JZ Capital Partners (JZCP), which has investments in US and European micro-cap companies, as well as real estate properties in the US, announced annual results to 28 February 2021. Its NAV fell from $4.60 at 31 August 2020 (the interim period end) to $4.25, as at 28 February 2021. The NAV stood at $6.14, as at 29 February 2020. We note that following JZCP’s real estate losses, shareholders adopted a new investment policy in which the company agreed to make no further investment beyond its existing obligations. The intention of this policy change was for JZCP to realise the maximum value of its investments and, after repaying its debt obligations, to return capital to shareholders.
JZCP says that the NAV decline over the first six months of the financial year was mainly due to large losses in the real estate portfolio, adding that the much smaller write-down over the second half of the year was primarily the result of it recognizing its last remaining losses in the real estate portfolio. This was partially offset by strong performance in some of its US and European micro-cap investments.
Real estate portfolio update
JZCP’s chair, David Macfarlane, had this to say on the real estate portfolio: “The company’s two remaining real estate assets that have equity value are 247 Bedford Avenue in Brooklyn, New York (where Apple is the principal tenant), and the Esperante office building in West Palm Beach, Florida.
Each asset continues to be held on the company’s balance sheet at the last appraised value (i.e., as of 31 August 2020), which implies an approximate equity value to the company of $22.5m in aggregate. The difference from the real estate equity value of $47.4m on the company’s balance sheet at 31 August 2020 is largely due to the sale of the Greenpoint asset and the full write-down of two other properties.
With regards to Esperante, the board is pleased to report that post-year-end the company closed a joint venture agreement with affiliates of the related companies (related); we believe that a partnership with related will create significant additional value for the company at Esperante going forward. As part of the joint venture, related purchased approximately 49.9% of the equity of Esperante while the current ownership (which includes the company) retained approximately 50.1% of the equity.”
US and European micro-cap portfolios update
On the US and European micro-cap portfolio, David added that “our US and European micro-cap portfolio companies have continued to perform well throughout the COVID-19 pandemic and our expectation remains that no lasting damage will have been done to any of these businesses.
Although certain portfolio investments have been set back temporarily, others, including Felix Storch, have experienced record performance (the company remains interested in Felix Storch through its Special LP interest in the Secondary Fund). During the second half of the financial year, the company realised its interest in Eliantus, a build-up of solar power plants in Spain, at a 2.0x gross multiple of invested capital. As previously reported, the company also partially realised six US micro-cap portfolio assets through the secondary sale in December 2020 and remains invested in the continuing performance of these assets through the company’s Special LP interest in the secondary fund.
Several realisations are expected during the coming financial year; however, the board remains cautious as uncertainties related to COVID-19 are still prevalent in the market, the realisation of assets in the company’s co-investment portfolio is controlled by third parties and certain portfolio investments may require more time to achieve their maximum realisable values. That being said, the Board would like shareholders and the market to be aware that it understands conditional agreement subject to closing has been reached in relation to the sale of one of its portfolio companies which would, if its conditions are satisfied, result in the company receiving consideration of approximately $40m and which reflects a premium to carrying asset value. The company will of course make further announcements as required in relation to the status of the transaction.”
JZCP: JZ Capital Partners has a better second half thanks to US and European micro-cap portfolio