Monarch Alternative Capital Gradually Unloading Its Stake In WCI Communities Inc. (WCIC), But That Shouldn’t Raise Any Red Flags

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