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COHEN & STEERS REALTY INCOME FUND, INC.
April 29, 1996
To Our Shareholders:
We are pleased to submit to you our first quarter report for Cohen & Steers
Realty Income Fund, Inc. for the period ended March 31, 1996. The net asset
value per share at that date was $8.75. In addition, a regular quarterly
dividend of $0.17 was declared for shareholders of record on March 29, 1996 and
paid on April 12, 1996.
INVESTMENT REVIEW
During the quarter ended March 31, 1996, Cohen & Steers Realty Income Fund
had a total return of 3.8%, based on income and change in net asset value. In
addition, the period ended with some strong signs of positive momentum,
particularly with regard to our investment strategy. As we discussed in prior
reports, we believe that much of the negative sentiment toward the retail
industry and shopping center owners is overdone in light of underlying
fundamentals. The stock market valuation of retail REITs is the most undervalued
in our universe, despite profitability that argued for a much higher valuation.
Following January price declines, retail REITs rallied in February, and in March
they were the best performing sector of the REIT universe.
This rebound in price was sparked by a number of factors, in our opinion.
Fourth quarter earnings reports for companies in the Fund's portfolio were
uniformly in line with or ahead of Wall Street's expectations, alleviating fears
that a sluggish retail environment was impairing shopping center profitability.
In addition, mounting evidence that the economy was undergoing a resurgence of
growth, while negative for the bond market, encouraged investors to take a more
optimistic view toward the retail industry. Indeed, through most of 1996 many
retailers, including some of the more troubled discounters, have reported
better-than-expected monthly sales figures.
Improving sentiment toward the retail industry has had a profound effect on
the share prices of department stores companies and specialty retailers. We have
found a relatively high correlation between the share price movements of retail
companies and those of shopping center REITs and believe that the exceptional
strength of the retailers is forecasting continued strength in retail REITs. As
a result, we continue to be very comfortable with our overweighted position in
this sector.
An important development in the quarter was the proposed acquisition of
DeBartolo Realty by Simon Property Group through an exchange of shares. We
believe that this combination has less to do with the condition of the retail
industry than it does with the efficiencies that can be achieved through greater
size in the real estate industry. Whereas before this combination each of the
two companies was already among the largest in the regional mall and shopping
center industry, the merged entity will undoubtedly become a dominant factor,
possessing unparalleled strength in acquisition, development, leasing, property
management and finance. We expect the company to enjoy substantial economies of
scale which will enable it to maximize profitability and, by virtue of its sheer
size and market share, enjoy substantial negotiating leverage with both its
suppliers and tenants.
Importantly, the benefits of size are becoming apparent to most real estate
organizations and this, in our opinion, is leading to an ongoing consolidation
of the real estate industry. This consolidation, ironically, appears to be
accelerating the growth and rise to prominence of publicly-traded REITs. In
1995, for example, the number of REITs in existence shrank by 3% while the
aggregate market capitalization of the industry grew by over 25%.
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COHEN & STEERS REALTY INCOME FUND, INC.
While a number of already-public REITs like Simon and DeBartolo are merging (and
we expect that there may be similar strategic combinations in the future), other
REITs are making substantial acquisitions of large property portfolios or entire
companies that are currently privately owned. These acquisitions are being made
for cash and/or shares of the REIT. We believe that motivation of the
owners/managers of these private entities is that they have recognized the
disadvantages of their small size, the tax advantages of selling to a REIT and
the access to both the capital and human resources that modern public REITs
provide. Making this possible, moreover, is the REIT's ability to readily
finance the acquisition and the growing willingness of sellers to accept and
retain REIT shares in exchange for their property interests. In essence, we
believe that REITs have finally come of age in the real estate community.
Our expectation is that several billion dollars of acquisitions will be
made by REITs in this fashion in 1996 and that tens of billions of dollars of
property may be acquired by REITs in the coming years. We also expect new
sources of property to soon develop, initially from portfolios directly owned by
domestic and foreign institutions. In our opinion, many of these investors have
become disenchanted with the high cost and management intensive nature of direct
real estate ownership, further complicated by the lack of liquidity and
unreliable market valuation. Eventually, we also expect many institutional
commingled funds to provide liquidity for their investors by either creating or
merging their properties into publicly-traded REITs.
We believe that an improving economy is the most important underpinning to
the ongoing real estate recovery and that the benefits of growth will far
outweigh the potential harm of rising interest rates. In addition, there are
growing signs that inflation may be poised to increase in the coming months,
based on rising commodity and energy prices and the prospect of increasing unit
labor costs as the economy approaches full employment. An environment in which
inflation is increasing is typically favorable for property values and, we
believe, REIT share prices.
The common themes in our investment strategy are to increase our exposure
to sectors which will benefit from continued economic growth, and to heavily
weight our holdings of companies possess the extensive capital and management
skills required to succeed in the real estate business. We have confidence that
each of our companies will be able to fully participate in the continuing real
estate recovery and take advantage of the plentiful investment opportunities
that are available.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- -----------
<S> <C> <C>
EQUITIES 95.85%
APARTMENT 21.37%
Amli Residential Properties......................................... 25,500 $ 513,188
Associated Estates Realty Corp. .................................... 42,900 879,450
Camden Property Trust............................................... 11,200 259,000
Colonial Properties Trust........................................... 43,400 1,025,325
Columbus Realty Trust............................................... 26,400 514,800
Pacific Gulf Properties............................................. 27,200 503,200
Summit Properties................................................... 24,700 494,000
Wellsford Residential Property Trust................................ 53,400 1,168,125
-----------
5,357,088
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HEALTH CARE 8.65%
American Health Properties.......................................... 49,500 1,113,750
Omega Healthcare Investors.......................................... 36,900 1,056,263
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2,170,013
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INDUSTRIAL 2.43%
Copley Properties................................................... 39,900 608,475
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OFFICE 9.80%
Cali Realty Corp. .................................................. 33,500 749,563
Eastgroup Properties................................................ 50,300 1,106,600
Reckson Associates Realty Corp. .................................... 19,600 600,250
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2,456,413
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SHOPPING CENTER 53.60%
COMMUNITY CENTER 22.28%
Alexander Haagen Properties......................................... 38,900 447,350
Bradley Real Estate................................................. 55,500 797,812
Mid-America Realty Investments...................................... 111,200 931,300
Mid-Atlantic Realty Trust........................................... 34,100 332,475
Pennsylvania REIT................................................... 47,600 999,600
Price REIT, Series B................................................ 31,500 913,500
Regency Realty Corp. ............................................... 56,500 953,437
Sizeler Property Investors.......................................... 26,900 211,838
-----------
5,587,312
-----------
</TABLE>
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- -----------
FACTORY OUTLET CENTER 5.17%
<S> <C> <C>
HGI Realty, Inc. ................................................... 47,700 $ 1,007,662
Tanger Factory Outlet Centers....................................... 11,700 289,575
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1,297,237
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REGIONAL MALL 26.15%
CBL & Associates Properties......................................... 24,600 519,675
DeBartolo Realty Corp. ............................................. 90,700 1,360,500
Glimcher Realty Trust............................................... 77,100 1,310,700
J.P. Realty......................................................... 43,400 862,575
Simon Property Group................................................ 27,200 625,600
Taubman Centers..................................................... 63,400 626,075
The Mills Corp. .................................................... 22,400 394,800
*The Mills Corp. ................................................... 4,400 75,223
Urban Shopping Centers.............................................. 35,100 780,975
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6,556,123
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TOTAL SHOPPING CENTER............................................... 13,440,672
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TOTAL EQUITIES (Identified cost -- $22,660,790)............ 24,032,661
-----------
</TABLE>
<TABLE>
<CAPTION>
S&P PRINCIPAL
BOND RATING AMOUNT
- ------------------- ----------
<S> <C> <C> <C> <C>
FIXED INCOME 5.38%
B Oriole Homes, 12.50%, sr. sub. notes 1/15/03....................... $1,000,000 890,000
BB - Trizec Finance Ltd., 10.875%, sr. notes 10/15/05................... 450,000 459,000
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TOTAL FIXED INCOME (Identified cost -- $1,419,050)............ 1,349,000
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TOTAL INVESTMENTS (Identified cost -- $24,079,840) ............................. 101.23% 25,381,661
LIABILITIES IN EXCESS OF OTHER ASSETS .......................................... (1.23%) (308,027)
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NET ASSETS (Equivalent to $8.75 per share
based on 2,866,143 shares of capital
stock outstanding) ................................ 100.00% $25,073,634
-----------
-----------
</TABLE>
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* As of March 31, 1996, securities are restricted subject to registration with
the Securities and Exchange Commission.
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COHEN & STEERS REALTY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS*
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET
VALUE
TOTAL NET ASSETS PER SHARE
----------------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value:
Beginning of period: 12/31/95.................................... $24,577,393 $8.59
Net investment income...................................... $ 444,453 $0.16
Net realized and unrealized gain on investments............ 493,917 0.17
Distributions from net investment income................... (487,244) (0.17)
-----
Distributions reinvested................................... 45,115
---------
Net increase in net asset value.................................. 496,241 0.16
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End of period: 3/31/96........................................... $25,073,634 $8.75
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----------- -----
</TABLE>
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* Financial information included in this report has been taken from the records
of the Fund without examination by independent accountants.
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KEY INFORMATION
For general information
and weekly net asset value
call: 800-437-9912
AMERICAN STOCK EXCHANGE SYMBOL:
The American Stock Exchange Symbol is RIF
REINVESTMENT PLAN
We urge shareholders who want to take advantage of this plan and whose
shares are held in 'Street Name' to consult your broker as soon as possible to
determine if you must change registration into your own name to participate.
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COHEN & STEERS REALTY INCOME FUND, INC.
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COHEN & STEERS REALTY INCOME FUND, INC.
OFFICERS AND DIRECTORS INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
Robert H. Steers 757 Third Avenue
Director and Chairman New York, New York 10017
(212) 832-3232
Martin Cohen FUND ADMINISTRATOR AND TRANSFER AGENT
Director and President Chase Global Funds Services Co.
73 Tremont Street
Gregory C. Clark Boston, Massachusetts 02108
Director (800) 437-9912
George Grossman CUSTODIAN
Director The Chase Manhattan Bank, N.A.
770 Broadway
Jeffrey H. Lynford New York, New York 10003
Director
LEGAL COUNSEL
Willard H. Smith Dechert Price & Rhoads
Director 477 Madison Avenue
New York, New York 10022
Elizabeth O. Reagan
Vice President
American Stock Exchange Symbol: RIF
This report is for shareholder information.
This is not a prospectus intended for use in
the purchase or sale of Fund shares.
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COHEN & STEERS
REALTY INCOME FUND
757 THIRD AVENUE
NEW YORK, N.Y. 10017
First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712
COHEN & STEERS
REALTY INCOME FUND
QUARTERLY REPORT
MARCH 31, 1996
