JZ CAPITAL PARTNERS
LIMITED
(a closed-end investment company incorporated with limited
liability under the laws of Guernsey with registered number
48761)
Q3 2016
Interim Management Statement
19 December
2016
JZ Capital Partners Limited (LSE: JZCP.L, the “Company” or
“JZCP”), the London listed fund
that invests in US and European micro-cap companies and US real
estate, today releases its Interim Management Statement for the
period 1 September 2016 to 30
November 2016.
Results Highlights
- Net Asset Value (“NAV”) of $849.6
million (31/08/16: $873.0
million)
- Pre-dividend NAV per share of $10.28 (31/08/16: $10.40)
- Net valuation uplift across US and European micro-cap and US
real estate portfolios before expenses, finance costs and foreign
exchange effects
- Semi-annual dividend of 15.5
cents per share paid on 25 November
2016
- Including previously paid dividend of 15
cents in June 2016, implied
dividend yield of approximately 4.8%, based on the stock price at
30 November 2016
- $36.7 million invested,
including:
- $7.5 million further investment
in Peaceable Street Capital
- $12.9 million to acquire a prime
development site in the Wynwood neighbourhood of Miami, Florida
- $9.6 million invested in two
properties located in Brooklyn, New
York
- $27.1 million realised,
including:
- $8.4 million from the sale of
Southern Petroleum Laboratories
- $10.1 million from the
refinancing of our US micro-cap water vertical
- $3.1 million from the refinancing
of Metpar
- At the end of the period, the portfolio consisted of 35
micro-cap investments across nine industries and four major real
estate “assemblages” (59 total properties) located in New York and South
Florida
David Zalaznick, Founder and
Investment Advisor of JZCP said: “We are pleased with the
steady underlying performance of the portfolio, which provided an
increase in NAV before finance costs, expenses and foreign exchange
movements. The greatest contributor to the decline in our overall
NAV was the dividend payment for the quarter.
Our strong balance sheet provides us with a robust platform to
source investments with compelling value-add opportunities and we
remain confident in the outlook for our diversified portfolio.”
Net Asset Value
Pre-dividend NAV per share for the quarter decreased from
$10.40 to $10.28 as finance costs, expenses and foreign
exchange movements exceeded portfolio write-ups. In addition, JZCP
paid a dividend of 15.5 cents per
share on 25 November 2016. For the
past twelve-month period, including a previously paid dividend of
15 cents in June 2016, the implied dividend yield, based on
our stock price at 30 November 2016
is approximately 4.8%.
NAV Returns
Net Asset Value per
Ordinary Share as of 1 September 2016 |
|
$10.40 |
Increase/(decrease) in NAV per share due to Capital Gains and
Income received/accrued on Investments |
+ US Micro-cap |
|
0.08 |
+ European
Micro-cap |
|
0.03 |
- Real Estate |
|
(0.06) |
- Other
Investments |
|
(0.03) |
Other
increases/(decreases) in NAV per share |
|
|
- Change in CULS fair
value |
|
(0.02) |
- Finance Costs |
|
(0.05) |
- Foreign exchange
effect |
|
(0.02) |
- Expenses |
|
(0.05) |
Net Asset Value per
Ordinary Share (before dividends paid) |
|
$10.28 |
- Dividends Paid (25
November 2016) |
|
(0.155) |
Net Asset Value per
Ordinary Share as of 30 November 2016 |
|
$10.13 |
The US micro-cap portfolio had a net increase of 8 cents, primarily due to a write-up at our
healthcare revenue cycle management vertical (12 cents) and co-investment Salter Labs
(1 cent). Offsetting these uplifts in
valuation were decreases in value at: co-investment Medplast, which
was written down to match sale proceeds received post-period
(3 cents), our legacy Nationwide
Studios business (1 cent) and our ISS
vertical (3 cents).
The European micro-cap portfolio had a net increase of
3 cents, primarily due to write-ups
at JZI Fund III, L.P. portfolio companies Petrocorner (1 cent) and S.A.C (1
cent).
The real estate portfolio had a net decrease of 6 cents, primarily due to a new mortgage
encumbering both the Williamsburg Retail and Bedford Avenue
assemblages, which exceeded the value created, causing a reduction
in unrealized gain.
Finally, our other investments had a net decrease of
3 cents, primarily due to: a write-up
at Metpar to match refinancing proceeds received (3 cents) offset by a write-down at Spruceview
(6 cents).
The chart below summarises the cumulative total NAV returns and
total shareholder returns for the most recent three-month,
twelve-month, three-year and five-year period. Total NAV returns
for the one, three and five-year periods are diluted by the issue
of Ordinary Shares (September 2015)
at a discount to NAV.
|
30/11/2016 |
Since
31/08/2016 |
Since
30/11/2015 |
Since
30/11/2013 |
Since
30/11/2011 |
Share price
(in GBP) |
£5.07 |
£4.53 |
£3.93 |
£4.45 |
£3.38 |
Dividends paid
(in USD) |
— |
$0.155 |
$0.305 |
$0.95 |
$1.57 |
Total Shareholders'
return (GBP)1 |
— |
14.7% |
35.7% |
31.8% |
90.4% |
NAV per share
(in USD) |
$10.13 |
$10.40 |
$9.51 |
$9.94 |
$9.08 |
Implied dividend
yield2 |
4.8% |
5.2% |
5.7% |
4.1% |
3.1% |
NAV per share
total returns 1 |
— |
(1.1)% |
9.7% |
12.0% |
30.8% |
NAV to market price
discount |
37% |
43% |
38% |
27% |
42% |
______________
- Total returns are cumulative and assume that dividends were
reinvested
- For 30/11 dates in 2016, 2015 and 2013, implied dividend yield
is calculated as the addition of the dividend paid in November and
June of each respective year, divided by the stock price at such
30/11 date. For 30/11/11, implied dividend yield is calculated as
the addition of the dividend paid in November 2011 and July
2011, divided by the stock price at 30/11/11. For 31/08/16,
implied dividend yield is calculated as the addition of the
dividend paid in June 2016 and
November 2015, divided by the stock
price at 31/08/16.
RECENT ACTIVITIES
On 25 November 2016, JZCP paid a
semi-annual dividend of $13 million,
or 15.5 cents per share.
Significant Investments and
Realisations
US Micro-cap Investments – Verticals
Industrial Services Solutions (“ISS”)
Vertical
During the period, JZCP’s ISS vertical completed the add-on
acquisition of Control Products Louisiana, which required no cash
from JZCP. Since inception, ISS has made 26 acquisitions.
US Micro-cap Investments – Co-investments
In October 2016, JZCP invested a
further $1.8 million in Tech
Industries, to fund the acquisition of a manufacturer of complex
aviation components.
In September 2016, JZCP invested a
further $7.5 million in Peaceable
Street Capital, a specialty real estate finance platform.
European Micro-cap Investments – JZI Fund III, L.P.
In November 2016, JZCP (through
its commitment to JZI Fund III, L.P.) acquired ERSIndustries, a
one-stop shop providing engineering expertise, steel procurement,
local manufacturing and on-site assembly of pre-fabricated,
reinforced steel modules for major international infrastructure
projects.
Real Estate Investments
In September 2016, JZCP invested
$12.9 million to acquire a prime
development site in the Wynwood neighbourhood of Miami, Florida.
In September 2016, JZCP invested
$3.6 million to acquire another
building on the Fulton Mall in Downtown
Brooklyn, New York, adjacent to our other properties on the
Fulton Mall.
Also in September 2016, JZCP
invested $6.0 million to acquire
another building on North 6th Street in the Williamsburg
neighbourhood of Brooklyn, New
York, adjacent to our other properties on that
block.
Realisations
In November 2016, JZCP received
net proceeds of $10.1 million from
the refinancing of our US micro-cap water vertical.
Also in November 2016, JZCP
received further proceeds of $1.4
million from the refinancing of our original property in the
Williamsburg neighbourhood of Brooklyn,
New York.
In September 2016, JZCP received
proceeds of $8.4 million from the
sale of SPL, a leader in oil & gas measurement and laboratory
services.
In September 2016, JZCP received
proceeds of $3.1 million from the
refinancing of Metpar, a manufacturer of restroom partitions, which
was a significant uplift to the company’s carrying value of
$0.8 million.
In December 2016 (post-period),
JZCP received net proceeds of $25.6
million from the sale below carrying value of US
co-investment, Medplast.
PORTFOLIO SUMMARY
At 30 November 2016, the Company’s
portfolio consisted of 35 micro-cap investments across nine major
industries and four major real estate “assemblages” (59 total
properties) located in New York
and South Florida.
($’000) |
At 30/11/16 |
At 29/02/16 |
%
Gross Assets
30/11/2016 |
US Micro-cap
Portfolio |
434,652 |
386,173 |
39.3% |
European Micro-cap
Portfolio |
152,790 |
168,797 |
13.8% |
Real Estate
Portfolio |
454,704 |
366,158 |
41.1% |
Other Portfolio |
21,482 |
64,320 |
1.9% |
Total Private
Investments |
1,063,628 |
985,448 |
96.1% |
Listed Corporate
Bonds |
12,734 |
13,036 |
1.2% |
UK Treasury Gilts |
- |
45,608 |
0.0% |
Cash |
28,694 |
91,937 |
2.6% |
Total Listed
Investments (and Cash) |
41,428 |
150,581 |
3.8% |
Total Investments (and
Cash) |
1,105,056 |
1,136,029 |
99.9% |
Other Current
Assets |
546 |
3,551 |
0.1% |
Total Investments
(and Cash) |
1,105,602 |
1,139,580 |
100.0% |
At 30 November 2016, 3.8% of gross
assets was invested in “liquid” assets, which consists of cash and
corporate bonds. These asset classes are valued at prices quoted by
third parties. The remaining portion of the portfolio was invested
in private investments in US or European micro-cap companies or
real estate. These investments are valued at fair value by
JZCP’s directors each quarter.
We value our privately held businesses carefully. Our average
multiple used for our US micro-cap businesses is 8.3x trailing
EBITDA. In addition, we do not have substantial debt in these
businesses. The multiple of debt senior to JZCP’s position is
approximately 3.3x EBITDA.
Top Ten Investments
Our ten largest investments as of 30
November 2016 are summarised below:
($000’s) |
Asset
Category |
|
Valuation
30/11/2016 |
|
%
Gross
Assets
30/11/2016 |
Design District
Assemblage |
Real
Estate |
|
90,214 |
|
8.2% |
Industrial Services
Solutions Vertical |
US
Micro-cap |
|
82,619 |
|
7.5% |
Fulton Assemblage |
Real
Estate |
|
68,281 |
|
6.2% |
Williamsburg Retail
Assemblage |
Real
Estate |
|
66,388 |
|
6.0% |
Factor Energia |
European |
|
61,399 |
|
5.6% |
Greenpoint |
Real
Estate |
|
56,981 |
|
5.2% |
Healthcare Revenue
Cycle Management Vertical |
US
Micro-cap |
|
51,964 |
|
4.7% |
TierPoint |
US
Micro-cap |
|
46,813 |
|
4.2% |
RedBridge Bedford |
Real
Estate |
|
39,778 |
|
3.6% |
Roebling
Portfolio |
Real
Estate |
|
34,177 |
|
3.1% |
Top Ten
Investments |
|
|
598,614 |
|
54.3% |
Remaining
Assets |
|
|
506,988 |
|
45.7% |
Gross
Assets |
|
|
1,105,602 |
|
100.0% |
Balance Sheet
Below is a summary of JZCP’s balance sheet as of the relevant
dates:
($000’s) |
30/11/2016 |
29/02/2016 |
Cash and cash
equivalents |
28,694 |
150,581 |
Investments &
other assets |
1,076,906 |
988,999 |
(-) Other net
liabilities |
(202,502) |
(185,771) |
(-) ZDPs due 2016 |
- |
(44,217) |
(-) ZDPs due 2022 |
(53,459) |
(57,854) |
Net Asset
Value |
849,639 |
851,738 |
At 30 November 2016, “other net
liabilities” includes $56.3 million
from the issuance of Convertible Unsecured Loan Stock (“CULS”) in
July 2014, which carries an interest
rate of 6%, and $97.2 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.
Teresa Le
Couteur-Tembo
+44 (0) 1481 745741
JZ Capital Partners, Ltd.
About JZCP
JZCP is a London listed fund
which invests in US and European micro-cap companies and US real
estate. Its objective is to achieve an overall return comprised of
a current yield and capital appreciation. JZCP receives investment
advice from Jordan/Zalaznick Advisers, Inc. (“JZAI”) which is led
by David Zalaznick and Jay Jordan. They have worked together for 30
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. JZCP also
invests in mezzanine loans, first and second lien investments and
other publicly traded securities. For more information please visit
www.jzcp.com.