Cohen & Steers, Inc. — 2018 Form 10-K Summary
Business context and reporting period
Global investment manager specializing in real estate securities and other liquid real assets, infrastructure, commodities, natural resource equities, preferred securities and income solutions. This filing covers the fiscal year ended December 31, 2018; quarterly figures below include the three months ended December 31, 2018.
Revenue is primarily asset-based advisory and administration fees. Year-end assets under management (AUM) were $54.8 billion, down 11.7% from $62.1 billion in 2017. AUM comprised $25.7 billion in institutional accounts, $20.7 billion in open-end funds and $8.4 billion in closed-end funds.
Financial and operating metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $381.1 million | $378.7 million |
| Operating income | $147.0 million | $154.7 million |
| Operating margin | 38.6% | 40.9% |
| Net income attributable to common stockholders | $113.9 million | $91.9 million |
| Diluted earnings per share | $2.40 | $1.96 |
| Net cash from operating activities | $72.6 million | $64.3 million |
Fourth-quarter revenue was $93.9 million, operating income $34.3 million, net income attributable to common stockholders $25.6 million and diluted EPS $0.54. Compared with fourth-quarter 2017, revenue declined from $99.5 million, while common-stockholder net income rose from $20.4 million; the lower 2018 tax rate materially affects that comparison.
At year-end, cash and cash equivalents were $92.7 million, investments $224.9 million, total assets $432.6 million and total liabilities $95.7 million. The Company reported no debt outstanding and net liquid assets of $187.4 million, compared with $242.8 million a year earlier. 2018 cash flows were $72.6 million from operations, $(53.2) million from investing and $(118.1) million from financing. Financing outflows included $178.9 million of dividends paid, including a $116.9 million special dividend.
Changes versus prior comparable period
- Revenue increased 0.6%, but expenses rose 4.5% to $234.1 million, mainly from higher compensation and general and administrative costs. Operating margin fell 2.3 percentage points.
- Common-stockholder net income increased 23.9% and diluted EPS rose from $1.96 to $2.40, while operating income declined. The effective tax rate fell to 23.1% from 42.5%, principally reflecting the 21% federal statutory rate under the Tax Cuts and Jobs Act; 2017 included transition-tax and deferred-tax remeasurement charges.
- AUM declined due to $1.2 billion of net outflows, $2.5 billion of market depreciation and $3.6 billion of distributions. Institutional AUM fell to $25.7 billion from $29.4 billion; open-end fund AUM fell to $20.7 billion from $23.3 billion; and closed-end fund AUM fell to $8.4 billion from $9.4 billion.
- Investment losses contributed to non-operating results: the Company reported a $3.3 million non-operating loss versus $5.7 million of income in 2017, including a $14.3 million net loss from investments.
Outlook, risks and unusual items
No formal earnings or AUM guidance is provided in the supplied filing text. Management stated that operating cash flows are expected to remain the principal source of working capital and believes cash and operating cash flows will be adequate for anticipated requirements. At January 31, 2019, AUM had risen to $60.0 billion, supported by $427 million of net inflows and $5.0 billion of market appreciation, partly offset by $200 million of distributions. The Company declared a quarterly dividend of $0.36 per share on February 21, 2019.
- Revenue and earnings remain sensitive to market values and flows; 62.0% of year-end AUM was concentrated in real estate securities. Preferred securities represented a further 21.6%.
- Daiwa Asset Management represented approximately 8.8% of 2018 revenue and 14.6% of total AUM at year-end. Declining demand and outflows from related products had already reduced revenue.
- Competition, fee sensitivity, passive products, intermediary distribution access, investment performance and potential client withdrawals could pressure AUM, fees and margins.
- Other disclosed risks include interest-rate and currency movements, seed-investment losses, cybersecurity and business-continuity failures, regulatory changes including MiFID II and GDPR, and uncertainty related to Brexit.
- Contractual commitments included $62.8 million of operating lease payments and a $5.1 million co-investment commitment, of which $3.8 million had been funded. Gross unrecognized tax benefits were $12.0 million; timing of settlement was uncertain. The Company reported no pending legal matters believed likely to have a material effect and no material off-balance-sheet arrangements.
- Effective January 1, 2019, lease-accounting adoption was expected to add a $48.5 million right-of-use asset, net of deferred rent, and a $54.3 million lease liability, without an expected effect on operating results or cash flows.
Important facts for investors to verify
- Whether AUM recovery reported through January 2019 persisted, and whether net flows improved across institutional and fund vehicles.
- Exposure to Daiwa and real estate securities, including the impact of further redemptions, distributions or market weakness.
- Whether expense growth and margin pressure continued after 2018, particularly compensation, research and market-data costs.
- The sustainability of dividend payments given cash balances, operating cash generation, investment needs and regulatory limits on subsidiary capital.
- The effects of the lower tax rate and investment-marking losses on the comparability of reported earnings and cash generation.