Last checked at 
22 Dec 2014 07:00
JZ CAPITAL PARTNERS LIMITED
(a closed-end investment company incorporated with limited liability under the laws of Guernsey with registered number 48761)
Q3 2014 Interim Management Statement
22 December 2014
JZ Capital Partners Limited (LSE: JZCP.L, the "Company" or "JZCP"), the London listed private equity fund that invests in high quality US and European microcap companies and US real estate, today announces its Interim Management Statement for the period 1 September 2014 to 30 November 2014.
Results Highlights
· NAV of US$663.2 million (1H14: US$657.4 million)
· Pre-dividend NAV per share of US$10.35 (1H14: US$10.11), an increase of 2.4%
· Semi-annual dividend of US$0.15 per share paid on 28 November 2014
· US$20.3 million invested including:
o A US$9.1 million investment in Paragon Water Systems ("Paragon"), a design and manufacturer of portable water filtration systems for use in homes and commercial locations
o A US$1.3 million investment in PPM Information Solutions, Inc., a provider of billing and practice management software and services to anaesthesia practices
o A US$3.5 million additional investment in Fidor Bank AG ("Fidor")
· At the end of the period, the diverse portfolio consisted of 68 investments across ten industries
David Zalaznick, Founder and Investment Advisor of JZCP said: "Despite operating in an environment of renewed volatility and uncertainty, we are pleased with the positive performance of the underlying portfolio during the period, particularly across our real estate assets. We continue to put our strong balance sheet to work, sourcing and developing exciting investment opportunities across the US and Europe.
We enter the next twelve months with continued confidence and a commitment to providing superior returns for our shareholders."
Net Asset Value
We are pleased to report that pre-dividend NAV per share for the quarter was up US$0.24, or 2.4%, versus three months ago, as the pre-dividend NAV per share increased from US$10.11 to US$10.35. In addition, we declared a dividend of US$0.15 per share, which was paid on 28 November 2014. For the year, including a previously paid dividend of US$0.16, the implied dividend yield, based on our stock price at 16 December 2014 is 4.9%.
We continue to be active on the investment front, investing US$20.3 million across six investments in the US and European microcap portfolios.
NAV INCREASE AND RETURNS
Net Asset Value per Ordinary Share as of 1 September 2014..... | US$10.11 |
(+) Change in Private Investments............................................... | 0.38 |
(+) Income from Investments...................................................... | 0.10 |
(+) Change in CULS Fair Value.................................................. | 0.02 |
(-) Finance Costs...................................................................... | (0.07) |
(-) Foreign Exchange Effect........................................................ | (0.06) |
(-) Fees and Expenses ............................................................. | (0.13) |
Net Asset Value per Ordinary Share (Before Dividends)............ | US$10.35 |
(-) Dividends Declared and Paid.................................................. | (0.15) |
Net Asset Value per Ordinary Share as of 30 November 2014.... | US$10.20 |
The increase in private investments was driven primarily by new appraisals showing significant valuation increases across five real estate properties, totaling US$0.38 and an increase of US$0.19 from our Industrial Service Solutions ("ISS") vertical as EBITDA continues to grow. These increases were offset by continued performance challenges at Accutest, our environmental laboratory (US$0.11), Priority Express, our same day/next day delivery company (US$0.03), Docout, our European document management company (US$0.04) and BSM Engenharia, our Brazilian co-investment in a large port manager (US$0.02).
The chart below summarizes cumulative total shareholder returns and total NAV returns for the most recent three-month period, twelve-month period and four-year period following our refinancing and restructuring in June 2009:
As of 30.11.14 | 31.8.14 to 30.11.14 | 30.11.13 to 30.11.14 | 30.11.10 to 30.11.14 | ||
Share Price (Start of Period) ..................... | £4.12 | £4.34 | £4.45 | £3.24 | |
Dividends Paid During Period..................... | - | US$0.15 | US$0.31 | US$1.24 | |
Total Shareholder Return(1)......................... | - | -2.9% | -3.2% | 51.2% | |
NAV per Share (Start of Period) ................. | US$10.20 | US$10.11 | US$9.94 | US$8.03 | (3) |
Total NAV Return(1)................................... | - | 2.4% | 5.7% | 42.5% | |
NAV to Market Price Discount (Start of Period) | 37% | 29% | 27% | 37% | |
Russell 1000(2).......................................... | - | 2.8% | 14.3% | 15.1% | |
FTSE 100(2).............................................. | - | -1.4% | 1.1% | 5.0% |
_______________
(1) Total shareholder return is cumulative and assumes that dividends were not reinvested.
(2) Returns are annualized for four-year period and cumulative for three-month period, and assume that dividends were not reinvested.
(3) Pro forma for the post period end sale of GHW Holdings, Inc.
RECENT ACTIVITIES
On 29 October, 2014, JZCP declared a semi-annual dividend of US$9.8 million, or US$0.15 per share. This was paid on 28 November 2014.
Significant Investments and Realizations
US Microcap Investments - Verticals
Water Vertical
In October 2014, JZCP invested US$9.1 million to acquire 21 per cent of Paragon, which designs and manufactures point-of use water filtration systems for use in homes and commercial locations. Paragon is the first acquisition in the water filtration sub-vertical of our water strategy.
Also in October 2014, JZCP invested US$1.6 million to fund the acquisitions of Action Products Marketing Corporation and ConShield Technologies Incorporated (collectively, "APMCS"). APMCS is an infrastructure rehabilitation company that formulates and sells cementitious manhole and pipe rehabilitation products and provides the associated equipment used for application.
Healthcare Vertical
In October 2014, JZCP invested US$1.3 million to fund the acquisition of PPM Information Solutions, Inc., a provider of billing and practice management software and services to anesthesia practices.
US Microcap Investments - Co-investments
In December 2014 (post-period), JZCP invested US$9.2 million in Cequel Data Centers, LLC, parent company of TierPoint, LLC ("TierPoint"), alongside RedBird Capital Partners, The Stephens Group and Thompson Street Capital Partners, among others. This investment helped TierPoint fund the acquisition of a large portfolio of data centers in Northeastern United States. Managing raised floor data center space across the U.S., TierPoint today offers colocation, managed services and cloud computing through 13 data centers (post-acquisition of new portfolio) in Dallas, Oklahoma City, Tulsa, Spokane, Seattle, Philadelphia, New York, Boston and Baltimore.
European Microcap Investments
In September 2014, JZCP provided an additional €4.0 million in debt financing to Toro Finance, a newly created vehicle to provide short-term working capital financing to major Spanish companies. Toro Finance is well positioned to benefit as Spanish banks in recent years tightened their risk criteria and downscaled balance sheets to meet increasing capital requirements.
In October 2014, JZCP invested an additional US$3.5 million in Fidor, through the EuroMicrocap Fund 2010, L.P. With headquarters in Munich, Germany, Fidor combines a social-media banking model with traditional banking services, offering internet-based and mobile-based transactions, supplemented by full service cash management solutions to retail customers.
Realizations
In October 2014, JZCP realized a portion of its investment in our water vertical, refinancing certain notes, which had been used for the previously purchased water infrastructure and water treatment businesses, with third-party debt. Net of the investment in the Paragon acquisition summarized above, JZCP received US$9.8 million of proceeds.
Also in October 2014, JZCP received full repayment plus interest of a US$3.0 million bridge loan that was used to close the acquisition of a real estate property in the Bushwick-Wyckoff Heights neighborhood of Brooklyn, New York.
PORTFOLIO SUMMARY
At 30 November 2014, the Company's portfolio consisted of 68 investments across 10 major industries, totaling US$906 million:
Number of Investments (at 30.11.14) | At 30.11.14 | At 31.08.14 | % of Total Investments (at 30.11.14) | |
(US$'000) | ||||
US Microcap Portfolio..................... | 40 | 369,471 | 368,736 | 40.8% |
European Microcap Portfolio............ | 11 | 216,276 | 217,811 | 23.9% |
Real Estate Portfolio....................... | 9 | 153,245 | 127,198 | 16.9% |
Other Portfolio................................ | 7 | 66,572 | 66,478 | 7.3% |
Total Private Investments.............. | 67 | 805,564 | 780,223 | 88.9% |
Listed Corporate Bonds................... | 14,951 | 15,796 | 1.7% | |
Bank Debt...................................... | 1 | 10,725 | 11,085 | 1.2% |
UK Treasury Gilts........................... | 40,335 | 42,605 | 4.4% | |
Cash............................................. |
| 34,219 | 54,226 | 3.8% |
Total Listed Investments (and Cash).............................................. | 1 | 100,230 | 123,712 | 11.1% |
Total Investments (and Cash)........... | 68 | 905,794 | 903,935 | 100.0% |
Other Current Assets...................... |
| 64 | 89 | 0.0% |
Total Investments (and Cash)............ | 68 | 905,858 | 904,024 | 100.0% |
At 30 November 2014, 11.1% of the portfolio was invested in "liquid" assets, which consist of cash, UK treasury gilts, bank debt 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 microcap companies, real estate or mezzanine debt. 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 7.4x trailing EBITDA. In addition, we do not have substantial debt in these businesses. The multiple of debt senior to JZCP's position is less than 3.0x EBITDA.
Top Ten Investments
Our ten largest investments as of 30 November 2014 are summarized below:
(US$000's) | Asset Category | Valuation as of 30.11.2014 | % of Portfolio Valuation as of 30.11.2014 | ||
Factor Energia, S.A............................ | European | $76,371 | 8.4% | ||
Industrial Service Solutions.................. | Microcap | 61,257 | 6.8% | ||
Greenpoint......................................... | Real Estate | 50,786 | 5.6% | ||
Bright Spruce..................................... | Other | 49,390 | 5.5% | ||
Milestone Aviation Group, Inc.............. | Microcap | 40,000 | 4.4% | ||
Dental Holdings Corporation................ | Microcap | 38,467 | 4.2% | ||
Toro Finance..................................... | European | 32,274 | 3.6% | ||
Group Ombuds................................. | European | 28,915 | 3.2% | ||
Bedford............................................. | Real Estate | 23,108 | 2.6% | ||
Accutest Holdings, Inc........................ | Microcap | 21,344 | 2.4% | ||
Top Ten Investments......................... | $421,912 | 46.7% | |||
Remaining Investments..................... | 483,946 | 53.3% | |||
Total Portfolio...................................... | $905,858 | 100.0% |
Note that the largest non-public exposure is to Factor Energia, S.A, accounting for 8.4% of the total portfolio.
Balance Sheet
Below is a summary of JZCP's balance sheet as of the relevant dates:
(US$000's) | ||
30.11.2014 | 31.8.2014 | |
Cash............................................................ | $34,219 | $54,226 |
UK Treasury Gilts.......................................... | 40,335 | 42,605 |
Listed Corporate Bonds.................................. | 14,951 | 15,796 |
Bank Debt..................................................... | 10,725 | 11,085 |
Private Investments........................................ | 805,564 | 780,223 |
Other Assets................................................. | 64 | 89 |
Total Assets................................................... | $905,858 | $904,024 |
(-) Liabilities.................................................. | (136,490) | (136,229) |
(-) ZDPs........................................................ | (106,173) | (110,405) |
Net Asset Value............................................. | $663,196 | $657,390 |
At 30 November 2014, "liabilities" includes US$68 million of loans from the issuance of Convertible Unsecured Loan Stock ("CULS") in July 2014, which carry an interest rate of 6 per cent, a US$50 million one year loan facility with Jefferies, and US$2 million secured by the UK Gilts.
For further information:
Ed Berry / Kit Dunford +44 (0) 20 3727 1046 / 1143
FTI Consulting
David Zalaznick +1 212 572 0800
Jordan/Zalaznick Advisers, Inc.
Andrew Maiden +44 (0) 1481 745368
JZ Capital Partners
About JZCP
JZCP is a London listed private equity fund which invests in high quality US and European microcap companies and US real estate. Its objective is to achieve a superior overall return comprised of a current yield and significant 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 microcap 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.