AMP Shopping Centre Trust, an Australian property trust with some AUD1 billion (USD556.1 million) in assets, this month entered a fixed-to-floating interest-rate swap on a AUD50 million four-year fungible bond. It entered the swap to retain a balance of fixed- and floating-rates in its debt portfolio, said Michelle MacPherson, treasury manager for listed trusts at AMP in Sydney, noting that AMP prefers to pay fixed on 60-80% of its various property trusts' debt and floating on the rest. AMP Shopping Centre Trust has just over AUD300 million in debt, she said, declining to break down the maturities and interest rates on that debt or the size of the trust's derivatives book.
AMP typically uses the bank that led a bond deal as swap counterparty, MacPherson said, declining to reveal if lead arrangers Deutsche Bank and UBS Warburg were used in this case. "If you're doing a bond deal and you're pricing the bond, by the time you've hung up and rung three people to get a price on it, who knows where it could have moved?" MacPherson continued, "It's generally fairly self-defeating to try to shop that kind of thing around." Relationship and pricing are also major factors when choosing counterparties, she said.
AMP uses interest-rate swaps and options, including collars, to hedge interest-rate risk on its property trusts, MacPherson said. Property trusts tend to have a conservative derivatives strategy, she explained, adding that because they buy and sell property assets for sometimes razor-thin margins, taking on large risk positions does not fit in with their business model. "It's not like I'm a manufacturing company where I've got a whole division that's going to invent something and triple my earnings. It's a yield play," she said.
