JZ CAPITAL PARTNERS
LIMITED
(a closed-end investment company incorporated with limited
liability under the laws of Guernsey with registered number
48761)
Q3 2017
Interim Management Statement
20 December 2017
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 September 2017 to 30
November 2017.
Results Highlights
- Net Asset Value (“NAV”) of $831.3
million (28/02/17: $848.8
million)
- NAV per share of $9.91, an
increase of 0.3% for the quarter (28/02/17: $10.12)
- $9.2 million invested during the
period, including:
- $4.2 million invested in K2
Towers II, a new vehicle which is being used to fund a new
portfolio of cell tower assets with the same management partners as
K2 Towers
- $4.0 million in follow-on
investments in our Williamsburg, Greenpoint, Design District and
Wynwood assemblages
- $37.6 million realised,
including:
- $8.6 million from
Nielsen-Kellerman, a designer, manufacturer and distributer of
rugged environmental and sports performance instruments
- $28.7 million from K2 Towers, a
build-up of cell tower assets across the
United States (a further $2.6
million in proceeds is expected in 2018)
- Post-period, JZCP received its first distribution of proceeds
from the November 2017 sale of Factor
Energia, totaling $54.7 million (net
of carry)
- Post-period, JZCP received approximately $11.0 million from the second tranche of sale
proceeds of Fidor Bank (net of carry)
- At the end of the period, the portfolio consisted of 35
micro-cap investments across nine industries and five 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 to report the
continued steady performance of our portfolio, driven primarily by
the realisations from two US micro-cap companies, K2 Towers and
Nielsen Kellerman, above their
carrying value.
Looking forward, we anticipate further realisations over the
next six months which would provide more liquidity to enable us to
invest in our growing pipeline of investment opportunities, repay
debt or buy back our stock.”
Net Asset Value
NAV per share for the quarter increased from $9.88 to $9.91, or
0.3%.
NAV Returns
Net Asset Value per
Ordinary Share as of 1 September 2017........................
...................................................................................................................... |
|
$9.88 |
Change
in NAV per share due to capital gains and income received / accrued
on investments |
US
Micro-cap................................................................................................ |
|
0.24 |
European
Micro-cap.......................................................................................
.................................................................................................................... |
|
0.02 |
Real
Estate................................................................................................... |
|
(0.05) |
Other
Investments.........................................................................................
.................................................................................................................... |
|
(0.01) |
Other changes in
NAV per share |
|
|
Change in CULS Fair
Value............................................................................
.................................................................................................................... |
|
0.05 |
Finance
Costs...............................................................................................
....................................................................................................................
.................................................................................................................... |
|
(0.06) |
Foreign Exchange
Effect................................................................................ |
|
(0.06) |
Expenses and
Taxation.................................................................................. |
|
(0.10) |
Net Asset Value per
Ordinary Share as of 30 November 2017.......................
...................................................................................................................... |
|
$9.91 |
The US micro-cap portfolio had a net increase of 24 cents, primarily due to the realisations of K2
Towers and Nielsen Kellerman above
carrying value (11 cents and
2 cents, respectively), net accrued
income of 9 cents and a write-up at
our water vertical (2 cents).
The European micro-cap portfolio had a net increase of
2 cents, primarily due to accrued
income.
The real estate portfolio had a net decrease of 5 cents, primarily due to pre-development
operating expenses and debt service.
Finally, our other investments had a net decrease of
1 cent, primarily due to the
write-off of unused holding companies.
The chart below summarises the cumulative total NAV returns and
total shareholder returns for the most recent three-month,
nine-month, twelve-month, three-year and five-year period.
|
30/11/17 |
31/08/17 |
28/02/17 |
30/11/16 |
30/11/14 |
30/11/12 |
Share price (in
GBP) |
£5.09 |
£5.16 |
£5.38 |
£5.07 |
£4.12 |
£4.34 |
NAV per share (in
USD) |
$9.91 |
$9.88 |
$10.12 |
$10.13 |
$10.20 |
$9.41 |
NAV to market price
discount |
30% |
33% |
34% |
37% |
35% |
26% |
|
|
|
|
|
|
|
|
|
3
month return |
9
month return |
12
month return |
3
year return |
5
year return |
Dividends paid (in
USD) |
— |
— |
— |
— |
$0.64 |
$1.25 |
Total Shareholders'
return (GBP)1 |
— |
(1.4)% |
(5.5)% |
0.3% |
35.1% |
40.9% |
Total NAV return per
share (USD)1 |
— |
0.3% |
(2.1)% |
(2.2)% |
3.5% |
19.3% |
______________
- Total returns are cumulative and assume that dividends were
reinvested
RECENT ACTIVITIES
Significant Investments and Realisations
US Micro-cap Investments – Co-investments
In October 2017, JZCP rolled
approximately $4.2 million of
proceeds from the K2 Towers realisation into K2 Towers II, a new
vehicle which is being used to fund a new portfolio of cell tower
assets with the same management partners.
Real Estate Investments
In the three-month period ended 30
November 2017, JZCP invested a total of $4.0 million in follow-on investments in our
Williamsburg, Greenpoint, Design District and Wynwood assemblages.
Realisations
Nielsen-Kellerman (“NK”)
JZCP received proceeds of $8.6
million from the sale of NK, a designer, manufacturer and
distributer of rugged, waterproof environmental and sports
performance instruments for active lifestyles and technical
applications. NK’s sale represents a 3.3x realised gross multiple
on invested capital and a 19.2% realised gross IRR. JZCP first
invested in NK in March 2010.
K2 Towers (“K2”)
JZCP expects to receive total proceeds of $31.3 million from the sale of K2 to one of the
largest publicly traded cell tower companies, representing an
overall gross multiple of invested capital of 1.5x and a gross
internal rate of return of 17.6% in just over two years.
Approximately $4.2 million of
these proceeds were re-invested into a new vehicle which is being
used to fund a new portfolio of cell tower assets with the same
management partners. This transaction provides liquidity to JZCP at
an attractive valuation while continuing to build a great cell
tower portfolio with further upside.
Factor Energia (“Factor”)
Finally, JZCP realised, at approximately net asset value, its
majority equity interest in Factor held through EuroMicrocap
Fund-C, L.P. Post-sale, Factor will be majority owned by an
affiliate of a major North American public pension fund. As part of
this transaction, JZI Fund III, L.P., in which JZCP is an
approximately 18.8% limited partner, has agreed to invest €20
million alongside the majority owner and Factor management,
representing approximately 25% of the business’ fully diluted
equity ownership.
JZCP invested a total of approximately €7.6 million
($9.6 million) in Factor and is
expected to receive total gross proceeds (before carry) of
approximately €69.7 million ($82.3
million) from the sale (including deferred payments and
interim distributions received over the course of the investment),
representing an approximate gross multiple of invested capital of
9.2x and an approximate gross IRR of 42.3% in euro-denominated
terms.
Post-period, JZCP received its first distribution of proceeds
from the November 2017 sale of Factor
Energia, totaling $54.7 million (net
of carry)
PORTFOLIO SUMMARY
At 30 November 2017, the Company’s
portfolio consisted of 35 micro-cap investments across nine major
industries and five major real estate “assemblages” (59 total
properties) located in New York
and South Florida.
($’000) |
At 30/11/17 |
At 28/02/17 |
% Gross Assets 30/11/17 |
US Micro-cap
Portfolio...................... |
426,718 |
424,502 |
37.3% |
European Micro-cap
Portfolio............. |
167,868 |
154,277 |
14.7% |
Real Estate
Portfolio......................... |
476,772 |
468,599 |
41.7% |
Other
Portfolio.................................. |
16,402 |
21,802 |
1.4% |
Total Private
Investments................ |
1,087,760 |
1,069,180 |
95.1% |
Cash............................................... |
55,187 |
29,064 |
4.8% |
Total Investments
(and Cash)........... |
1,142,947 |
1,098,244 |
99.9% |
Other Current
Assets........................ |
521 |
511 |
0.1% |
Total Investments
(and Cash).............. |
1,143,468 |
1,098,755 |
100.0% |
At 30 November 2017, 4.8% 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. 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 8.2x trailing
EBITDA. In addition, we do not have substantial debt in these
businesses. The multiple of debt senior to JZCP’s position is
approximately 3.6x EBITDA.
Top Ten Investments
Our ten largest investments as of 30
November 2017 are summarised below:
($000’s) |
Asset
Category |
|
Valuation 30/11/17 |
|
%
Gross Assets
30/11/17 |
Design District
Assemblage........................... |
Real
Estate |
|
98,899 |
|
8.6% |
Industrial Services
Solutions Vertical.............. |
US |
|
79,938 |
|
7.0% |
Greenpoint................................................... |
Real
Estate |
|
76,356 |
|
6.7% |
Williamsburg Retail
Assemblage.................... |
Real
Estate |
|
72,253 |
|
6.3% |
Healthcare Rev. Cycle
Management Vertical... |
US |
|
72,188 |
|
6.3% |
Fulton
Assemblage....................................... |
Real
Estate |
|
67,475 |
|
5.9% |
EuroMicrocap Fund-C,
L.P............................ |
European |
|
63,170 |
|
5.5% |
TierPoint...................................................... |
US |
|
46,813 |
|
4.1% |
RedBridge.................................................... |
Real
Estate |
|
36,774 |
|
3.2% |
Jordan Health
Products................................. |
US |
|
32,712 |
|
2.9% |
Top Ten
Investments.................................... |
|
|
646,578 |
|
56.5% |
Remaining
Assets........................................ |
|
|
496,890 |
|
43.5% |
Gross
Assets.................................................... |
|
|
1,143,468 |
|
100.0% |
Balance Sheet
Below is a summary of JZCP’s balance sheet as of the relevant
dates:
($000’s) |
30/11/17 |
28/02/17 |
Cash and cash
equivalents........................... |
55,187 |
29,064 |
Investments &
other assets........................... |
1,088,281 |
1,069,691 |
(-) Other net
liabilities................................... |
(251,260) |
(195,976) |
(-) ZDPs due
2022........................................ |
(60,949) |
(53,935) |
Net Asset
Value........................................... |
831,259 |
848,844 |
At 30 November 2017, “other net
liabilities” includes $58.9 million
from the issuance of Convertible Unsecured Loan Stock (“CULS”) in
July 2014, which carries an interest
rate of 6%, and $149.4 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.
Paul Ford
+44 (0) 1481 745001
JZ Capital Partners, Ltd.
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 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 micro-cap companies to help build better businesses,
create value and deliver strong returns for investors. For more
information please visit www.jzcp.com.