JZ CAPITAL
PARTNERS LIMITED
(a closed-end investment company
incorporated with limited liability under the laws of Guernsey with
registered number 48761)
Q1 2019
Interim Management Statement
28 June 2019
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
JZ Capital Partners Limited (LSE: JZCP.L, the “Company” or
“JZCP”), the London listed fund
that selectively invests in US and European micro-cap companies and
US real estate, today releases its Interim Management Statement for
the period 1 March 2019 to 31 May
2019.
Results Highlights
- Net Asset Value (“NAV”) of $800.2
million (28/02/19: $810.3
million)
- NAV per share of $9.92, a
decrease of 1.2% for the quarter (28/02/19: $10.04)
- $53.1 million realized,
including:
- $23.3 million from the sale of
Waterline Renewal
- $14.0 million from the
refinancing of Felix Storch
- $14.1 million from JZI Fund III,
L.P., related to the sale of portfolio company Petrocorner and
refinancing of Collingwood and Fincontinuo
- $25.6 million invested,
including:
- $2.4 million in Exer Urgent
Care
- $21.4 million in follow-on real
estate investments in our assemblages in Brooklyn, New York, and South Florida
- At the end of the period, the portfolio consisted of 41
micro-cap investments across nine industries and five major real
estate “assemblages” located in New
York and South Florida
David Zalaznick, Founder and
Investment Advisor of JZCP said: “The period was characterized
by a series of successful realizations as part of our continued
commitment to using proceeds to make distributions to shareholders
and pay down debt. As part of that, we are delighted to have
received shareholder support for a series of tender offers, the
first $30 million of which we intend
to launch in July. We believe these strategic initiatives will
greatly benefit all shareholders and provide the Company with more
flexibility as the balance sheet strengthens.”
Net Asset Value
NAV per share for the quarter decreased from $10.04 to $9.92, or
1.2%.
NAV Returns
Net Asset Value per
Ordinary Share as of 1 March 2019 |
|
$10.04 |
Change
in NAV per share due to capital gains and income received / accrued
on investments |
US Micro-cap |
|
0.13 |
European
Micro-cap |
|
(0.12) |
Real Estate |
|
(0.04) |
Other changes in
NAV per share |
|
|
Finance Costs |
|
(0.07) |
Foreign Exchange
Effect |
|
0.06 |
Expenses and
Taxation |
|
(0.08) |
Net Asset Value per
Ordinary Share as of 31 May 2019. |
|
$9.92 |
The US micro-cap portfolio had a net increase of 13 cents, primarily due to write-ups at our
co-investment Orizon (6 cents), net
accrued income of 6 cents and escrows
of 2 cents. These increases were
offset by a write-down at our Water vertical (1 cent).
The European micro-cap portfolio had a net decrease of
12 cents, primarily due to write-ups
at multiple JZI Fund III, L.P. portfolio companies (3 cents) and 1 cent
of accrued income, offset by a 16
cent write-down of the accrued interest on JZCP’s loan to
Ombuds.
The real estate portfolio had a decrease of 4 cents for the quarter, due to carrying costs
and pre-development expenses at the property level.
The chart below summarizes the cumulative total NAV returns and
total shareholder returns for the most recent three-month,
twelve-month, three-year and five-year period.
|
31/05/19 |
28/02/19 |
31/05/18 |
31/05/16 |
31/05/14 |
Share price (in
GBP) |
£4.79 |
£4.35 |
£4.64 |
£3.90 |
£4.41 |
NAV per share (in
USD) |
$9.92 |
$10.04 |
$9.78 |
$10.32 |
$10.08 |
NAV to market price
discount |
39.1% |
42.4% |
36.9% |
45.0% |
26.6% |
|
|
|
|
|
|
|
|
3
month return |
12
month return |
3
year return |
5
year return |
Dividends paid (in
USD) |
— |
— |
— |
$0.16 |
$0.79 |
Total Shareholders'
return (GBP)1 |
— |
10.1% |
3.2% |
25.9% |
23.0% |
Total NAV return per
share (USD)1 |
— |
(1.2)% |
1.4% |
(2.4)% |
6.4% |
Total Adjusted NAV
return per share (USD)1/2 |
— |
(1.2)% |
(0.1)% |
(4.0)% |
15.4% |
______________
- Total returns are cumulative and assume that dividends were
reinvested
- Adjusted NAV returns reflect the return per share before (i)
the dilution resulting from the issue of 18,888,909 ordinary shares
at a discount to NAV on 30 September
2015 and (ii) subsequent appreciation of the buyback of
ordinary shares at a discount
RECENT ACTIVITIES
Upcoming Tender Offer
JZCP’s board has received shareholder approval to return
approximately $100 million in capital
to shareholders via a series of tender offers at a price no more
than a 5% discount to NAV.
We expect to send out documents regarding the first tender offer
of approximately $30 million in
July 2019.
Significant Investments and
Realizations
Co-investments
In March 2019, JZCP invested
approximately $2.4 million in Exer
Urgent Care, one of the largest urgent care operators in
Greater-Los Angeles and
Orange County, California.
Real Estate Investments
In the three-month period ended 31 May
2019, JZCP invested a total of $21.4
million in follow-on investments in our assemblages in
Brooklyn, New York, and
South Florida.
Realizations
Waterline Renewal
In April 2019, Waterline Renewal
was acquired by Behrman Capital, a private equity investment firm
based in New York and San Francisco.
Waterline Renewal is a leading provider of engineered products
used in the trenchless rehabilitation of wastewater infrastructure
for municipal, commercial, industrial, and residential
applications. The company's patented line of products and
technologies allows its customers to deliver long-lasting solutions
that repair sewer systems and wastewater lines without the need for
excavation or property damage, and prevent overflow created by
excess inflow and infiltration of ground water into the wastewater
system.
JZCP expects to realize approximately $24.6 million in gross proceeds (including
escrows) from the sale.
Felix
Storch
In March 2019, JZCP refinanced
Felix Storch, its manufacturer of
small and custom refrigeration appliances. This refinancing
resulted in gross proceeds to JZCP of approximately $14.0 million, which returned JZCP’s entire
March 2017 investment in Felix Storch of $12.0
million. Felix Storch has
continued to exhibit strong growth and we expect it to return more
capital in the future.
PORTFOLIO SUMMARY
At 31 May 2019, the Company’s
portfolio consisted of 41 micro-cap investments across nine major
industries and five major real estate “assemblages” located in
New York and South Florida.
($’000) |
At 31/05/19 |
At 28/02/19 |
% Gross Assets 31/05/19 |
US Micro-cap
Portfolio |
453,706 |
478,970 |
40.9% |
European Micro-cap
Portfolio |
102,176 |
128,698 |
9.2% |
Real Estate
Portfolio |
461,495 |
443,044 |
41.6% |
Other Portfolio |
19,520 |
19,082 |
1.8% |
Total Private
Investments |
1,036,897 |
1,069,794 |
93.5% |
Cash and Liquid
Investments |
73,174 |
54,308 |
6.5% |
Total Investments
(and Cash) |
1,110,071 |
1,124,102 |
100.0% |
Other Current
Assets |
563 |
506 |
0.0% |
Total Investments
(and Cash) |
1,110,634 |
1,124,608 |
100.0% |
At 31 May 2019, 6.5% of gross
assets were invested in liquid assets (cash). The remaining portion
of the portfolio was invested in private investments in US or
European micro-cap companies or real estate. Our micro-cap
investments are valued at fair value by JZCP’s directors each
quarter whereas our real estate portfolio is valued at least
annually and based upon third-party appraisals, generally done
prior to JZCP’s fiscal year end.
We value our privately held businesses cautiously. Our average
multiple used for our US micro-cap businesses is 8.1x trailing
EBITDA. In addition, we do not have substantial debt in these
businesses. The multiple of debt senior to JZCP’s position is
approximately 3.8x EBITDA.
Top Ten Investments
Our ten largest investments as of 31 May
2019 are summarized below:
($000’s) |
Asset
Category |
|
Valuation 31/05/19 |
|
%
Gross Assets
31/05/19 |
Industrial Services
Solutions Vertical |
US |
|
95,893 |
|
8.6% |
Design District –
Southern Parcel |
Real
Estate |
|
91,994 |
|
8.3% |
Greenpoint |
Real
Estate |
|
59,768 |
|
5.4% |
Fulton Mall
Assemblage |
Real
Estate |
|
53,226 |
|
4.8% |
TierPoint |
US |
|
46,813 |
|
4.2% |
Deflecto |
US |
|
42,401 |
|
3.8% |
Avante |
US |
|
40,850 |
|
3.7% |
Williamsburg Retail –
North 6th |
Real
Estate |
|
37,188 |
|
3.3% |
Redbridge Bedford |
Real
Estate |
|
32,372 |
|
2.9% |
Peaceable Street
Capital |
US |
|
27,634 |
|
2.5% |
Top Ten
Investments |
|
|
528,139 |
|
47.6% |
Remaining
Assets |
|
|
582,495 |
|
52.4% |
Gross
Assets |
|
|
1,110,634 |
|
100.0% |
Balance Sheet
Below is a summary of JZCP’s balance sheet as of the relevant
dates:
($000’s) |
31/05/19 |
28/02/19 |
Cash and cash
equivalents |
73,174 |
54,308 |
Investments &
other assets |
1,037,460 |
1,070,300 |
(-) Other net
liabilities |
(249,186) |
(250,508) |
(-) ZDPs due 2022 |
(61,266) |
(63,838) |
Net Asset
Value |
800,182 |
810,262 |
At 31 May 2019, “other net
liabilities” includes $51.4 million
from the issuance of Convertible Unsecured Loan Stock (“CULS”) in
July 2014, which carries an interest
rate of 6%, and $149.3 million from a
six-year term loan with Guggenheim Partners, which carries an
interest rate of LIBOR plus 5.75%.
For Further Information:
Ed Berry / Kit Dunford
+44 (0) 20 3727 1046 / 1143
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Sam Walden
+44 (0) 1481 745385
JZ Capital Partners Limited
About JZCP
JZ Capital Partners (“JZCP”) is one of the oldest closed-end
investment companies listed on the London Stock Exchange. It seeks
to provide shareholders with a return by investing selectively in
US and European micro-cap companies and US real estate. JZCP
receives investment advice from Jordan/Zalaznick Advisers, Inc.
(“JZAI”) which is led by David
Zalaznick and Jay Jordan.
They have worked together for more than 35 years and are supported
by teams of investment professionals in New York, Chicago, London and Madrid. JZAI’s experts work with the existing
management of micro-cap companies to help build better businesses,
create value and deliver strong returns for investors. For more
information please visit www.jzcp.com.