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COHEN & STEERS REALTY SHARES, INC.
April 29, 1996
To Our Shareholders:
We are pleased to submit to you our first quarter report for Cohen & Steers
Realty Shares, Inc. for the period ended March 31, 1996. The net asset value per
share at that date was $34.77. In addition, a regular quarterly dividend of
$0.47 was declared for shareholders of record on March 22, 1996 and paid on
March 25, 1996. This dividend represents an increase of 9.3% from the previous
regular quarterly rate.
INVESTMENT REVIEW
During the quarter ended March 31, 1996, Cohen & Steers Realty Shares had a
total return of 1.8%. 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 store 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%. While a number
of already-public REITs like Simon and DeBartolo are merging (and we expect that
there may be
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COHEN & STEERS REALTY SHARES, INC.
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 the 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 the 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. As a result, we have
minimized our exposure to the more interest rate-sensitive sectors such as
Health Care REITs and have increased our weightings in the Office sector due to
improving property fundamentals and the emergence of several public companies
that are superbly executing acquisition strategies. In most major markets there
is little or no new construction of office space, resulting in declining vacancy
rates. At the same time, many domestic and foreign financial institutions are
seeking to divest their holdings of office buildings. In addition, we have
increased our holdings in the Hotel sector due to its very strong sensitivity to
the economy and the very favorable supply/demand situation which exists for
full-service hotel rooms. In contrast, we have trimmed our weightings in the
Apartment sector due to high valuations and a growing amount of new development
activity.
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 SHARES, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------- ------------
<S> <C> <C>
EQUITIES 96.09%
APARTMENT 21.03%
Associated Estates Realty Corp...................................... 610,400 $ 12,513,200
Avalon Properties................................................... 1,005,500 21,618,250
Camden Property Trust............................................... 784,000 18,130,000
Charles E. Smith Residential Realty................................. 500,800 11,894,000
Colonial Properties Trust........................................... 795,000 18,781,875
Columbus Realty Trust............................................... 546,400 10,654,800
Merry Land & Investment Co. ........................................ 1,066,000 23,185,500
Oasis Residential................................................... 662,300 15,564,050
Post Properties..................................................... 833,400 27,085,500
Security Capital Pacific Trust...................................... 364,200 8,012,400
Summit Properties................................................... 430,600 8,612,000
United Dominion Realty Trust........................................ 854,700 12,499,988
------------
188,551,563
------------
HEALTH CARE 3.82%
Health Care Property Investors...................................... 534,200 16,827,300
Nationwide Health Properties........................................ 831,300 17,457,300
------------
34,284,600
------------
HOTEL 5.76%
`D'Bristol Hotel Co................................................. 236,800 6,452,800
Felcor Suite Hotels................................................. 434,000 13,454,000
Patriot American Hospitality........................................ 487,000 12,844,625
Starwood Lodging Trust.............................................. 527,400 17,799,750
`D'Studio Plus Hotels............................................... 39,100 1,085,025
------------
51,636,200
------------
INDUSTRIAL 6.92%
Duke Realty Investments............................................. 588,300 17,722,538
Liberty Property Trust.............................................. 57,600 1,188,000
Spieker Properties.................................................. 1,101,700 27,955,637
Weeks Corp.......................................................... 609,400 15,235,000
------------
62,101,175
------------
</TABLE>
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------- ------------
OFFICE 16.37%
<S> <C> <C>
Beacon Properties Corp. ............................................ 897,000 $ 23,658,375
Cali Realty Corp.................................................... 874,200 19,560,225
Carr Realty Corp.................................................... 719,800 17,275,200
Cousins Properties.................................................. 981,100 19,131,450
Crescent Real Estate Equities....................................... 1,088,300 36,594,088
Highwoods Properties................................................ 622,100 17,341,037
Reckson Associates Realty Corp...................................... 432,600 13,248,375
------------
146,808,750
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SELF STORAGE 1.23%
Shurgard Storage Centers............................................ 258,300 6,780,375
Storage USA......................................................... 124,000 4,262,500
------------
11,042,875
------------
SHOPPING CENTER 40.96%
COMMUNITY CENTER 17.84%
Bradley Real Estate................................................. 571,000 8,208,125
Developers Diversified Realty Corp.................................. 1,287,600 37,823,250
Federal Realty Investment Trust..................................... 1,395,700 31,054,325
Kimco Realty Corp................................................... 1,400,000 37,800,000
Price REIT, Series B................................................ 381,600 11,066,400
Vornado Realty Trust................................................ 894,800 34,002,400
------------
159,954,500
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FACTORY OUTLET CENTER 3.99%
Chelsea GCA Realty.................................................. 594,800 17,546,600
HGI Realty, Inc..................................................... 444,800 9,396,400
Tanger Factory Outlet Centers....................................... 356,200 8,815,950
------------
35,758,950
------------
</TABLE>
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------- ------------
REGIONAL MALL 19.13%
<S> <C> <C>
CBL & Associates Properties......................................... 641,700 $ 13,555,913
DeBartolo Realty Corp............................................... 1,627,400 24,411,000
Glimcher Realty Trust............................................... 1,201,700 20,428,900
JP Realty........................................................... 834,300 16,581,713
Macerich Co......................................................... 1,114,700 21,875,987
Rouse Co............................................................ 2,192,900 47,969,687
Simon Property Group................................................ 354,800 8,160,400
Taubman Centers..................................................... 265,000 2,616,875
The Mills Corp...................................................... 182,500 3,216,562
*The Mills Corp..................................................... 711,000 12,155,434
Urban Shopping Centers.............................................. 26,200 582,950
------------
171,555,421
------------
TOTAL SHOPPING CENTER............................................... 367,268,871
------------
TOTAL EQUITIES (Identified cost -- $816,981,828).............. 861,694,034
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
COMMERCIAL PAPER 3.55%
<S> <C> <C>
General Electric Capital Corp., 4.80%, 4/1/96
(Identified cost -- $31,795,000)................................. $31,795,000 31,795,000
------------
TOTAL INVESTMENTS (Identified cost -- $848,776,828) ................... 99.64% 893,489,034
OTHER ASSETS, LESS LIABILITIES ........................................... 0.36% 3,278,893
NET ASSETS (Equivalent to $34.77 per share
based on 25,794,356 shares of capital
stock outstanding) ................................ 100.00% $896,767,927
------- ------------
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</TABLE>
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* As of March 31, 1996, securities are restricted subject to registration with
the Securities and Exchange Commission.
`D' Non-income producing.
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COHEN & STEERS REALTY SHARES, 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............................... $793,084,074 $34.62
Net investment income................................. $11,866,450 $0.47
Net realized and unrealized gain on investments....... 3,593,561 0.15
Distributions from net investment income.............. (11,977,245) (0.47)
-----
Capital stock transactions:
Sold.................................................. 152,436,802
Distributions reinvested.............................. 10,089,778
Redeemed.............................................. (62,325,493)
-----------
Net increase in net asset value............................. 103,683,853 0.15
------------ ------
End of period: 3/31/96...................................... $896,767,927 $34.77
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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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COHEN & STEERS REALTY SHARES, INC.
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT ADVISER
Director and Chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and President (212) 832-3232
Gregory C. Clark
Director FUND ADMINISTRATOR AND TRANSFER AGENT
Chase Global Funds Services Co.
George Grossman 73 Tremont Street
Director Boston, MA 02108
(800) 437-9912
Jeffrey H. Lynford
Director
Willard H. Smith CUSTODIAN
Director The Chase Manhattan Bank, N.A.
770 Broadway
New York, NY 10003
Elizabeth O. Reagan
Vice President LEGAL COUNSEL
Dechert Price & Rhoads
477 Madison Avenue
New York, NY 10022
NASDAQ Symbol: CSRSX
Net asset value (NAV) can be found in the daily mutual
fund listings in the financial section of most major
newspapers under the Fund's abbreviation 'C&SRlty'.
This report is authorized for delivery to other than
shareholders of Cohen & Steers Realty Shares, Inc. only
when accompanied or preceded by the delivery of a
currently effective prospectus setting forth details of
the Fund.
</TABLE>
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[LOGO]
COHEN & STEERS
REALTY SHARES
757 THIRD AVENUE
NEW YORK, N.Y. 10017
COHEN & STEERS
REALTY SHARES
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First Class Mail
U.S. Postage
PAID
Boston, MA
Permit No. 56712
QUARTERLY REPORT
MARCH 31, 1996
