If you look at the past 12 months, mall real estate investment trust (REIT) Macerich's (NYSE:MAC) stock is up 120%, roughly four times the gain of the S&P 500 Index and the broader REIT sector over that time frame. That's impressive. But if you go back to 2015 or so, the shares are down by more than 75%. What's going on, and is there still a long-term opportunity for investors here?

An ugly situation gets uglier

Macerich actually owns a very well-positioned collection of 45 malls. They are near large and wealthy population centers, and produce strong sales for tenants. In the third quarter, their average rent per square foot was $62.58, nearly $9 per square foot more than industry bellwether Simon Property Group's (NYSE:SPG) $53.91. There are differences between the types of assets the two companies own -- Simon's 200-mall portfolio is much larger and more diversified. However, the sales per square foot metric makes it clear that Macerich is no fly-by-night operator.

A parent and child at a mall.

Image source: Getty Images.

Still, owning good malls hasn't been enough in recent years because consumers have increasingly been shopping online. That trend was given the frightening name "the retail apocalypse." That, though, was a bit of hyperbole. The real problem facing the retail sector -- and, by extension, the real estate investment trusts that own malls -- is that retailers haven't kept up with shoppers. That problem includes their failures to adapt to the e-commerce trend, but is not limited to it. Updating fashion trends and the in-store experience are also key factors that have been lacking.

A big factor in this was that a lot of brick-and-mortar-focused retailers were heavily leveraged and lacked the financial flexibility to make the needed adjustments. It was like watching a slow-moving train wreck -- until the coronavirus pandemic hit. That sped the crash up as non-essential businesses had to shut down temporarily and social distancing kept many consumers away from places designed to draw crowds. A lot of struggling retailers went into bankruptcy, with some closing permanently.

Finally, some good news!

Believe it or not, 2020 was actually a good thing for the retail sector because it purged the weakest participants and allowed stronger ones to revamp their businesses. Some retailers are performing extremely well coming out of last year's downturn. That's been a boon for landlords like Macerich. In fact, the company's occupancy levels are starting to inch back upward again after a long period of weakness. Some of its mall REIT peers went bankrupt, but it looks like the worst has passed, and Macerich will be one of the survivors. This helps explain its strong stock performance over the past year.

Meanwhile, if the long-term trend has improved, there could be material upside in the stock from here, given that it's still down by more than 75% from its 2015 high.

What's important to realize is that even as weaker malls continue to struggle and close, the strongest malls -- locations of the type that Macerich owns -- will become more valuable to shoppers and retailers alike.

However, investors need to make sure they understand what they'll be getting here. Peer mall REIT Simon Property Group has increased its dividend three times in 2021 after cutting it in 2020. Tanger Factory Outlet Centers (NYSE:SKT), another well-positioned mall REIT, has also increased its payout. The improving business environment has translated into better results for those companies, and allowed them to reward investors with dividend hikes.

Macerich, by contrast, has not increased its dividend in 2021.

MAC Financial Debt to EBITDA (TTM) Chart

MAC Financial Debt to EBITDA (TTM) data by YCharts

The reason why it hasn't largely comes down to the fact that Macerich is more heavily leveraged than those competitors. It has been working to deal with that issue, but at this point, debt reduction is taking precedence over dividend hikes. Until the company has made more progress on buffing up its balance sheet, most investors will probably be better off with one of its peers.

Still a work in progress

Nothing here is meant to disparage Macerich, which is working to turn its business around and is achieving great success. The problem is that there's still more work to be done, particularly on the balance sheet. More aggressive investors still might be willing to step in here, even recognizing that another retail downturn is still a possibility -- particularly given the uncertainties about what the pandemic will bring next.

Because of Macerich's leverage, it would likely have a harder time dealing with further headwinds than Simon or Tanger. Still, given its relatively weak performance over the longer term and its still-strong portfolio, Macerich has plenty of upside potential. But that's only a worthwhile risk/reward trade-off if you can handle an elevated level of uncertainty compared to peers Simon and Tanger.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.