The Intu Properties (LSE: INTU) share price is one of the worst-performing investments on the London market this year. Year-to-date, shares in the retail landlord have slumped a staggering 70%. They’ve underperformed the FTSE 100 by approximately 50%.
However, this week, shares in the real estate investment trust (REIT) have started to recover some of their lost ground. They’re up more than 65% in the past five days. As such, the company’s recovery seems to be gaining traction. So, is it worth buying Intu Properties after this recent performance?
Intu Properties recovery
Only a few weeks ago, it looks as if Intu Properties was heading for bankruptcy. The indebted landlord was already struggling before the coronavirus crisis. When the UK went into lockdown in March, its situation deteriorated significantly.
The company reported it had received just 29% of quarterly rents due at the end of March, down from 77% in the prior-year period.
But Intu’s been working flat out to try and win some breathing space from its lenders in the downturn. And, at the beginning of May, it succeeded. Lenders agreed to waive debt covenants on a £600m revolving credit facility until 26 June. While this deadline doesn’t give the company a tremendous amount of room, it’s helped the REIT get through the worst of the crisis.
In the next few weeks, more stores will be allowed to open throughout the UK, including one of Intu’s largest tenants, Primark. This should help the group generate some much-needed cash flow. The resumption of trading should help improve the company’s relationship with his creditors.
Not out of the woods
That said, Intu Properties isn’t out of the woods just yet. The company still has a mountain of debt. The total stands at around £4.5bn. Most of this is secured against the REIT’s property portfolio. But with commercial property prices across the UK plunging, it’s difficult to say how much these are worth.
Still, despite all of the company’s problems, there’s no denying the Intu Properties share price looks cheap. The stock is currently trading at a price-to-book (P/B) ratio of less than 0.1. This suggests that despite the uncertainties around and commercial property prices, the stock could offer a wide margin of safety at current levels.
Therefore, now could be an excellent time for investors with a high-risk tolerance to snap up shares in this REIT. Intu Properties has the potential to deliver substantial gains from current levels if it can successfully navigate the next 12 months, or so.
However, there’s always going to be a risk that the group’s debt could overwhelm the business. As such, it may be sensible to own the stock as part of a well-diversified portfolio. That would allow investors to benefit from any upside potential while limiting downside risk.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.