Continuing our look at Real Estate Investment Trusts this week, we spoke with several analysts as part of our roundtable discussion on this space about what 2009 holds for the REIT space after the hardship of 2008. Here’s what analyst Dave Rodgers of RBC Capital Markets had to say about 2009:

Mr. Rodgers: “The best way to summarize it is that 2009, from our perspective, will be a year of opportunities and a year of continued volatility, particularly early in the year. There are more unknowns than we’ve seen in real estate for quite some time — financing, fundamentals, particularly with bankruptcies. I just think that lack of clarity doesn’t bode well for the REITs. That being said, the opportunities will start to emerge at some point and by the time they start to emerge, the stocks will have moved relatively quickly, we think. There is some opportunity to again be an investor today in stocks, to look for the opportunities among the names that we suggested that fit our criteria — those that don’t have large refinancing risk, those where even stressed fundamentals suggest that the stocks are trading at a discount today. Start building that portfolio of real estate and take advantage of that throughout 2009.”

For the complete REIT report, including a review of 2008 and stock picks looking forward, click here.  

The rumors are over, Richard Parsons, the former chairman of Time Warner, will be Citigroup’s Chairman effective February 24.  According to The New York Times the current Chairman Win Bischoff said,

he would not stand for re-election and would retire later this year.      

The Times went on to say,

Regulators have pressed the struggling financial giant to shake up its board and replace Mr. Bischoff in an effort to regain investors’ trust. Staggered by losses, Citigroup has sought two financial lifelines from Washington.   

The issue gained new urgency last week, when Citigroup announced a drastic plan to split itself in two, effectively undoing the landmark merger that formed the company a decade ago. 

Be sure there is more management turmoil to come and the possibility of nationalization remains an option open to the new government. Let’s wait and see if real change can come under Parsons.  For more:  Times online  Telegraph UK  Financial Times  Hollywood Reporter     

Our special focus this week is on Real Estate Investment Trusts. As such, our Off The Record picks this week come from a variety of top CEOs and Analysts in this space. Here’s their picks for the week:

• Corporate Office (OFC-  Two analysts in this space pick Corporate Office:
  
  • “[Of those]  with very good management, which are capable of making the tough decisions — Corporate Office probably is the best of anyone
    we cover.”
  • “They’ve focused their business on a model that works through the cycle with government and defense contractors. That’s a component of
    the economy that never seems to shrink — government and defense. And I think they do a very good job of communicating with investors; they’re very clear in their message. I think they take chances when appropriate and I think they are conservative when something doesn’t really benefit them or the investors in the stock.”
• Boardwalk REIT (OTC: BOWFF)- Two CEOs in this space chose Boardwalk as their pick:
  • “I would say it’s Boardwalk. They are excellent operators, they maintain a tight ship and they have accumulated a very large portfolio of assets that I believe s currently undervalued.”
  • “I think Boardwalk has done a very good job. Basically I can see they’ve gone through the process of starting as a very small company and successfully expanding their portfolio, expanding their business to become, I believe, the number one landlord in Canada. I think they’re the biggest company in Canada. I must admit that the management team has done a fabulous job.”

For the complete Real Estate Investment Trust report, including a roundtable discussion of the space, and an outlook for 2009, click here.

Carl Icahn’s blog on January 20th included a piece on the examination of Director Capture.  According to Jonathan Macey, Deputy Dean and Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale Law School, Director Capture,

… occurs when decision-makers such as corporate directors favor certain vested interests such as incumbent management, despite the fact that they purport to be acting in the best interests of some other group, i.e. the shareholders. The problem of capture and the theories associated with the idea of capture are most closely associated with George Stigler, and the free-market Chicago School of Economic thought. Among the more interesting and important theories of Stigler and other proponents of capture theory is the idea that capture is not only possible, in many contexts it is inevitable. 

Icahn remains an obvious proponent for directors to represent shareholders rather than top management.  In light of the new administration and the likelihood of major regulatory changes to come both investors and companies might want to read the full Icahn blog piece and get to know what Academia is saying about the issue. 

Best Buy BBY (NYSE), the U.S.’ largest electronics retailer, announced today that the company’s long serving CEO, Bradbury Anderson, would be retiring his position in June.  The company also announced that Anderson would be seceded by president and chief operating officer Brian J. Dunn.  The succession announcement comes a week after the firm’s key rival, Circuit City announced it would liquidate its merchandise and close its stores and after Best Buy announced earlier in the month it would reduce its fiscal year 2009 earnings forecast.  In today’s announcement the company insisted Anderson’s retirement was not due to the difficulties the company has been facing due to the recession. According to a story by Sam Black for the Minneapolis/St. Paul Business Journal,

“I’ve always wanted to leave the organization at the right interlude: when I saw a new leader ready to take the organization to a new level, higher than I could take it myself,” Anderson said in a statement. “For many months, I’ve felt that Brian was fully prepared to be CEO. Based on his readiness and the journey we’re about to begin, I’ve concluded that this is the right time for my story as CEO naturally to end, and Brian’s story to begin.   

“Furthermore, this timing for my retirement is consistent with my personal goals and in accordance with our succession plan. The best part is anticipating the great joy ahead of seeing where his story arc goes, and 

how that transforms the company.” 

Anderson will complete his term as vice chairman even after he resigns his CEO position on June 24.  It is hard to accept Anderson or the company’s explanation for the announced change.  The difficulties Best Buy has faced this recent holiday shopping season and the fact that the company has so far been unable to take real advantage of its rival’s bankruptcy seem to be true reason behind the change in leadership.  Both Anderson and Dunn have labored at Best Buy from the beginning.  Each of them have worked their way up the corporate ladder.  Dunn knows the business and appears to be right for his new position.  According to a story by Mark Clothier for Bloomberg,

Dunn, who started with Best Buy in 1985 as a VCR salesman in the Minnetonka store, one of the retailer’s then 12, becomes CEO June 24. The 48-year-old has been president and COO since 2006.   

Best Buy remains an electronic retail behemoth that overall has been very well run.  The company is facing a new world as regards electronic retailing.  Dunn needs to find new ways to deal with a growing reticence on the part of  consumers to spend as they did in the past on electronics and more importantly the fact that consumers overall have reduced discretionary spending.  Keep a close eye on the Best Buy as its rival disappears from the scene and suppliers look to firm to help them succeed as well.    For more:  Reuters  Associated Press  Minnpost.com Thestreet.com  Financial Times Twice  CNBC (Reuters)   Businessweek  

Earlier today the BBC reported that Sir Philip Hampton has agreed to take the chairmanship of the Royal Bank of Scotland (RBS).  Sir Philip, who is currently the chairman of Sainsbury, will replace the current chairman Sir Tom Mckillop, who has announced his resignation.  Sir Tom’s resignation comes after the bank has undergone a series of financial difficulties and top management related changes.  As a result of the financial crisis RBS has already been partially nationalized by the UK government. Earlier this week we ran a blog discussing the possibility that Sir Philip might take the RBS Chairmanship.   For more:  Reuters  Bloomberg  Edinburgh Evening News    Times Online  

David Reilly a news columnist for Bloomberg earlier today suggested that Bank of America’s chairman and CEO Kenneth Lewis should be forced out or at a minimum should give up one of his positions.  According to Reilly,

Kenneth Lewis gambled big. He lost. Now taxpayers have to pick up his tab.          

For that, the Bank of America Corp. chief executive officer probably needs to go. At the very least, Lewis, who also is chairman, should give up one of his posts to bring greater accountability to the bank. 

Reilly is not particularly focused on BofA’s acquisition of Merrill and the subsequent difficulties that have resulted as the main reason for his call but rather Lewis’ series of ill-fated acquisitions (Countrywide etc.) and business steps that have all come together to force the bank to go to the government for money to complete the Merrill transaction.  Reilly went on to say,

Now the Charlotte, North Carolina-based company is staring into the abyss. The bank’s stock fell about 18 percent yesterday following reports that it told the government in December that it wouldn’t be able to close the Merrill deal without assistance because of bigger-than-expected losses at the brokerage.          

The government may now have to inject more capital into the company or backstop losses on a portion of its assets, or some combination of the two. The government has given Citigroup Inc. a similar guarantee against losses on some assets, although that hasn’t kept investors from fleeing its stock. 

I suspect Lewis will remain CEO and may be forced to give up the chairmanship but we will just have to see how this all plays out.   Fore more:  UK Telegraph   Huffington Post (AP story)   Portfolio.com  New York Times  Clusterstock  Dealscape  

Deal Journal today cites a story in the UK’s Independent Sir Philip Hampton the current chair of the J Sainsbury Supermarket chain is likely to be selected as the Royal bank of Scotland’s (RBS) new chairman.  RBS remains one of the UK’s biggest Banks suffering under the credit crisis.  RBS’s recent CEO change was examined in a previous blog.  RBS is now basically controlled by the UK government.  According to the Independent,

If Sir Philip does accept the role, he will be taking on one of the toughest jobs in the international banking sector, as the Government-controlled RBS tries to navigate its way through a vast pile of toxic loans. 

RBS has been among the biggest British banking casualties of the global financial crisis. It raised £12bn from its shareholders in the first half of last year, before accepting a further £20bn of taxpayers’ money last autumn in an attempt to stave off collapse. There are concerns in the City that a significant further deterioration in the quality of its assets could lead to the bank being wholly nationalised.   

Management change seems to be following a similar pattern in the banking industry as circumstances continue to deteriorate more and more board are reluctantly looking for changes at the top.   There remains a need for more and more changes in the boards as well.  Keep a close eye on what actually transpires at RBS over the next week or two.For more:  Reuters  Financial Times    

Our Off the Record comments this week come from a variety of CEOs and analysts in the Telecommunications Equipment space. Heres what they had to say about their picks:

• AT&T (T): “I would say it’s probably AT&T. I think they have done a great job of going from the smallest of the seven regional Bell companies to becoming the largest. They have a culture of frugality and practicality of execution, and while they are a big company and they have some inherent challenges, I think they have done a very good job of really dominating their sector.”
• Verizon Communications (VZ): “I think you have to step back and look at Verizon and not lose sight of what they’ve accomplished. I think if you look at the last eight or nine years, they’ve assembled themselves into a national company with a national footprint. They organized it, they got it running efficiently, they focused the company on a large national market. So I think Verizon has done a good job.”
• Cbeyond (CBEY): “On the services side, one company that continues to impress me — I was impressed the first time I heard Jim Geiger speak — is Cbeyond. That’s a company that continues to execute despite the slowdowns as far as getting customers to sign up for new services. This is continually an impressive company to me.”

For the full Telecommunication Equipment report, including the complete Off the Record review of this space, as a roundtable discussion of the space and outlook for 2009, click here.

Late this afternoon Apple announced that Steve Jobs, Apple’s CEO, has decided to take a medical leave until June to deal with his health related issues. In his place Tim Cook, Apple’s chief operating officer, will serve as the interim CEO.  Cook handled this position when Jobs underwent surgery years back for pancreatic cancer.  CNET reported that Apple released an email that Jobs wrote to Apple’s employees. The email stated:

Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well. In addition, during the past week I have learned that my health-related issues are more complex than I originally thought.       

In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June.

While the sudden announcement resulted in a late suspension in the trading of Apple’s stock after it fell nearly 10%, once this all settles down the market will hopefully recognize that the company is in good hands.  Cook was one of Job’s possible successors mentioned in an earlier blog and a story in Forbes back in the summer.  For more:San Jose Mercury News  ElectricPig  Charlie Rose Interview Michael Arrington, Techcrunch  New York Times (update 1/15)  Seeking Alpha (update 1/15)