Cohen & Steers, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual report, not a standalone quarterly filing; selected fourth-quarter figures are included below. Cohen & Steers is an investment manager focused primarily on real estate securities and related strategies. Its revenue is principally asset-based advisory and administration fees.
Financial performance and key metrics
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Revenue | $273.6 million | $237.2 million | +15% |
| Operating income | $96.4 million | $87.0 million | +11% |
| Operating margin | 35.3% | 36.7% | Down 1.4 percentage points |
| Net income attributable to common shareholders | $66.1 million | $54.3 million | +22% |
| Diluted EPS | $1.49 | $1.23 | +21% |
| Cash from operating activities | $20.3 million | $72.4 million | Down $52.1 million |
| Cash and cash equivalents at year-end | $95.4 million | $127.8 million | Down $32.4 million |
| Total assets / total liabilities | $337.3 million / $67.5 million | $286.2 million / $50.9 million | — |
Assets under management (AUM) ended 2012 at $45.8 billion, up 11% from $41.3 billion. Market appreciation added $7.1 billion, while net outflows were $2.6 billion. Average AUM rose 10% to $44.2 billion. Institutional AUM fell to $24.9 billion from $25.4 billion amid $5.1 billion of net outflows; open-end fund AUM rose to $13.0 billion and closed-end fund AUM to $8.0 billion.
Revenue growth reflected higher average AUM and portfolio-consulting fees. Advisory and administration fees increased 10% to $244.5 million; portfolio consulting and other revenue rose to $17.7 million from $5.6 million. Expenses increased 18% to $177.1 million, faster than revenue, notably due to distribution costs associated with a new closed-end fund. Non-operating income was $7.9 million, principally reflecting seed-investment income. The effective tax rate was 35.5% (approximately 36% excluding discrete items).
Fourth quarter: Revenue was $71.1 million, operating income $32.7 million, and net income attributable to common shareholders $21.7 million. In Q4 2011, the corresponding figures were $59.4 million, $22.8 million, and $16.0 million.
Liquidity, capital, and distributions
- Cash and cash equivalents were $95.4 million at year-end. Management stated that U.S. cash and short-term investments were sufficient for working-capital needs and that operating cash flow should remain the principal working-capital source.
- Operating cash flow declined sharply to $20.3 million, including significant working-capital movements, notably a $65.3 million increase in securities owned and an $11.2 million increase in amounts due from brokers.
- Cash used in financing was $55.7 million. Cash dividends paid totaled $97.2 million, including a $1.50-per-share special dividend; total dividends declared for 2012 were $2.22 per share. A $0.20 quarterly dividend was declared in March 2013.
- The filing reports no material capital lease obligations and does not identify corporate borrowings as a material funding source. The $2.1 billion of bank financing cited relates to leverage used by managed closed-end funds, not identified as company debt.
- Contractual operating lease obligations totaled $97.9 million gross, including the extended New York headquarters lease through January 2024. The company also had an unfunded co-investment commitment capped at $25 million; approximately $2.2 million had been funded by year-end.
Material changes, outlook, and risks
- Institutional net outflows reversed the prior-year inflow trend and were primarily associated with global and international real estate subadvisory strategies. Open-end funds had $1.5 billion of net inflows; closed-end funds received $1.0 billion from the launch of the Limited Duration Preferred and Income Fund (LDP).
- LDP launch-related distribution costs were approximately $14.4 million in 2012. Excluding those costs, distribution and service fee expense would have been $26.9 million rather than $41.3 million. Management cited higher compensation, rent, professional fees, marketing, and technology costs as other expense drivers.
- No quantitative earnings or AUM guidance is provided. Management expects operating cash flows to support near-term working capital and believes resources are adequate for anticipated obligations; these are not formal financial forecasts.
- Revenue and earnings are exposed to securities-market movements because fees depend largely on managed asset values. At year-end, 54% of AUM was concentrated in U.S. real estate common stocks and 15% in non-U.S. real estate securities. Interest-rate increases, weak real estate markets, poor performance, fee pressure, client withdrawals, and regulatory changes could adversely affect results.
- Client concentration is significant: the largest institutional relationship represented 19% of 2012 revenue and approximately 26% of total AUM. Management also identifies dependence on co-CEOs Martin Cohen and Robert Steers and on key investment professionals.
- Regulatory implementation—including U.S. financial reform, derivatives rules, European requirements, and FATCA—could increase compliance costs or restrict activities. The company reported no pending legal matters believed likely to have a material adverse effect. Management and the auditor concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Whether institutional outflows persist, particularly in global and international real estate strategies, and whether open-end fund inflows continue.
- How much future revenue depends on market appreciation versus net flows, and the effective fee rates across account types.
- Whether operating cash flow rebounds after the 2012 working-capital outflows, and how cash is affected by dividends and investment activity.
- The actual recurring economics of LDP after its launch-related distribution costs, and the sustainability of special dividends.
- The exposure and recourse implications of consolidated investment funds, fund leverage, and the company’s co-investment commitment.
- The impact of the largest client relationship, real estate-market concentration, key-person dependence, and regulatory changes on future earnings.