Business Context and Reporting Period
Company: Cohen & Steers, Inc. (CNS)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: CNS is an asset management firm specializing in U.S. and international real estate securities, large-cap value stocks, listed infrastructure, utilities, and preferred securities. The company manages portfolios for open-end mutual funds, closed-end mutual funds, and institutional separate accounts. It exited its investment banking business in 2009, with those results reported as discontinued operations.
Key Financial Metrics
| Metric | 2010 | 2009 | 2008 |
|---|---|---|---|
| Total Revenue | $183.7 million | $123.6 million | $185.8 million |
| Operating Income | $52.8 million | $17.6 million | $53.3 million |
| Net Income (Attributable to Common Shareholders) | $46.4 million | ($1.7 million) | $18.1 million |
| Earnings Per Share (Diluted) | $1.07 | ($0.04) | $0.43 |
| Assets Under Management (AUM) | $34.5 billion | $24.8 billion | $15.1 billion |
| Cash and Cash Equivalents | $136.2 million | $153.0 million | $121.9 million |
| Total Assets | $277.6 million | $328.7 million | $286.1 million |
| Total Liabilities | $44.2 million | $40.4 million | $41.2 million |
| Operating Cash Flow | $54.0 million | $22.1 million | $35.2 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 49% to $183.7 million in 2010 compared to 2009. This was driven by a 51% increase in investment advisory and administration fees, resulting from higher average AUM.
- AUM Expansion: AUM grew 39% to $34.5 billion, split evenly between $4.8 billion in market appreciation and $4.8 billion in net inflows. Institutional separate accounts saw the largest growth, increasing 51% to $19.6 billion.
- Profitability: The company returned to profitability with $46.4 million in net income, a significant turnaround from the $1.7 million net loss in 2009. The 2009 loss was heavily impacted by $32.3 million in impairment charges on available-for-sale securities.
- Non-Operating Items: 2010 included a $6.8 million gain from the sale of previously impaired securities. 2009 included a $32.3 million impairment loss.
- Dividends: The company declared a special extraordinary dividend of $2.00 per share in August 2010, in addition to regular quarterly dividends.
Outlook, Risks, and Contingencies
- Market Risk: Revenue is highly correlated with the market value of assets managed. A decline in real estate securities prices could reduce revenue and earnings. Approximately 44% of AUM is concentrated in U.S. real estate common stocks.
- Key Personnel: The company depends heavily on Co-Chairmen and Co-CEOs Martin Cohen and Robert Steers. Their loss would have a material adverse effect.
- Client Concentration: The three largest separate account relationships represented approximately 15% of total revenue in 2010. Loss of these accounts would significantly impact revenue.
- Regulatory Environment: The company is subject to extensive regulation by the SEC, FINRA, and international bodies. The Dodd-Frank Act and potential changes to "soft dollar" rules could increase compliance costs or reduce profitability.
- Legal Proceedings: The company is a defendant in shareholder derivative actions regarding the redemption of auction preferred shares in two closed-end funds. Management believes the claims are without merit but cannot estimate potential exposure.
- Liquidity: The company maintains a highly liquid balance sheet. Cash and cash equivalents, equity investments, and available-for-sale investments comprised 83% of total assets as of December 31, 2010.
Investor Verification Checklist
- Verify the sustainability of the $4.8 billion in net inflows, particularly in institutional separate accounts, given the competitive asset management landscape.
- Assess the impact of the $6.8 million gain from the sale of previously impaired securities on the 2010 effective tax rate and net income.
- Monitor the status of the shareholder derivative litigation regarding auction preferred shares and any potential financial exposure.
- Review the concentration risk associated with the three largest separate account clients representing 15% of revenue.
- Confirm the company's ability to maintain fee levels in a competitive environment, noting the trend toward lower fees in the industry.