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JZ Capital Partners puts US ‘micro-cap’ assets on the block as property doubts persist

27 November 2019

Investment trust speeds up disposal programme to strengthen its balance sheet after warning last month that its US property assets are probably over valued.

JZ Capital Partners (JZCP ) dropped to a new low today after the smaller company and property investor published its delayed half-year results but failed to remove the uncertainty over its real estate assets and revealed it had put a portfolio of US ‘micro-cap’ stocks up for sale.

The investment trust’s shares slumped 24% at the end of October after warning its US property assets could be over valued by between $50 million (£39 million) and $150 million (£116 million).

Today they dropped another 4.5% or 16p to 336p, at discount of around 55% below net asset value (NAV), as the company said its independent third-party appraiser had only found only ‘minimal differences’ between the property valuation at its financial year end at 28 February and its half-year end of 31 August.

However, it said the ‘fair value’ of its property investments had fallen $20.4 million to $422.7 million in the six-month period and disclosed a $64 million movement in unrealised losses between the fair value and cost of the real estate investments.

With the property valuations still under a cloud, chairman David Macfarlane said JZCP would speed up its disposal of assets in line with the new investment policy agreed last month to return capital to shareholders.

JZCP hopes to raise $150 million to $170 million from the sale of the US micro-caps although Macfarlane said the priority would be to protect the trust’s balance sheet and repay its debts before distributing capital to investors.

It had originally flagged up distributions of between $400 million and $500 million for shareholders, who are led by private equity firm Edgewater Funds and fund managers David Zalaznick and Jay Jordan.

The company said: ‘The board believes that significant uncertainty remains as to whether the real estate portfolio could be realised at these values. Due to financing constraints and the requirement to generate liquidity in line with the company’s recently approved investment policy, this will likely require assets to be realised on an accelerated basis.’

Liberum analyst Conor Finn said: ‘The reduction in commitments to new investments is helpful but the company's comments relating to the real estate portfolio are worrying. The manager has stated it will take 24-36 months to maximise the value of the portfolio and has also stated that it believes the latest valuation is high for several sites. Further writedowns are expected in the February 2020 valuation.’

Interim results for the six months to 31 August – which were delayed three weeks while the property revaluation was completed – showed its NAV declined to $748.2 million from 810.2 million following $121.2 million of realisations and re-financings.

The real estate portfolio includes the Fulton Mall project in Brooklyn, New York, which JZCP is developing with HomeFed Corporation.

The fund managers have agreed to defer $23 million of incentive fees while future losses are assessed.

Non-executive director Chris Waldron has stepped down with immediate effect as the trust seeks to cut costs. Waldron joined the board six years ago and he leaves it with four independent non-execs including Macfarlane.

Waldron chairs activist investor Crystal Amber (CRS ) and was last year forced to step down as chairman of Ranger Direct Lending after rebel shareholders forced the struggling fund to wind down and return money to shareholders. It is now called RDL Realisation (RDL ).


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