Cohen & Steers, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing is an annual report, not a standalone fourth-quarter filing. Cohen & Steers is a global investment manager focused on real assets, including real estate and infrastructure, as well as preferred securities and other income strategies. Revenue is primarily fees linked to assets under management (AUM).
Financial and operating performance
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue | $313.9 million | $297.7 million | +5% |
| Operating income | $121.9 million | $106.3 million | +15% |
| Operating margin | 38.8% | 35.7% | +3.1 percentage points |
| Net income attributable to common stockholders | $75.5 million | $68.1 million | +11% |
| Diluted EPS | $1.65 | $1.51 | +9% |
| Operating cash flow | $54.6 million | $75.9 million | −28% |
| Cash and cash equivalents at year-end | $124.9 million | $128.3 million | −3% |
Year-end AUM rose 16% to $53.1 billion from $45.9 billion. The increase reflected $9.1 billion of market appreciation, partly offset by $1.9 billion of net outflows. Average AUM increased 6% to $50.6 billion. Reported total expenses were $192.0 million, nearly unchanged year over year; employee compensation and benefits increased 8% to $102.7 million.
Investment advisory and administration fees rose 8% to $291.7 million and represented approximately 93% of revenue. Fees from open-end funds increased 11% to $127.4 million, and fees from closed-end funds rose 10% to $82.5 million. Institutional fees were nearly flat at $81.9 million. Portfolio consulting and other revenue fell 39% to $7.5 million.
At year-end, assets were $280.7 million, liabilities were $52.1 million, and stockholders’ equity was $228.0 million. The filing describes the company as highly liquid and identifies cash flow from operations as its principal expected source of working capital. No corporate debt balance is clearly provided in the filing text. Separately, sponsored closed-end funds had $2.4 billion of leverage; that is fund leverage, not identified as company borrowings.
Material changes and fourth-quarter results
- AUM growth was driven mainly by market appreciation rather than net subscriptions. Institutional accounts had $2.1 billion of net outflows; open-end funds had $196 million of net inflows; closed-end fund AUM increased through market appreciation.
- Operating income grew faster than revenue as total expenses remained nearly level. Compensation costs increased, while distribution and service fee expenses declined.
- Net non-operating loss improved to income of $73,000 from a loss of $2.0 million, mainly due to smaller realized and unrealized losses on seed investments. The 2014 results also reflected losses in certain equity-method fund investments.
- For the fourth quarter, revenue was $81.8 million versus $73.4 million a year earlier; operating income was $32.4 million versus $29.4 million. Net income attributable to common stockholders was $15.7 million versus $19.4 million, and diluted EPS was $0.34 versus $0.43.
- Cash dividends declared totaled $1.88 per share for 2014, including a $1.00 special dividend. A $0.25 quarterly dividend was declared in February 2015.
Outlook, risks, and notable items
- The filing provides no specific earnings, revenue, or AUM guidance. Management says operating cash flows are expected to remain the principal source of working capital and considers cash and cash flows adequate for anticipated requirements.
- Revenue and earnings are sensitive to financial-market values because advisory fees generally depend on AUM. The company has substantial exposure to real estate securities: 53% of AUM was in U.S. real estate strategies and 19% in global/international real estate strategies.
- Client concentration is significant: one institutional relationship generated approximately 13% of 2014 revenue and represented about 25% of total AUM. Cohen & Steers Realty Shares generated 15% of revenue.
- Other identified risks include client withdrawals and fee pressure, investment performance, reliance on third-party distribution channels and key personnel, regulatory changes, cyber incidents, business continuity, and potential limits on leverage within sponsored closed-end funds.
- The company committed up to $5.1 million to co-invest alongside a sponsored real-estate partnership; approximately $3.2 million had been funded by year-end. Operating lease commitments totaled $95.9 million.
- No pending legal matter was identified as likely to have a material adverse effect. Management and the independent auditor concluded that internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Whether market appreciation can continue to offset persistent net outflows, particularly in institutional and real-estate strategies.
- How the largest institutional client relationship and the 15%-of-revenue mutual fund affect revenue concentration and retention risk.
- Whether the fourth-quarter decline in common-stockholder income and EPS persisted after year-end; the filing does not clearly attribute that quarter-specific decline to a single cause.
- The drivers of the sharp decline in operating cash flow despite higher reported earnings, including working-capital and investment-related cash movements.
- The distinction between company liquidity and leverage used by sponsored funds, and the effects of market declines or reduced fund leverage on fee-generating AUM.