Business context and reporting period
Cohen & Steers, Inc. is a global investment manager specializing in liquid real assets, including real estate securities, listed infrastructure and natural resources, as well as preferred securities and income solutions. Revenue is primarily management, advisory and administration fees tied to assets under management (AUM). This Form 10-K covers the fiscal year ended December 31, 2020; quarterly figures below are for Q4 2020.
Financial and operating performance
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $427.5 million | $410.8 million | +4.1% |
| Operating income | $95.1 million | $160.1 million | -40.6% |
| Net income attributable to common stockholders | $76.6 million | $134.6 million | -43.1% |
| Diluted EPS | $1.57 | $2.79 | -43.7% |
| GAAP operating margin | 22.2% | 39.0% | -16.8 percentage points |
| Operating margin, as adjusted (non-GAAP) | 39.6% | 39.6% | Unchanged |
| Operating cash flow | $89.2 million | $141.4 million | -36.9% |
| Year-end AUM | $79.9 billion | $72.2 billion | +10.7% |
Q4 revenue was $116.5 million, compared with $109.8 million in Q4 2019. Q4 operating loss was $11.9 million and net loss attributable to common stockholders was $4.4 million, versus operating income of $46.5 million and net income attributable to common stockholders of $36.7 million in the prior-year quarter.
AUM grew through $10.8 billion of net inflows and $261 million of market appreciation, partly offset by $3.3 billion of distributions. Preferred securities and U.S. real estate generated $5.2 billion and $4.6 billion of net inflows, respectively. Average AUM increased 2.8% to $69.2 billion. Revenue increased primarily on higher open-end fund average AUM and $7.7 million of institutional performance fees.
Liquidity, debt and capital allocation
The company reported no outstanding corporate debt. At year-end, cash and cash equivalents were $41.2 million, down from $101.4 million; net liquid assets were $119.3 million, down from $178.9 million. Net liquid assets include Treasury securities and seed investments, less current liabilities. Operating cash flow was $89.2 million; financing cash outflow was $148.9 million, including $122.5 million of dividends and $25.9 million of share repurchases for employee tax withholding. Management expects operating cash flows to be adequate for foreseeable commitments and capital needs. Closed-end funds sponsored by the company used approximately $3.0 billion of leverage; this is fund leverage, not reported company debt.
Material changes, outlook and risks
- Unusual costs: 2020 GAAP expenses rose 32.6% to $332.5 million, including $60.6 million associated with the PTA initial public offering and $11.9 million of RQI rights-offering costs. Adjusted diluted EPS was $2.57, compared with GAAP diluted EPS of $1.57; adjusted measures exclude specified costs and other items.
- Fee rates: Institutional effective fees rose to 38.8 basis points from 36.4 basis points, mainly due to performance fees. Open-end fund effective fees declined to 66.7 basis points from 68.0 basis points, partly reflecting an expense cap. Management expects the closed-end fund effective fee rate to increase in 2021 following PTA’s offering.
- Outlook: The filing gives no quantified earnings, revenue or AUM guidance. Management said operations had not been materially impaired by COVID-19 to that point, while warning that pandemic-related market and operational effects remained uncertain.
- Concentration and market exposure: Real estate securities represented 60.1% of AUM and preferred securities 29.0%. The largest institutional client, Daiwa Asset Management, represented about 6.7% of 2020 revenue and 11.6% of total AUM. Two affiliated funds each generated more than 10% of revenue; the Preferred Securities and Income Fund represented 19.3%.
- Leadership: Co-founder and CEO Robert H. Steers took medical leave on February 21, 2021; President Joseph M. Harvey was appointed Acting CEO. This occurred after the reporting year but before the filing was signed.
- Other risks and contingencies: The filing highlights COVID-19, investment performance and redemption risk, fee competition, cyber threats, LIBOR transition, regulation and client/distribution concentration. It reports $13.6 million of gross unrecognized tax benefits; management expected a $9–$10 million reduction within 12 months. No pending legal matters were identified as likely to have a material adverse effect.
Important facts for investors to verify
- Reconcile the $60.6 million PTA offering costs and $11.9 million RQI rights-offering costs to reported GAAP results and assess the comparability of non-GAAP adjusted figures.
- Monitor AUM flows, investment performance, fund distributions and the concentration in real estate and preferred securities, including exposure to Daiwa and major affiliated funds.
- Assess the CEO transition and any subsequent changes in leadership, strategy or client relationships.
- Review cash generation and liquidity after dividends and other capital uses, distinguishing company debt from leverage in sponsored closed-end funds.
- Track the resolution of uncertain tax positions, including the stated potential reduction, and any material COVID-19, cyber, regulatory or benchmark-transition developments.