Cohen & Steers, Inc. — FY2017 Form 10-K
Business context and reporting period
Global investment manager specializing in listed real assets, real estate securities, infrastructure, commodities, natural-resource equities, preferred securities and income strategies. This filing covers the fiscal year ended December 31, 2017; it also provides unaudited fourth-quarter results. Revenue is primarily asset-based advisory and administration fees, making results sensitive to market values and client flows.
Key financial metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $378.2 million | $349.9 million |
| Operating income / margin | $154.7 million / 40.9% | $135.5 million / 38.7% |
| Net income attributable to common stockholders | $91.9 million | $92.9 million |
| Diluted EPS | $1.96 | $2.00 |
| Operating cash flow | $64.3 million | $115.0 million |
| Cash and cash equivalents at year-end | $193.5 million | $183.2 million |
| Net liquid assets | $241.6 million | $221.8 million |
| Company debt | None outstanding | None outstanding |
Year-end assets under management (AUM) rose 9% to $62.1 billion; average AUM increased 7% to $60.3 billion. AUM growth comprised $3.9 billion net inflows and $5.8 billion market appreciation, offset by $4.7 billion distributions. Revenue increased 8%, while operating expenses rose 4%, including a 7% increase in employee compensation and benefits. The 2017 effective tax rate was 42.5%, versus 35.3%, including Tax Act-related charges. Non-GAAP adjusted diluted EPS was $2.07, compared with $1.85 in 2016.
Fourth-quarter 2017 revenue was $99.3 million, operating income $40.9 million, net income attributable to common stockholders $20.4 million and diluted EPS $0.43.
Material changes versus prior period
- Operating margin improved to 40.9% from 38.7%, reflecting revenue growth outpacing expense growth.
- GAAP net income and diluted EPS edged lower despite higher operating income; the increase in tax expense, including approximately $8.4 million of transition tax and $4.3 million of deferred-tax remeasurement, was a major factor.
- Operating cash flow declined to $64.3 million from $115.0 million. The filing reports significant working-capital movements, including an increase in trading investments, but does not attribute the full year-over-year decline to a single cause.
- Open-end fund AUM grew to $23.3 billion, while institutional AUM increased modestly to $29.4 billion. Japan subadvisory AUM fell to $11.5 billion from $13.7 billion, with distributions and net outflows contributing.
- Dividends declared totaled $2.12 per share, including a $1.00 special dividend, versus $1.54 in 2016, including a $0.50 special dividend.
Outlook, risks and unusual items
The filing provides no formal earnings or revenue guidance. Management said operating cash flows should remain the principal working-capital source and expected cash flows to cover foreseeable commitments. It reported early European asset flows, strong institutional interest in preferred securities, listed infrastructure and global real estate, and a new MLP institutional mandate funded in February 2018.
- Key business risks include market declines—particularly in real estate securities—fee pressure and competition from passive products, client redemptions, and dependence on third-party distribution platforms.
- Daiwa Asset Management accounted for approximately 11% of 2017 revenue and 18% of year-end AUM. Management also disclosed reduced distribution rates on two U.S. REIT funds subadvised for its largest Japanese distribution partner.
- Company-sponsored closed-end funds used approximately $2.3 billion of leverage; this is fund leverage, not debt outstanding on the Company’s balance sheet.
- MiFID II took effect in January 2018 and is expected to increase research and compliance costs. GDPR was scheduled to take effect in May 2018; Brexit-related uncertainty was also identified.
- The Company had an unfunded co-investment commitment of approximately $1.3 million (up to $5.1 million total, with $3.8 million funded). It reported no pending legal matters believed likely to have a material financial effect.
- The Company’s disclosure controls and internal control over financial reporting were reported effective; the auditor gave unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether AUM inflows persist and whether market appreciation or distributions are driving subsequent AUM changes.
- Revenue and client exposure to Daiwa, Japanese U.S. REIT products, and concentrated real estate and preferred-securities strategies.
- Whether the elevated 2017 tax rate and Tax Act charges recur, and how tax-position uncertainties are resolved.
- The sustainability of operating cash flow, dividend levels and special-dividend practices, given the 2017 cash-flow decline and substantial shareholder distributions.
- The impact of MiFID II, GDPR, Brexit and continued fee competition on expenses, distribution and margins.