Cohen & Steers, Inc. — 2011 Form 10-K Summary
Business context and reporting period. The filing covers the fiscal year ended December 31, 2011; it is an annual report, not a standalone fourth-quarter filing. Cohen & Steers is an investment manager specializing in real estate securities, listed infrastructure, real assets, large-cap value and preferred securities. Its fees are primarily tied to client assets under management (AUM).
Financial and operating performance
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $237.2 million | $183.7 million |
| Operating income | $87.0 million | $52.8 million |
| Operating margin | 36.7% | 28.7% |
| Net income attributable to common shareholders | $54.3 million | $46.4 million |
| Diluted EPS | $1.23 | $1.07 |
| Operating cash flow | $72.4 million | $54.0 million |
| Cash and cash equivalents at year-end | $127.8 million | $136.2 million |
| Total liabilities at year-end | $50.9 million | $44.2 million |
- Revenue rose 29%, principally as average AUM increased 41% to $40.0 billion. Investment advisory and administration fees were $221.9 million, up 31%.
- Total expenses increased 15% to $150.2 million. Employee compensation and benefits rose 18% to $84.4 million, including higher incentive compensation, salaries and restricted-stock amortization.
- Net income increased 17%; the effective tax rate was approximately 38%, versus approximately 34% in 2010 excluding discrete items.
- Year-end AUM was $41.3 billion, up 20%. Net inflows of $7.4 billion were partly offset by $598 million of market depreciation. Institutional accounts were $25.4 billion, open-end funds $9.6 billion and closed-end funds $6.3 billion.
- Cash flow from operations exceeded investment spending; financing used $77.6 million, mainly for $69.1 million of dividends, including a $43.2 million special dividend. Cash declined by $8.1 million during the year.
- The filing reports no material company debt balance. Total liabilities were $50.9 million; do not confuse this with approximately $1.8 billion of bank financing used by certain managed closed-end funds.
Material changes versus the prior comparable period
- AUM growth came mainly from net inflows, especially institutional sub-advisory U.S. real estate strategies; unlike 2010, markets detracted from AUM in 2011.
- Operating income grew faster than revenue, lifting operating margin to 36.7% from 28.7%, despite higher compensation and operating costs.
- Non-operating results swung from $12.7 million of income in 2010 to a $0.1 million loss in 2011. 2010 included a $6.8 million recovery on previously impaired securities; 2011 included losses in equity-method investments in the company’s global real estate long-short funds.
- Operating cash flow increased to $72.4 million from $54.0 million. Dividends paid fell to $69.1 million from $102.4 million, largely reflecting the smaller special dividend in 2011.
- Fourth-quarter 2011 revenue was $59.4 million, operating income $22.8 million and common-shareholder net income $16.0 million, compared with $51.8 million, $13.1 million and $12.8 million, respectively, in fourth-quarter 2010.
Outlook, commentary, risks and unusual items
- The filing provides no quantified earnings or AUM guidance. Management said operating cash flows were expected to remain the principal working-capital source and believed available cash and U.S. short-term investments were sufficient for working-capital needs.
- Key business sensitivities include market values and investment performance, particularly in real estate securities; rising interest rates; client withdrawals; fee pressure; distribution-channel access; and the retention of key investment personnel. Approximately 71% of AUM was concentrated in U.S. and non-U.S. real estate securities.
- One institutional relationship represented approximately 18% of 2011 revenue, 51% of institutional AUM and 31% of total AUM. The loss or reduction of this relationship could materially affect results.
- The company’s co-chairmen and co-CEOs, Martin Cohen and Robert Steers, beneficially owned approximately 54% of common stock as of March 2012; the filing identifies dependence on their services and majority voting control as risks.
- Regulatory uncertainty includes implementation of Dodd-Frank, mutual-fund distribution-fee review, possible limits on derivatives, Form PF reporting and FATCA compliance. Management stated the ultimate effects were not predictable.
- Potentially significant fund-related event: a managed closed-end fund planned a shareholder vote on conversion to an open-end fund; approval could enable redemptions and reduce AUM and fees.
- Other notable items: a $1.00-per-share special dividend was declared in 2011; the company launched a Real Assets Fund in early 2012 with an approximately $25.1 million seed investment; and it committed to invest up to $25 million in Global Realty Partners III, an illiquid commitment whose final amount and funding timing were undetermined.
- Management and the independent auditor reported effective disclosure controls and internal control over financial reporting. The company reported no pending legal matters believed to have a material effect.
Important facts for investors to verify
- Whether institutional and mutual-fund net inflows continued after year-end, and how performance and market movements affected AUM and fee revenue.
- The status and concentration of the major institutional relationship, including any changes to its mandates or assets.
- The outcome and financial effect of the closed-end fund conversion vote, and any related redemptions.
- The realized funding schedule and ultimate amount of the Global Realty Partners III commitment, alongside the Real Assets Fund seed investment.
- Whether the special dividend and recurring dividend level are sustainable given operating cash flow, investment needs and future results.
- Changes in fund leverage, regulatory requirements, fee waivers, and other exposures that could affect company revenue or client AUM.