Michael Weinstock’s Monarch Alternative Capital has unloaded more shares of WCI Communities Inc. (NYSE:WCIC). In a Form 4 filed with the SEC, Monarch Alternative Capital and its affiliates have disclosed the sale of 243,300 shares of WCI at a price of $23.10 per share. Michael Weinstock’s firm also sold 1.69 million shares of WCI earlier this month. After the recent transactions, Monarch Alternative Capital owns 3.37 million shares in WCI Communities, in concert with its affiliates.
Monarch Alternative Capital LP is a privately-owned hedge fund co-founded by Michael Weinstock, Andrew Herenstein, and Chris Santana in 2002. The investment firm, with roughly $5 billion in net assets under management, mainly channels its investments into the debt of distressed and bankrupt companies. Michael Weinstock, the Chief Executive Officer and co-Portfolio Manager of Monarch, had acted as a Managing Director at Lazard Frères & Co. and served as co-Portfolio Manager of the Lazard Debt Recovery Funds prior to launching his own shop. Lazard’s distressed debt research team, under the lead and supervision of Weinstock, was ranked number one in the distressed debt category by Institutional Investor magazine in 1998. So there is no doubt that Weinstock’s expertise in the distressed debt market has played an important role in Monarch’s success. In 2013, the New York-based distressed debt investment firm opened an additional office in London to strengthen its investment activities in Europe. Subsequently, Monarch Alternative Capital is led by an experienced team of professionals that helps the fund exploit the existing investing opportunites both in the U.S. and Europe. In the meantime, Monarch Alternative Capital manages a public equity portfolio worth $415.95 million as of March 31, 2015.
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WCI Communities Inc. (NYSE:WCIC) is a lifestyle community developer and luxury homebuilder in most of coastal Florida’s fastest-growing and largest markets. The company offers single- and multi-family homes, but also provides design, construction, financing, land purchases, marketing, and community management services. WCI Communities is based in Bonita Springs, Florida and has been recently focusing on developing lifestyle-oriented, master-planned communities in Florida. In addition to that, the American homebuilder manages clubhouses, golf courses, restaurants, and marinas in some of the communities it has been developing. The shares of WCI have grown by over 13% since the beginning of the year, but many investors may be asking themselves whether the stock has hit its ceiling amid consistent sizable sell-offs of the company’s stock by reputable hedge funds such as Monarch Alternative Capital.
Over the course of the last few months, WCI Communities Inc. has been continuously announcing secondary offerings of its common stock. However, all of the shares have been offered by entities affiliated with Monarch Alternative Capital and entities affiliated with Stonehill Capital Management LLC. It’s worth mentioning that WCI does not sell any shares in these offerings and does not receive any portions of the proceeds from the offerings either. On July 27, WCI Communities announced the pricing of a registered secondary offering of 3.25 million shares of its common stock at a price to the public of $23.10 per share. Hence, one should not be a genius to realize that Michael Weinstock’s Monarch Alternative Capital is attempting to cut back its stake in WCI Communities. But are the sell-offs by Monarch Alternative Capital necessarily a bad sign? It’s highly unlikely that Monarch Alternative Capital is cutting back its stake in WCI just because it expects a large drop in the share price of the company over the next few months. If that was the case, the hedge fund would have reduced its stake at a higher pace than it has. Most likely, Monarch simply wants to cash out so as to take profits off the table, which will give the fund the financial flexibility to make other attractive investments in the future.
The financial performance of WCI Communities does not indicate that the company is expected to face serious challenges in the upcoming quarters. On the contrary, the company has posted strong financial results lately, suggesting that WCI is on the right path. Just today, WCI Communities posted its second quarter financial results, with total revenues of $150.7 million for the quarter, compared to the $93.0 million figure posted in the same quarter a year ago. By the same token, the company posted a net income attributable to common shareholders of $9.8 million or $0.37 per diluted share, compared to $4.3 million or $0.17 per share reported a year ago. Therefore, WCI’s business continues to grow further, with its new orders having increased to 300 homes, which marks an increase of 53.8% year-over-year.
Considering the strong financial performance of WCI Communities, the stock sell-offs by Monarch Alternative Capital should not raise any red flags. In the meantime, Martin Whitman’s Third Avenue Management is among the largest shareholders in WCI Communities Inc. (NYSE:WCIC) as of March 31, with 491,049 shares.
Disclosure: None
