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COHEN & STEERS
REALTY INCOME FUND
757 THIRD AVENUE
NEW YORK, NY 10017 [LOGO]
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QUARTERLY REPORT
MARCH 31, 1998
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COHEN & STEERS REALTY INCOME FUND, INC.
April 15, 1998
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Realty Income
Fund Inc. for the quarter ended March 31, 1998. The net asset value per share at
that date was $10.89. In addition, a regular quarterly dividend of $0.17 was
declared for shareholders of record on March 27, 1998 and paid on April 15,
1998.
INVESTMENT REVIEW
For the quarter ended March 31, 1998, the Fund's total return, based on
income and change in net asset value was -0.2%. This performance compares
favorably to the NAREIT Equity REIT Index total return of -0.5%.
The first quarter of 1998 was without question one of the most rewarding
for investors at large, yet the most challenging ever for owners of REIT shares.
The economy continued to defy consensus expectations of a slowdown, growing
steadily while inflation remained nearly nonexistent. Interest rates remained
quite stable, with long-term rates remaining at their lowest levels in decades.
The stock market set record after record, turning in its best first quarter
performance in a decade, with nearly every sector fully participating.
The real estate recovery continued to gather steam and the fundamentals for
REITs remained strong. Industry participants in general posted healthy earnings
growth for the fourth quarter of 1997 with most reporting positive earning
surprises. There are, as well, expectations of continued strong profit growth
for REITs in the first quarter of 1998 and the remainder of the year. In this
ideal environment, however, REITs as a group managed to decline in price,
despite a sharp rally at the end of March. Lagging the S&P 500 Index by nearly
15 percentage points, REITs underperformed the stock market by the widest margin
ever for a single quarter. In a reversal of recent trends, the worst performing
groups were the Office and Hotel sectors, while the best performers were the
more defensive Apartment and Self Storage sectors.
We believe that the poor performance of REITs on both an absolute and
relative basis can be traced to three conditions that, we also believe, have
been favorably resolved. First, there had been an oversupply of shares created
by a surge of equity offerings by many companies, particularly during January
and February. In the quarter, over $5 billion of new equity was sold. With REITs
having committed to a substantial amount of property acquisitions, their need
for equity capital temporarily exceeded the market's demand, causing a decline
in price. However, that decline brought most stocks down to a level where
managements became unwilling to issue equity due to possible dilution. As a
result, the potential near-term supply of equity offerings diminished
significantly, thereby relieving the pressure on prices.
The second issue relates to the introduction of legislation that would have
potentially curtailed the growth of the REIT industry by making corporate or
property acquisitions more costly. The specter of such potential legislation
understandably made many investors wary of this sector. Fortunately, this
situation was largely resolved when the only measure to reach Congress was one
which will affect so-called 'paired share' REITs. Our current understanding is
that this measure will alter the rules under which they operate and require the
five companies that have this structure to adopt alternative strategies with
respect to the structuring of future acquisitions. The Fund owns shares of one
such company, Meditrust Corp. We consider it to be an excellent value at the
current price and we are confident that it will not experience a significant
slowing of its growth rate. Most importantly, the
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COHEN & STEERS REALTY INCOME FUND, INC.
fact that this was the only measure to be seriously considered by Congress
dissipates a cloud of uncertainty that would have overhung the REIT market for
much of 1998.
The third and more complex issue is that there has been a change in
sentiment regarding the state of real estate markets in general and the
prospects for continued strong REIT earnings growth. It is clear that property
prices have risen dramatically in recent years as health has finally been
restored to the real estate industry. While most REITs continue to report
outstanding earnings, many markets have reached equilibrium, whereby rent growth
is likely to moderate and new construction is likely to become more pervasive.
In short, looking past what is shaping up to be a very strong year in 1998, the
market appears to be discounting a slowing of the current unsustainable high
rate of earnings growth in 1999 and beyond. This has precipitated a contraction
of earnings multiples for almost all REITs.
INVESTMENT OUTLOOK
As the real estate, economic and stock market cycles age, securities that
meet the Fund's investment criteria should gain favor. Current income, earnings
predictability, low valuations and stable growth are traits of the companies
held in the Fund, and, in our opinion they should perform well in the current
environment. The majority of securities in the Fund have current dividend yields
exceeding 7.0%, which compares to the average equity REIT yield of 5.5% and the
S&P 500 yield of 1.6%. We feel these attractive current yields act as a support
level for share prices of many companies in the portfolio.
One of the Fund's largest sector weighting, the Health Care Sector,
highlights this investment strategy. This group of eight companies primarily
owns investments in retirement housing such as nursing homes and assisted living
care facilities. Fundamentals of these properties remain strong with demand
meeting or exceeding supply in most regions of the country. State regulations
governing development have served to reduce operating volatility in this sector.
This positive fundamental environment has led to very consistent, mid-to-high
single digit earnings growth. The group's current attractive valuation level,
coupled with healthy dividend yields should produce good investment results, in
our opinion.
The current valuation level of REITs appears to have discounted a maturing
real estate cycle. REIT valuation levels versus the S&P 500 are at their most
attractive levels ever, as measured by price-to-earnings multiples. Relative
performance for REITs should improve based on their sizable yield advantage as
well as the expectation for healthy dividend growth. Dividend growth is
supported by the combination of double digit earnings per share growth and
payout ratios that are approaching the minimum required by REIT regulations.
Further, the industry's conservative use of leverage by historic norms will
allow for advantageous access to attractively priced debt capital.
Rising property values, coupled with falling REIT share prices, have led to
instances of real estate being cheaper on Wall Street than on Main Street. As a
result, the Fund continues to focus on companies that are trading at or below
their real estate value. In the first quarter, one company in the Fund's
portfolio, Price REIT, agreed to be acquired by another REIT, the Rouse Co. Our
expectation is that consolidation in the REIT industry will continue, creating
additional shareholder value in the process.
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COHEN & STEERS REALTY INCOME FUND, INC.
Many companies in the Fund continue to have ample internal growth prospects
as well as plentiful acquisition opportunities. In addition, as active portfolio
managers we have the ability to take advantage of the asynchronous cycles of
different property types and geographic regions of the country. We continue to
believe that the transformation of the real estate industry to one that is
dominated by public companies is still in its infancy, and will bring
substantial rewards to investors in the leading companies.
Sincerely,
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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, 1998 (UNAUDITED)
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NUMBER
OF SHARES VALUE
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<S> <C> <C>
EQUITIES 102.62%
COMMON STOCK 96.61%
APARTMENT/RESIDENTIAL 8.91%
Camden Property Trust, $2.25, Series A (Convertible Preferred)... 24,000 $ 609,000
Charles E. Smith Residential Realty.............................. 12,500 415,625
Colonial Properties Trust........................................ 31,400 998,912
Summit Properties, Inc........................................... 40,700 819,088
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2,842,625
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DIVERSIFIED 6.83%
Entertainment Properties Trust................................... 33,000 647,625
Pacific Gulf Properties.......................................... 66,800 1,532,225
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2,179,850
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HEALTH CARE 24.63%
American Health Properties....................................... 59,500 1,576,750
ElderTrust....................................................... 48,300 863,362
Health Care Property Investors................................... 17,300 639,019
Health Care REIT................................................. 35,900 987,250
Healthcare Realty Trust.......................................... 5,700 161,025
Meditrust Corp................................................... 46,800 1,444,950
Nationwide Health Properties..................................... 15,000 375,000
Omega Healthcare Investors....................................... 46,300 1,805,700
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7,853,056
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HOTEL 1.85%
Innkeepers USA Trust............................................. 36,000 589,500
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INDUSTRIAL 5.40%
EastGroup Properties............................................. 45,800 944,625
First Industrial Realty Trust.................................... 21,600 777,600
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1,722,225
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OFFICE 3.67%
Brandywine Realty Trust.......................................... 33,400 795,337
Tower Realty Trust............................................... 15,200 374,300
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1,169,637
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COHEN & STEERS REALTY INCOME FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
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NUMBER
OF SHARES VALUE
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OFFICE/INDUSTRIAL 8.81%
Prime Group Realty Trust, 144A................................... 33,000 $ 640,200
TriNet Corporate Realty Trust.................................... 56,600 2,168,488
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2,808,688
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SHOPPING CENTER 36.51%
COMMUNITY CENTER 27.27%
Alexander Haagen Properties...................................... 55,400 927,950
Bradley Real Estate.............................................. 55,500 1,158,563
Glimcher Realty Trust............................................ 77,000 1,684,375
Mid-America Realty Investments................................... 111,200 1,153,700
Mid-Atlantic Realty Trust........................................ 34,100 464,612
Pan Pacific Retail Properties.................................... 29,000 634,375
Pennsylvania REIT................................................ 55,500 1,359,750
Saul Centers..................................................... 39,700 717,081
Sizeler Property Investors....................................... 26,900 297,581
Western Investment Real Estate Trust............................. 20,000 298,750
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8,696,737
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FACTORY OUTLET CENTER 5.97%
Horizon Group.................................................... 119,700 1,473,806
Tanger Factory Outlet Centers.................................... 14,700 428,138
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1,901,944
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REGIONAL MALL 3.27%
CBL & Associates Properties...................................... 8,500 208,250
JP Realty........................................................ 19,400 492,275
Taubman Centers, Inc............................................. 26,300 343,544
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1,044,069
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TOTAL SHOPPING CENTER............................................ 11,642,750
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TOTAL COMMON STOCK (Identified cost -- $26,056,806)......... 30,808,331
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PREFERRED STOCK 6.01 %
Apartment Investment & Management Co., 9.00%, Series C................ 29,000 728,625
Crown American Realty Trust, 11.00%, Series A......................... 22,100 1,186,494
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TOTAL PREFERRED STOCK (Identified cost -- $1,842,806)....... 1,915,119
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TOTAL INVESTMENTS (Identified cost -- $27,899,612) ............. 102.62 % 32,723,450
LIABILITIES IN EXCESS OF OTHER ASSETS ........................... (2.62)% (834,603)
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NET ASSETS (Equivalent to $10.89 per share based on
2,928,895 shares of capital stock outstanding) ............. 100.00 % $31,888,847
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COHEN & STEERS REALTY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS'D'
MARCH 31, 1998 (UNAUDITED)
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NET ASSET VALUE
TOTAL NET ASSETS PER SHARE
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NET ASSET VALUE:
Beginning of period: 12/31/97................................ $32,104,731 $ 11.08
Net investment income................................... $ 471,313 $ 0.16
Net realized and unrealized gain on
investments........................................... (545,469) (0.18)
Distributions from net investment income................ (497,912) (0.17)
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Distributions reinvested................................ 356,184
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Net decrease in net asset value.............................. (215,884) (0.19)
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End of period: 3/31/98....................................... $31,888,847 $ 10.89
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'D'Financial information included in this report has been taken from the records
of the Fund without examination by independent accountants.
KEY INFORMATION
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For general information AMERICAN STOCK EXCHANGE SYMBOL: RIF
and weekly net asset value
call 800-437-9912
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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.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Martin Cohen
Director and President
Gregory C. Clark
Director
Jeffrey H. Lynford
Director
Willard H. Smith
Director
Elizabeth O. Reagan
Vice President
Adam Derechin
Vice President and
Assistant Treasurer
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, N.A.
One Chase Manhattan Plaza
New York, New York 10081
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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STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as....................................`D'
