CNS

Business Context and Reporting Period

Company: Cohen & Steers, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2009
Business Overview: The Company is an investment advisor specializing in income-oriented equity portfolios, including U.S. and international real estate securities, large-cap value stocks, utilities, and preferred securities. It manages assets through closed-end and open-end mutual funds and institutional separate accounts.

Key Financial Metrics

Liquidity and Debt: The Company reported no long-term debt in the balance sheet. Total liabilities were $22.5 million, primarily consisting of accrued compensation and other operating liabilities. The Company maintains significant liquidity with cash and cash equivalents representing a substantial portion of total assets.

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased 56% to $23.5 million, driven by a 56% drop in average daily assets under management (AUM) from $28.5 billion to $12.7 billion. This decline was caused by significant market depreciation ($3.4 billion) and net outflows ($76 million).
• Operating Profitability: Operating income collapsed from $20.1 million to $0.1 million. While expenses decreased 30% to $23.4 million (due to lower compensation and deferred commission amortization), the revenue drop was more severe.
• Net Loss: The Company reported a net loss of $14.5 million compared to net income of $13.0 million in the prior year. This was primarily due to a non-operating loss of $16.3 million, which included an other-than-temporary impairment (OTTI) charge of $18.2 million on available-for-sale preferred securities.
• Assets Under Management: Total AUM fell 59% year-over-year. Closed-end funds dropped 69%, open-end funds dropped 63%, and institutional accounts dropped 47%.

Outlook, Risks, and Unusual Items

• Unusual Items: The primary driver of the net loss was the $18.2 million OTTI charge on preferred securities. Excluding this charge, non-operating income would have been $1.9 million.
• Strategic Changes: The Company announced plans to exit its investment banking business. Effective May 1, 2009, it sold its membership interest in Cohen & Steers Capital Advisors, LLC. Additionally, a $15.8 million capital withdrawal from this subsidiary occurred in April 2009.
• Tax Outlook: The effective tax rate for Q1 2009 was 11% (vs. 37% in 2008), reduced by a valuation allowance on capital losses. Management expects the full-year 2009 tax rate to approximate 36-37% excluding discrete items.
• Risks: The Company faces significant market risk due to its concentration in real estate securities (39% of AUM). Declines in real estate prices directly reduce fee revenue. Furthermore, market conditions currently preclude increasing assets in closed-end mutual funds.
• Dividends: A quarterly cash dividend of $0.05 per share was declared on May 8, 2009.

Investor Verification Checklist

• Impairment Details: Verify the specific composition of the $18.2 million other-than-temporary impairment charge and the remaining unrealized losses ($28.9 million) on available-for-sale securities.
• AUM Recovery: Monitor the trajectory of Assets Under Management, which have declined nearly 60% year-over-year, as revenue is directly tied to AUM levels.
• Exit Strategy Execution: Confirm the financial impact and completion of the sale of the investment banking subsidiary (Advisors) and the subsequent capital withdrawal.
• Liquidity Position: Review the sustainability of the dividend ($0.05/share) given the current net loss and cash burn from operations ($6.4 million used in Q1).
• Regulatory Capital: Note that the Company exceeded regulatory capital requirements by approximately $21.6 million as of March 31, 2009.