Will it ever be the same after this year?
We all know it was changing well before this point. Mostly gone are the days of traffic jams, stampeding sale-seekers, and mid-day collapses after shopping till dropping all morning.
Every new Thanksgiving that rolls around, more and more consumers are staying in to enjoy their turkey-induced stupors. Why bother going out when there are online steals too?
Now, this isn’t to say that everybody’s done with the brick-and-mortar tradition. I’m sure that, even this year, there will be customers clamoring for featured deals in physical stores.
But consider these stats from BlackFriday.com. And yes, there’s an entire site devoted to the marketing mayhem.
Sourcing Adobe Analytics, it says that:
- Black Friday 2017… raked in 7.9 billion in online sales. That’s $5.03 billion spent on Black Friday and $2.87 billion spent on Thanksgiving. This spending level is up 17.9% from 2016.
- Black Friday 2018… raked in $9.9 billion in online sales. That’s $6.2 billion spent on Black Friday and $3.7 billion spent on Thanksgiving. That’s a 19.7% increase over 2017.
- Black Friday 2019… raked in $11.9 billion in online sales. That’s $7.5 billion spent on Black Friday and $4.4 billion spent on Thanksgiving. That’s a 20.2% increase over .
How much more so will that be during a pandemic that still sees so many social distancing?
The History of Black Friday and Cyber Monday alike
We’ll answer that question in a minute. First though, here’s a fun trivia fact you can throw around at your next get-together. Once again, it’s courtesy of BlackFriday.com:
“The term ‘Black Friday’ (in the retail sense) was coined in the 1960s to mark the kickoff to the Christmas shopping season. ‘Black’ refers to stores moving from the ‘red’ to the ‘black’ back when accounting records were kept by hand… red indicated a loss and black a profit.
“Ever since, the start of the modern Macy’s Thanksgiving Day Parade in 1924, the Friday after Thanksgiving has been known as the unofficial start to a bustling holiday shopping season…
“As retailers began to realize they could draw big crowds by discounting prices, Black Friday became the day to shop, even better than those last-minute Christmas sales.”
But then came the invention of the internet. And the advancement of the internet. And the domination of the internet.
Many people think it was Amazon (AMZN) which began promoting the idea of an online version of Black Friday, which is a good guess. And you’d better believe that Jeff Bezos makes a mint more than he already has on that day alone.
But ultimately, Reader’s Digest tells us we can:
“Thank Ellen Davis, senior vice president of research and strategic initiatives for the National Retail Federation, who coined the term in 2005. For several years in a row, the NRF had noticed a recurring spike in online revenue and traffic on the Monday following Thanksgiving. They believed it was because people were making purchases from their computers at work, where the internet connections were faster and their kids couldn’t get a sneak peek at their gifts.”
Fascinating and intensely disruptive.
Expect Traditional Black Friday to Be in the Red
When I did a search for “which states canceled Thanksgiving” on November 5, I came up with plenty of headlines. These are just a few examples from the first-page results:
- From Business Insider: “… Nearly One in Five Respondents Cancelled Their Pre-Made Thanksgiving Travel Plans Due to Covid-19”
- From USA Today: “Oregonians Urged to Cancel Thanksgiving Gatherings as State Sees Third Day of Record New Cases”
- From CNBC: “Cancel Thanksgiving, Stay Home, Wear a Mask – State and City Leaders Impose Targeted Coronavirus Restrictions to Curb Covid Without Tanking Economy.”
It also appears that Maryland Governor Larry Hogan is “taking his own advice” by canceling his family plans. (So says Baltimore’s CBS station.) And the same is true of Governor Bill Lee, according to Tenneseean.com.
In all, I believe 19 states have issued official travel restrictions or strongly worded suggestions on the subject. So there are a number of things we know – or can reasonably assume – about Black Friday 2020.
For that though, I’ll turn to CNBC retail expert Lauren Thomas (yes, we’re related). “Black Friday is almost here,” she wrote on November 23. And things aren’t looking good.
“… consumers’ anxiety about shopping in stores and enclosed malls is only escalating as Covid-19 cases surge, making for a holiday season where far fewer people pitch tents in parking lots to snag doorbuster deals.
“Fifty-seven percent of consumers said they’re anxious about shopping in stores over the holidays because of the coronavirus pandemic, according to a poll released Monday by Deloitte, which surveyed 1,200 adults from [October 9 to November 2]. That’s up from 51% in September, when Deloitte last asked the question.”
I in no way mean to make light of those fears. I changed my pre-holiday plans because of my own coronavirus concerns. But…
There’s Still Black and Green to Be Found
The fact of the matter is that the current fears have created some Black Friday deals in the REIT world. Whether that’s because certain real estate investment trusts are directly tied to retail or not, there are still discounts to be had.
At iREIT on Alpha we stay tuned into the REIT universe by constantly screening for blue-chip bargains, and today in honor of Black Friday, we wanted to provide you with some of our trophy picks.
In order to provide the best blue-chip bargains, we decided to focus on the retail sector, in which you will find a gem in all of the sub-sectors: net lease, shopping centers, and malls.
And within these sub-sectors (of retail) we wanted to take a close look at earnings per share, or in REIT-dom referred to a Funds from Operations (or FFO) per share:
To provide us with a better understanding of these FFO metrics, let’s utilize FFO per share year-over-year growth in percent:
As you can see, there’s a lot of Red in 2019-2020, which is obviously due to COVID-19 and the impacts related to store closures, lockdowns, and accelerated disruption in the retail sector.
Needless to say, the retail sector has been hammered this year, and the disruption is likely to continue, at least until the vaccine is available. The more recent news that a vaccine was coming soon has sparked a resurgence, as illustrated by performance numbers below:
Now, we decided to provide another FFO per share chart, illustrating the FFO per share growth for each REIT, comparing annual growth with 2015-2016. This chart highlights whether each REIT will “normalize” FFO per share, based on analyst estimates for 2020 and 2021.
Let me be clear, we decided to use these 5 REITs for our “Black Friday” picks because of the above chart. We have no interest in “value traps” and this chart is useful because it tells me whether (or not) analysts believe the REIT in question will return to its normal earnings (or FFO) per share range.
The objective here is to spot a deeply discounted stock and to determine whether (or not) shares will return to “normal” valuation ranges. And as you can see below, these 5 REITs offer compelling valuation opportunities:
But we must remember that these REITs are considered blue-chips, and in order to find these gems, we pay close attention to quality, as defined by fundamental analysis. Here’s a snapshot of our quality ratings:
Finally, we must conclude the “Black Friday” article with our official recommendations. We will also include a “bonus” summary (and FAST Graph) for each of these picks:
National Retail Properties (NNN) is the only Strong Buy on the Black Friday list. Shares trade at $38.91 with a dividend yield of 5.2%. We maintain a Buy rating with a total return forecast (annualized) of 15%.
Source: FAST Graphs
Federal Realty (FRT) is a shopping center REIT (104 properties include ~2,800 tenants, in ~24 million square feet, and ~2,800 residential units) that is rated A- by S&P (and A3 by Moody’s). Shares are trading at $91.04 with a dividend yield of 4.7%. We maintain a Buy rating with a total return forecast (annualized) of 15%.
Source: FAST Graphs
Simon Property Group (SPG) is the only mall REIT on the Black Friday list. Shares trade at $87.19 with a dividend yield of 7.8%. We maintain a Speculative Strong Buy with a total return forecast (annualized) of 25%.
Source: FAST Graphs
Urstadt Biddle (UBA) is our fourth Black Friday pick. The shopping center REIT (81 properties with a total of 5.3 million square feet) is focused on quality suburban markets outside New York City. Shares trade at $13.92 per share with a dividend yield of 4.0% (UBA suspended its dividend but has since increased it from $.07 per share to $.14 per share). We upgraded to a Strong Buy with a total return (annualized) forecast of 25%.
Source: FAST Graphs
Our final Black Friday pick is Retail Opportunity Investments Corp. (ROIC) that is a shopping center REIT that owns 88 properties (10.1 million square feet). Shares trade at $14.02 and the company suspended the dividend to preserve cash. We maintain a Buy rating with a total return (annualized) forecast of 15%.
Source: FAST Graphs
Black Friday is the day on which holiday shoppers hope to select bargains, much like intelligent REIT investors should be purchasing shares. As Ben Graham reminds us,
“An investment operation is one which, upon thorough analysis, promises safety of principal and satisfactory return. Operations not meeting these requirements are speculative.”
The margin of safety is the essence of value investing because it is the metric by which hazardous speculations are segregated from bona fide investment opportunities.
The retail sector has its own challenges, and we have been extremely careful (and diligent) in making recommendations based on quality (first) and valuation (second). This year REIT shoppers should be extremely careful recognizing that there will likely be a wave of retail bankruptcies in Q1-21.
Given the continued pressure, we’re maintaining underweight exposure in malls and shopping centers, and overweight exposure in certain net lease REITs (not EPR). Howard Marks (The Most Important Thing) explained,
“Whereas the theorist thinks return and risk are two separate things, albeit correlated, the value investor thinks of high risk and low prospective return as nothing but two sides of the same coin, both stemming primarily from high prices.
Thus, awareness of the relationship between price and value – whether for a single security of an entire market – is an essential component of dealing successfully with risk.”
Author’s note: Brad Thomas is a Wall Street writer, which means he’s not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free: Written and distributed only to assist in research while providing a forum for second-level thinking.
This Only Happens Once A Year
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Disclosure: I am/we are long ROIC, UBA, NNN, FRT, SPG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.