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COHEN & STEERS REALTY INCOME FUND, INC.
April 24, 1997
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Realty Income
Fund, Inc. for the period ended March 31, 1997. The net asset value per share at
that date was $10.68. In addition, a regular quarterly dividend of $0.17 was
declared for shareholders of record on March 31, 1997 and payable on April 14,
1997.
INVESTMENT REVIEW
During the quarter ended March 31, 1997, Cohen & Steers Realty Income Fund
had a total return of 1.4%, a performance that was notable in several respects.
These positive returns, following the extraordinary 1996 fourth quarter surge in
prices, surprised many who had been expecting a retreat from the higher price
levels. In addition, REITs achieved positive returns in the face of rising
interest rates and a turbulent stock market environment, particularly during the
month of March. It appears that the increasingly strong US economy has been the
single most important factor influencing both financial market and REIT
performance so far this year. Economic indicators have been strong all year,
pushing the stock market on an upward path until, in March, fears of rising
inflation and a Federal Reserve tightening of monetary policy caused meaningful
weakness in the stock and bond markets. Despite these crosscurrents, REITs held
steady in March and for the quarter as well. In response to the strong economy,
the Hotel and Regional Mall sectors were among the best performers during the
first quarter. In contrast, the Triple Net Lease and Health Care sectors, both
of which are highly sensitive to interest rates, were among the worst
performers.
The resilience of REITs during this period of financial market turbulence,
however, has been tested recently as share prices have undergone a modest
decline since the Federal Reserve increased interest rates on March 25th. We do
not believe that the interest rate increase alone has been the cause of this
decline. This decline was also precipitated by the potential supply/demand
imbalance created by a large bulge in the public offering calendar for REIT
shares; several billion dollars worth of equity offerings were expected to come
to market in April, following a record $5 billion of offerings completed in the
first quarter. Most of these offerings are from office building owners, an area
that has been one of the strongest performers of late. There have also been
several initial public offerings filed which, upon preliminary analysis, appear
to us to be somewhat aggressively priced and poorly structured, a sign that
underwriting and investment discipline may be eroding. This new supply was
brought about by the substantial price appreciation of REITs in general over the
past year, which elevated valuations to levels that enticed issuers all over the
quality spectrum. It was therefore natural for the marketplace to correct this
imbalance by re-pricing many company's shares. We believe that this process is
nearly, if not fully, complete and expect the postponement, cancellation or more
attractive pricing of many equity offerings.
The recent deliberate Fed action has created an atmosphere of greater
uncertainty about the future course of the economy. While we believe the economy
shows few, if any, signs of slowing, it is clear that monetary policy, for the
first time in a year, is aimed at reducing the rate of economic growth. As a
result, portfolio managers in general appear to be undertaking a reevaluation of
the investment merits of various asset classes and industry sectors. Real estate
investors, including us, are doing the same with regard to different property
sectors.
We have maintained very low weightings in the more interest rate sensitive
sectors for some time due to our belief that a strong economy would, at the very
least, prevent interest rates from declining further in this cycle.
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COHEN & STEERS REALTY INCOME FUND, INC.
This strategy has enabled us to continue to outperform the real estate
securities averages. Should we sense that the economy is going to enter a severe
slowdown phase, it is likely that we would alter this approach. We do not see
that on the immediate horizon, however, because we believe that the economy is
so strong that several interest rate increases over many months would be
required to cause a material slowing. While less clear, we believe that the Fed
is not likely to act in so restrictive a manner as to precipitate an economic
recession. As a result, we foresee an economic environment that continues to be
characterized by sustainable growth with upward pressure on inflation.
Notwithstanding the pending slowdown in the public offering calendar, the
market capitalization of the equity REIT universe expanded by over 8% during the
first quarter. Further, the pace of acquisitions of properties and companies by
the existing market leaders shows no signs of abating. This affirms our belief
that the transfer of property ownership from private hands to public companies,
so-called "securitization," can be expected to continue at a substantial pace
for the foreseeable future.
As the real estate cycle continues to mature, the supply/demand
relationships for most property sectors and regions of the country may now be
approaching equilibrium. By equilibrium, we refer to the situation in which the
economics of new development begin to make sense, thereby creating new supply
that roughly matches incremental demand. For example, demand for space has
driven occupancy and rental rates to levels that are now encouraging new
development of apartment, industrial and office properties in several regions.
Similarly, the supply of capital from both public and private sources has raised
property values to levels at which investors have become willing to finance new
development rather than purchase existing assets. For those few property types
or markets where this has not yet occurred, the forces that we expect will lead
to development are firmly in place.
If we are right about where we are in the real estate cycle, there are two
very important implications. First, real estate returns would be likely to
decline from the high levels that have been enjoyed over the past several years.
This may also affect prospective investment results from REITs, whose returns
may revert to the mid-teens levels that they have historically averaged. The
second implication is that investment success would not be as easy to achieve
due to the more highly competitive environment that now prevails. Consequently,
effective management, though always the most critical factor, would assume even
greater importance than any other investment consideration.
As a result, our strategy continues to emphasize those companies whose
management teams are capable of finding or adding value in almost any economic
or real estate situation. In fact, we believe these companies are the best
positioned to take advantage of opportunities that would materialize in a more
challenging operating environment. We therefore are not concerned about their
ability to continue to enjoy substantial growth and see few, if any, limits to
their prospects for continued success. For this reason, we remain confident that
we will able to continue to achieve satisfactory investment returns.
Sincerely,
/s/ MARTIN COHEN /s/ 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, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
EQUITIES 95.06%
APARTMENT/RESIDENTIAL 20.63%
Ambassador Apartments.................................................. 30,500 $ 762,500
Associated Estates Realty Corp......................................... 42,900 959,887
Charles E. Smith Residential Realty.................................... 23,400 634,725
Colonial Properties Trust.............................................. 32,500 942,500
Columbus Realty Trust.................................................. 26,400 531,300
Oasis Residential-Preferred............................................ 5,900 158,563
Summit Properties...................................................... 40,700 824,175
Wellsford Residential Property Trust................................... 53,400 1,548,600
-----------
6,362,250
-----------
DIVERSIFIED 2.26%
Pacific Gulf Properties................................................ 32,000 696,000
-----------
HEALTH CARE 11.61%
American Health Properties............................................. 59,500 1,465,187
Health Care REIT....................................................... 40,500 961,875
Omega Healthcare Investors............................................. 36,900 1,153,125
-----------
3,580,187
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HOTEL 7.04%
Innkeepers USA Trust................................................... 76,000 1,111,500
Sunstone Hotel Investors, Inc.......................................... 80,800 1,060,500
-----------
2,172,000
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INDUSTRIAL 4.06%
Eastgroup Properties................................................... 45,100 1,251,525
-----------
OFFICE/INDUSTRIAL 6.21%
Kilroy Realty Corp..................................................... 9,700 258,262
Prentiss Properties Trust.............................................. 19,800 502,425
Reckson Associates Realty Corp......................................... 10,500 484,313
TriNet Corporate Realty Trust, Inc..................................... 21,200 670,450
-----------
1,915,450
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SELF STORAGE 1.03%
Sovran Self Storage.................................................... 10,400 319,800
-----------
SHOPPING CENTER 42.22%
COMMUNITY CENTER 23.96%
Alexander Haagen Properties............................................ 38,900 539,737
Bradley Real Estate.................................................... 55,500 1,061,437
</TABLE>
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
Glimcher Realty Trust................................................. 77,000 $ 1,472,625
Mid-America Realty Investments........................................ 111,200 1,098,100
Mid-Atlantic Realty Trust............................................. 34,100 375,100
Pennsylvania REIT..................................................... 55,500 1,172,438
Price REIT............................................................ 17,000 629,000
Regency Realty Corp................................................... 18,200 486,850
Sizeler Property Investors............................................ 26,900 279,088
Western Investment Real Estate Trust.................................. 22,000 275,000
-----------
7,389,375
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FACTORY OUTLET CENTER 1.30%
Horizon Group......................................................... 7,300 93,988
Tanger Factory Outlet Centers......................................... 11,700 307,125
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401,113
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REGIONAL MALL 16.96%
CBL & Associates Properties........................................... 33,700 825,650
JP Realty............................................................. 39,200 1,038,800
Macerich Co........................................................... 32,300 904,400
Simon DeBartolo Group................................................. 26,100 789,525
The Mills Corp........................................................ 39,100 987,275
Urban Shopping Centers................................................ 22,800 684,000
................................................................................. -----------
5,229,650
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TOTAL SHOPPING CENTER 13,020,138
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TOTAL EQUITIES (Identified cost $23,987,694).................... 29,317,350
-----------
</TABLE>
<TABLE>
<CAPTION>
S&P PRINCIPAL
BOND RATING AMOUNT
- ------------------- ----------
<S> <C> <C> <C> <C>
FIXED INCOME 3.26%
B Oriole Homes Corp. 12.50%, sr. sub. notes 1/15/03 (Identified
cost $972,420)............................................ $1,000,000 1,005,000
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TOTAL INVESTMENTS (Identified cost $24,960,114)............................ 98.32%
30,322,350
OTHER ASSETS IN EXCESS OF LIABILITIES...................................... 1.68% 517,064
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NET ASSETS (Equivalent to $10.68 per share based on
2,886,371 shares of capital stock outstanding)..........................100.00% $30,839,414
------ -----------
------ -----------
</TABLE>
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* Non-income Producing Security.
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COHEN & STEERS REALTY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS*
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
----------------------- ---------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 12/31/96.............................. $30,822,773 $ 10.70
Net investment income................................ $ 477,427 $ 0.17
Net realized and unrealized gain (loss) on
investments....................................... (52,886) (0.02)
Distributions from net investment income............. (490,683) (0.17)
-------
Distributions reinvested............................. 82,783
---------
Net increase in net asset value............................ 16,641 (0.02)
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End of period: 3/31/97..................................... $30,839,414 $ 10.68
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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.
<TABLE>
<S> <C>
KEY INFORMATION REINVESTMENT PLAN
For general information We urge shareholders who want to take advantage of
and weekly net asset value this plan and whose shares are held in "Street Name"
call 800-437-9912 to consult your broker as soon as possible to
determine if you must change registration into your
AMERICAN STOCK EXCHANGE SYMBOL: own name to participate.
The American Stock Exchange Symbol is RIF
</TABLE>
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COHEN & STEERS REALTY INCOME FUND, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Martin Cohen
Director and President
Gregory C. Clark
Director
George Grossman
Director
Jeffrey H. Lynford
Director
Willard H. Smith Jr.
Director
Elizabeth O. Reagan
Vice President
INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, New York 10017
(212) 832-3232
FUND ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Co.
73 Tremont Street
Boston, Massachusetts 02108
(800) 437-9912
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
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 First Class Mail
REALTY SHARES U.S. Postage
757 THIRD AVENUE PAID
NEW YORK, NY 10017 Boston, MA
Permit No. 56712
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QUARTERLY REPORT
MARCH 31, 1997
