Struggling developers roll out $242m share buyback spree as prices crash

Share repurchases jumped to 2-year high in Q3.

As cooling measures and muted demand continue to weigh on developers' profit outlook, some companies have pounced on the opportunity to repurchase their own shares as prices languish at record lows.

According to a report by OCBC, share buybacks by property developers climbed to its highest level since 2013 in the third quarter of the year, with developers spending a whopping $242m in order to repurchase shares.

This is the highest quarterly figure seen since 2013 and more than eight times the previous high in 4Q13.

"In our view, if a company’s balance sheet is healthy and the opportunity cost of capital not excessive, buying back undervalued shares can be an accretive move for shareholders," OCBC said.

Buybacks could be particularly meaningful because developers know that their stocks are unjustly undervalued, the report added.

The largest share buyback deals this quarter was done by Global Logistic Properties (GLP). The company bought back 96 million shares for $213m.

The buyback scheme was an effective use of capital because GLP's shares were trading at a 34% discount to its RNAV and 15% discount to book, OCBC noted.

“The share prices of property developers, which had generally suffered lackluster performances over the last year due to a slowing housing market, saw another leg down in 3Q15 alongside increased volatility in the general market on heightened fears of a Chinese hard landing and uncertainty over a Fed rate hike. Over 2014 to date, the Straits Times Real Estate Developer Index (FSTREH) fell 4.9% while its price-to-book ratio dipped to 68%, which is one standard deviation below its nine-year average,” the report said.