This Stock Is Up 120% Since I Bought It -- But Here's Why I Just Bought More

When the COVID-19 pandemic hit, few industries were impacted more than retail real estate. Most brick-and-mortar retailers considered nonessential businesses were closed for much of 2020, and there were fears that most discretionary shopping would permanently shift to e-commerce.

As a result, the stock prices of retail real estate owners were beaten down to levels not seen for decades. Industry leader Simon Property Group (NYSE: SPG) fell as much as 80% from its previous high in early 2020. However, the company -- which owns the dominant Premium Outlets brand and The Mills high-end malls -- has proven its resilience in the years since.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

To be sure, I didn't buy shares of Simon at the pandemic-era lows. I was in wait-and-see mode when it came to brick-and-mortar retail during the initial shutdowns. But as soon as indoor malls were allowed to reopen in mid-2020, it quickly became apparent that demand for in-person shopping wasn't going anywhere, and I ended up adding Simon to my portfolio in early 2021.

Simon's business has been surprisingly resilient

Simon's general business model differs from those of other retail real estate investment trusts (REITs), which is why its properties have remained busy while many regional malls have died out. While there's a lot more to the business, two key components of Simon's strategy give it a big advantage.

First, Simon invests heavily to keep its properties attractive to tenants and shoppers. The company has more than $11 billion in liquidity, including $3 billion in cash on hand, allowing it to add modern amenities, quickly reposition vacant spaces, and redevelop aging properties.

Second, Simon aims to create destinations, not just shopping malls. It has been actively adding non-retail elements to its properties, including office spaces, hotels, apartments, entertainment venues, and high-end dining. A few of Simon's properties even have casinos attached. The idea is that the presence of these casinos creates a natural source of traffic for the retail businesses.

The percentage of retail sales attributed to e-commerce is about 16%, and this has steadily increased for the past couple of decades. But Simon's results show that the properties remain attractive destinations, even if we compare them to pre-pandemic times. For example, Simon's occupancy in the third quarter of 2024 (the most recently reported) was 96.2% at its U.S. malls. In the comparable quarter from 2019, the occupancy rate was 94.7%. And Simon's base minimum rent per square foot has increased by about 6% since then.

Since the pandemic-era reopening, Simon's growth has been impressive. Since 2021, its occupancy has soared, its balance sheet has improved, and the dividend has steadily increased to where it was before COVID-19 started.

The future looks bright

Simon continues to execute well, and there could be some big catalysts for brick-and-mortar retail going forward. For one thing, a recent report found that customer acquisition costs for retailers are far lower in-store than online, and in-store shoppers tend to return fewer items.

In short, there is still a big place for physical retail in the modern era, and Simon's properties are best-in-breed by a mile. Even though I've already achieved a 120% total return on my Simon investment in four years, I'm planning to add to my position in 2025.

At a current valuation of less than 14 times funds from operations (the real estate equivalent of earnings per share), a great balance sheet, and an excellent track record of growth through development, Simon still looks extremely attractive at its current price.

Should you invest $1,000 in Simon Property Group right now?

Before you buy stock in Simon Property Group, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Simon Property Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $843,960!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of January 13, 2025

Matt Frankel has positions in Simon Property Group. The Motley Fool has positions in and recommends Simon Property Group. The Motley Fool has a disclosure policy.