciation.
In September 2007, we closed on an important component of our capital structure, a new 5 year committed revolving credit facility totalling US$225 million, with an accordion feature providing an additional uncommitted US$50 million of availability. In doing so, we replaced a $US110 million 3 year revolver that was due April 2008. We were able to negotiate very favourable terms at a time when credit markets were becoming increasingly difficult to navigate, even for companies like FirstService which are considered investment grade credits. We expanded our bank syndicate from five to eight lenders and welcomed Bank of America, BMO Capital Markets, and United Overseas Bank to a group that already included TD Bank, Royal Bank of Canada, JP Morgan Chase Bank, The Bank of Nova Scotia, and HSBC Bank Canada.
Finally, we successfully completed our first formal year under the requirements of section 404 of the Sarbanes-Oxley Act. As an SEC registrant, we are required to certify and obtain an audit opinion on the effectiveness of our internal controls over financial reporting. The process required to support this certification and audit opinion was time-consuming and costly, requiring collaboration between our head office team driving the project and the finance teams at our operations which were responsible for much of the execution. We are very appreciative of their efforts in realizing success on this important initiative and augmenting our operations, with stronger financial controls throughout our decentralized organization that will support our significant growth plans.
FIRSTSERVICE - THE COMPANY TO WATCH
In closing, FirstService had a very successful year in all three core real estate services businesses and took important steps to position itself for continued future growth and profitability with strategic acquisitions and a significant divestiture. Our long-term strategy as a global leader in diversified real estate services is solidly on track and we are confident in our ability to manage the uncertainties surrounding the economic climate, particularly in the US.
We have experienced operating management teams in each of our businesses focused on containing discretionary spending and generating new revenue in response to changing market conditions.
We will continue to invest in technology, recruiting and employee development initiatives so that we can maintain a competitive advantage as leaders in each of our markets.
We will continue to invest in new service offerings in order to continually create value for our clients.
We will continue to be opportunistic in acquiring new businesses that open up new markets for us or complement existing businesses with new service lines.
Each of these actions will position us well to take advantage of the opportunities that will present themselves as market conditions improve in 2008 and 2009.
