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COHEN & STEERS REALTY SHARES, INC.
April 24, 1997
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Realty
Shares, Inc. for the period ended March 31, 1997. The net asset value per share
at that date was $45.69. In addition, a regular quarterly dividend of $0.47 was
declared for shareholders of record on March 24, 1997 and paid on March 25,
1997.
INVESTMENT REVIEW
During the quarter ended March 31, 1997, Cohen & Steers Realty Shares had a
total return of 2.4%, 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. 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.
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COHEN & STEERS REALTY SHARES, INC.
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,
<TABLE>
<S> <C>
/s/ MARTIN COHEN /s/ ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
On April 23, 1997, Cohen & Steers Realty Shares, Inc. held a special
shareholders meeting. At this meeting, shareholders of record February 24, 1997
ratified the election of Messrs. Gregory C. Clark, Martin Cohen, George
Grossman, Jeffery H. Lynford, Willard H. Smith, and Robert H. Steers to the
Board of Directors. In addition, shareholders approved and ratified three
proposed changes to the Fund's investment restrictions, (1) elimination of the
restriction prohibiting the Fund from purchasing more than 10% of the voting
securities of any issuer; (2) permission for the Fund to invest up to 15% of its
net assets in illiquid securities; and (3) permission for the Fund to invest in
financial futures contracts, options and similar instruments.
The investment adviser, Cohen & Steers Capital Management, Inc., believes
that these amendments will provide greater flexibility in the management of the
Fund's portfolio. Furthermore, these amendments are not meant to change any
fundamental investment strategies used currently by the investment adviser.
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- --------------
<S> <C> <C>
EQUITIES 93.10%
APARTMENT/RESIDENTIAL 12.85%
Avalon Properties........................................... 2,568,300 $ 70,628,250
Bay Apartment Communities................................... 718,000 25,758,250
Camden Property Trust....................................... 1,037,500 28,271,875
Charles E. Smith Residential Realty......................... 915,900 24,843,787
Colonial Properties Trust................................... 1,326,800 38,477,200
Columbus Realty Trust....................................... 777,600 15,649,200
Essex Property Trust, Inc................................... 1,335,700 39,904,037
Irvine Apartment Communities................................ 1,039,700 29,501,487
Paragon Group............................................... 672,600 11,434,200
Post Properties............................................. 1,089,500 41,537,188
Summit Properties........................................... 423,100 8,567,775
Sun Communities............................................. 620,400 19,852,800
--------------
354,426,049
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DIVERSIFIED 2.56%
*Catellus Development Corp.................................. 554,100 8,450,025
Newhall Land & Farming Company.............................. 1,370,500 23,812,438
Security Capital U.S. Realty................................ 2,738,100 38,333,400
--------------
70,595,863
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HEALTH CARE 4.36%
Health Care Property Investors.............................. 79,900 2,646,687
Health Care REIT............................................ 949,200 22,543,500
Healthcare Realty Trust, Inc................................ 507,100 13,881,863
Nationwide Health Properties................................ 451,800 9,657,225
Omega Healthcare Investors.................................. 1,000,000 31,250,000
*Sunrise Assisted Living.................................... 1,437,400 40,247,200
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120,226,475
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HOTEL 7.24%
American General Hospitality Corp........................... 1,032,000 28,122,000
*Bristol Hotel Co............................................ 783,500 34,082,250
*CapStar Hotel Company....................................... 660,000 18,480,000
*Host Marriott Corp.......................................... 400,600 6,810,200
Innkeepers USA Trust........................................ 797,500 11,663,438
*Interstate Hotels Co........................................ 350,700 9,907,275
Patriot American Hospitality................................ 1,261,000 30,579,250
Starwood Lodging Trust...................................... 1,222,350 47,671,650
*Studio Plus Hotels.......................................... 716,400 12,357,900
--------------
199,673,963
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</TABLE>
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- --------------
INDUSTRIAL 5.13%
<S> <C> <C>
CenterPoint Properties Corp................................. 1,621,500 $ 49,658,438
Eastgroup Properties........................................ 543,100 15,071,025
Meridian Industrial Trust................................... 565,400 13,074,875
*Security Capital Industrial Trust........................... 1,474,400 30,778,100
Weeks Corp.................................................. 958,000 32,931,250
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141,513,688
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OFFICE 16.70%
Beacon Properties Corp...................................... 1,080,000 35,775,000
Cali Realty Corp............................................ 2,860,800 91,545,600
CarrAmerica Realty Corp..................................... 2,665,900 81,976,425
Cousins Properties.......................................... 1,764,500 48,082,625
Crescent Real Estate Equities............................... 2,835,400 75,846,950
Highwoods Properties........................................ 2,981,500 99,880,250
Trizec Hahn Corp............................................ 1,228,300 27,483,212
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460,590,062
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OFFICE/INDUSTRIAL 10.51%
Kilroy Realty Corp.......................................... 1,137,300 30,280,612
Prentiss Properties Trust................................... 1,412,700 35,847,263
Reckson Associates Realty Corp.............................. 1,415,600 65,294,550
Spieker Properties.......................................... 3,131,500 122,128,500
TriNet Corporate Realty Trust, Inc.......................... 1,149,500 36,352,938
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289,903,863
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SELF STORAGE 4.28%
Public Storage.............................................. 4,068,100 117,974,900
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SHOPPING CENTER 29.46%
COMMUNITY CENTER 11.94%
Developers Diversified Realty Corp.......................... 1,344,400 50,751,100
Federal Realty Investment Trust............................. 2,033,500 52,362,625
Glimcher Realty Trust....................................... 1,053,400 20,146,275
Kimco Realty Corp........................................... 1,511,000 49,107,500
Regency Realty Corp......................................... 447,500 11,970,625
Vornado Realty Trust........................................ 1,828,400 122,045,700
Weingarten Realty Investors................................. 545,000 23,094,375
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329,478,200
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</TABLE>
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- --------------
FACTORY OUTLET CENTER 0.90%
<S> <C> <C>
Chelsea GCA Realty..................................... 688,800 $ 24,710,700
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REGIONAL MALL 16.62%
CBL & Associates Properties............................ 1,284,500 31,470,250
General Growth Properties.............................. 2,596,300 82,432,525
JP Realty.............................................. 1,101,900 29,200,350
Macerich Co............................................ 1,928,300 53,992,400
Rouse Co............................................... 3,659,800 107,049,150
Simon DeBartolo Group.................................. 1,564,400 47,323,100
Taubman Centers........................................ 3,327,100 43,252,300
The Mills Corp......................................... 1,475,900 37,266,475
Urban Shopping Centers................................. 880,300 26,409,000
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458,395,550
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TOTAL SHOPPING CENTER.................................. 812,584,450
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TOTAL EQUITIES (Identified cost $2,133,510,540).. 2,567,489,313
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C> <C>
COMMERCIAL PAPER 7.44%
Leggett & Platt, Inc. 6.00%, 4/1/97.................... $ 97,000,000 97,000,000
UBS Finance, Inc. 6.00%, 4/1/97........................ 108,276,000 108,276,000
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TOTAL COMMERCIAL PAPER (Identified cost $205,276,000).. 205,276,000
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TOTAL INVESTMENTS (Identified cost $2,338,786,540)....... 100.53% 2,772,765,313
LIABILITIES IN EXCESS OF OTHER ASSETS.................... (0.53)% (14,630,972)
-------- --------------
NET ASSETS (Equivalent to $45.69 per share based on
60,367,184 shares of capital stock outstanding)....... 100.00% $2,758,134,341
-------- --------------
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</TABLE>
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* Non-income producing security.
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COHEN & STEERS REALTY SHARES, 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........................ $2,036,378,585 $ 45.09
Net investment income.......................... $ 25,456,824 $ 0.40
Net realized and unrealized gain on
investments................................. 30,307,516 0.67
Distributions from net investment income....... (27,902,353) (0.47)
-------
Capital stock transactions:
Sold........................................... 906,574,010
Distributions reinvested....................... 24,079,322
Redeemed....................................... (236,759,563)
------------
Net increase in net asset value...................... 721,755,756 0.60
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End of period: 3/31/97............................... $2,758,134,341 $ 45.69
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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 FUND ADMINISTRATOR AND TRANSFER AGENT
Director Chase Global Funds Services Co.
73 Tremont Street
George Grossman Boston, MA 02108
Director (800) 437-9912
Jeffrey H. Lynford CUSTODIAN
Director The Chase Manhattan Bank
3 Chase MetroTech Center
Willard H. Smith, Jr. Brooklyn, NY 11245
Director
LEGAL COUNSEL
Elizabeth O. Reagan Dechert Price & Rhoads
Vice President 30 Rockefeller Plaza
New York, NY 10112
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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COHEN & STEERS First Class Mail
REALTY SHARES U.S. Postage
757 THIRD AVENUE Boston, MA
NEW YORK, NY 10017 Permit No. 56712
COHEN & STEERS
REALTY SHARES
QUARTERLY REPORT
MARCH 31, 1997
