REG-JZ Capital Ptnrs Ltd: Annual Financial Report <Origin Href="QuoteRef">JZCP.L</Origin> - Part 1
17/05/2017 07:05
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 2017
17 May 2017
JZ Capital Partners, the London listed fund that invests in US and European
micro-cap companies and US real estate, announces its annual results for the
twelve-month period ended 28 February 2017.
Results Highlights
* Total NAV return per share of 2.7%.
* NAV of $848.8 million (FYE 29/02/16: $851.7 million).
* Post-dividend NAV per share of $10.12 (FYE 29/02/16: $10.15).
* 30.5 cents per share in dividends paid during the period - implied dividend
yield of 4.5% (as at 28/02/17).
* Share price trading near all-time high as at 16 May 2017, rising 43% since
29 February 2016.
Portfolio Highlights
* JZCP invested a total of $159.5 million, underpinned by investments in
Peaceable Street Capital, Jordan Health Products and real estate properties in
Brooklyn, NY and South Florida.
* JZCP received $131.4 million of proceeds from realisations, primarily
through the sale of Medplast, Southern Petroleum Laboratories and Winn Group.
* Eight properties acquired during the period, including Esperante Corporate
Centre, a landmark office building in West Palm Beach, Florida.
* As of 28 February 2017, the portfolio comprised:
* US micro-cap: 20 businesses which includes four ‘verticals’ and 12
co-investments, across nine industries.
* European micro-cap: 13 companies across five industries and six countries.
* US real estate: 59 properties across four major assemblages in New York and
South Florida all in various stages of (re)/development.
Strategic Initiatives
* Shareholder approval for initiatives designed to maximize shareholder
returns, including the discontinuation of the Company’s current dividend
policy and inception of new strategy to allow for the repurchase of shares (16
May 2017).
* Repayment of remaining ZDPs due June 2016, for £32.9 million.
* JZCP increased its loan facility with Guggenheim Partners from approximately
$100 million to $150 million, in order to provide additional liquidity to JZCP
to bridge certain planned realisations (April 2017).
Outlook
* Healthy pipeline of realisation and investment opportunities over the next
12 months.
* Balance sheet strength, diversified portfolio and share buyback policy
positions the Company well to continue to drive underlying portfolio growth
and enhance shareholder returns.
David Zalaznick, JZCP’s Founder and Investment Adviser, said: “We are
pleased with the positive performance of the portfolio on an operating basis
and appreciation of the underlying values of the portfolio’s assets. Our
execution of JZCP’s investment policy, to create a more balanced and
diversified portfolio by geography and asset type, has shown great progress
and should provide superior returns.
The buoyant US market presents a number of potential realisation opportunities
for the Company, which should in turn provide additional liquidity to invest
in the multiple investment opportunities we are seeing.”
David Macfarlane, Chairman of JZCP, said: “The progress the Company has made
during the period has been steady, characterised by a good flow of investment
and realisation activity.
We are also delighted that we have the support from our shareholders to
further maximise long-term value through the consideration of a new share
buyback policy. We look ahead to the next twelve months with continued
confidence.”
Presentation details:
There will be an audiocast presentation for investors and analysts at 2pm UK
(BST) / 9am US (EDT) on 17 May 2017. The presentation can be accessed via
http://bit.ly/2qktzkt and by dialing +44 (0) 33 0336 9411 (UK) or +1 719 325
2202 (US) with the participant access code 1404617
A playback facility will be available two hours after the conference call
concludes. This facility may be accessed via the following dial in details,
using the same participant access code as above: +44 (0) 207 984 7568 (UK) or
+1 719-457-0820 (US).
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 745 741
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.
Chairman's Statement
I am pleased to report the results of JZ Capital Partners (“JZCP” or the
“Company”) for the twelve month period ended 28 February 2017.
Performance
The Company’s performance over the last twelve months, driven by positive
growth across our three core portfolios of US and European micro-cap and US
real estate investments, is particularly pleasing given the backdrop of
sustained global market volatility as a result of the rise of populist
politics and geopolitical tensions.
Political shifts have been stark in many regions, with voters eschewing the
status quo to support populist mandates and the corresponding uncertainty that
they bring. The UK’s decision to leave the European Union and Trump’s
victory both caused disruption to global financial markets and temporarily
influenced investment activity.
The US economy is gaining traction again and households remain upbeat, with
annualised GDP growth reported of 2.1% in the fourth quarter of 2016. This
growth follows a relatively weak first half of the year, having been boosted
by a long awaited rebound in investment.
In Europe, the economic recovery continues, supported by highly favourable
monetary conditions, a weaker euro and an improvement in global growth, with
the Emerging Markets in particular doing better. The consequences of the
events of 2016 remain uncertain and additional headwinds are looming on the
horizon, especially political risks, suggesting volatility may rise over the
next twelve months.
Given this market environment, the Board is pleased to announce that JZCP has
produced a satisfactory set of full year results, having achieved total NAV
return per share of 2.7%, which includes 30.5 cents per share in dividends
paid during the year. JZCP’s post-dividend NAV per share decreased
marginally from $10.15 to $10.12 at the end of the period.
Strategic Initiatives
In view of the persistently wide discount to NAV at which the Company’s
shares trade, the Board recently launched a comprehensive review of the
Company's existing dividend policy. Giving careful consideration as to whether
full value for shareholders is being achieved, the Board determined that the
existing policy of paying out approximately 3% of NAV per year has not had the
desired long-term effect on JZCP’s stock price. Instead, the Board believes
that the interests of shareholders would be better served through the
discontinuation of the current dividend policy and implementation of a new
strategy to allow for the repurchase of shares.
The recent proposals to implement a general buy-back framework received
shareholder approval today. The Board will have the option of exercising the
buy-back programme opportunistically and where it would be accretive to
shareholder value.
Whilst we recognise that some shareholders will be disappointed by the loss of
the dividend, we believe the new strategy is a significant step forward for
the Company and in the best interest of all shareholders over the long term.
Portfolio Update
Overview
The result has been driven by the positive underlying performance of our three
major asset classes, where we continue to pursue our value-added investment
strategy and anticipate further asset growth during the fiscal period.
It has been an active investment period for the Company, putting $159.5
million to work across these core portfolios – whilst realising $131.4
million, primarily through the sale of Medplast, Southern Petroleum
Laboratories and Winn Group.
At the end of the period, the Company’s portfolio consisted of 33 micro-cap
businesses across nine industries and 59 properties located in Brooklyn, New
York and South Florida. The portfolio continues to become more diversified
geographically as we invest in further Western European countries. It’s also
important to note that 35% of our investment portfolio is less than three
years old.
US and European Micro-cap
It has been another period of significant activity within our US micro-cap
portfolio, which has continued to perform well with progress made both with
investments and realisations. The portfolio has seen a valuation increase of
38 cents per share during the period, primarily due to net accrued income of
19 cents per share and increased earnings at our Healthcare Revenue Cycle
Management vertical (32 cents). The portfolio was valued at 8.3x EBITDA, after
applying an average 26% marketability discount to public comparables.
JZCP continues to implement its disciplined and value-oriented investment
approach targeting high quality micro-cap companies in Western Europe, which
now represent approximately 14 per cent of the Investment Portfolio ($154
million) and consist of 13 companies across five industries and six countries.
The portfolio has seen a valuation increase of 12 cents per share, primarily
due to accrued income of 6 cents per share and a write-up at Fidor Bank (5
cents), which was sold to Group BPCE, the second largest banking group in
France.
As of 28 February 2017, Fund III(1) held seven investments: two in Spain, two
in Scandinavia, and one each in the UK, Italy and Luxembourg, and EMC(2) held
two investments in Spain: Factor Energia and Oro.
Real Estate
Now in its fifth year, the US real estate portfolio has continued to grow
steadily, currently consisting of 59 properties, all in various stages of
development and re-development.
As of 28 February 2017, JZCP, in partnership with its long-term real estate
partner, RedSky Capital, had more than $343.5 million invested in a diverse
portfolio of retail, office and residential properties located in Brooklyn,
New York and South Florida. JZCP acquired eight properties during the period,
including Esperante Corporate Centre, a landmark office building in West Palm
Beach, Florida.
The real estate portfolio had a net increase of 25 cents, led by significant
write-ups at our Roebling Portfolio property (25 cents) and our Greenpoint
property (21 cents), both located in adjacent North Brooklyn neighbourhoods.
Increases in value at our real estate properties are based upon third-party
appraisals.
Realisations
The Company generated realisations totalling $131.4 million, primarily through
the sale of three US micro-cap companies and the sale of European micro-cap
company Winn Group. The Company received proceeds of $25.6 million from the
sale of Medplast, a manufacturer of plastic medical components based in the
US.
Distributions
As a consequence of the new strategy, the current dividend policy will be
discontinued and the Company will not declare or pay a second interim dividend
for the six-month period ending 28 February 2017.
Significant Financings
Post period end (April 2017), the Company increased its loan facility with
Guggenheim Partners from approximately $100 million to $150 million, in order
to provide additional liquidity to JZCP to bridge certain planned
realisations. The entire $150 million facility may be repaid, in whole or in
part, with no penalty after June 2017.
The Board and Investment Adviser have discussed the expected cash flows within
the investment portfolio, investments and divestments, and likely
opportunities based on the Company’s strategy. Following this discussion,
the Board can report to shareholders that it believes it is unlikely further
equity capital will be needed in the foreseeable medium term.
Outlook
The benefits of measures approved by shareholders in 2015 to increase the
flexibility of the Company’s investment policy and strengthen its balance
sheet continue to bear fruit, as demonstrated by the steady performance of the
three core portfolios during the period, set against a turbulent macro
environment.
We are delighted that we have the support from our shareholders to implement
the new strategy, which is designed to maximise long-term value for
shareholders. The Company remains absolutely focused on generating positive
NAV growth and continues to believe it is the most effective driver to narrow
the Company's persistent discount to NAV. We look to the next twelve months
with optimism.
David Macfarlane
Chairman
16 May 2017
1JZI Fund III, L.P. is defined throughout the Annual Report and Financial
Statements as "Fund III".
2EuroMicrocap Fund 2010, L.P. and EuroMicrocap Fund-C, L.P. are defined
throughout the Annual Report and Financial Statements as "EMC", both L.P.s are
held by the same limited partners and in the same ownership percentages.
Investment Adviser's Report
Dear Fellow Shareholders,
We are pleased to report that all three of JZCP’s major asset classes within
the portfolio – US micro-cap, European micro-cap and US real estate –
continued their positive performance for the year ending 28 February 2017.
JZCP’s NAV per share was approximately flat ($10.12 at 28 February 2017
versus $10.15 at 29 February 2016), whereas total NAV return per share was
2.7%, which includes 30.5 cents per share in dividends paid during the year.
Unless otherwise stated, figures included in this report refer to the
twelve-month period ended 28 February 2017.
As of 28 February 2017, our stock was trading at a 34% discount to NAV and had
an implied dividend yield of 4.5%. Despite historically low (to negative)
interest rates, our stated dividend policy of paying out 3% of NAV did not
have the desired long-term effect on our stock price. Consequently, JZCP’s
board of directors has discontinued the current dividend policy and asked
shareholders to authorise a new policy to allow for the repurchase of shares.
We believe these proposals are in the best interest of all shareholders. JZCP
represents a highly attractive investment opportunity and we hope to take
advantage of the wide discount. If we are able to buy shares at a significant
discount, it will increase our NAV per share which is the ultimate mark by
which our share price will be measured.
In the year ended 28 February 2017, JZCP invested a total of $159.5 million,
underpinned by investments in Peaceable Street Capital, Jordan Health Products
and real estate properties in Brooklyn, NY and South Florida. We realized
$131.4 million primarily through the sale of Medplast and Southern Petroleum
Laboratories (“SPL”), both co-investments, and European portfolio company
Winn.
At the period end, our US micro-cap portfolio consisted of 20 businesses,
which includes four ‘verticals’ and 12 co-investments, across nine
industries; this portfolio was valued at 8.3x EBITDA, after applying an
average 26% marketability discount to public comparables. The average
underlying leverage senior to JZCP’s position in our US micro-cap portfolio
is 3.2x EBITDA. Consistent with our value-oriented investment strategy, we
have acquired our current US micro-cap portfolio at an average 6.2x EBITDA; we
paid 5.1x EBITDA on average for US micro-cap acquisitions made during the past
fiscal year.
Our European micro-cap portfolio consisted of 13 companies across five
industries and six countries. The European micro-cap portfolio has very
conservative leverage senior to JZCP’s position, currently under 2.0x
EBITDA.
As of 28 February 2017, our US real estate portfolio consisted of 59
properties and can be grouped primarily into four major “assemblages”,
located in the Williamsburg and Downtown/Fulton Mall neighbourhoods of
Brooklyn, New York and the Wynwood and Design District neighbourhoods of
Miami, Florida. We acquired eight properties during the period, including a
trophy office building in West Palm Beach, Florida. Our assemblages are
comprised of adjacent or concentrated groupings of properties that can be
developed, financed and/or sold together at a higher valuation than on a
stand-alone basis.
Net Asset Value ("NAV")
JZCP’s NAV per share was approximately flat for the year ending 28 February
2017 ($10.12 at 28 February 2017 vs. $10.15 at 29 February 2016). Total NAV
return per share was 2.7%, which includes 30.5 cents per share in dividends
paid during the year.
NAV bridge
NAV per Ordinary share as of 29 February 2016 $10.15
Change in NAV due to capital gains and accrued income
+ US Micro-cap 0.38
+ European Micro-cap 0.12
+ Real Estate 0.25
+ Other Investments 0.02
Other increases/(decreases) in NAV
- Change in CULS market price (0.05)
- Finance costs (0.18)
+ Foreign exchange effect ((1)) 0.12
- Expenses and taxation (0.39)
NAV per Ordinary share (before dividends paid) $10.42
- Dividends paid (0.305)
NAV per Ordinary share as of 28 February 2017 $10.12
((1))Includes fx losses of 2 cents relating to investments and fx gains of 8 cents relating to the currency translation of the CULS.
The US micro-cap portfolio had a net increase of 38 cents, primarily due to
net accrued income of 19 cents and increased earnings at our Healthcare
Revenue Cycle Management vertical (32 cents). Also contributing to the
positive portfolio performance were increases at several co-investment
companies: Salter (6 cents), a healthcare products manufacturer; TierPoint, a
data centre business (3 cents); and Vitalyst, an IT support business (3 cent).
We also received 7 cents of escrow payments during the period.
Offsetting these increases was a decrease at Healthcare Products Holdings, our
power wheelchair company, which was written down to zero (12 cents), as
further regulations have significantly hindered the company’s prospects.
Other assets to experience earnings declines included: our Water and
Industrial Services Solutions (“ISS”) verticals, (5 and 6 cents,
respectively); Suzo-Happ, our co-investment manufacturer of parts for the
global gaming industry (3 cents); and Nationwide, our school photography
business (3 cents).
The European micro-cap portfolio had a net increase of 12 cents, primarily due
to accrued income of 6 cents and a write-up at our online German bank, Fidor
Bank (5 cents), which was sold to a French banking conglomerate during the
year. Other assets written up due to increased earnings include Petrocorner (2
cents), our petrol station build-up in Spain, and Winn (1 cent), our UK legal
claims business (which was realised during the year).
The real estate portfolio had a net increase of 25 cents, led by significant
write-ups at our Roebling Portfolio property (25 cents) and our Greenpoint
property (21 cents), both located in adjacent North Brooklyn neighbourhoods.
Other properties written up during the year include: Flatbush Portfolio (4
cents), Design District (2 cents) and Esperante Corporate Center (3 cents).
These increases were offset by decreases at our Bedford Avenue property (3
cents), Fulton Assemblage (13 cents), Williamsburg Retail Assemblage (7 cents)
and Wynwood Portfolio (7 cents). While properties are written up or down based
on newly received appraisals, factors that include fluctuations in balance
sheet items at the property level, particularly regarding senior mortgages on
the properties, can drive JZCP’s equity value in the properties up or down
as well.
Returns
The chart below summarises the cumulative NAV per share total returns and
total shareholder returns for the most recent three-month, twelve-month,
three-year, four-year and five-year periods.
28.2.2017 30.11.2016 29.2.2016 28.2.2014 28.2.2013 29.2.2012
Share price (in GBP) £5.38 £5.07 £3.97 £4.45 £5.00 £3.66
NAV per share (in USD) $10.12 $10.13 $10.15 $10.25 $9.69 $9.47
NAV to market price discount 34% 37% 46% 27% 22% 38%
3 month return 1 year return 3 year return 4 year return 5 year return
Dividends paid (in USD) - $0.305 $0.95 $1.245 $1.570
Total Shareholders' return (1) 6.1% 42.8% 39.9% 29.4% 86.3%
Total NAV return per share (1) -0.1% 2.7% 8.5% 25.3% 76.7%
(1)Total returns are cumulative and assume that dividends were reinvested.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography, with 33 US and
European micro-cap investments across nine industries and four primary real
estate “assemblages” (59 total properties) located in Brooklyn, New York
and South Florida. The portfolio continues to become more diversified
geographically across Western Europe with investments in Spain, Italy,
Luxembourg, Scandinavia and the UK. It’s also important to note that 35% of
our investment portfolio is less than three years old.
Below is a summary of JZCP’s assets and liabilities at 28 February 2017 as
compared to 29 February 2016. An explanation of the changes in the portfolio
follows:
28.2.2017 US$'000 29.2.2016 US$'000
US micro-cap portfolio 423,137 386,173
European micro-cap portfolio 154,277 168,797
Real estate portfolio 468,599 366,158
Other investments 23,167 64,320
Total Private Investments 1,069,180 985,448
Listed corporate bonds - 13,036
UK treasury gilts - 45,608
Cash 29,063 91,937
Total Listed Investments and Cash 29,063 150,581
Other assets 520 3,551
Total Assets 1,098,763 1,139,580
Zero Dividend Preferred shares 53,935 101,617
Convertible Unsecured Loan Stock 57,063 59,573
Loans payable 97,396 97,011
Other payables 41,525 29,640
Total Liabilities 249,919 287,841
Total Net Assets 848,844 851,739
In April 2017, JZCP increased its loan facility with Guggenheim Partners from
approximately $100 million to $150 million. The purpose of this increase in
borrowings is to provide additional liquidity to JZCP in order to bridge
certain planned realisations. The entire $150 million facility may be repaid,
in whole or in part, with no penalty after June 2017.
US Micro-Cap Portfolio
Our US micro-cap portfolio performed well over the past year, with further
progress made in new investments and realisations. As described earlier in the
NAV section, the US micro-cap portfolio had a net increase of 38 cents per
share, primarily due to net accrued income of 19 cents and increased earnings
at our Healthcare Revenue Cycle Management vertical (32 cents).
Our US portfolio is grouped into industry verticals where we are continuing
our strategy of consolidating businesses under industry executives who can add
value via organic growth and cross company synergies. In addition, we made a
number of acquisitions in our verticals during the period.
New US investments – Verticals
Vertical Number of Acquisitions JZCP Investment $millions
Industrial Service Solutions 5 No cash required from JZCP
Healthcare Revenue Cycle Management 3 1.4
Testing services 2 0.5
Total 10 1.9
New US investments – Co-investments
Portfolio Company New / Follow-on JZCP Investment $millions
Peaceable Street Capital Follow-on 21.3
Jordan Health Products New/Follow-on 13.5
George Industries New 12.6
Orizon Follow-on 8.6
Southern Petroleum Laboratories Follow-on 0.4
New Vitality Follow-on 0.2
56.6
Case Study: Recent US Strategic Build-up
Bolder Healthcare Solutions (“BHS”) is a build-up of businesses in the
Revenue Cycle Management (“RCM”) industry, focusing on hospitals and
physician offices. BHS helps these entities manage their receivables
portfolio, from assisting in pre-admission insurance coverage to helping with
bad debt expenses. The industry is changing rapidly, with the continued
modification of rules and regulations due to Obamacare, and other potential
policy changes. BHS focuses on second-tier hospitals and physician offices in
order to achieve the high EBITDA margins it has exhibited to date.
The company was formed in July 2012, with the purchase of a pre-admission
insurance qualification business. Starting with approximately $15 million of
revenue and $4.3 million of EBITDA, BHS has grown via acquisitions and organic
growth to $194 million and $40.3 million of “run-rate” revenue and EBITDA,
respectively. The company continues to show very positive earnings momentum,
as revenues and EBITDA margins improve.
Management
BHS is managed by Mike Shea, a seasoned veteran in the RCM industry, who
managed a similar build-up in the past, which was sold in 2008 for a 4.2x
multiple of capital invested. Mike has brought most of his previous team with
him, who are responsible for managing and growing the business. The sales team
have been heavily involved in the integration of the nine acquisitions made to
date, from both a “front office” and “back office” perspective.
European Micro-Cap Portfolio
The European micro-cap portfolio had another strong year of growth, posting a
net increase of 12 cents, primarily due to accrued income of 6 cents and a
write-up at our online German bank, Fidor Bank (5 cents), which was sold to a
French banking conglomerate during the year. Other assets written up due to
increased earnings include Petrocorner (2 cents), our petrol station build-up
in Spain, and Winn (1 cent), our UK legal claims business (which was realized
during the year).
JZCP invests in the European micro-cap sector through its 75% ownership of
EuroMicrocap Fund 2010, L.P. (“EMC”) and its 18.8% ownership of JZI Fund
III, L.P. (“Fund III”). As you may recall, JZAI has offices in London and
Madrid and an outstanding team with over fifteen years of experience investing
together in European micro-cap deals.
As of 28 February 2017, EMC held two investments in Spain: Factor Energia and
Oro. Fund III held seven investments: two in Spain, two in Scandinavia, and
one each in the UK, Italy and Luxembourg. JZCP held direct loans to a further
four companies in Spain: Ombuds, Docout, Xacom and Toro Finance.
Recent events
Following the receipt of regulatory approval in August 2016, JZCP closed the
sale of its stake in Newcastle-based UK legal services firm Winn (held through
EMC) to a major financial institution, receiving net sale proceeds of $21.9
million, having first invested $14.8 million in August 2013, approximately a
gross 1.5x multiple of invested capital over three years.
JZCP sold its interest in Fidor Bank (“Fidor”) to Groupe BPCE, the second
largest banking group in France. The transaction closed in December 2016. JZCP
invested a total of $13.8 million and is expected to receive total gross
proceeds of approximately $25 million from the sale, approximately a gross
1.8x multiple of invested capital over four years. JZCP received its first
tranche of proceeds totalling $12.5 million in March 2017.
Real Estate Portfolio
Our real estate portfolio has continued to perform exceptionally well. As of
28 February 2017, JZCP had more than $343.5 million invested in a portfolio of
retail, office and residential properties in Brooklyn, New York and South
Florida that is valued at $468.6 million as of the same date. We have made
these investments in partnership with RedSky Capital, a team with significant
experience in the sector.
During the period, JZCP, together with RedSky, acquired eight properties.
Since we began investing with RedSky in April 2012, we have acquired a total
of 59 properties, all currently in various stages of development and
re-development.
The real estate portfolio had a net increase of 25 cents, led by write-ups at
our Roebling Portfolio property (25 cents) and our Greenpoint property (21
cents), both located in adjacent North Brooklyn neighbourhoods. Other
properties written up during the year include: Flatbush Portfolio (4 cents),
Design District (2 cents) and Esperante Corporate Center (3 cents). While
properties are written up or down based on newly received appraisals, factors
that include fluctuations in balance sheet items at the property level,
particularly regarding senior mortgages on the properties, can drive JZCP’s
equity value in the properties up or down as well.
Real Estate Acquisitions in Year
Geography Number of Acquisitions JZCP Investment $millions
Brooklyn, New York 3 17.8
South Florida 5 46.4
Follow-ons and expenses - 25.3
8 89.5
Case study – Esperante Corporate Center
In July 2016, JZCP acquired Esperante Corporate Center (“Esperante”) a
trophy office building in West Palm Beach, Florida. With 17 floors across more
than 250,000 square feet of office and retail space, Esperante is a permanent
fixture in the Downtown West Palm Beach skyline and one of only three existing
trophy office buildings in the market.
We are currently pursuing re-leasing 25% of the most desirable office space at
Esperante which is coming available within 24 months. In the effort to
establish Esperante as the most attractive office building in the marketplace,
we are repositioning the ground floor retail area of the building, renovating
the lobby and valet parking area, and creating a unique restaurant and rooftop
bar. So far, we have begun signing office leases at what we believe are the
highest per square foot rents achieved in West Palm Beach to date.
Other Investments
Our asset management business in the US, Spruceview Capital Partners,
addresses the growing demand from corporate pensions, endowments, family
offices and foundations for fiduciary management services through an
Outsourced Chief Investment Officer (“OCIO”) model. Spruceview has a
robust pipeline of opportunities and continues to provide investment oversight
to the pension fund of a Canadian subsidiary of an international confectionary
company, as well as a European private credit fund-of-funds tailored to the
clients of an international multi-family office.
As previously reported, Richard Sabo, former Chief Investment Officer of
Global Pension and Retirement Plans at JPMorgan and a member of that firm’s
executive committee, is leading a team of 12 senior investment, business
development, legal and operations professionals.
Realisations
Proceeds
Investment Type Portfolio ($ millions)
Bright Spruce Fund Liquidation Other investments 44.5
Medplast Sale US micro-cap 25.6
Winn Sale European micro-cap 21.9
Water Vertical Refinancing US micro-cap 10.2
SPL Sale US micro-cap 8.4
Redbridge Bedford Refinancing Real estate 5.3
Metpar Sale Other investments/mezzanine 3.1
Dental Services Escrow US micro-cap 3.1
Other minor refinancings, escrow receipts and distributions 9.3
Total Realisations 131.4
Outlook
We remain committed to pursuing our value-added investment strategy across
several asset classes and will be highly focused over the next two years on
identifying and realizing value from our portfolio companies. We believe it is
an opportune time to be a seller in the US and we want to take advantage of
the buoyant market, which will in turn provide more liquidity for us to invest
in our growing pipeline of attractive opportunities.
We are pleased with the performance of our three major asset classes – US
micro-cap, European micro-cap and US real estate – and we anticipate further
asset growth during the fiscal period. As you know, we have been building an
asset management business, Spruceview, from scratch with an excellent
management team – we think 2017-2018 will be a year where the fruits of the
team’s labour will show great progress.
We are excited about JZCP’s prospects, and following the formal shareholder
vote, let us say thank you for supporting the change in the dividend policy
and associated proposals. We believe our investment portfolio, whether
directly buying businesses or through purchasing our stock at a deep discount,
will provide JZCP shareholders with superior investment returns.
As always, we thank you for your continued support in our investment strategy.
Please feel free to contact us with any ideas that might be beneficial to
JZCP.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
16 May 2017
Investment Portfolio
Historical Carrying Value Percentage of portfolio
Book 28 February
cost 2017
US$'000 US$'000 %
US Micro-cap portfolio
US Micro-cap (Verticals)
Industrial Services Solutions ((4))
INDUSTRIAL SERVICES SOLUTIONS (“ISS”) A combination of twenty five acquired businesses in the industrial maintenance, repair and service industry
Total Industrial Services Solutions valuation 33,257 83,754 7.8
Healthcare Revenue Cycle Management ((4))
BHS HOSPITAL SERVICES Provider of outsourced revenue cycle management solutions to hospitals. BHS Hospital Services, Inc., which owns Bolder Outreach Services (formerly known as Monti Eligibility & Denial Solutions) , Receivables Outsourcing, Inc. and Avectus Healthcare Solutions, LLC is a subsidiary of Bolder Healthcare Solutions, LLC 0.0
BHS PHYSICIAN SERVICES Provider of outsourced revenue cycle management solutions to physician groups. BHS Physician Services, Inc., which owns Bodhi Tree Group and PPM Information Solutions, Inc. is a subsidiary of Bolder Healthcare Solutions, LLC 0.0
Total Healthcare Revenue Cycle Management valuation 30,327 67,418 6.3
Testing Services ((4))
ARGUS GROUP HOLDINGS Sells, rents and services safety and testing equipment to a variety of industries. Argus Group Holdings is a subsidiary of Testing Services Holdings
Total Testing Services Vertical valuation 11,174 10,311 1.0
Water Services ((4))
TWH INFRASTRUCTURE INDUSTRIES, INC. Environmental infrastructure company that provides technology to facilitate repair of underground pipes and other infrastructure. TWH Infrastructure Industries, Inc., which owns LMK Enterprises, Perma-Liner Industries and APMCS is a subsidiary of Triwater Holdings
TWH WATER TREATMENT INDUSTRIES, INC. Provider of water treatment supplies and services. TWH Water Treatment Industries, Inc., which owns Nashville Chemical & Equipment and Klenzoid Canada Company/Eldon Water, Inc ., is a subsidiary of Triwater Holdings
TWH FILTRATION INDUSTRIES, INC. Supplier of parts and filters for point-of-use filtration systems, which owns Paragon Water Systems, is a subsidiary of Triwater Holdings
Total Water Services Vertical valuation 24,730 31,965 3.0
Total US Micro-cap (Verticals) 99,488 193,448 18.1
GEORGE INDUSTRIES Manufacturer of highly engineered, complex and high tolerance products for the aerospace, transportation, military and other industrial markets 12,639 12,637 1.2
IGLOO PRODUCTS CORP ((4)) Designer, manufacturer and marketer of coolers and outdoor products 6,040 6,039 0.5
ILLUMINATION INVESTMENTS, LLC ((4)) Designer and manufacturer of LED lights and lighting systems 4,920 1,930 0.2
JORDAN HEALTH PRODUCTS, LLC Provider of new and professionally refurbished healthcare equipment 31,529 31,529 2.9
K2 TOWERS, LLC Acquirer of wireless communication towers 20,900 19,462 1.8
NEW VITALITY HOLDINGS, INC. ((4)) Direct-to-consumer provider of nutritional supplements and personal care products. 3,497 3,870 0.4
PEACEABLE STREET CAPITAL, LLC Specialty finance platform focused on commercial real estate 25,000 24,632 2.3
VITALYST ((4)) Provider of outsourced IT support and training services 9,020 8,192 0.8
SALTER LABS, INC. ((4) ) Developer and manufacturer of respiratory medical products and equipment for the homecare, hospital, and sleep disorder markets 16,762 21,413 2.0
SUZO HAPP GROUP ((4)) Designer, manufacturer and distributor of components for the global gaming, amusement and industrial markets 2,572 11,700 1.1
ORIZON ((4)) Manufacturer of high precision machine parts and tools for aerospace and defence industries 15,843 15,843 1.5
TIERPOINT, LLC ((4)) Provider of cloud computing and collocation data centre services 44,313 46,813 4.4
Total US Micro-cap (Co-investments) 193,035 204,060 19.1
US Micro-cap (Other)
HEALTHCARE PRODUCTS HOLDINGS, INC. ((1),(3) ) Designer and manufacturer of motorised vehicles 17,636 - -
NATIONWIDE STUDIOS, INC. Processer of digital photos for preschoolers 21,907 9,952 0.9
NIELSEN-KELLERMAN Designer and manufacturer of weather, wind and timing measurement instruments and devices. Nielsen-Kellerman is a subsidiary of Sensors Solutions Holdings 2,644 6,731 0.6
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