EJF Investments delivers 19.1% NAV total return in 2018 – EJF Investments (EJFI) outperformed its total return target of 8-10% in the year to December 31, 2018, delivering a NAV total return of 19.08%.
Through its subsidiaries, the fund invests in opportunities created by regulatory and structural changes impacting the financial services sector. These opportunities can include structured debt and equity, loans, bonds, preference shares, convertible notes and private equity, in both cash and synthetic formats issued by entities domiciled in the USA, UK and Europe. Investments consist primarily of securitisation and related investments and specialty finance investments.
Financial highlights
- Total NAV return per ordinary share, inclusive of dividends, of 19.08% for 2018
- Dividend yield for 2018 based on dividends declared in respect of the period and NAV at 31 December 2018 of 5.7%
- Capital raised during the period of £16.9m through ordinary share placings
Portfolio highlights
- Total realised gains of £17.8m recognised during the year with £9.7m being in respect of the sale of legacy REIT TruPS CDO securities in January and April. The remainder comprised distributions from the Armadillo portfolio and risk retention and securitisation investments.
Discussing the year’s performance, Chairman, Joanna Dentskevich, said: ”The company had another active and strong year successfully raising and deploying capital to finish the period with gross assets of £132.4m and total return of 19.08% thereby exceeding its stated target return again.
The strong performance was mainly driven by three factors. Firstly, in January and April sales of certain legacy REIT TruPS CDO securities in the secondary market generated realised gains of £9.7m. Secondly, these gains along with newly raised capital, were reinvested in risk retention investments (in May and December, the company made its fourth and fifth investments in EJF risk retention securities via the partnership). Thirdly, gains on EJFIH’s investment in the CDO manager generated £2.2m through the resulting collateral management contracts acquired pursuant to these securitisations. These contracts provide a steady cashflow without requiring any investment outlay on acquisition.”
Manager’s outlook
In the investment manager’s outlook section of the results release, EJFI said: “The manager continues to believe that the company’s current portfolio of CDO equity investments, as well as its other investments, are well positioned to achieve attractive risk adjusted returns in line with the company’s objective.
We believe a new era has begun with the latest merger transaction involving two large regional banks, BB&T Corporation and SunTrust Banks, Inc. In 2019, we have already seen two M&A transactions valued at over a $1bn. This compares to the entire year of 2018 having only six deals valued at more than $1bn. We believe these transactions highlight the Federal Reserve’s recent loosening of regulations for regional banks. On 31 October 2018, the Federal Reserve put out a notice of proposed rulemaking outlining a modified set of standards for banks with minimum assets of $100bn. As part of these standards, the Fed revised its tier categorizations which impacts banks with assets totalling $250bn to $700bn in assets. We believe this was a signal to banks and the market that under proper parameters, growth up to $700b in assets will not be treated as punitively as was previously the case. Yet again, we see regulators incentivizing the sector to consolidate and become stronger, a trend we believe will continue.
We believe the company’s relationship with EJF provides a strategic advantage for deal sourcing and pipeline for future bank and insurance debt exposure and we expect the company’s exposure to this asset class will continue grow.”
EJFI: EJF Investments delivers 19.1% NAV total return in 2018