Cohen & Steers, Inc. — 2019 Form 10-K Summary
Business context and reporting period
Global investment manager specializing in real assets and alternative income, including real estate securities, listed infrastructure, natural resources and preferred securities. Revenue is primarily asset-based investment advisory and administration fees. This annual report covers the year ended December 31, 2019; fourth-quarter figures are also shown below. Amounts are U.S. dollars.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $410.8 million | $381.1 million |
| Operating income / margin | $160.1 million / 39.0% | $147.0 million / 38.6% |
| Net income attributable to common stockholders | $134.6 million | $113.9 million |
| Diluted EPS | $2.79 | $2.40 |
| Net cash from operating activities | $141.4 million | $72.6 million |
| Cash and cash equivalents at year-end | $101.4 million | $92.7 million |
| Total assets / total liabilities | $402.4 million / $135.3 million | $481.0 million / $144.2 million |
| Total AUM at year-end | $72.2 billion | $57.9 billion |
Revenue increased 7.8% and expenses rose 7.1%. Higher average AUM across institutional, open-end and closed-end vehicles supported revenue growth. Reported non-operating income was $27.4 million, versus a $3.3 million loss in 2018, principally reflecting seed-investment gains; management’s adjusted diluted EPS, a non-GAAP measure, was $2.57 in 2019 versus $2.40 in 2018.
Fourth-quarter 2019 revenue was $109.8 million, operating income $46.5 million, net income attributable to common stockholders $36.7 million and diluted EPS $0.75. In fourth-quarter 2018, these were $93.9 million, $34.3 million, $25.6 million and $0.54, respectively.
AUM rose 24.8% during 2019, reflecting $14.6 billion in market appreciation and $3.7 billion in net inflows, partly offset by $4.0 billion in distributions. Organic growth was 6.5%, compared with 1.8% organic decay in 2018. Open-end funds had $4.7 billion of net inflows; institutional accounts had $915 million of net outflows.
Liquidity, capital and shareholder returns
The company reported no outstanding debt. Net liquid assets were $178.9 million at year-end, down from $187.4 million in 2018. Operating cash flow increased to $141.4 million. Financing cash outflow was $170.1 million, including $162.7 million of dividends paid. The 2019 declared dividend was $1.44 per share in quarterly dividends plus a $2.00 special dividend. A $0.39 quarterly dividend was declared for payment in March 2020.
Closed-end funds sponsored by the company had approximately $2.2 billion of leverage; this is fund leverage, not company debt. Contractual obligations totaled $60.7 million, primarily operating leases. The company had a $5.1 million co-investment commitment, of which $3.8 million was funded at year-end.
Outlook, risks and notable items
Management stated that operating cash flows and available cash were expected to be more than adequate for anticipated capital requirements and obligations, and that it anticipated paying dividends subject to board approval. The filing provides no specific revenue, earnings or AUM guidance.
- Results are sensitive to financial markets because fees are based largely on AUM; real estate securities represented 61.7% of AUM and preferred securities 24.4%.
- Client and product concentration is material: Daiwa Asset Management represented 7.8% of 2019 revenue and 14.0% of AUM. Three affiliated funds generated 16.9%, 12.2% and 9.0% of revenue, respectively.
- Competition, fee sensitivity, passive-product growth, client redemptions and dependence on third-party distribution channels could pressure flows, fees and margins.
- Regulatory change may increase costs or constrain operations. The filing discusses Brexit-related uncertainty for the UK subsidiary’s access to EU markets, as well as data-privacy and other compliance obligations.
- Cybersecurity, business continuity, key-vendor, reputational and investment-performance risks could disrupt operations or harm client retention. Management reported no significant cyber incident with material operational impact to date.
- Seed investments contributed substantially to the volatility of reported non-operating results: the company’s share of seed-investment returns was approximately 19.0% in 2019, following a 6.9% loss in 2018.
- No pending legal matters were identified as likely to have a material adverse effect. Gross unrecognized tax benefits were $12.9 million; management said it was reasonably possible net unrecognized benefits could decline by $6.0 million within 12 months.
The company adopted the lease accounting standard in 2019, recognizing operating lease right-of-use assets and liabilities. Management and the auditor concluded internal control over financial reporting was effective as of year-end. The auditor identified unrecognized income tax benefits as a critical audit matter.
Important facts for investors to verify
- Whether AUM growth and positive open-end fund flows continue, and whether institutional outflows—especially in subadvisory accounts—stabilize.
- The durability of fee rates and margins, including the effect of fee reductions, fund reimbursements and distribution costs.
- The company’s exposure to real estate markets and its largest client and affiliated funds.
- How much of earnings growth reflects recurring operating performance versus volatile seed-investment gains and other non-operating items.
- Cash available for dividends after regulatory capital needs, the unfunded co-investment commitment and lease obligations.
- Developments in unrecognized tax positions, regulatory requirements and Brexit-related operating arrangements.