Cohen & Steers, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The company is a global investment manager focused on real assets, including real estate, infrastructure and commodities. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $74.0 | $71.3 | $224.3 | $202.5 |
| Operating income | $27.7 | $12.2 | $77.0 | $63.7 |
| Operating margin | 37.4% | 17.2% | 34.3% | 31.5% |
| Net income attributable to common shareholders | $18.3 | $10.3 | $48.7 | $44.4 |
| Diluted EPS | $0.41 | $0.23 | $1.08 | $1.00 |
| Cash from operating activities | — | $41.1 | ($21.7) |
- For the nine months, total expenses rose 6% to $147.3 million. Q3 expenses fell 22% to $46.3 million, largely because Q3 2012 included $14.4 million of distribution costs related to a closed-end fund launch.
- Nine-month non-operating results shifted to a $3.9 million loss from $6.3 million of income, primarily reflecting losses in consolidated seed investments. This contributed to net income of $43.8 million versus $45.9 million; common-shareholder income nevertheless increased, partly reflecting changes in redeemable noncontrolling interests.
- At September 30, cash and cash equivalents were $143.8 million, total assets $297.1 million, total liabilities $45.9 million and stockholders’ equity $251.0 million. No borrowings or debt balance are presented in the balance sheet.
- Cash increased $47.9 million during the nine months. Investing activities provided $15.5 million and financing activities used $8.7 million. Property and equipment purchases were $4.3 million.
- Quarterly dividends declared were $0.20 per share; nine-month dividends declared were $0.60 per share. The company repurchased $8.0 million of shares, primarily to satisfy employee tax withholding on restricted stock units.
Material changes and business trends
- Assets under management (AUM) ended at $46.3 billion, up from $44.9 billion a year earlier. The year-over-year increase reflected market appreciation, partly offset by net outflows.
- Nine-month average AUM rose 10% to $48.2 billion, supporting higher advisory fees. Q3 average AUM increased 4% to $47.0 billion.
- Institutional accounts continued to experience outflows: $2.7 billion net for the first nine months, mainly from global/international real estate strategies and subadvisory relationships. Open-end funds recorded $972 million of nine-month net inflows; closed-end fund AUM benefited from the MIE launch.
- Advisory and administration fees increased, while portfolio consulting and other revenue declined 24% for the nine months, primarily due to lower assets under advisement in model-based strategies.
- General and administrative expense rose 22% for the nine months, reflecting fund-related costs, higher rent after the headquarters lease extension, and technology spending.
Outlook, risks and unusual items
- Management expected the full-year 2013 effective tax rate to be approximately 38%, excluding discrete items. The filing provides no specific revenue, earnings or AUM guidance.
- RAP ceased to be consolidated from August 1, 2013 after third-party subscriptions reduced the company’s controlling interest; it is now accounted for as an equity-method investment. The company reported no gain or loss on deconsolidation.
- The company had a commitment to co-invest up to $5.1 million alongside GRP-TE, of which approximately $2.5 million had been funded. The unfunded commitment was not recorded as a liability; timing depends on underlying investment drawdowns and the investment may remain illiquid for up to 12 years.
- Subsequent to quarter-end, the company declared a $0.20 quarterly dividend and a $1.00 special dividend per share, payable December 20, 2013 to holders of record December 2, 2013.
- Management reported no pending legal matter it believed would materially harm the business or financial condition, and no material change to previously disclosed risk factors or market-risk disclosures. Forward-looking results remain subject to the risks described in the 2012 Form 10-K.
Important facts for investors to verify
- Whether institutional outflows persist and whether open-end fund inflows can offset them.
- How seed-investment performance affects non-operating results, particularly given the nine-month trading-securities loss of $7.0 million.
- The sustainability of expense trends, including fund distribution costs, compensation, rent and technology spending.
- The cash, earnings and capital implications of the special dividend, the GRP-TE commitment and changes in consolidation of sponsored funds.
- The sensitivity of reported investment values to market conditions and valuation assumptions; some holdings are Level 3 or subject to redemption restrictions.