Business Context and Reporting Period
Company: Cohen & Steers, Inc. (CNS)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: CNS is an asset management firm specializing in income-oriented equity portfolios, primarily U.S. and international real estate securities, utilities, listed infrastructure, and preferred securities. The firm manages assets through closed-end mutual funds, open-end mutual funds, and institutional separate accounts.
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Total Revenue | $185.8 million | $255.1 million |
| Operating Income | $53.3 million | $99.5 million |
| Net Income | $18.1 million | $75.5 million |
| Earnings Per Share (Diluted) | $0.43 | $1.77 |
| Assets Under Management (AUM) | $15.1 billion | $29.8 billion |
| Cash and Cash Equivalents | $121.9 million | $137.0 million |
| Total Assets | $286.1 million | $332.2 million |
| Total Liabilities | $41.2 million | $50.3 million |
| Stockholders' Equity | $244.9 million | $281.9 million |
Cash Flow: Net cash provided by operating activities was $35.2 million in 2008, a decrease from $116.8 million in 2007. Net cash used in financing activities was $52.1 million, primarily due to stock repurchases ($32.0 million) and dividend payments ($31.6 million).
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 27% to $185.8 million, driven by a 49.3% drop in Assets Under Management (AUM) from $29.8 billion to $15.1 billion. This decline was caused by $11.3 billion in market depreciation and $3.4 billion in net outflows.
- Profitability Impact: Net income fell 76% to $18.1 million. Operating income decreased 46% to $53.3 million.
- Discontinued Operations: The company announced the exit from its investment banking business (Cohen & Steers Capital Advisors, LLC). Results from this segment are reported as discontinued operations, showing a net loss of $7.0 million in 2008 compared to income of $7.4 million in 2007.
- Impairment Charges: The company recorded $10.8 million in other-than-temporary impairment charges on available-for-sale securities (primarily FNMA preferred securities) and $3.7 million in impairment charges on intangible assets.
- Fee Waivers: The company waived approximately $11.7 million in advisory fees for affiliated closed-end mutual funds in 2008.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the significant decline in AUM and revenue to the unprecedented turmoil in global capital markets and the real estate sector during 2008. The firm is diversifying its product offerings, including long-short global real estate strategies and private real estate multimanager strategies, to mitigate concentration risks.
Outlook: The company expects cash flows from operations to remain the principal source of working capital. However, market conditions currently preclude increasing assets in closed-end mutual funds. The sale of the investment banking subsidiary is expected to close in the second quarter of 2009, subject to FINRA approval.
Key Risks:
- Market Volatility: Revenue is directly tied to the market value of managed assets; further declines in real estate securities could reduce revenue and earnings.
- Client Withdrawals: Investment advisory agreements are generally terminable on 60 days' notice, and open-end fund investors can redeem at any time.
- Concentration Risk: As of year-end 2008, 45% of AUM was concentrated in U.S. real estate common stocks.
- Key Personnel: The business relies heavily on co-CEOs Martin Cohen and Robert Steers; their loss would have a material adverse effect.
- Investment Impairments: The company holds investments in auction market preferred securities (AMPS) and corporate debt which face liquidity and valuation risks.
Investor Verification Checklist
- AUM Trajectory: Verify the current status of net outflows and market depreciation trends in Q1 2009 to assess revenue sustainability.
- Investment Portfolio Health: Review subsequent events regarding the $17.4 million in additional impairments recorded in Q1 2009 on available-for-sale securities.
- Discontinued Operations Sale: Confirm the closing of the sale of Cohen & Steers Capital Advisors, LLC and any associated gains or losses.
- Fee Structure: Monitor the expiration of fee waivers on closed-end mutual funds (scheduled through 2012) and the impact on future revenue.
- Liquidity Position: Assess the liquidity of the $7.0 million in auction rate preferred securities held in the investment portfolio.