It shouldn't come as a big surprise that being a mall operator hasn't exactly been a great business in 2020. Not only were virtually all U.S. malls forced to shut down as the pandemic worsened, but many of the largest mall-based retailers have declared bankruptcy in the months since the novel coronavirus outbreak reached the U.S.

With COVID-19 case numbers well below their peak but still at alarmingly high levels, and with the winter cold and flu season right around the corner, investors are wondering: Is the worst over for Simon Property Group (NYSE:SPG), the largest mall real estate investment trust?

Family shopping in a mall.

Image source: Getty Images.

How has Simon fared in the pandemic?

The short answer is that during the COVID-19 pandemic so far, Simon has performed significantly better than many other mall operators, but its business was still heavily impacted.

As far as rent collection goes, as of its second-quarter earnings report, Simon had collected about 51% of its billed rent for April and May. In June and July, the rent collection rate rose to 69% and 73%, respectively. These aren't great numbers, but they should continue to improve. As of Aug. 7, 91% of Simon's tenants had reopened, a figure that has likely increased since then. It's also worth noting that these rent collection percentages could end up rising for months that have already passed. Simon is currently suing its largest tenant, Gap (NYSE:GPS), for failing to meet its rent obligations during the closures. It's possible that other tenants could back pay rent.

Several of Simon's major tenants have declared bankruptcy as a result of the pandemic, but this could actually end up being a long-term tailwind for Simon. In recent months, Simon has been part of a group that acquired bankrupt retailers J. Crew, Forever 21, and Guess Brand. And it also has an agreement to acquire J.C. Penney along with partners. These deals will not only keep vacancies low in the short term, but might also end up being value-adding assets for the business in the post-pandemic world.

Finally, despite the low rent collection figures, it's important to note that Simon has remained quite profitable. In the second quarter, Simon had funds from operations (the real estate version of earnings) of $2.12 per share. This was a 29% decline from the same quarter in 2019, but still represents a strong profit, especially considering the circumstances. And unlike many other retail operators, Simon reduced but didn't suspend its dividend, and still yields nearly 8% based on the second-quarter payout.

Is the worst over for Simon?

Here's the bottom line on Simon. The worst of the pandemic's effects are probably over, but that doesn't mean that investors have nothing to worry about. Simon still trades for about half of its pre-pandemic stock price, and there's a good reason. Many retailers, including some of Simon's major tenants, are still struggling. It's likely that the recent wave of bankruptcies isn't over yet. While Simon is well positioned to invest in its properties as it sees fit, there's still a great deal of execution risk involved with trying to keep malls competitive in the new era of retail. Plus, while a coronavirus vaccine is likely to arrive, there's no guarantee of the timetable or how quickly mall traffic will return to pre-pandemic levels.

So, there could be tremendous long-term value for patient investors who are willing to ride out the ups and downs. In full disclosure, I've added shares of Simon to my portfolio during the pandemic and am confident that in a few years I'll be glad I did. In the mall industry, Simon is clearly the best-in-class operator. But it's important to realize it isn't a low-risk stock by any definition of the term.