Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 2.30M
2: EX-3.2 Amended and Restated Bylaws of the Company HTML 88K
3: EX-31.1 CEO Certification - Section 302 HTML 22K
4: EX-31.2 CFO Certification - Section 302 HTML 22K
5: EX-32.1 CEO Certification - Section 906 HTML 19K
6: EX-32.2 CEO Certification - Section 906 HTML 19K
12: R1 Cover Page HTML 69K
13: R2 Condensed Consolidated Statements of Financial HTML 102K
Condition (Unaudited)
14: R3 Condensed Consolidated Statements of Financial HTML 39K
Condition - (Parenthetical) (Unaudited)
15: R4 Condensed Consolidated Statements of Operations HTML 114K
(Unaudited)
16: R5 Condensed Consolidated Statements of Comprehensive HTML 51K
Income (Unaudited)
17: R6 Condensed Consolidated Statements of Changes in HTML 98K
Stockholders' Equity and Redeemable Noncontrolling
Interest (Unaudited)
18: R7 Condensed Consolidated Statements of Cash Flows HTML 103K
(Unaudited)
19: R8 Condensed Consolidated Statements of Cash Flows - HTML 38K
Supplemental Information
20: R9 Organization and Description of Business HTML 20K
21: R10 Basis of Presentation and Significant Accounting HTML 45K
Policies
22: R11 Revenue HTML 52K
23: R12 Investments HTML 122K
24: R13 Fair Value HTML 169K
25: R14 Derivatives HTML 77K
26: R15 Earnings Per Share HTML 44K
27: R16 Income Taxes HTML 38K
28: R17 Related Party Transactions HTML 32K
29: R18 Leases HTML 19K
30: R19 Commitments and Contingencies HTML 20K
31: R20 Concentration of Credit Risk HTML 19K
32: R21 Subsequent Events HTML 20K
33: R22 Basis of Presentation and Significant Accounting HTML 103K
Policies (Policies)
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35: R24 Investments (Tables) HTML 128K
36: R25 Fair Value (Tables) HTML 163K
37: R26 Derivatives (Tables) HTML 80K
38: R27 Earnings Per Share (Tables) HTML 43K
39: R28 Income Taxes (Tables) HTML 35K
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43: R32 Investments (Details) HTML 36K
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45: R34 Fair Value - Fair Value Measurements, Recurring HTML 119K
and Nonrecurring (Details)
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Recurring Basis, Unobservable Input Reconciliation
(Details)
47: R36 Fair Value - Valuation Techniques (Details) HTML 28K
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(Address of Principal Executive Offices and Zip Code)
(i212)
i832-3232
(Registrant's Telephone Number, Including Area Code)
________________
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, $0.01 par value
iCNS
iNew
York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
The number of shares of the registrant's common stock, par value $0.01 per share, outstanding as of October 31, 2022 was i48,706,340.
*
Items other than those listed above have been omitted because they are not applicable.
Forward-Looking Statements
This report and other documents filed by us contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect management's current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook,""believes,""expects,""potential,""continues,""may,""will,""should,""seeks,""approximately,""predicts,""intends,""plans,""estimates,""anticipates" or the negative versions of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these forward-looking statements. We believe that these factors include, but are not limited to, the risks described in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2021 (the Form 10-K), which is accessible on the Securities and Exchange Commission's website at www.sec.gov and on our website
at www.cohenandsteers.com. These factors are not exhaustive and should be read in conjunction with the other cautionary statements that are included in this report, the Form 10-K and our other filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Other
liabilities and accrued expenses ($i748 and $i689) (1)
i13,497
i10,948
Total
liabilities
i113,172
i148,361
Commitments
and contingencies (See Note 11)
i
i
Redeemable noncontrolling interests
i77,530
i89,143
Stockholders'
equity:
Common stock, $ii0.01/
par value; ii500,000,000/ shares authorized;
i55,018,253 and i54,267,309 shares issued at September 30, 2022 and December 31, 2021,
respectively
Total
liabilities, redeemable noncontrolling interests and stockholders' equity
$
i506,332
$
i492,687
_________________________
(1) Asset
and liability amounts in parentheses represent the aggregated balances at September 30, 2022 and December 31, 2021 attributable to variable interest entities consolidated by the Company. Refer to Note 4, Investments for further discussion.
See notes to condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(UNAUDITED)
Supplemental disclosures of cash flow information:
The following table provides a reconciliation of cash and cash equivalents reported within the condensed consolidated statements of financial
condition to the cash and cash equivalents reported within the condensed consolidated statements of cash flows above:
Nine Months Ended September 30,
(in thousands)
2022
2021
Cash and cash equivalents
$
i161,957
$
i168,472
Cash
included in investments (1)
i3,284
i—
Total
cash and cash equivalents within condensed consolidated statements of cash flows
$
i165,241
$
i168,472
________________________
(1) Cash
included in investments represents operating cash held in a consolidated investment vehicle.
During the nine months ended September 30, 2022 and 2021, the Company paid taxes of $i50.9 million and $i28.1
million, respectively.
Supplemental disclosures of non-cash investing and financing activities:
In connection with its stock incentive plan, the Company issued dividend equivalents in the form of restricted stock units, net of forfeitures, in the amount of $i2.3 million and $i1.8
million for the nine months ended September 30, 2022 and 2021, respectively. These amounts are included in the issuance of restricted stock units—net and in dividends in the condensed consolidated statements of changes in stockholders' equity.
Effective August 1, 2022, the Company's proportionate ownership interest in a variable interest entity, the Cohen & Steers SICAV Diversified Real Assets Fund (SICAV RAP), fell below i10%
and the Company deconsolidated the assets and liabilities of SICAV RAP resulting in a non-cash reduction of $i120.3 million from both investments and redeemable noncontrolling interests.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. iOrganization and Description
of Business
Cohen & Steers, Inc. (CNS) was organized as a Delaware corporation on March 17, 2004. CNS is the holding company for its direct and indirect subsidiaries, including Cohen & Steers Capital Management, Inc. (CSCM), Cohen & Steers Securities, LLC (CSS), Cohen & Steers UK Limited (CSUK), Cohen & Steers Ireland Limited (CSIL), Cohen & Steers Asia Limited (CSAL) and Cohen & Steers Japan Limited (CSJL) (collectively, the Company).
The Company is a global investment manager specializing in real assets and
alternative income, including real estate, preferred securities, infrastructure, resource equities, commodities, as well as multi-strategy solutions. Founded in 1986, the Company is headquartered in New York City, with offices in London, Dublin, Hong Kong and Tokyo.
2. iiBasis
of Presentation and Significant Accounting Policies/
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The condensed consolidated financial statements set forth herein include the accounts of CNS and its direct and indirect subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements of the Company included herein are unaudited and have been
prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the interim results have been made. The Company's condensed consolidated financial statements and the related notes should be read together with the consolidated financial statements and the related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
iAccounting
Estimates—The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes the estimates used in preparing the condensed consolidated financial statements are reasonable and prudent. Actual results could differ from those estimates.
i
Consolidation
of Investment Vehicles—The Company's financial interests in investment vehicles, including the management fees that are received, are evaluated at inception and thereafter, if there is a reconsideration event, in order to determine whether to apply the Variable Interest Entity (VIE) model or the Voting Interest Entity (VOE) model.
A VIE is an entity in which either the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or the group of holders of the equity investment at risk lack certain characteristics of a controlling financial interest. The primary beneficiary is the entity that has the power to direct the activities of the VIE that most significantly affect its performance, and the obligation to absorb losses of the entity or the right
to receive benefits from the entity that could potentially be significant to the VIE. Subscriptions and redemptions or amendments to the governing documents of the respective entities could affect an entity's status as a VIE or the determination of the primary beneficiary. Limited partnerships and similar entities are determined to be a VIE when the Company is the general partner and the limited partners do not hold substantive kick-out or participation rights. The Company assesses whether it is the primary beneficiary of any VIEs identified by evaluating its economic interests in the entity held either directly by the Company and its affiliates or indirectly through employees. VIEs for which the
Company is deemed to be the primary beneficiary are consolidated.
Investments that are determined to be VOEs are consolidated when the Company’s ownership interest is greater than 50% of the outstanding voting interests of the vehicle.
The Company records noncontrolling interests in consolidated investment vehicles for which the Company’s ownership is less than 100%.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
iCash and Cash Equivalents—Cash and cash equivalents are on deposit with several highly rated financial institutions and include short-term, highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.
iDue
from/to Brokers—The Company, including the consolidated investment vehicles, may transact with brokers for certain investment activities. The clearing and custody operations for these investment activities are performed pursuant to contractual agreements. The due from/to brokers balances represent cash and/or cash collateral balances at brokers/custodians and/or receivables and payables for unsettled securities transactions with brokers/custodians.
i
Investments—Management of
the Company determines the appropriate classification of its investments at the time of purchase and re-evaluates such determination no less than on a quarterly basis. The Company's investments are categorized as follows:
•Equity investments at fair value are comprised of corporate investments and investments held within the consolidated investment vehicles, which generally represent common stocks, limited partnership interests, master limited partnership interests, preferred securities and other seed investments.
•Trading investments are comprised of corporate investments and investments held within the consolidated investment vehicles, which generally represent
U.S. Treasury securities and investment-grade corporate debt securities.
•Equity method investments, which generally represent seed investments in investment vehicles for which the Company is able to exercise significant influence but not control over the investment. When using the equity method, the Company recognizes its respective share of net income or loss for the period which is recorded in gain (loss) from investments—net in the Company's condensed consolidated statements of operations.
Realized and unrealized gains and losses on equity investments at fair value, trading investments and equity
method investments are recorded in gain (loss) from investments—net in the Company's condensed consolidated statements of operations.
From time to time, the Company, including the consolidated investment vehicles, may enter into derivative contracts, including options, futures and swaps contracts, to gain exposure to the underlying commodities markets or to economically hedge market risk of the underlying portfolios. Gains and losses on derivative contracts are recorded in gain (loss)
from investments—net in the Company's condensed consolidated statements of operations. The fair values of these instruments are recorded in other assets or other liabilities and accrued expenses on the Company's condensed consolidated statements of financial condition.
Additionally, from time to time, the Company, including the consolidated investment vehicles, may enter into forward foreign exchange contracts to economically hedge currency exposure. These instruments are measured at fair value based on the prevailing forward exchange rate with gains and losses recorded in foreign
currency gain (loss)—net in the Company’s condensed consolidated statements of operations. The fair values of these contracts are recorded in other assets or other liabilities and accrued expenses on the Company’s condensed consolidated statements of financial condition.
i
Leases—The
Company determines if an arrangement is a lease at inception. The Company has operating leases for corporate offices and certain information technology equipment which are included in operating lease right-of-use (ROU) assets and operating lease liabilities on the Company’s condensed consolidated statements of financial condition.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent obligations to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the net present value of lease payments over the life of the lease. The majority of the
Company’s lease agreements do not provide an implicit rate. As a result, the Company used its estimated incremental borrowing rate based on the information available as of lease commencement dates in determining the present value of lease payments. The operating lease ROU assets reflect any upfront lease payments made as well as lease incentives received. The lease terms may include options to extend or terminate the lease and these are factored into the determination of the ROU asset and lease liability at lease inception when and if it is reasonably certain that the Company will exercise that option. Lease expense for fixed lease payments is recognized on a straight-line basis over the lease term.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
The Company has certain lease agreements with non-lease components such as maintenance and executory costs, which are accounted for separately and not included in ROU assets.
ROU assets are tested for impairment whenever changes in facts or circumstances indicate that the carrying amount of an asset may not be recoverable. Modification of a lease term would result in remeasurement of the lease liability and a corresponding adjustment to the ROU assets.
iRedeemable
Noncontrolling Interests—Redeemable noncontrolling interests represent third-party interests in the consolidated investment vehicles. These interests are redeemable at the option of the investors and therefore are not treated as permanent equity. Redeemable noncontrolling interests are recorded at fair value which approximates the redemption value at each reporting period.
i
Investment Advisory and Administration Fees—The Company earns revenue by
providing asset management services to institutional accounts, open-end and closed-end funds as well as model-based portfolios. Investment advisory fees are earned pursuant to the terms of investment management agreements and are generally based on a contractual fee rate applied to the average assets under management. The Company also earns administration fees from certain open-end and closed-end funds pursuant to the terms of underlying administration contracts. Administration fees are based on the average daily assets under management of such funds. Investment advisory and administration fee revenue is recognized when earned and is recorded net of any fund reimbursements. The investment advisory and administration contracts
each include a single performance obligation as the services provided are not separately identifiable and are accounted for as a series satisfied over time using a time-based method (days elapsed). Additionally, investment advisory and administration fees represent variable consideration, as fees are based on average assets under management which fluctuate daily.
In certain instances, the Company may earn performance fees when specified performance hurdles are met during the performance period. Performance fees are forms of variable consideration and are not recognized until it becomes probable that there will not be a significant reversal of the cumulative revenue recognized.
i
Distribution
and Service Fee Revenue—Distribution and service fee revenue is based on the average daily net assets of certain share classes of open-end funds distributed by CSS. Distribution and service fee revenue is earned daily and is recorded gross of any third-party distribution and service fee expense for applicable share classes.
Distribution fee agreements include a single performance obligation that is satisfied at a point in time when an investor purchases shares in an open-end fund. For all periods presented, a portion of the distribution fee revenue recognized in the period may relate to performance obligations satisfied (or partially satisfied) in prior periods. Service fee agreements include a single performance obligation as the services provided are not separately identifiable and are accounted for as a series satisfied over time using a time-based method (days elapsed). Additionally, distribution
and service fees represent variable consideration, as fees are based on average assets under management which fluctuate daily.
i
Distribution and Service Fee Expense—Distribution and service fee expense includes distribution fees, shareholder servicing fees and intermediary assistance payments.
Distribution fees represent payments made to qualified intermediaries for assistance in connection with the distribution of certain open-end funds' shares and for other expenses such as advertising, printing and
distribution of prospectuses to investors. Such amounts may also be used to pay financial intermediaries for services as specified in the terms of written agreements complying with Rule 12b-1 of the Investment Company Act of 1940. Distribution fees are based on average daily net assets under management of certain share classes of certain of the funds.
Shareholder servicing fees represent payments made to qualified intermediaries for shareholder account service and maintenance. These services are provided pursuant to written agreements with such qualified institutions. Shareholder servicing fees are generally based on average daily net assets under management.
Intermediary assistance payments represent payments to qualified intermediaries for activities related to distribution, shareholder servicing as well as marketing and support of certain open-end funds and are incremental to
those described above. Intermediary assistance payments are generally based on average daily net assets under management.
iStock-based Compensation—The Company recognizes compensation expense for the grant-date fair value of restricted stock unit awards to certain employees. This expense is recognized over the period during which employees are required to
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
provide service. Forfeitures are recorded as incurred. Any change to the key terms of an employee’s award subsequent to the grant date is evaluated and, if necessary, accounted for as a modification. If the modification results in the remeasurement of the fair value of the award, the remeasured compensation cost is recognized over the remaining service period.
i
Income
Taxes—The Company records the current and deferred tax consequences of all transactions that have been recognized in the condensed consolidated financial statements in accordance with the provisions of the enacted tax laws. Deferred tax assets are recognized for temporary differences that will result in deductible amounts in future years at tax rates that are expected to apply in those years. Deferred tax liabilities are recognized for temporary differences that will result in taxable income in future years at tax rates that are expected to apply in those years. The Company records a valuation allowance, when necessary, to reduce deferred tax assets to an amount that more likely than not will be realized. The effective tax rate for interim periods is based on the
Company's best estimate of the effective tax rate expected to be applied
to the full fiscal year adjusted for discrete tax items during the period.
The calculation of tax liabilities involves uncertainties in the application of complex tax laws and regulations across the Company's global operations. A tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of the technical merits. The Company records potential interest and penalties related to uncertain tax positions in the provision for income taxes in the condensed consolidated statements of operations.
iCurrency
Translation and Transactions—Assets and liabilities of subsidiaries having non-U.S. dollar functional currencies are translated at exchange rates at the applicable condensed consolidated statement of financial condition date. Revenue and expenses of such subsidiaries are translated at average exchange rates during the period. The gains or losses resulting from translating non-U.S. dollar functional currency into U.S. dollars are included in the Company's condensed consolidated statements of comprehensive income. Gains or losses resulting from transactions denominated in currencies other than the U.S. dollar within certain foreign subsidiaries
and gains and losses arising on revaluation of U.S. dollar-denominated assets and liabilities held by certain foreign subsidiaries are included in foreign currency gain (loss)—net in the Company’s condensed consolidated statements of operations.
The cumulative translation adjustment was $(i14.9) million
and $(i5.9) million at September 30, 2022 and December 31, 2021, respectively, and was reported within accumulated other comprehensive income (loss) on the condensed consolidated statements of financial condition.
iComprehensive
Income—The Company reports all changes in comprehensive income in the condensed consolidated statements of comprehensive income. Comprehensive income generally includes net income or loss attributable to common stockholders and amounts attributable to foreign currency translation gain (loss).
Recently Issued Accounting Pronouncements—In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The standard clarifies that contractual sale restrictions are not considered in measuring the fair value of equity securities, which would be a change in practice for certain entities.
The ASU also indicates that a contractual sale restriction is not a separate unit of account, and requires new disclosures for all entities with equity securities subject to a contractual sale restriction. This new guidance will be effective on January 1, 2024. The Company does not expect that the adoption of this new standard will have a material effect on the Company's condensed consolidated financial statements and related disclosures.
The
following table summarizes gain (loss) from investments—net:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Net
realized gains (losses) during the period
$
(i653)
$
i2,274
$
i10,192
$
i6,730
Net
unrealized gains (losses) during the period on investments
still held at the end of the period
(i5,267)
(i2,692)
(i41,118)
i5,189
Gain
(loss) from investments—net (1)
$
(i5,920)
$
(i418)
$
(i30,926)
$
i11,919
________________________
(1)Included
gain (loss) on derivative contracts, which are utilized to hedge a portion of the market risk of the Company's seed investments.
/
At September 30, 2022, the Company's consolidated VIEs included the Cohen & Steers SICAV Global Listed Infrastructure Fund (GLI SICAV), the Cohen & Steers SICAV Global Real Estate Fund (SICAV GRE), the Cohen & Steers Co-Investment Partnership, L.P. (GRP-CIP) and the Cohen & Steers Real Estate Opportunities Fund, L.P. (REOF). During the nine
months ended September 30, 2022, SICAV RAP was deconsolidated. At December 31, 2021, the Company's consolidated VIEs included GLI SICAV, SICAV GRE, SICAV RAP, GRP-CIP and REOF.
Attributable
to redeemable non-controlling interests
i14,040
i59,126
i—
i4,364
i77,530
Net
assets
$
i31,616
$
i69,958
$
i177
$
i20,172
$
i121,923
_________________________
(1) The
assets may only be used to settle obligations of each VIE and the liabilities are the sole obligation of each VIE, for which creditors do not have recourse to the general credit of the Company.
Attributable
to redeemable non-controlling interests
i12
i42,847
i46,284
i—
i—
i89,143
Net
assets
$
i8,273
$
i58,202
$
i59,632
$
i292
$
i2,827
$
i129,226
_________________________
(1) The
assets may only be used to settle obligations of each VIE and the liabilities are the sole obligation of each VIE, for which creditors do not have recourse to the general credit of the Company.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
5. iFair Value
Accounting Standards Codification Topic 820, Fair Value Measurement (ASC 820) specifies a hierarchy of valuation classifications based on whether the inputs to the valuation techniques used in each valuation classification are observable or unobservable. These classifications are summarized in the three
broad levels listed below:
•Level 1—Unadjusted quoted prices for identical instruments in active markets.
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable.
•Level 3—Valuations derived from valuation techniques in which significant inputs or significant value drivers are unobservable.
Inputs used to measure fair value might fall in different levels of the fair value hierarchy, in which case the Company defaults to the lowest level input
that is significant to the fair value measurement in its entirety. These levels are not necessarily an indication of the risk or liquidity associated with the investments.
i
The following tables present fair value measurements:
(1) Comprised
of certain investments measured at fair value using NAV as a practical expedient.
(2) Included total return swaps - commodities held by consolidated investment vehicles.
Equity investments at fair value classified as Level 2 were comprised of common stocks for which quoted prices in active markets are not available. Fair values for the common stocks classified as Level 2 were generally based on quoted prices for similar instruments in active markets.
Equity investments at fair value classified as Level 3 as of September 30, 2022 were comprised of a limited partnership interest in a joint venture that holds an investment in private real estate.
Trading investments classified as Level 2 were comprised of U.S. Treasury securities and corporate
debt securities. Fair values were generally determined using third-party pricing services. The pricing services may utilize evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information.
Investments measured at NAV were comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient as follows:
•Equity investments at fair value included:
◦limited partnership interests in private real estate funds; and
◦the Company's co-investment in a Cayman trust invested in global listed infrastructure securities (which is included in "Other"
in the leveling table).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
•Equity method investments included the Company's partnership interests in Cohen & Steers Global Realty Partners III-TE, L.P. (GRP-TE) and Cohen & Steers Global Listed Infrastructure Fund L.P. (LPGI). GRP-TE
invests in non-registered real estate funds and LPGI invests in global infrastructure securities. The Company's ownership interest in GRP-TE was approximately i0.2% and i0.01%
at September 30, 2022 and December 31, 2021, respectively. The Company's ownership interest in LPGI was approximately i0.01% at September 30, 2022 and no ownership at December 31, 2021.
At September 30, 2022
and December 31, 2021, the Company did not have the ability to redeem its limited partnership interests in private real estate funds or its interest in GRP-TE. There were no contractual restrictions on the Company's ability to redeem its interest in the Cayman trust or LPGI.
Investments measured at NAV as a practical expedient have not been classified in the fair value hierarchy. The amounts presented in the above tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented on the condensed consolidated statements of financial condition.
Swap contracts
classified as Level 2 were valued based on the underlying futures contracts or equity indices.
Foreign currency exchange contracts classified as Level 2 were valued based on the prevailing forward exchange rate, which is an input that is observable in active markets.
i
The
following table summarizes the changes in Level 3 investments measured at fair value on a recurring basis:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Balance
at beginning of period
$
i18,592
$
i—
$
i—
$
i—
Purchases/contributions
i—
i—
i19,380
i—
Sales/distributions
(i5,874)
i—
(i5,874)
i—
Unrealized
gains (losses)
(i108)
i—
(i896)
i—
Balance
at end of period
$
i12,610
$
i—
$
i12,610
$
i—
/
Unrealized
gains (losses) and realized gains (losses), if any, in the above table were recorded in gain (loss) from investments—net in the Company's condensed consolidated statements of operations.
Valuation Techniques
In certain instances, debt and equity securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable broker-dealers or independent pricing services. In determining the value of a particular investment, independent pricing services may use information with respect to transactions in such investments, broker quotes, pricing matrices, market transactions in comparable investments and various relationships between investments. As part of its independent price verification process, the
Company generally performs reviews of valuations provided by broker-dealers or independent pricing services. Investments in funds are valued at their closing price or NAV (or its equivalent) as a practical expedient.
In the absence of observable market prices, the Company values its investments using valuation methodologies applied on a consistent basis. For some investments, little market activity may exist; management's determination of fair value is then based on the best information available in the circumstances, and may incorporate management's own assumptions and involve a significant degree of judgment, taking into consideration a combination of internal and external factors. Such investments are valued no less than on a quarterly basis, taking into consideration any changes in key inputs and changes in economic and other relevant
conditions, and valuation models are updated accordingly. Additionally, the Company has retained an independent valuation services firm to assist in the determination of the fair value of certain private real estate investments. The Company has established a valuation committee, comprised of senior members from various departments within the Company, to administer, implement and oversee the valuation policies and procedures.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
iThe following table summarizes the valuation techniques and significant unobservable inputs approved by the Valuation Committee
for Level 3 investments measured at fair value on a recurring basis:
Fair Value (in thousands)
Valuation Technique
Unobservable Inputs
Value
Limited
partnership interests
$i12,610
Discounted cash flow
Discount rate Terminal capitalization rate
i8.25%
i7.25%
/
Changes
in the significant unobservable inputs in the above tables may result in a materially higher or lower fair value measurement.
6. iDerivatives
i
The
following tables summarize the notional amount and fair value of the outstanding derivative financial instruments, none of which were designated in a formal hedging relationship:
Derivatives
held by consolidated investment vehicles:
Total return swaps - commodities
i10,931
—
i387
i—
Total
$
i13,480
$
i38,678
$
i690
$
i887
________________________
(1) The
fair value of derivative financial instruments is recorded in other assets and other liabilities and accrued expenses on the Company's condensed consolidated statements of financial condition.
•Total return equity and commodity swap contracts which are utilized to economically hedge a portion of the market risk of certain seed investments and to gain exposure in the commodities market for the purpose of establishing
a performance track record; and
•Forward foreign exchange contracts which are utilized to economically hedge currency exposure arising from certain non-U.S. dollar investment advisory fees.
At December 31, 2021, non-corporate derivatives were comprised of commodity swap contracts that were utilized by certain of the consolidated investment vehicles to gain exposure in the commodities market as part of the vehicles' investment strategies.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
For corporate derivatives, cash included in due from brokers on the condensed consolidated statements of financial condition of $i1.5 million and $i2.2
million at September 30, 2022 and December 31, 2021, respectively, and U.S. Treasury securities included in investments of $0.2 million at December 31, 2021, were held as collateral for forward and swap contracts. At September 30, 2022, due to brokers included $i3.1
million of cash collateral payable to trade counterparties.
At December 31, 2021, for non-corporate derivatives, due to brokers included $i0.5 million of cash collateral payable to trade counterparties.
i
The
following table summarizes net gains (losses) from derivative financial instruments:
Derivatives
held by consolidated investment vehicles:
Total return swaps - commodities
i828
i619
i3,988
i1,691
Total
(1)
$
i4,684
$
i940
$
i11,422
$
i156
________________________
(1) Gains
and losses on futures and total return swap contracts are included in gain (loss) from investments—net in the Company's condensed consolidated statements of operations. Gains and losses on forward foreign exchange contracts are included in foreign currency gain (loss)—net in the Company's condensed consolidated statements of operations.
/
7.
iEarnings Per Share
Basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted average shares outstanding. Diluted earnings per share is calculated by dividing net income attributable to common stockholders by the total weighted average shares of common stock outstanding and common stock equivalents determined using the treasury stock method. Common stock equivalents are comprised of dilutive potential shares from restricted stock unit awards and are excluded from the
computation if their effect is anti-dilutive.
iThe following table reconciles income and share data used in the basic and diluted earnings per share computations:
Three
Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except per share data)
2022
2021
2022
2021
Net income
$
i39,614
$
i51,387
$
i112,604
$
i156,223
Net
(income) loss attributable to redeemable noncontrolling interests
i4,956
i96
i25,940
(i9,309)
Net
income attributable to common stockholders
$
i44,570
$
i51,483
$
i138,544
$
i146,914
Basic
weighted average shares outstanding
i48,815
i48,386
i48,765
i48,273
Dilutive
potential shares from restricted stock units
i502
i876
i522
i703
Diluted
weighted average shares outstanding
i49,317
i49,262
i49,287
i48,976
Basic
earnings per share attributable to common stockholders
$
i0.91
$
i1.06
$
i2.84
$
i3.04
Diluted
earnings per share attributable to common stockholders
$
i0.90
$
i1.05
$
i2.81
$
i3.00
Anti-dilutive
common stock equivalents excluded from the calculation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
8. iIncome Taxes
i
The
provision for income taxes included U.S. federal, state, local and foreign taxes. A reconciliation of the Company’s statutory federal income tax rate and the effective income tax rate is summarized in the following table:
State
and local income taxes, net of federal benefit
i3.1
i3.9
i3.1
i3.9
Non-deductible
executive compensation
i1.6
i1.8
i2.6
i2.1
Excess
tax benefits related to the vesting and delivery of restricted stock units
i—
i—
(i3.3)
(i3.0)
Unrecognized
tax benefit adjustments
i0.1
i0.9
(i3.6)
(i2.6)
Other
i0.1
(i1.6)
i0.2
(i0.7)
Effective
income tax rate
i25.9
%
i26.0
%
i20.0
%
i20.7
%
/
9.
iRelated Party Transactions
The Company is an investment adviser to, and has administration agreements with, Company-sponsored funds for which certain employees are officers and/or directors.
i
The
following table summarizes the amount of revenue the Company earned from these affiliated funds:
Three Months Ended September 30,
Nine Months Ended September 30,
(in
thousands)
2022
2021
2022
2021
Investment advisory and administration fees (1)
$
i96,187
$
i103,426
$
i301,227
$
i283,480
Distribution
and service fees
i8,557
i9,900
i27,431
i27,371
Total
$
i104,744
$
i113,326
$
i328,658
$
i310,851
_________________________
(1) Investment
advisory and administration fees are reflected net of fund reimbursements of $i4.5 million and $i4.2
million for the three months ended September 30, 2022 and 2021, respectively, and $i13.1 million and $i11.5 million
for the nine months ended September 30, 2022 and 2021, respectively.
/
Included in accounts receivable at September 30, 2022 and December 31, 2021 are receivables due from Company-sponsored funds of $i34.5
million and $i40.8 million, respectively. Included in accounts payable at September 30, 2022 and December 31, 2021 are payables due to Company-sponsored funds of $i0.8
million and $i1.1 million, respectively.
10. iLeases
The
Company has operating leases for corporate offices and certain information technology equipment.
During August 2022, the Company entered into a lease agreement for its new corporate headquarters in New York City. The lease, which has a i16-year term, carries a commitment of $i210.1 million.
Lease payments of $i13.0 million per year will begin in 2024, then increase to $i14.0 million
per year in 2029 and $i15.0 million per year in 2034. The Company will recognize a right-of-use asset and lease liability when the lease commences. The lease for the Company's current corporate headquarters, also in New York City, is scheduled to expire during the first quarter of 2024.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
11. iCommitments and Contingencies
From time to time, the
Company is involved in legal matters relating to claims arising in the ordinary course of business. There are currently no such matters pending that the Company believes could have a material adverse effect on its condensed consolidated results of operations, cash flows or financial position.
The Company has committed to invest up to $i50.0 million in REOF. As of September 30,
2022, the Company had funded $i17.4 million of this commitment. The timing for funding the remaining portion of the Company's commitment is determined by the fund.
12. iConcentration
of Credit Risk
The Company's cash and cash equivalents are principally on deposit with major financial institutions. The Company is subject to credit risk should these financial institutions be unable to fulfill their obligations.
13. iSubsequent
Events
The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the condensed consolidated financial statements were issued. Other than the items described below, the Company determined that there were no additional subsequent events that require disclosure and/or adjustment.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Set forth on the following pages is management's discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2022 and 2021.
Such information should be read in conjunction with our condensed consolidated financial statements and the related notes included herein. The condensed consolidated financial statements of the Company are unaudited. When we use the terms "Cohen & Steers," the "Company,""we,""us," and "our," we mean Cohen & Steers, Inc., a Delaware corporation, and its consolidated subsidiaries.
Executive Overview
General
We are a global investment manager specializing in real assets and alternative
income, including real estate, preferred securities, infrastructure, resource equities, commodities, as well as multi-strategy solutions. Founded in 1986, we are headquartered in New York City, with offices in London, Dublin, Hong Kong and Tokyo.
Our primary investment strategies include U.S. real estate, preferred securities and low duration preferred securities, global/international real estate, global listed infrastructure, real assets multi-strategy, midstream energy and MLPs, as well as global natural resource equities. Our strategies seek to achieve a variety of investment objectives for different risk profiles and are actively managed by specialist teams of investment professionals who employ fundamental-driven research and portfolio management processes. We offer our strategies through a variety of investment vehicles, including U.S. and non-U.S. registered funds and other commingled vehicles, separate accounts and
subadvised portfolios.
Our distribution network encompasses two major channels, wealth and institutional. Our wealth channel includes registered investment advisers, wirehouses, independent and regional broker dealers and bank trusts. Our institutional channel includes sovereign wealth funds, corporate plans, insurance companies and public funds, including defined benefit and defined contribution plans, as well as other financial institutions that access our investment management services directly or through consultants and other intermediaries.
Our revenue from the wealth channel is derived from investment advisory, administration, distribution and service fees from open-end and closed-end funds. Our revenue from the institutional channel is derived from fees received from our clients for managing advised and subadvised accounts. Our fees are based on contractually specified rates
applied to the value of the assets we manage and, in certain cases, may include a performance-based fee. Our revenue fluctuates with changes in the total value of our assets under management, which may occur as a result of market appreciation and depreciation, contributions or withdrawals from investor accounts and distributions.
Inflation and the associated increase in interest rates have combined to adversely affect the total value of our assets under management, which will reduce the fees we earn. In addition, inflationary pressures have negatively impacted our expenses, particularly segments of compensation and certain operating and vendor costs.
The Russian invasion of Ukraine has impacted global financial markets, introducing new threats to global economic growth and adding to inflationary pressures. We have taken measures to ensure ongoing compliance with all applicable sanctions
and guidance issued by authorities globally against certain regions, entities, or individuals. Our overall exposure to Russian and Ukrainian securities is limited and we do not expect a material impact to our financial results.
(1) Past performance is no guarantee of future results. Outperformance is determined by comparing the annualized investment performance of each investment strategy to the performance of specified reference benchmarks. Investment performance in excess of the performance of the benchmark is considered outperformance. The investment performance calculation of each investment strategy is based on all active accounts and investment models pursuing similar investment objectives. For accounts, actual investment performance is measured gross of fees and net of withholding taxes. For investment models, for which
actual investment performance does not exist, the investment performance of a composite of accounts pursuing comparable investment objectives is used as a proxy for actual investment performance. The performance of the specified reference benchmark for each account and investment model is measured net of withholding taxes, where applicable. This is not investment advice and may not be construed as sales or marketing material for any financial product or service sponsored or provided by Cohen & Steers.
Assets under management at September 30, 2022 decreased 18.6% to $79.2 billion from $97.3 billion at September 30, 2021. The decrease was due to market depreciation of $15.3 billion and distributions of $4.0 billion, partially offset by net inflows of $1.2 billion. Net inflows included $1.1 billion into U.S. real estate. Market depreciation included $6.8 billion from U.S. real estate, $4.3 billion from global/international real estate and $3.6 billion from preferred securities. Distributions included $2.6 billion from U.S. real estate and $952 million from preferred
securities. Our organic growth rate for the twelve months ended September 30, 2022 was 1.3%. The organic growth/decay rate represents the ratio of net flows for the period to the beginning assets under management.
Average assets under management for the three months ended September 30, 2022 decreased 9.5% to $89.7 billion from $99.2 billion for the three months ended September 30, 2021.
26
Open-end funds
Assets under management in open-end funds at September 30, 2022, which represented
47.2% of total assets under management, decreased 18.1% to $37.3 billion from $45.6 billion at September 30, 2021. The decrease was due to market depreciation of $7.7 billion and distributions of $2.3 billion, partially offset by net inflows of $1.8 billion. Net inflows included $1.9 billion into U.S. real estate and $897 million into real assets multi-strategy (included in "Other" in the table on pages 24 and 25), partially offset by net outflows of $1.7 billion from preferred securities. Market depreciation included $4.2 billion from U.S. real estate and $2.5 billion from preferred securities. Distributions included $1.4 billion from U.S. real estate and $730 million from preferred securities. Of these distributions, $1.9 billion was reinvested. Our organic growth rate for open-end funds for the twelve months ended September 30, 2022 was 3.9%.
Average
assets under management for open-end funds for the three months ended September 30, 2022 decreased 7.3% to $42.3 billion from $45.7 billion for the three months ended September 30, 2021.
Institutional accounts
Assets under management in institutional accounts at September 30, 2022, which represented 39.0% of total assets under management, decreased 21.6% to $30.9 billion from $39.3 billion at September 30, 2021. The decrease was due to net outflows of $1.1 billion, market depreciation of $6.4 billion and distributions of $1.0 billion. Net outflows included $1.3 billion from U.S. real estate, partially offset by net inflows of $320 million into global listed infrastructure. Market depreciation
included $3.5 billion from global/international real estate and $2.1 billion from U.S. real estate. Distributions included $964 million from U.S. real estate. Our organic decay rate for institutional accounts for the twelve months ended September 30, 2022 was (2.8%).
Average assets under management for institutional accounts for the three months ended September 30, 2022 decreased 13.4% to $35.4 billion from $40.9 billion for the three months ended September 30, 2021.
Assets under management in advisory accounts at September 30, 2022, which represented 58.2% of institutional assets under management, decreased 21.2% to $18.0 billion from $22.8 billion at September 30,
2021. The decrease was due to net outflows of $1.1 billion and market depreciation of $3.7 billion. Net outflows included $1.4 billion from U.S. real estate, partially offset by net inflows of $409 million into global listed infrastructure. Market depreciation included $2.1 billion from global/international real estate and $991 million from U.S. real estate. Our organic decay rate for advisory accounts for the twelve months ended September 30, 2022 was (4.9%).
Average assets under management for advisory accounts for the three months ended September 30, 2022 decreased 12.6% to $20.7 billion from $23.7 billion for the three months ended September 30, 2021.
Assets under management in Japan subadvisory accounts at September 30,
2022, which represented 25.6% of institutional assets under management, decreased 22.9% to $7.9 billion from $10.3 billion at September 30, 2021. The decrease was primarily due to market depreciation of $1.4 billion and distributions of $1.0 billion. Market depreciation included $881 million from U.S. real estate and $455 million from global/international real estate. Distributions included $964 million from U.S. real estate. Our organic growth rate for Japan subadvisory accounts for the twelve months ended September 30, 2022 was 0.3%.
Average assets under management for Japan subadvisory accounts for the three months ended September 30, 2022 decreased 14.9% to $9.1 billion from $10.7 billion for the three months ended September 30,
2021.
Assets under management in subadvisory accounts excluding Japan at September 30, 2022, which represented 16.1% of institutional assets under management, decreased 20.6% to $5.0 billion from $6.3 billion at September 30, 2021. The decrease was primarily due to market depreciation of $1.3 billion. Market depreciation included $964 million from global/international real estate. Our organic decay rate for subadvisory accounts excluding Japan for the twelve months ended September 30, 2022 was (0.3%).
Average assets under management for subadvisory accounts excluding Japan for the three months ended September 30, 2022 decreased 14.0% to $5.6 billion from $6.5 billion for the three
months ended September 30, 2021.
Closed-end funds
Assets under management in closed-end funds at September 30, 2022, which represented 13.9% of total assets under management, decreased 10.8% to $11.0 billion from $12.3 billion at September 30, 2021. The decrease was due to market depreciation of $1.3 billion and distributions of $632 million, partially offset by net inflows of $587 million. Inflows of $482 million, which included leverage, were attributable to the Company's initial public offering of the Cohen & Steers Real Estate Opportunities and Income Fund (RLTY). Our organic growth rate for closed-end funds for the twelve months ended September 30,
2022 was 4.8%.
Average assets under management for closed-end funds for the three months ended September 30, 2022 decreased 4.8% to $12.0 billion from $12.6 billion for the three months ended September 30, 2021.
27
Summary of Operating Results
(in
thousands, except percentages and per share data)
(1)Includes amounts attributable to third-party interests in consolidated investment vehicles. Refer to non-operating income (loss) tables on pages 29-32 for additional detail.
(2)Refer to pages 33-34 for reconciliations of U.S. GAAP to as adjusted results.
Investment advisory and administration fees decreased from the three months ended September 30, 2021, primarily due to lower average assets under management across all three investment vehicles. In addition, the three months ended September 30, 2021
included the recognition of performance fees from certain institutional accounts.
•Total investment advisory and administration revenue from open-end funds compared with average assets under management implied an annualized effective fee rate of 67.0 bps and 67.3 bps for the three months ended September 30, 2022 and 2021, respectively.
•Total investment advisory revenue from institutional accounts compared with average assets under management implied an annualized effective fee rate of 36.4 bps and 36.9 bps for the three months ended September 30, 2022 and 2021, respectively. The decrease in the implied annualized effective fee rate was
primarily due to the recognition of performance fees for the three months ended September 30, 2021. Excluding the performance fees, the implied annualized effective fee rate would have been 36.4 bps for the three months ended September 30, 2021.
•Total investment advisory and administration revenue from closed-end funds compared with average assets under management implied an annualized effective fee rate of 88.9 bps and 88.3 bps for the three months ended September 30, 2022 and 2021, respectively. The increase in the implied annualized effective fee rate was due to the initial public offering of RLTY in the first quarter of 2022.
Employee
compensation and benefits decreased from the three months ended September 30, 2021, primarily due to lower incentive compensation of $4.9 million and lower severance expense of $758,000, partially offset by higher amortization of restricted stock units of $2.5 million and an increase in salaries of $1.7 million.
Distribution and service fees decreased from the three months ended September 30, 2021, primarily due to lower average assets under management in U.S. open-end funds as well as a shift in the composition of assets under management into lower cost share classes.
General and administrative expenses increased from the three months ended September 30, 2021, primarily due to higher information technology related expenses of $653,000
and an increase in travel and entertainment of $600,000.
Operating Margin
Operating margin for the three months ended September 30, 2022 decreased to 40.9% from 44.3% for the three months ended September 30, 2021. Operating margin represents the ratio of operating income to revenue.
Net (income) loss attributable to redeemable noncontrolling interests
4,956
—
—
4,956
Non-operating
income (loss) attributable to the Company
$
(2,698)
$
(1,743)
$
7,423
$
2,982
_________________________
(1) Comprised primarily of gain (loss) on derivative contracts, which are utilized to economically
hedge a portion of the market risk of the Company's seed investments including both consolidated investment vehicles and corporate seed investments.
Net (income) loss attributable to redeemable noncontrolling interests
96
—
—
96
Non-operating
income (loss) attributable to the Company
$
244
$
819
$
279
$
1,342
_________________________
(1) Comprised primarily of gain (loss) on derivative contracts, which are utilized to economically
hedge a portion of the market risk of the Company's seed investments including both consolidated investment vehicles and corporate seed investments.
Income Taxes
A reconciliation of the Company’s statutory federal income tax rate and the effective income tax rate is summarized in the following table:
Investment advisory and administration fees increased from the nine months ended September 30, 2021, primarily due to higher average assets under management in both open-end and closed-end funds, partially offset by lower average assets under management in institutional accounts. In addition, the nine months ended September 30,
2021 included the recognition of performance fees from certain institutional accounts.
•Total investment advisory and administration revenue from open-end funds compared with average assets under management implied an annualized effective fee rate of 67.2 bps and 67.3 bps for the nine months ended September 30, 2022 and 2021, respectively.
30
•Total investment advisory revenue from institutional accounts compared with average assets under management implied an annualized effective fee rate of 36.6 bps and 37.2 bps for the nine months ended September 30,
2022 and 2021, respectively. The decrease in the implied annualized effective fee rate was primarily due to the recognition of performance fees for the nine months ended September 30, 2021. Excluding the performance fees, the implied annualized effective fee rate would have been 36.2 bps for the nine months ended September 30, 2021.
•Total investment advisory and administration revenue from closed-end funds compared with average assets under management implied an annualized effective fee rate of 88.6 bps and 88.4 bps for the nine months ended September 30, 2022 and 2021, respectively.
Employee
compensation and benefits increased from the nine months ended September 30, 2021, primarily due to higher amortization of restricted stock units of $5.7 million and an increase in salaries of $4.3 million, partially offset by lower incentive compensation of $3.6 million.
Distribution and service fees increased from the nine months ended September 30, 2021, primarily due to costs of $14.2 million associated with the initial public offering of RLTY, partially offset by a shift in the composition of assets under management into lower cost share classes.
General and administrative expenses increased from the nine months ended September 30, 2021, primarily due to higher information technology related expenses of $2.1 million, an increase
in travel and entertainment of $1.7 million, higher organizational and offering costs associated with RLTY of $658,000 and higher professional fees of $601,000.
Operating Margin
Operating margin for the nine months ended September 30, 2022 decreased to 38.3% from 42.4% for the nine months ended September 30, 2021. The nine months ended September 30, 2022 included costs associated with the initial public offering of RLTY.
Net (income) loss attributable to redeemable noncontrolling interests
25,940
—
—
25,940
Non-operating
income (loss) attributable to the Company
$
(6,443)
$
(2,999)
$
13,516
$
4,074
_________________________
(1) Comprised primarily of gain (loss) on derivative contracts, which are utilized to economically
hedge a portion of the market risk of the Company's seed investments including both consolidated investment vehicles and corporate seed investments.
Net (income) loss attributable to redeemable noncontrolling interests
(9,309)
—
—
(9,309)
Non-operating
income (loss) attributable to the Company
$
4,892
$
5,364
$
(4,830)
$
5,426
_________________________
(1) Comprised primarily of gain (loss) on derivative contracts, which are utilized to economically
hedge a portion of the market risk of the Company's seed investments including both consolidated investment vehicles and corporate seed investments.
Income Taxes
A reconciliation of the Company’s statutory federal income tax rate and the effective income tax rate is summarized in the following table:
State and local income taxes, net of federal benefit
3.1
3.9
Non-deductible executive compensation
2.6
2.1
Excess
tax benefits related to the vesting and delivery of restricted stock units
(3.3)
(3.0)
Unrecognized tax benefit adjustments
(3.6)
(2.6)
Other
0.2
(0.7)
Effective income tax rate
20.0
%
20.7
%
32
Reconciliations
of U.S. GAAP to As Adjusted Financial Results
Management believes that use of the following as adjusted (non-GAAP) financial results provides greater transparency into the Company’s operating performance. In addition, these as adjusted financial results are used to prepare the Company's internal management reports which are used in evaluating its business.
While we believe that these as adjusted financial results are useful in evaluating operating performance, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with U.S. GAAP.
Reconciliation of U.S. GAAP to As Adjusted Financial
Results
Net Income Attributable to Common Stockholders and Diluted Earnings per Share
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except per share data)
2022
2021
2022
2021
Net
income attributable to common stockholders, U.S. GAAP
$
44,570
$
51,483
$
138,544
$
146,914
Seed investments (1)
1,635
(168)
4,856
(4,432)
Accelerated
vesting of restricted stock units
2,556
1,888
7,351
5,640
Initial public offering costs (2)
—
—
15,239
—
Foreign
currency exchange (gains) losses—net (3)
(3,931)
(908)
(8,685)
(537)
Tax adjustments (4)
337
(158)
(13,784)
(10,902)
Net
income attributable to common stockholders, as adjusted
$
45,167
$
52,137
$
143,521
$
136,683
Diluted weighted average shares outstanding
49,317
49,262
49,287
48,976
Diluted
earnings per share, U.S. GAAP
$
0.90
$
1.05
$
2.81
$
3.00
Seed investments
0.04
—
*
0.10
(0.09)
Accelerated
vesting of restricted stock units
0.05
0.04
0.15
0.11
Initial public offering costs
—
—
0.31
—
Foreign
currency exchange (gains) losses—net
(0.08)
(0.02)
(0.18)
(0.01)
Tax adjustments
0.01
(0.01)
(0.28)
(0.22)
Diluted
earnings per share, as adjusted
$
0.92
$
1.06
$
2.91
$
2.79
_________________________
* Amounts round to less than $0.01 per share.
(1) Represents amounts related to the deconsolidation of seed investments in consolidated investment vehicles as well as non-operating
(income)
loss from seed investments that were not consolidated.
(2) Represents costs associated with the initial public offering of RLTY. Costs are summarized in the following table:
Three Months Ended September 30,
Nine Months Ended September 30,
(in
thousands)
2022
2021
2022
2021
Employee compensation and benefits
$
—
$
—
$
357
$
—
Distribution
and service fees
—
—
14,224
—
General and administrative
—
—
658
—
Initial
public offering costs
$
—
$
—
$
15,239
$
—
(3) Represents net foreign currency exchange (gains) losses associated with U.S. dollar-denominated assets held by certain foreign subsidiaries.
(4) Tax adjustments are
summarized in the following table:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Exclusion
of tax effects associated with items noted above
$
301
$
(815)
$
(3,965)
$
(1,310)
Exclusion of discrete tax items
36
657
(9,819)
(9,592)
Total
tax adjustments
$
337
$
(158)
$
(13,784)
$
(10,902)
33
Reconciliation of U.S. GAAP to As Adjusted Financial Results
Revenue,
Expenses, Operating Income and Operating Margin
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except percentages)
2022
2021
2022
2021
Revenue,
U.S. GAAP
$
139,951
$
154,187
$
441,571
$
424,203
Seed investments (1)
215
104
630
303
Revenue,
as adjusted
$
140,166
$
154,291
$
442,201
$
424,506
Expenses, U.S. GAAP
$
82,770
$
85,956
$
272,405
$
244,337
Seed
investments (1)
(104)
(143)
(598)
(373)
Accelerated vesting of restricted stock units
(2,556)
(1,888)
(7,351)
(5,640)
Initial
public offering costs (2)
—
—
(15,239)
—
Expenses, as adjusted
$
80,110
$
83,925
$
249,217
$
238,324
Operating
income, U.S. GAAP
$
57,181
$
68,231
$
169,166
$
179,866
Seed investments (1)
319
247
1,228
676
Accelerated
vesting of restricted stock units
2,556
1,888
7,351
5,640
Initial public offering costs (2)
—
—
15,239
—
Operating
income, as adjusted
$
60,056
$
70,366
$
192,984
$
186,182
Operating margin, U.S. GAAP
40.9
%
44.3
%
38.3
%
42.4
%
Operating
margin, as adjusted
42.8
%
45.6
%
43.6
%
43.9
%
_________________________
(1) Represents amounts related to the deconsolidation of seed investments in consolidated investment vehicles.
(2) Represents costs associated with the initial public offering of RLTY. Costs are summarized in the following table:
Three
Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Employee compensation and benefits
$
—
$
—
$
357
$
—
Distribution
and service fees
—
—
14,224
—
General and administrative
—
—
658
—
Initial
public offering costs
$
—
$
—
$
15,239
$
—
Reconciliation of U.S. GAAP to As Adjusted Financial Results
Non-operating Income (Loss)
Three
Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2022
2021
2022
2021
Non-operating income (loss), U.S. GAAP
$
(1,974)
$
1,246
$
(21,866)
$
14,735
Seed
investments (1)
6,272
(319)
29,568
(14,417)
Foreign currency exchange (gains) losses—net (2)
(3,931)
(908)
(8,685)
(537)
Non-operating
income (loss), as adjusted
$
367
$
19
$
(983)
$
(219)
_________________________
(1) Represents amounts related to the deconsolidation of seed investments in consolidated investment vehicles as well as non-operating (income) loss from seed investments that were not consolidated.
(2) Represents net foreign currency exchange (gains)
losses associated with U.S. dollar-denominated assets held by certain foreign subsidiaries.
34
Changes in Financial Condition, Liquidity and Capital Resources
We seek to maintain a balance sheet that supports our business strategies and provides the appropriate amount of liquidity at all times. Due to anticipated investment opportunities, including seed investments in new vehicles and strategies, as well as corporate infrastructure, we expect to secure a corporate line of credit to supplement our corporate cash and provide
financial flexibility.
Net Liquid Assets
Our current financial condition is highly liquid and is primarily comprised of cash and cash equivalents, U.S. Treasury securities, liquid seed investments and other current assets. Liquid assets are reduced by current liabilities, which are generally defined as obligations due within one year (together, net liquid assets). The Company does not currently have any outstanding debt.
Cash and cash equivalents are
on deposit with several highly-rated financial institutions and include short-term, highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.
During the nine months ended September 30, 2022, we paid aggregate costs of $15.2 million associated with the initial public offering of RLTY. In addition, we funded $17.4 million of our up to $50.0 million investment commitment in the Cohen & Steers Real Estate Opportunities Fund, L.P. (REOF). Refer to Investment Commitments, Contractual Obligations, Commitments and Contingencies for further discussion.
U.S. Treasury securities
U.S. Treasury securities are directly issued by the U.S. government
and were classified as trading investments.
Liquid seed investments—net
Liquid seed investments are generally traded in active markets on major exchanges and can typically be liquidated within a normal settlement cycle. Liquid seed investments include the Company's economic interest in consolidated investment vehicles and are presented net of redeemable noncontrolling interests.
Other current assets
Other current assets primarily represent investment advisory and administration fees receivable. At September 30, 2022, institutional accounts comprised 51.7% of total accounts receivable, while open-end and closed-end funds, together, comprised 45.6% of total accounts
receivable. We perform a review of our receivables on an ongoing basis in order to assess collectibility and, based on our analysis at September 30, 2022, there was no allowance for uncollectible accounts required.
Current liabilities
Current liabilities included accrued compensation and benefits, distribution and service fees payable, operating lease obligations due within 12 months, certain income taxes payable, and other liabilities and accrued expenses.
Cash flows
Our cash flows generally result from the operating activities of our business, with investment advisory and administration fees being the most significant contributor.
35
The
table below summarizes our cash flows:
Nine Months Ended September 30,
(in thousands)
2022
2021
Cash Flow Data:
Net cash provided by (used in) operating activities
$
3,647
$
170,966
Net
cash provided by (used in) investing activities
(44,909)
37,268
Net cash provided by (used in) financing activities
29,126
(79,677)
Net increase (decrease) in cash and cash equivalents
(12,136)
128,557
Effect of foreign exchange rate changes on cash and cash equivalents
(7,979)
(1,317)
Cash
and cash equivalents, beginning of the period
185,356
41,232
Cash and cash equivalents, end of the period
$
165,241
$
168,472
Cash and cash equivalents decreased by $12.1 million, excluding the effect of foreign exchange rate changes, for the nine months ended September 30, 2022. Cash flows from operating activities primarily consisted of net income adjusted for certain non-cash items and
changes in assets and liabilities. Net cash provided operating activities was $3.6 million for the nine months ended September 30, 2022, which included net investment purchases within certain consolidated investment vehicles. Net cash used in investing activities was $44.9 million, which included net purchases of U.S. Treasury securities held for corporate purposes and securities held directly for the purpose of establishing performance track records of $42.0 million. Net cash provided by financing activities was $29.1 million, including net contributions from redeemable noncontrolling interests of $134.6 million, partially offset by dividends paid to stockholders of $80.5 million and repurchases of common stock to satisfy employee withholding tax obligations on the vesting and delivery of restricted stock units of $25.9 million.
Cash and cash equivalents increased by $128.6
million, excluding the effect of foreign exchange rate changes, for the nine months ended September 30, 2021. Cash flows from operating activities primarily consisted of net income adjusted for certain non-cash items and changes in assets and liabilities. Net cash provided by operating activities was $171.0 million for the nine months ended September 30, 2021. Net cash provided by investing activities was $37.3 million, which included $41.7 million of proceeds from the sale and maturities of U.S. Treasury securities held for corporate purposes, partially offset by net purchases of securities held directly for the purpose of establishing performance track records of $2.6 million. Net cash used in financing activities was $79.7 million, including dividends paid to stockholders of $65.2 million, repurchases of common stock to satisfy employee withholding tax obligations on
the vesting and delivery of restricted stock units of $21.4 million, partially offset by net contributions from redeemable noncontrolling interests of $6.1 million.
Contractual Obligations, Commitments and Contingencies
The following table summarizes our contractual obligations at September 30, 2022:
(in
thousands)
2022
2023
2024
2025
2026
2027 and after
Total
Operating leases
$
3,079
$
11,917
$
9,917
$
13,185
$
13,191
$
175,417
$
226,706
Purchase
obligations (1)
1,598
5,786
4,087
2,986
2,385
—
16,842
Other liability (2)
—
1,246
1,662
2,077
—
—
4,985
Total
$
4,677
$
18,949
$
15,666
$
18,248
$
15,576
$
175,417
$
248,533
_________________________
(1) Represents
contracts which are either noncancellable or cancellable with a penalty. The Company’s obligations primarily reflected software licenses and standard service contracts for market data.
(2) Consists of the transition tax liability based on the cumulative undistributed earnings and profits of our foreign subsidiaries in connection with the enactment of the Tax Cuts and Jobs Act in 2017.
During August 2022, we entered into a lease agreement for our new corporate headquarters in New York
City. The lease, which has a 16-year term, carries a commitment of approximately $210.1 million. We will recognize a right-of-use asset and lease liability when the lease commences. The lease for our current corporate headquarters, also in New York City, is scheduled to expire during the first quarter of 2024. In connection with our new corporate headquarters, we expect to incur costs of approximately $40.0 million to $50.0 million for the build-out, net of lease incentives.
36
Investment Commitments
We have committed to invest up to $50.0 million in REOF. As of September 30, 2022, we had funded $17.4 million of this commitment. The timing for funding the remaining portion of our
commitment is determined by the fund.
Dividends
Subject to the approval of our Board of Directors, we anticipate paying dividends. When determining whether to pay a dividend, we take into account general economic and business conditions, our strategic plans, our results of operations and financial condition, contractual, legal and regulatory restrictions on the payment of dividends, if any, by us and our subsidiaries and such other factors deemed relevant.
On November 3, 2022, we declared a quarterly dividend on our common stock in the amount of $0.55 per share. This dividend will be payable on November 29, 2022 to stockholders of record at the close
of business on November 14, 2022.
Critical Accounting Estimates
Management considers certain accounting estimates critical to an informed review of our condensed consolidated financial statements as they require management to make certain judgements about matters that may be uncertain at the time the estimate was determined. For a discussion of our critical accounting estimates, please see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 (the Form 10-K). Other than as described below, there have been no changes to the critical accounting estimates disclosed in the Form 10-K.
Valuation of Investments
There is no established market for private
real estate investments, and there may not be any comparable public market valuations. As a result, the valuation of a private real estate investment may be based on imperfect information and is subject to inherent uncertainties, and the resulting values may differ from values that would have been determined had a ready market existed for such investments, from values placed on such investments by other investors and from prices at which such investments may ultimately be sold.
We have retained an independent valuation services firm to assist in the determination of the fair value of certain of our private real estate investments. Each real property investment is valued quarterly in accordance with the applicable governing documents. Limited partnerships that hold real property investments are valued using the valuation methodology we deem most appropriate and consistent with industry best practices and market conditions.
We expect the primary methodology used to value real property investments will be the income approach, whereby value is derived by determining the present value of an asset’s stream of future cash flows (for example, discounted cash flow analysis). Consistent with industry practices, the income approach incorporates actual contractual lease income, professional judgments regarding comparable rental and operating expense data, the capitalization or discount rate and projections of future rent and expenses based on appropriate market evidence, and other subjective factors. Other methodologies that may also be used to value a real property investment include, among other approaches, sales comparisons and cost approaches. We will monitor the real property investment for material events that we believe may be expected to have a material impact on the most recent estimated fair values of such real property investment.
Recently Issued
Accounting Pronouncements
See discussion of Recently Issued Accounting Pronouncements in Note 2 of the Notes to Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report.
37
Item 3.Quantitative and Qualitative Disclosures About Market Risk
In the normal course of our business, we are exposed to risk as a result of changes in interest and currency rates,
securities markets and general economic conditions, which may have an adverse impact on the value of our assets under management
and our seed investments. The majority of our revenue is derived from investment advisory and administration fees which are based on average assets under management. Accordingly, where there are changes in the value of the assets we manage as a result of market fluctuations, our revenue and the value of our seed investments may change.
Corporate Seed investments—net
Our seed investments are comprised of both liquid and illiquid holdings. Liquid seed investments are generally traded in active markets on major exchanges and can typically be liquidated within a normal settlement cycle. Illiquid seed investments are generally comprised of limited partnership interests in private real estate vehicles for which there may be contractual restrictions on redemption.
Our seed investments are subject to market risk. We mitigate this risk by entering
into derivative contracts designed to hedge certain portions of our risk. The following table summarizes the effect of a ten percent increase or decrease on the carrying value of our seed investments, which are presented net of redeemable noncontrolling interests, if any, as of September 30, 2022 (in thousands):
Carrying
Value
Notional Value - Hedges
Net Carrying Value
Net Carrying Value Assuming a 10% increase
Net Carrying Value Assuming a 10% decrease
Liquid seed investments—net
$
60,972
(30,266)
$
30,706
$
33,777
$
27,635
Illiquid
seed investments—net
$
15,995
$
—
$
15,995
$
17,595
$
14,396
Item 4.Controls
and Procedures
Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective.
38
PART II—Other Information
Item 1.Legal Proceedings
For information regarding our legal proceedings, see Note 11, Commitments and Contingencies, in the Notes to Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report.
Item 1A.Risk Factors
For a discussion of the potential risks and uncertainties associated with our business, please see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 (the Form 10-K). There have been no material changes to the risk factors disclosed in Part 1, Item 1A of the Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2022, we made the following purchases of our equity securities that are registered pursuant to Section 12(b)
of the Exchange Act.
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
(1)Purchases
made to satisfy the income tax withholding obligations of certain employees upon the vesting and delivery of restricted stock units issued under the Company's Amended and Restated Stock Incentive Plan.
Item 5.Other Information
On November 3, 2022, the Company’s Board approved and adopted amended and restated by-laws (the “Amended and Restated By-laws”),
which became effective the same day. Among other things, the amendments affected by the Amended and Restated By-laws:
•Enhance procedural mechanics and disclosure requirements in connection with shareholder nominations of directors and submissions of proposals regarding other business at shareholder meetings, including by requiring:
◦additional background information and disclosures regarding proposing shareholders and proposed nominees;
◦any shareholder submitting a nomination notice to make a representation as to whether such shareholder intends to solicit proxies in support of director nominees other than the
Company’s nominees in accordance with Rule 14a-19 under the Exchange Act and to provide reasonable evidence that certain requirements of such rule have been satisfied; and
◦the nomination of each proposed director nominee other than the Company’s nominees be disregarded (notwithstanding that the nominee is included as a nominee in the Company’s proxy statement, notice of meeting or other proxy materials for any annual meeting (or any supplement thereto) and notwithstanding that proxies or votes in respect of the election of such proposed nominees may have been received by the Company (which proxies and votes shall be disregarded)) if,
after a stockholder provides notice pursuant to Rule 14a-19(b) under the Exchange Act, such stockholder subsequently fails to comply with the requirements of Rule 14a-19 under the Exchange Act;
•Eliminate the requirement that the Company make the stockholder list available during a meeting of stockholders, consistent with recent amendments to the General Corporation Law of the State of Delaware; and
•Make certain other technical, modernizing and clarifying changes.
39
As a result of the amendments affected by the
Amended and Restated By-laws, with respect to the 2023 Annual Meeting of shareholders and future annual meetings, to be considered timely, the information required to be submitted by shareholders in accordance with Rule 14a-19 in connection with the solicitation of proxies in support of director nominees other than the Company’s nominees must be delivered to the Company’s principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting, provided that in the event the date of the annual meeting is more than 20 days before or more than 70 days after such anniversary date, the information must be delivered not earlier than the 120th day
prior to and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made.
The foregoing description is a summary and is qualified in its entirety by reference to the full text of the Amended and Restated By-laws, a copy of which is attached as Exhibit 3.2 hereto and is incorporated by reference herein.
40
Item 6.Exhibits
Any agreements or other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and should not be relied upon for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they were made or at any other time.
Certification
of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2
—
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1
—
Certification
of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.2
—
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101
—
The
following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 formatted in inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Financial Condition (unaudited), (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Comprehensive Income (unaudited), (iv) the Condensed Consolidated Statements of Changes in Stockholders' Equity and Redeemable Noncontrolling Interests (unaudited), (v) the Condensed Consolidated Statements of Cash Flows (unaudited), and (vi) the Notes to the Condensed Consolidated Financial Statements (unaudited).
104
—
Cover
Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
