JZ CAPITAL
PARTNERS LIMITED (the "Company" or "JZCP")
(a closed-end investment company
incorporated with limited liability under the laws of Guernsey with
registered number 48761)
ANNUAL RESULTS FOR
THE TWELVE-MONTH PERIOD ENDED
28 FEBRUARY 2019
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
8 May
2019
JZ Capital Partners, the London
listed fund that invests in US and European microcap companies and
US real estate, announces its preliminary results for the year
ended 28 February 2019.
Results and Portfolio Highlights
· NAV per share of $10.04 (FYE 28/02/18: $9.98), an increase of 0.6% during the period
· NAV of $810.3 million (FYE 28/02/18: $837.6 million)
· Total investments of
$183.7 million including: new
Flexible Packaging and Flow Controls verticals, a new
co-investment, Deflecto, as well as follow-on investments in our
Testing Services and Industrial Services Solutions verticals. The
Company also made additional investments in our properties located
in Brooklyn, New York and
South Florida.
· Realisation of three investments
significantly above NAV: Paragon Water Systems (“Paragon”), Bolder
Healthcare Solutions (“BHS”) and TWH Water Treatment Industries
Inc. (“TWH”), with gross proceeds of more than $160 million, including escrows and potential
earn-out proceeds.
· In December 2018, the Company entered into a joint
venture partnership with HomeFed, a real estate investor and
developer in the US, with regards to the Fulton Mall Assemblage.
JZCP received gross proceeds of approximately $40.7 million from the minority sale.
· In September 2018, JZCP refinanced Esperante, its
office building in West Palm Beach,
Florida, resulting in gross proceeds to JZCP of $8.3 million.
· As of 28
February 2019, the portfolio comprised:
o US microcap: 24 businesses, which includes five
‘verticals’ and 14 co-investments, across eleven industries.
o European microcap: 17 companies across six
industries and seven countries.
o US real estate: 61 properties (including one post
year-end acquisition) across five major assemblages in New York and South
Florida all in various stages of (re)/development.
· JZCP made one post-period
realization (April 2019) and one
post-period refinancing (March 2019):
Waterline Renewal and Felix Storch.
Strategic Initiatives
· JZCP’s Board will be seeking
shareholder approval for the return of approximately $100 million in capital to shareholders at a
price no more than a 5% discount to NAV, via a series of tender
offers, the first of which we are targeting in July 2019 for approximately $30 million.
· Additionally, we plan to repay
approximately $100 million of debt.
The $200 million of cash required to
support these initiatives will be generated from realizations and
the secondary sale of certain portfolio assets that are planned for
this calendar year and next.
· In order to conserve cash for
these strategic initiatives, we will be investing in fewer new
deals or investing a smaller percentage in each new deal. As such,
a strategy similar to our investment in JZI Fund III, L.P. for
European microcap companies is intended to be developed, where, in
effect, JZCP puts up a much smaller percentage in each new
investment.
· In the coming months, we will
also be seeking shareholder approval for a US Side-Car Fund (“JZ
Partners II”), which will be approximately $450 million and used to invest side-by-side with
JZCP in US microcap deals.
· Finally, as we are two to three
years out from redeeming our Zero Dividend Preference Shares and
Convertible Unsecured Loan Stock, we believe our goal should be to
retire these obligations, as well as a meaningful portion of the
Guggenheim term loan in the next thirty six months.
Outlook
· Strong pipeline of realizations
and refinancings in the Company’s overall portfolio over the next
12 months.
· Balance sheet remains strong and
the Company is focused on using the liquidity achieved from
realizations and refinancings to fund the series of tender offers
(subject to shareholder approval) and paying down debt.
· As we repay debt, we will be
de-risking JZCP overall; additionally, as we undertake tender
offers of our stock (at close to NAV), we will be returning capital
to shareholders.
David Zalaznick, JZCP’s
Co-Founder and Investment Adviser, said: “We are pleased with
the continued strong underlying performance of the US and European
microcap portfolios during the period. In addition, we expect the
ongoing improvement in real estate performance to continue going
forward, following the successful completion of the previously
announced Fulton Mall Assemblage joint venture partnership.
We have continued to make significant progress in realising
portfolio assets, at or above NAV, which will help fund the
strategic initiatives announced today for a series of tender offers
and the repayment of debt. We believe these proposals will benefit
all shareholders whilst strengthening JZCP’s balance sheet,
hopefully ensuring our underlying performance translates into
positive long-term shareholder value.”
David Macfarlane, Chairman of
JZCP, said: “We have worked hard during the period to better
prepare the Company for a more secure, long-term future, and we
fully support our Investment Adviser’s ability to execute the plan
our Board has approved to de-risk the Company and return capital to
shareholders via a series of tender offers. We have confidence in
the value of JZCP’s assets and believe the measures outlined today
will greatly benefit all shareholders.”
Presentation details:
There will be an audiocast presentation for investors and
analysts at 2pm (London, UK) / 9am (New York,
US) on Wednesday 8 May, 2019. The
presentation can be accessed here and by dialing +44 (0)330 336
9125 (UK) or +1 323-794-2575 (US) with the participant
access code 9765331.
__________________________________________________________________________________
Market Abuse Regulation
The information contained within this
announcement is inside information as stipulated under MAR. Upon
the publication of this announcement, this inside information is
now considered to be in the public domain. The person responsible
for arranging for the release of this announcement on behalf of the
Company is David Macfarlane,
Chairman.
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.
Sharon Henderson
+44 (0) 1481 745403
Northern Trust International Fund
Administration Services (Guernsey) Limited
About JZ Capital Partners
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 microcap 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 microcap companies to help build better businesses,
create value and deliver strong returns for investors. For more
information please visit www.jzcp.com.
Chairman's Statement
I am pleased to report the results of JZ Capital Partners
(“JZCP” or the “Company”) for the year ended 28 February 2019.
Performance
The Company’s performance over the last twelve months has been
set against a backdrop of continued global market uncertainty, led
by a widespread increase in populism, mounting trade tensions and
financial conditions tightening globally. Meanwhile, prolonged
Brexit negotiations and US trade tariffs continue to undermine
business confidence and investment.
Despite this, the US economy remains in a period of economic
expansion, driven by large tax cuts, spending increases and falling
unemployment levels.
Comparatively, the European economic outlook remains gloomy. A
series of surprising election results in Italy, Sweden
and Ukraine saw voters move away
from traditional parties, signifying the appeal of populist
rhetoric across the region, and economic expansion in 2018 occurred
at a much slower pace than predicted.
Within this market environment, the Company delivered marginal
net asset value ("NAV") growth during the year, with JZCP’s NAV per
share increasing 0.6% from $9.98 to
$10.04. The positive underlying
performance of the US and European micro-cap portfolio was offset
principally by the pre-development and carrying costs in our real
estate portfolio.
Strategic Initiatives
The Board is seeking shareholder approval for specific
initiatives that we believe will greatly benefit all of our
shareholders and strengthen JZCP’s balance sheet. We have
formulated this plan in conjunction with our advisers, David Zalaznick and Jay
Jordan, who are supportive.
We will be seeking approval for the return of approximately
$100 million in capital to
shareholders at a maximum discount to NAV of 5%, via a series of
tender offers. In addition, the Company plans to repay
approximately $100 million of debt.
The $200 million of cash required to
support these initiatives will be generated from ordinary
realizations and the secondary sale of certain portfolio assets
that are planned for this calendar year and next.
We intend to begin implementation of this plan immediately, with
the first tender offer for the repurchase of shares and/or
repayment of debt planned to take place in July 2019. Since we have many illiquid
investments, it is important to sell them in an orderly fashion in
order not to diminish their intrinsic value. Therefore, the first
tender offer is intended to be for approximately $30 million.
In order to conserve cash for successive share buybacks and debt
repayment, we will be investing in fewer new deals or investing a
smaller percentage in each new deal. As such, the Board has asked
our Investment Adviser to develop a strategy similar to our
investment in JZI Fund III, L.P. for European microcap companies,
where, in effect, JZCP puts up a much smaller percentage in each
new investment.
In the coming months, we will be seeking shareholder approval
for a US Side-Car Fund (“JZ Partners II”), which will be
approximately $450 million and will
be used to invest side-by-side with JZCP in US microcap deals. JZ
Partners II, which will be substantially funded by third-party
limited partners, should allow JZCP to conserve considerable cash
over the next five years, as JZ Partners II will take up a larger
percentage of each new US microcap deal. The current thinking is to
hold a first closing for JZ Partners II in the fourth quarter of
JZCP’s current financial year.
As we are two to three years out from redeeming our Zero
Dividend Preference Shares (“ZDPs”) and Convertible Unsecured Loan
Stock (“CULS”), we believe our goal should be to retire these
obligations, as well as a meaningful portion of the Guggenheim term
loan in the next thirty six months.
The Board believes that this plan will benefit all shareholders
by returning capital (via tender offers at close to NAV) and by
retiring debt, which de-risks JZCP overall.
Portfolio Update
It has been another active investment period for the Company,
putting $183.7 million to work across
our three major asset classes, whilst realisations and refinancings
totaled $207.2 million, primarily
through the sale of Bolder Healthcare Solutions (“BHS”), TWH Water
Treatment Industries (“TWH”), Paragon Water Systems (“Paragon”) and
a minority stake in our Fulton Mall Assemblage.
The portfolio continues to diversify geographically across
Western Europe and by asset type.
At the end of the year, the Company’s portfolio consisted of 41 US
and European micro-cap businesses across eleven industries, and
five primary real estate ‘assemblages’ (61 total properties)
located in Brooklyn, New York and
South Florida.
U.S. and European Micro-cap
The Board is pleased with the continued positive performance of
the US micro-cap portfolio, which has delivered a net valuation
increase of 49 cents per share during
the year. This was primarily due to net accrued income
(19 cents), increased earnings at
Felix Storch (13 cents) and Priority
Express (2 cents) and writing our
Water Treatment and Waterline Renewal investments up to their
respective sale values (36
cents).
The portfolio was valued at 8.1x EBITDA, after applying an
average 23% marketability discount to public comparables.
The European micro-cap sector remains a strategically important
segment of the business. It now represents approximately 11 per
cent of the Investment Portfolio ($129
million) and consists of 17 companies across six industries
and seven countries.
The portfolio performed very well during the year and has seen a
valuation increase of 22 cents per
share, primarily due to net accrued income (9 cents) and write-ups at Petrocorner,
Fincontinuo, S.A.C, Alianzas en Aceros and Eliantus (13 cents combined).
During the year, JZCP acquired a stake in one new business
through its 18.8% ownership of JZI Fund III, L.P. (“Fund III”):
Karium, a platform investment which will support a strategy to
acquire under-invested consumer brands in the UK and European
personal care sector.
Real Estate
The Company continues to make significant progress in building a
diversified portfolio of retail, office and residential properties
in Brooklyn, New York, and
South Florida.
As of 28 February 2019, JZCP, in
partnership with its long-term real estate partner, RedSky Capital,
had invested approximately $374
million in 61 properties, all currently in various stages of
development and re-development.
Whilst the real estate portfolio is performing in line with
expectations, it produced a net decrease of 33 cents per share, primarily due to operating
expenses and debt service at the property level. As previously
announced, the Company has held discussions with several
institutional joint venture partners in order to address the impact
of these costs on JZCP’s NAV.
In December 2018, JZCP and HomeFed
Corporation (“HomeFed”), a real estate investor and developer of
mixed-use projects in the United
States, announced a joint venture partnership with regards
to JZCP’s Fulton Mall assemblage. As part of this, HomeFed
acquired a minority stake in JZCP’s Fulton Mall assemblage for
approximately $52.5 million, of which
approximately $40.7 million is
attributable to JZCP. JZCP and RedSky Capital plan to develop the
Fulton Mall assemblage in partnership with HomeFed.
Realisations
The Company generated realisations and refinancings totaling
$207.2 million during the year,
primarily through the sale of three US micro-cap companies and the
joint venture partnership with HomeFed.
The Company realised its investment in BHS, a healthcare revenue
cycle management services company, and expects to achieve a gross
multiple of capital invested of 4.0x and a gross IRR of 33.7%. In
addition, the Company received initial gross proceeds of
$31.3 million from the merger of TWH
and DuBois Chemicals, Inc., and expects to realize approximately
$16.2 million in gross proceeds from
the sale of Paragon Water Systems.
Board
In June 2018, Sharon Parr was appointed to the Board following
a proposal by the Nomination Committee. Sharon was considered a
suitable candidate due to her wealth of industry experience and her
audit and accounting expertise, which will be essential as she
replaces Patrick Firth as Chairman
of the Audit Committee.
Patrick therefore intends to retire as Chairman of the Audit
Committee and as a Director. The Board is extremely grateful for
the substantial contribution that he has made to the Company and
wishes him well.
The Board’s policy on the Chairman’s tenure is that continuity
and experience are considered to add significantly to the strength
of the Board and as such these attributes need to be weighed
against any advantages that a new appointment may bring. Therefore,
no limit on the overall length of service of the Chairman is
imposed.
However, given my tenure on the Board since the Company’s
inception in April 2008, as well as
that of other long-serving directors, the Board acknowledges that
succession to the role needs to be anticipated in line with
effective succession planning. We are therefore currently
considering a plan for my succession as Chairman of JZCP, and for
the refreshment of the Board, and it is intended that a new
Chairman will be appointed to the Board in 2021. As part of the
wider succession planning, we will also be looking to recruit new
directors before then.
Outlook
The Board has great confidence in the value of JZCP’s assets; we
believe our NAV has been fairly, if not conservatively, valued.
We have worked hard during the year to better prepare the
Company for a more secure, long-term future, and we hope
shareholders will support our proposals for a series of tender
offers (at close to NAV) and the repayment of debt. It is our hope
that the stock price will adjust to reflect these improvements to
shareholder returns and JZCP’s strengthened balance sheet
overall.
The Board is confident in the Investment Adviser’s ability to
execute on the proposed initiatives for the benefit of all
shareholders.
David
Macfarlane
Chairman
7 May
2019
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