At first glance, it would be fair to assume investors in Dexus (ASX: DXS) would be happy with how its latest set of earnings results went down this morning.
After all, units of this real estate investment trust (REIT) are currently up a healhy 8.16% (at the time of writing) to $6.84 each.
But when you consider this REIT's long-term stock price chart, you might want to think again.
For one, Dexus is still down about 12% over the past 12 months (including today's big jump). The REIT is also down 20.1% from where it was five years ago. But what's even more sobering is that today's Dexus unit price is about the same as it was back in August 2014. And it's still below the level it was a whole decade earlier than that, way back in late 2004.
Unless you timed buying and selling this REIT impeccably (which is statistically unlikely), the only returns that have kept you comfortable over the past two decades have come from dividend distributions. Sure, with a 5.4% yield today, those haven't been insubstantial. But we still can't conclude anything other than Dexus has been a bit of a dud investment for as long as most investors can remember.
But perhaps the REIT is about to turn a corner.
It's worth noting that investors might, understandably, feel a little shortchanged by the market's valuation of Dexus. In today's earnings, the REIT confirmed that its property portfolio has an actual value (net tangible asset) of $8.95 per Dexus unit. This means that Dexus' value is being undershot by the market, for whatever reason, to the tune of 30%.
Image source: Getty Images
Could Dexus benefit from this massive share buyback program?
Management has taken notice of this fact. In its earnings release this morning, Dexus CEO Ross Du Vernet revealed a new share buyback program specifically tailored to address this value disparity:
There is a sustained disconnect between our equity market valuation and that of our underlying assets and businesses. We have activated an on-market securities buyback of up to 10% of Dexus securities, which we expect to execute at a pace consistent with maintaining balance sheet discipline as we progress asset sales and other initiatives.
Since Dexus has a market capitalisation of approximately $7.34 billion, this buyback program could be worth up to $734 million.
Share buybacks can significantly boost shareholder returns. By reducing the supply of units in the open market, it has the potential to increase the pricing of those units. Further, buybacks are also good for the company (or REIT) itself, as there are fewer units to split profits and dividends amongst.
Such a large share buyback program being undertaken does have the potential to boost returns for Dexus investors. Particularly when the shares are being bought back at such a discount to their alleged intrinsic value. But we shall have to wait and see if this eventuates in the Dexus unit price.
