Hedge Fund Says WCI Communities Should Seek Sale
biz.yahoo.com
Indie Research
Wednesday October 18, 2:10 pm ET
By the InsiderScore.com Research Staff
A value-focused hedge fund wants homebuilder WCI Communities Inc. (NYSE: WCI) to sell itself.
Basswood Partners, a New York-based firm with about $1.74 billion in assets under management, filed a Form 13D with the Securities and Exchange Commission on Tuesday, October 17th, attaching with it a letter to Don Ackerman, the chairman of WCI Communities.
"Since becoming a public company almost five years ago, WCI Communities has failed to capitalize on the dramatic growth and profitability expansion experienced by the public homebuilding industry. As of October 13th 2006, WCI Communities's stock trades -16.5% below its March 2002 IPO price, while its peer group (as defined by the Company in its 2005 proxy statement) is up 88.9% over the same period. This extreme underperformance is due to management's operating results and strategy," Bennett Lindenbaum, principal of Basswood wrote.
"We urge WCI Communities's board of directors to take decisive action to prevent any further loss of shareholder value and to maximize the value of the Company," Lindenbaum continued. "WCI Communities's stock is trading at a significant discount to its intrinsic value, especially given its large inventory of entitled land in coastal Florida purchased prior to 2000. WCI Communities and its shareholders would realize this value by selling for a premium to a larger, better capitalized and more profitable homebuilding company."
Lindenbaum also noted his firm had recently met with Ackerman and requested that a Basswood representative be appointed to WCI Communities's board.
"This request was ignored. In order to protect and maximize the value of our investment, we reiterate this request. We would also like to meet with the Company's independent directors to explain our position. Your response to these requests will determine whether or not we seek to replace board members at WCI Communities's next annual meeting," Lindenbaum concluded.
Basswood owns approximately 2.093 million shares of WCI Communities, or a 5.0% stake. Since the end of the second quarter, the firm has increased its stake in WCI Communities modestly, adding just 47,725 shares. During the second quarter, Basswood sold almost 1.454 million shares of WCI Communities, further reducing a stake that at its peak at the end of 2005 totaled approximately 3.79 million shares, or 8.5%.
New York-based Basswood is a value-oriented firm concentrating on the banking and financial industry. At the end of the second quarter, Basswood's largest holdings based on portfolio weighting were Countrywide Financial Corp. (NYSE: CFC), Wells Fargo & Co. (NYSE: WFC), and Commerce Bancorp Inc. (NYSE: CBH), with respective weightings of 9.83%, 8.72%, and 6.65%. The firm did some rather aggressive portfolio shuffling, significantly paring back its stakes in its top six holdings, including homebuilder Toll Brothers Inc. (NYSE: TOL). Basswood is head by Bennett and Matthew Lindenbaum.
Shares of WCI Communities fell to $13.73 on August 14th, a three-year low, and off of a January, 52-week high of $29.76. The stock was able to rebound in late September, trading as high as $19.40 at one point, but souring sentiment towards homebuilders has plagued the name and its peers. WCI Communities hurt its own cause two weeks ago when it lowered its third-quarter outlook.
For the third quarter, WCI Communities now says that its earnings will be "significantly below" its prior guidance of 52 cents per share. The company said that a write-off of approximately $13 million for costs associated with land options that were terminated during the quarter is the largest factor behind the expected shortfall, costing WCI Communities about 18 cents per share in earnings.
"With the current slowdown in demand, we believe we own sufficient land to support our operations through the foreseeable future. We have concluded that it is more prudent at this juncture to apply our cash flow from operations primarily towards debt reduction and stock repurchases," said Jerry Starkey, president and CEO.
As a result of the earnings warning, UBS downgraded shares of WCI Communities from "neutral" to "reduce," citing weakness in the luxury home market in Florida. The firm is now forecasting a breakeven year for WCI Communities in 2007, saying it expects the company's revenues to drop -46%. UBS also lowered its price target on the stock from $17 to $12.
Worth Noting: InsiderScore.com issued a Research Note on WCI Communities on June 6th examining sales by two executives who had recently departed the company. The stock is down about -25% since then. |
