GPT puts match to costly hedges

The contracts were finalised at a cost of $152 million which could have been much higher but for the recent strength of the Australian dollar.

GPT, like its peers, rushed overseas four years ago, buying up senior citizens' housing in the United States and forming a joint venture with investment bank Babcock & Brown to buy retail and residential projects in Europe, including the former East Germany.

But it was at a vast cost, which GPT and its joint-venture partners eventually found too difficult to finance when banks froze funding to the property sector in the wake of the financial crisis.

GPT has subsequently spent the past two years withdrawing from the deals to return to its former life as a Australian-focused real estate investment trust with a simple model of owning and managing office blocks and shopping centres.

Michael O'Brien, recently promoted to finance director at GPT, said yesterday the move was the next step in simplifying the group's financial position.

"We have now terminated our excess offshore interest rate and income hedges, removing the potential for substantial mark to market volatility within these instruments and significantly reducing our interest cost," Mr O'Brien said in a statement

"The strength of the Australian dollar against the US dollar and the Euro provided us with the opportunity to unwind the positions at a substantially lower cost than if we had unwound earlier in the year."

As part of the recapitalisation program, GPT has also reduced its US dollar-denominated debt from $US276 million to $US130 million and kept another $US130 million interest rate hedge against this outstanding debt.

In its third-quarter update, released on October 28, the group said it remained on track to guidance of $365 million in realised operating income for this year.