Cohen & Steers, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. Cohen & Steers is a global asset manager focused on real assets, particularly real estate, infrastructure and commodities. Most revenue comes from advisory and administration fees calculated on client assets. The filing also reports fourth-quarter 2013 results.
Financial and operating performance
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $297.7 million | $273.6 million | +9% |
| Operating income | $106.3 million | $96.4 million | +10% |
| Operating margin | 35.7% | 35.3% | +0.4 percentage points |
| Net income | $63.3 million | $67.9 million | -7% |
| Net income attributable to common stockholders | $68.1 million | $66.1 million | +3% |
| Diluted EPS | $1.51 | $1.49 | +1% |
| Operating cash flow | $75.9 million | $20.3 million | Increased |
| Cash and cash equivalents at year-end | $128.3 million | $95.4 million | Increased |
Investment advisory and administration fees rose 11% to $271.1 million, reflecting higher average AUM. Institutional account fees fell 8% to $81.8 million; open-end fund fees increased 19% to $114.7 million; closed-end fund fees rose 25% to $74.6 million. Portfolio consulting and other revenue declined 31% to $12.2 million.
Expenses increased 8% to $191.4 million, including higher general and administrative costs and compensation. Non-operating results shifted from $7.9 million income in 2012 to a $2.0 million loss in 2013, primarily reflecting losses from consolidated funds. The effective tax rate was 37.6%, versus 35.5%.
Year-end AUM was $45.9 billion, up 0.2% from 2012: $2.1 billion of market appreciation was largely offset by $2.0 billion of net outflows. Institutional accounts had $3.4 billion of net outflows, while open-end funds recorded $702 million of net inflows and closed-end funds $765 million. Average AUM increased 8% to $47.9 billion.
Fourth-quarter 2013 revenue was $73.4 million, operating income $29.4 million, common-stockholder net income $19.4 million and diluted EPS $0.43.
Liquidity, capital, distributions and debt
Cash from operations was $75.9 million; investing activities provided $18.0 million and financing activities used $61.8 million. Financing outflows included $79.7 million of dividends, including a $44.3 million special dividend, and $8.0 million of share repurchases to meet employee tax withholding obligations. The company reported total liabilities of $51.2 million and stockholders’ equity of $223.6 million at year-end. The filing does not identify material company borrowings; it reports operating lease commitments of $89.9 million and an unfunded co-investment commitment of approximately $2.5 million. Management said operating cash flow and U.S. cash and short-term investments were expected to meet anticipated needs. The board declared a $0.22-per-share quarterly dividend in March 2014.
Material changes, outlook and risks
- Growth in revenue and operating income did not translate into higher consolidated net income, primarily because non-operating results deteriorated. Common-stockholder income and diluted EPS nonetheless increased.
- The 2013 launch of Cohen & Steers MLP Income and Energy Opportunity Fund (MIE) contributed to closed-end fund AUM and revenue, and included approximately $7.2 million in distribution costs. The prior-year launch of LDP included approximately $14.4 million in such costs.
- The company deconsolidated its Real Assets Fund after its ownership fell below a controlling interest; it then accounted for the investment under the equity method. The filing reported no gain or loss from deconsolidation.
- There is no quantitative earnings or AUM guidance. Management expects operating cash flow to remain its principal working-capital source and believes resources are sufficient for anticipated requirements.
- Key business risks include market declines and rising interest rates affecting real-estate securities and fee-bearing AUM; continued institutional and global/international strategy outflows; investment performance, fee and distribution-channel competition; and reliance on key investment professionals and senior leaders.
- One institutional client represented approximately 14% of 2013 revenue and 24% of total AUM. U.S. and non-U.S. real estate securities represented 57% and 13% of AUM, respectively. Regulatory changes, including U.S. derivatives rules and European reforms, may increase costs or constrain activities.
- The company reported no pending legal matter it believed could materially affect results, cash flows or financial condition. Management and the auditor concluded that internal control over financial reporting was effective; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether institutional net outflows persist and whether open-end fund inflows can offset them.
- How AUM market exposure, especially real estate securities and interest-rate sensitivity, affects fee revenue.
- The drivers of the 2013 non-operating loss, including consolidated-fund trading losses, and whether those items recur.
- Actual cash needs for dividends, leases, regulatory requirements and the remaining co-investment commitment.
- The duration and economic significance of the concentrated institutional-client relationship and other revenue concentrations.
- Potential effects of regulatory changes and the company’s senior-management transition effective January 1, 2014.