Cohen & Steers, Inc.: Form 10-Q for the period ended Jun 30, 2024

Set forth on the following pages is management's discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2024 and 2023. 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 listed and private 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, Tokyo and Singapore.

Our primary investment strategies include U.S. real estate, preferred securities, including low duration preferred securities, private real estate solutions, global/international real estate, global listed infrastructure, real assets multi-strategy, 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 primarily derived from investment advisory, administration, distribution and service fees from open-end and closed-end funds as well as other commingled vehicles. 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 to or withdrawals from investor accounts and distributions. This revenue is recognized over the period that the assets are managed.

Assets Under Management

By Investment Vehicle

(in millions)

22

Assets Under Management - Institutional Accounts

By Account Type

(in millions)

23

Assets Under Management

By Investment Strategy

(in millions)

24

Assets Under Management

By Investment Strategy - continued

(in millions)

25

Investment Performance at June 30, 2024

(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.

(2) © 2024 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Morningstar calculates its ratings based on a risk-adjusted return measure that accounts for variation in a fund's monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive five stars, the next 22.5% receive four stars, the next 35% receive three stars, the next 22.5% receive two stars and the bottom 10% receive one star. Past performance is no guarantee of future results. Based on independent rating by Morningstar, Inc. of investment performance of each Cohen & Steers-sponsored open-end U.S.-registered mutual fund for all share classes for the overall period at June 30, 2024. Overall Morningstar rating is a weighted average based on the 3-year, 5-year and 10-year Morningstar rating. Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages. 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.

Overview

Assets under management at June 30, 2024 increased 0.4% to $80.7 billion from $80.4 billion at June 30, 2023. The increase was due to market appreciation of $6.2 billion, partially offset by net outflows of $3.3 billion and distributions of $2.6 billion. Net outflows included $2.6 billion from global/international real estate and $1.1 billion from preferred securities. Market appreciation included $2.8 billion from U.S. real estate, $1.9 billion from preferred securities and $887 million from global/international real estate. Distributions included $1.5 billion from U.S. real estate and $720 million from preferred securities. Our organic decay rate for the twelve months ended June 30, 2024 was (4.1%). The organic growth/decay rate represents the ratio of net flows for the period to the beginning assets under management.

Open-end funds

Assets under management in open-end funds at June 30, 2024, which represented 46.4% of total assets under management, increased 3.4% to $37.5 billion from $36.2 billion at June 30, 2023. The increase was due to market appreciation of $2.9 billion, partially offset by net outflows of $395 million and distributions of $1.3 billion. Net outflows included $495 million from preferred securities and $160 million from global listed infrastructure, partially offset by net inflows of $301 million into U.S. real estate. Market appreciation included $1.4 billion from U.S. real estate and $1.2 billion from preferred securities. Distributions included $617 million from U.S. real estate and $521 million from preferred securities. Of these distributions, $978 million was reinvested and included in net flows. Our organic decay rate for open-end funds for the twelve months ended June 30, 2024 was (1.1%).

Institutional accounts

Assets under management in institutional accounts at June 30, 2024, which represented 39.9% of total assets under management, decreased 3.2% to $32.2 billion from $33.3 billion at June 30, 2023. The decrease was due to net outflows of $2.9 billion and distributions of $728 million, partially offset by market appreciation of $2.6 billion. Net outflows included $2.6 billion from global/international real estate. Market appreciation included $1.2 billion from U.S. real estate, $761 million from global/international real estate and $331 million from preferred securities. Distributions included $683 million from U.S. real estate. Our organic decay rate for institutional accounts for the twelve months ended June 30, 2024 was (8.7%).

Assets under management in advisory accounts at June 30, 2024, which represented 57.0% of institutional assets under management, decreased 2.4% to $18.4 billion from $18.8 billion at June 30, 2023. The decrease was due to net outflows of $2.0 billion, partially offset by market appreciation of $1.5 billion. Net outflows included $1.7 billion from global/international real estate. Market appreciation included $513 million from U.S. real estate, $434 million from global/international real estate and $323 million from preferred securities. Our organic decay rate for advisory accounts for the twelve months ended June 30, 2024 was (10.4%).

Assets under management in Japan subadvisory accounts at June 30, 2024, which represented 25.8% of institutional assets under management, decreased 7.3% to $8.3 billion from $9.0 billion at June 30, 2023. The decrease was due to net outflows of $668 million and distributions of $728 million, partially offset by market appreciation of $745 million. Net outflows included $401 million from U.S. real estate and $261 million from global/international real estate. Market appreciation included $551 million from U.S. real estate and $184 million from global/international real estate. Distributions included $683 million from U.S. real estate. Our organic decay rate for Japan subadvisory accounts for the twelve months ended June 30, 2024 was (7.5%).

Assets under management in subadvisory accounts excluding Japan at June 30, 2024, which represented 17.2% of institutional assets under management, were $5.5 billion at both June 30, 2024 and 2023. Assets under management at June 30, 2024 included market appreciation of $330 million, partially offset by net outflows of $275 million. Net outflows included $638 million from global/international real estate, partially offset by net inflows of $292 million into U.S. real estate. Market appreciation included $143 million from global/international real estate and $112 million from U.S. real estate. Our organic decay rate for subadvisory accounts excluding Japan for the twelve months ended June 30, 2024 was (5.0%).

Closed-end funds

Assets under management in closed-end funds at June 30, 2024, which represented 13.7% of total assets under management, increased 1.0% to $11.0 billion from $10.9 billion at June 30, 2023. The increase was primarily due to market appreciation of $719 million, partially offset by distributions of $615 million.

Summary of Operating Results

(in thousands, except percentages and per share data)

(1) Included amounts attributable to third-party interests in consolidated investment vehicles.

(2) Refer to pages 32-33 for reconciliations of U.S. GAAP to as adjusted results.

Three Months Ended June 30, 2024 Compared with Three Months Ended June 30, 2023

Revenue

(in thousands)

Total investment advisory and administration fees from open-end funds compared with average assets under management implied an annualized effective fee rate of 65.6 bps and 66.0 bps for the three months ended June 30, 2024 and 2023, respectively.

Total investment advisory fees from institutional accounts compared with average assets under management implied an annualized effective fee rate of 38.3 bps and 37.0 bps for the three months ended June 30, 2024 and 2023, respectively. The increase in the implied annualized effective fee rate reflected net inflows into higher fee paying accounts.

Total investment advisory and administration fees from closed-end funds compared with average assets under management implied an annualized effective fee rate of 88.4 and 88.6 bps for the three months ended June 30, 2024 and 2023, respectively.

Distribution and service fees decreased from the three months ended June 30, 2023, primarily due to a shift in the composition of assets under management.

Expenses

(in thousands)

Employee compensation and benefits increased from the three months ended June 30, 2023, primarily due to higher amortization of restricted stock units of $3.0 million, which included $2.4 million of accelerated vesting attributable to retirements, and an increase in salaries of $864,000.

General and administrative expenses decreased from the three months ended June 30, 2023, primarily due to lower

rent expense of $2.3 million related to the expiration of the lease for the Company’s prior headquarters in January 2024, partially offset by higher travel and entertainment of $473,000.

Depreciation and amortization increased from the three months ended June 30, 2023. The three months ended June 30, 2024 included depreciation and amortization on fixed assets and leasehold improvements associated with the Company's current headquarters that were placed in service in December 2023.

Operating Margin

Operating margin for the three months ended June 30, 2024 decreased to 31.5% from 33.9% for the three months ended June 30, 2023. Operating margin represents the ratio of operating income to revenue.

Non-operating Income (Loss)

(in thousands)

(in thousands)

29

A reconciliation of the Company’s statutory federal income tax rate and the effective income tax rate is summarized in the following table:

Six Months Ended June 30, 2024 Compared with Six Months Ended June 30, 2023

Revenue

(in thousands)

Total investment advisory and administration fees from open-end funds compared with average assets under management implied an annualized effective fee rate of 65.9 bps for both the six months ended June 30, 2024 and 2023.

Total investment advisory fees from institutional accounts compared with average assets under management implied an annualized effective fee rate of 38.1 bps and 37.1 bps for the six months ended June 30, 2024 and 2023, respectively. The increase in the implied annualized effective fee rate reflected net inflows into higher fee paying accounts.

Total investment advisory and administration fees from closed-end funds compared with average assets under management implied an annualized effective fee rate of 88.6 bps and 88.8 bps for the six months ended June 30, 2024 and 2023, respectively.

Distribution and service fees decreased from the six months ended June 30, 2023, primarily due to a shift in the

composition of assets under management.

Expenses

(in thousands)

Employee compensation and benefits increased from the six months ended June 30, 2023, primarily due to higher

amortization of restricted stock units of $6.0 million, which included $4.3 million of accelerated vesting attributable to retirements, and an increase in salaries of $1.7 million.

Distribution and service fees decreased from the six months ended June 30, 2023, primarily due to a shift in the

composition of assets under management.

General and administrative expenses decreased from the six months ended June 30, 2023, primarily due to lower

rent expense of $3.9 million related to the expiration of the lease for the Company’s prior headquarters in January 2024.

Depreciation and amortization increased from the six months ended June 30, 2023. The six months ended June 30, 2024 included depreciation and amortization on fixed assets and leasehold improvements associated with the Company's current headquarters that were placed in service in December 2023.

Operating Margin

Operating margin for the six months ended June 30, 2024 decreased to 32.2% from 34.8% for the six months ended June 30, 2023.

Non-operating Income (Loss)

(in thousands)

(in thousands)

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:

31

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 management believes 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

(in thousands, except per share data)

* Amounts round to less than $0.01 per share.

(1) Represents adjustment to remove the impact of consolidated investment vehicles and the net effect of corporate seed performance.

(2) Represents incremental expenses associated with the separation of certain employees.

(3) Represents adjustment to remove the impact of lease and other expenses related to the Company's prior headquarters, for which the lease expired in January 2024. From a GAAP perspective, the Company recognized lease expense on both its prior and current headquarters as a result of overlapping lease terms.

(4) Represents net foreign currency exchange (gains) losses associated with U.S. dollar-denominated assets held by certain foreign subsidiaries.

(5) Tax adjustments are summarized in the following table:

(in thousands)

32

Reconciliation of U.S. GAAP to As Adjusted Financial Results

Revenue, Expenses, Operating Income and Operating Margin

(in thousands, except percentages)

(1) Represents adjustment to remove the impact of consolidated investment vehicles from the Company's financial results.

(2) Represents incremental expenses associated with the separation of certain employees.

(3) Represents adjustment to remove the impact of lease and other expenses related to the Company's prior headquarters, for which the lease expired in January 2024. From a GAAP perspective, the Company recognized lease expense on both its prior and current headquarters as a result of overlapping lease terms.

Reconciliation of U.S. GAAP to As Adjusted Financial Results

Non-operating Income (Loss)

(in thousands)

(1) Represents adjustment to remove the impact of consolidated investment vehicles and the net effect of corporate seed performance.

(2) Represents net foreign currency exchange (gains) losses associated with U.S. dollar-denominated assets held by certain foreign subsidiaries.

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.

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 (together, net liquid assets).

The table below summarizes net liquid assets:

(in thousands)

Cash and cash equivalents

Cash and cash equivalents are on deposit with major national financial institutions and include short-term, highly liquid investments, which are readily convertible into cash.

U.S. Treasury securities

U.S. Treasury securities, recorded at fair value, are directly issued by the U.S. government and were classified as trading investments.

Liquid seed investments—net

Liquid seed investments, recorded at fair value, are generally traded in active markets on major exchanges and can typically be liquidated within a normal settlement cycle. Liquid seed investments include corporate securities held directly for the purpose of establishing performance track records and the Company's economic interest in consolidated investment vehicles which are presented net of noncontrolling interests.

Other current assets

Other current assets primarily represent investment advisory and administration fees receivable. At June 30, 2024, receivables from institutional accounts comprised 43.5% of other current assets, while receivables from open-end and closed-end funds, together, comprised 49.1% of other current assets. We perform a review of our receivables on an ongoing basis in order to assess collectability and, based on our analysis at June 30, 2024, 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.

Future liquidity needs

Our business has become more capital intensive. Potential uses of capital range from, among other things, seeding new strategies and investment vehicles, co-investing in private real estate vehicles, funding the upfront costs associated with closed-end fund launches and rights offerings, and making various investments to grow our firm infrastructure as our business scales. In order to provide us with the financial flexibility to pursue these opportunities, we have a $100.0 million senior unsecured revolving credit facility maturing on January 20, 2026. Borrowings under the Credit Agreement, if any, will be used for working capital and other general corporate purposes. To date, we have not drawn on the Credit Agreement.

On April 22, 2024, we issued 1,007,057 shares of common stock through an offering. The net proceeds to the Company, after deducting commissions and offering expenses, were approximately $68.5 million. We intend to use the net proceeds for general corporate purposes, including seeding track record strategies and investment vehicles. We will not offer or sell any additional shares of our common stock and terminated the offering effective April 22, 2024.

We have committed to invest up to $50.0 million in Cohen & Steers Real Estate Opportunities Fund, L.P. (REOF) of which $21.7 million remained unfunded. In addition, we have committed to invest $125.0 million in Cohen & Steers Income Opportunities REIT, Inc. (CNSREIT) of which $101.2 million remained unfunded as of June 30, 2024. In July 2024, the Company funded an additional $8.4 million of its commitment to CNSREIT. There are contractual restrictions on redemption of our seed investments in REOF and CNSREIT.

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.

The table below summarizes our cash flows:

(in thousands)

Cash and cash equivalents decreased by $66.0 million, excluding the effect of foreign exchange rate changes, for the six months ended June 30, 2024. 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 $36.2 million for the six months ended June 30, 2024. Net cash used in investing activities was $103.7 million, which included net purchases of U.S. Treasury securities held for corporate purposes of $68.0 million and the funding of $23.6 million of our $125.0 million commitment to CNSREIT. Net cash provided by financing activities was $1.5 million, including proceeds from issuance of common stock from offering of $68.5 million and net contributions from noncontrolling interests of $11.1 million, partially offset by dividends paid to stockholders of $59.2 million and repurchases of common stock to satisfy employee withholding tax obligations on the vesting and delivery of restricted stock units of $19.5 million.

Cash and cash equivalents decreased by $69.6 million, excluding the effect of foreign exchange rate changes, for the six months ended June 30, 2023. 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 $38.7 million for the six months ended June 30, 2023. Net cash used in investing activities was $31.2 million, which included purchases of property and equipment of $20.1 million, primarily related to the build-out of our current headquarters, and net purchases of U.S. Treasury securities held for corporate purposes of $11.5 million. Net cash used in financing activities was $77.1 million, including dividends paid to stockholders of $56.2 million and repurchases of common stock to satisfy employee withholding tax obligations on the vesting and delivery of restricted stock units of $20.6 million.

Contractual Obligations, Commitments and Contingencies

The following table summarizes our contractual obligations at June 30, 2024:

(in thousands)

(1) Represents contracts that are either noncancellable or cancellable with a penalty. Our obligations primarily reflect information technology equipment, 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.

Investment Commitments

We have committed to invest up to $50.0 million in REOF. As of June 30, 2024, we had funded $28.3 million of this commitment. In addition, we have committed to invest $125.0 million in CNSREIT. As of June 30, 2024, we had funded $23.8 million of this commitment. In July 2024, the Company funded an additional $8.4 million of its commitment to CNSREIT. The timing for funding the remaining portion of our commitments is uncertain.

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, cash flow and liquidity, contractual, legal and regulatory restrictions on the payment of dividends, if any, by us and our subsidiaries and such other factors deemed relevant.

On August 1, 2024, we declared a quarterly dividend on our common stock in the amount of $0.59 per share. This dividend will be payable on August 22, 2024 to stockholders of record at the close of business on August 12, 2024.

Critical Accounting Estimates

A complete discussion of our critical accounting estimates is included in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023. There were no changes to the Company’s accounting estimates for the three months ended June 30, 2024.

Recently Issued Accounting Pronouncements

See discussion of Recently Issued Accounting Pronouncements in Note 2 of the condensed consolidated financial statements.

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 other general economic conditions, including inflation, 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.

The economic environment may also preclude us from increasing the assets we manage in closed-end funds. The

market conditions for these offerings may not be favorable in the future, which could adversely impact our ability to grow

the assets we manage. Depending on market conditions, the closed-end funds we manage may increase or decrease their leverage in order to maintain the funds’ target leverage ratios, thereby increasing or decreasing the assets we manage.

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 and our seed investment in CNSREIT for which there may be contractual restrictions on redemption.

Our seed investments are subject to market risk. We may 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 noncontrolling interests, if any, as of June 30, 2024 (in thousands):

Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three months ended June 30, 2024 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 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.

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, 2023 (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.