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Elevator Pitch
My investment rating for Cohen & Steers, Inc. (NYSE:CNS) stock is a Buy. I previously touched on the company’s cost optimization efforts and its moves to expand its presence in key Asian markets in my September 10, 2023 write-up.
I look at the outlook for the real estate segment and international markets in the current update, which leaves me bullish on CNS’ prospects. There are favorable read-throughs from Blackstone Inc.’s (BX) recent commentary and transaction, that point to a potential recovery in the real estate market. On the other hand, I have a positive view of Cohen & Steers’ growth potential in international markets, such as Japan.
Positive Takeaways From Blackstone’s Latest Deal And Comments
In early April this year, Blackstone issued a press release disclosing that it proposed to buy over and privatize Apartment Income REIT Corp. (AIRC) for an acquisition price that is +25% higher than AIRC’s last done price.
At its Q1 2024 earnings briefing on April 18, BX shared that “more folks are showing up to buy (real estate) assets than certainly we saw six months ago” in response to a question on what “drives the (company’s) confidence in real estate bottoming.” Blackstone also outlined its view at the most recent quarterly earnings call that “at some point here the Fed is going to bring rates down” which will be positive for real estate.
In other words, it is reasonable to think that BX’s latest privatization deal sends a clear message that the worst should have already been over for the property market. It is likely that Blackstone has chosen to pay a meaningful price premium for the recent acquisition targets because listed REITs in general are trading at appealing valuations now. Also, BX holds the opinion that rate cuts are a matter of when rather than if, which implies that real estate transaction activity is likely to benefit from a more favorable rate environment in time to come. As “the largest owner of commercial real estate globally” as mentioned on its website, BX’s actions and words have important read-throughs for the worldwide property market.
CNS calls itself an “investment manager specializing in real assets and alternative income, including listed and private real estate” in its media releases. A potential recovery in the global real estate market in due course will provide a big boost to Cohen & Steers’ future business and stock price performance.
Cohen & Steers’ Q1 2024 top line and bottom line missed the Wall Street analysts’ consensus forecasts by -1.6% and -4.4%, respectively. CNS revealed at the company’s first quarter results briefing last month that it witnessed “net outflows of $2 billion” for Q1 2024 as two “clients eliminated listed REITs from their strategic portfolio allocations.” As such, CNS is likely to engineer a turnaround sometime in the future, assuming that REITs (and the broader real estate market) gain favor again and drive fund inflows for the company.
Update On Growth Opportunities In International Markets
With my September 2023 article, I highlighted that CNS “made a significant new hire for its new Singapore office, and the company has plans to expand its office in Tokyo.” Cohen & Steers’ latest disclosures indicate that the company’s growth prospects in Asia and other foreign markets are good.
As per its comments at the recent quarterly earnings call, Cohen & Steers revealed that it added a new headcount for its institutional sales team in the Japanese market. CNS also shared at its Q1 earnings briefing that it observed a “broad-based investment resurgence” in Japan.
A recent April 15, 2024 research commentary published by Xponance Asset Management cited a Nomura Holdings, Inc. (NMR) survey indicating that close to two in three asset managers are “expecting NISA AUM growth of over 50% in the next 5 years.” In this mid-April Xponance Asset Management article, NISA or Nippon Individual Savings Account is referred to as “a program to allow Japanese investors to save and invest with tax-exempt benefits” that has become “permanent” since January this year.
Other international markets that hold good growth potential for Cohen & Steers include the Middle East and Australia. CNS has noted market share gain opportunities in the Australian market and a trend of assets under management expansion for the Middle East region as per its Q1 2024 analyst call commentary.
As of end-Q1 2024, clients located in Japan only accounted for around 12% of Cohen & Steers’ AUM. Other key international regions like Asia excluding Japan and EMEA each made up about 5% of CNS’ AUM as of March 31, 2024. The company’s most recent disclosures and metrics suggest that Cohen & Steers’ international growth story is still in its early innings.
Key Risk Factors
Investors should watch for certain risks relating to the stock.
CNS’ future fund flows and business performance is dependent on the health of the real estate market. If macroeconomic factors or the interest rate environment continue to be negative for real estate investments, Cohen & Steers’ results in the coming quarters could fail to meet the market’s expectations.
Cohen & Steers will leave investors disappointed, assuming the company is slow in diversifying into high-growth foreign markets. For example, CNS has been expanding the company’s office in Japan and hiring new staff, and there is pressure on the company to deliver results that validate such investments for the Japanese market.
Final Thoughts
I continue to assign a Buy rating to CNS. An improvement in the real estate market’s outlook and an expansion in foreign markets are the key re-rating catalysts for Cohen & Steers.
