Cohen & Steers, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; quarterly data below includes the unaudited fourth quarter. Cohen & Steers is a global investment manager focused on real estate securities and other real assets, preferred securities and income strategies. Revenue primarily depends on fees calculated as a percentage of assets managed.
Financial performance and position
| Metric | FY 2015 | FY 2014 | Change |
|---|---|---|---|
| Revenue | $328.7 million | $313.9 million | +5% |
| Operating expenses | $201.1 million | $192.0 million | +5% |
| Operating income | $127.5 million | $121.9 million | +5% |
| Operating margin | 38.8% | 38.8% | Unchanged |
| Net income attributable to common stockholders | $64.6 million | $75.5 million | -14% |
| Diluted EPS | $1.41 | $1.65 | -15% |
| Net cash from operating activities | $89.8 million | $54.6 million | +$35.2 million |
| Cash and cash equivalents at year-end | $142.7 million | $124.9 million | +$17.8 million |
- Non-operating loss was $14.8 million, versus $0.1 million of non-operating income in 2014. It included $10.4 million of equity-method investment losses and a $2.6 million net loss on available-for-sale investments, including a $2.8 million other-than-temporary impairment of the RAP seed investment.
- The effective tax rate rose to 42.9% from 38.0%, partly because the company recorded a valuation allowance on tax benefits associated with unrealized seed-investment losses.
- Year-end total assets were $305.3 million and liabilities were $62.2 million; stockholders’ equity was $231.8 million. The filing does not show company borrowings as a material liability. Separately, sponsored closed-end funds had $2.4 billion of leverage; this is fund leverage, not company debt.
- Cash dividends declared were $1.50 per share for 2015, including a $0.50 special dividend, versus $1.88 in 2014, including a $1.00 special dividend. A $0.26 quarterly dividend was declared for payment in March 2016.
Assets under management and period comparison
- Year-end AUM declined 1% to $52.6 billion from $53.1 billion. Net outflows of $981 million exceeded market appreciation of $438 million; average AUM nevertheless increased 4% to $52.7 billion.
- Net outflows were concentrated in U.S. real estate ($1.6 billion) and global/international real estate ($1.1 billion). Preferred securities had $1.2 billion of net inflows, and global listed infrastructure had $296 million.
- Annual revenue growth reflected higher average AUM, particularly in open-end funds and institutional accounts. Open-end fund advisory and administration fees rose 7% to $136.9 million; institutional fees rose 4% to $85.5 million. Closed-end fund fees fell 1% to $81.4 million.
- For Q4 2015, revenue was $81.7 million versus $81.8 million in Q4 2014; operating income was $30.4 million versus $32.4 million. Net income attributable to common stockholders was $5.9 million versus $15.7 million, and diluted EPS was $0.13 versus $0.34.
Outlook, risks and unusual items
- The filing provides no quantified revenue or earnings guidance. Management said operating cash flow is expected to remain the principal working-capital source and believed cash and operating cash flows would be adequate for anticipated needs.
- Management cited market-sensitive fee revenue: a decline in asset values, especially real estate securities, or client withdrawals can reduce AUM, fees and earnings. At year-end, 53% of AUM was in U.S. real estate and 18% in global/international real estate.
- Client concentration is material: Daiwa Asset Management accounted for approximately 12% of 2015 revenue, 25% of total AUM and 50% of institutional AUM. Cohen & Steers Realty Shares accounted for 15% of revenue.
- Seed investments generated $15.2 million of losses in 2015, mostly unrealized, according to the risk-factor disclosure. The company launched two funds and invested $20 million in seed capital during the year. The RAP impairment and higher effective tax rate were notable unusual items.
- Other disclosed risks include investment performance and fee competition, reliance on third-party distribution platforms and key vendors, regulatory change, cyber and business-continuity risks, and the potential effect of interest-rate or economic changes on real estate securities. Proposed U.S. and European regulatory changes could increase compliance costs or constrain fund activities.
- The company reported no pending legal matter believed likely to have a material adverse effect. It had $87.98 million of future operating-lease payments and a co-investment commitment of up to $5.1 million, of which $3.3 million was funded at year-end.
- Management and the auditor concluded that internal control over financial reporting was effective at December 31, 2015. The auditor issued an unqualified opinion on the financial statements.
Key facts for investors to verify
- Whether AUM outflows in real estate strategies persist and how performance and market movements affect fee revenue.
- Whether the sharp Q4 decline in common-stockholder income reflects primarily investment losses and tax effects, and whether those items recur.
- The exposure and valuation of seed investments, including remaining losses, liquidity constraints and tax treatment.
- The concentration of revenue and AUM in major clients and affiliated products, including Daiwa and Cohen & Steers Realty Shares.
- Dividend sustainability in light of operating cash flow, special-dividend history, fund seed commitments and lease obligations.