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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
April 29, 1996
To Our Shareholders:
We are pleased to submit to you our first quarter report for Cohen & Steers
Total Return Realty Fund, Inc. for the period ended March 31, 1996. The net
asset value per share at that date was $13.49. In addition, during the quarter
three $0.08 per share monthly dividends were declared and paid.
INVESTMENT REVIEW
During the quarter ended March 31, 1996, Cohen & Steers Total Return Realty
Fund had a total return of 2.2%, 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 store companies and specialty retailers. We have
found a relatively high correlation between the share price movements of these
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 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.
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
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 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 TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- ------------
<S> <C> <C> <C>
EQUITIES 98.77%
APARTMENT 25.92%
Amli Residential Properties Trust................................. 100,000 $ 2,012,500
Associated Estates Realty Corp. .................................. 165,300 3,388,650
Avalon Properties................................................. 98,200 2,111,300
Camden Property Trust............................................. 106,000 2,451,250
Charles E. Smith Residential Realty............................... 89,400 2,123,250
Colonial Properties Trust......................................... 170,700 4,032,787
Columbus Realty Trust............................................. 105,000 2,047,500
Oasis Residential................................................. 86,400 2,030,400
Summit Properties................................................. 137,100 2,742,000
Wellsford Residential Property Trust.............................. 134,300 2,937,813
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25,877,450
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HEALTH CARE 4.26%
American Health Properties........................................ 87,200 1,962,000
Omega Healthcare Investors........................................ 80,000 2,290,000
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4,252,000
------------
INDUSTRIAL 0.12%
Liberty Property Trust............................................ 5,700 117,563
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OFFICE 8.26%
Beacon Properties Corp. .......................................... 45,000 1,186,875
Cali Realty Corp. ................................................ 99,600 2,228,550
Carr Realty Corp. ................................................ 127,400 3,057,600
Reckson Associates Realty Corp. .................................. 57,800 1,770,125
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8,243,150
------------
</TABLE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- ------------
<S> <C> <C> <C>
SHOPPING CENTER 60.21%
Community Center: 22.35%
Alexander Haagen Properties....................................... 85,000 $ 977,500
Bradley Real Estate............................................... 125,200 1,799,750
Developers Diversified Realty Corp................................ 126,400 3,713,000
Federal Realty Investment Trust................................... 133,300 2,965,925
Mid-America Realty Investments.................................... 128,300 1,074,512
Pennsylvania Real Estate Investment Trust......................... 165,500 3,475,500
Price REIT, Series B.............................................. 120,100 3,482,900
Regency Realty Corp............................................... 62,300 1,051,313
Sizeler Property Investors........................................ 103,800 817,425
Vornado Realty Trust.............................................. 77,700 2,952,600
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22,310,425
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Factory Outlet Center: 7.46%
Chelsea GCA Realty................................................ 68,500 2,020,750
HGI Realty........................................................ 188,000 3,971,500
Tanger Factory Outlet Centers..................................... 58,700 1,452,825
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7,445,075
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Regional Mall: 30.40%
CBL & Associates Properties....................................... 96,900 2,047,012
DeBartolo Realty Corp. ........................................... 420,900 6,313,500
Glimcher Realty Trust............................................. 297,600 5,059,200
JP Realty......................................................... 132,800 2,639,400
Macerich Company.................................................. 153,000 3,002,625
Simon Property Group.............................................. 127,300 2,927,900
Taubman Centers................................................... 345,900 3,415,763
The Mills Corp. .................................................. 88,900 1,566,862
The Mills Corp.*.................................................. 16,900 288,927
Urban Shopping Centers............................................ 138,400 3,079,400
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30,340,589
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TOTAL SHOPPING CENTER.......................................... 60,096,089
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TOTAL EQUITIES (Identified cost -- $99,002,863)................ 98,586,252
------------
</TABLE>
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COHEN & STEERS TOTAL RETURN REALTY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- ------------
<S> <C> <C> <C>
CORPORATE BONDS 1.82%
Trizec Finance, Ltd. 10.875%, 10/15/05
(Identified cost -- $1,786,518)................................ $1,800,000 $ 1,822,500
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TOTAL INVESTMENTS (Identified cost -- $100,789,381) .................. 100.59% 100,408,752
LIABILITIES IN EXCESS OF OTHER ASSETS .............................. (0.59%) (591,123)
------------
NET ASSETS (Equivalent to $13.49 per share
based on 7,399,100 shares of capital stock
outstanding) .......................................... 100.00% $ 99,817,629
------------
------------
</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 TOTAL RETURN REALTY FUND, INC.
FINANCIAL HIGHLIGHTS*
MARCH 31, 1996
<TABLE>
<CAPTION>
Net Asset Value
Total Net Assets Per Share
------------------------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period: 12/31/95................................ $99,425,295 $13.44
Net investment income.................................. $ 1,732,336 $ 0.23
Net realized and unrealized gains from security
transactions........................................ 435,758 0.06
Dividends to shareholders.................................... (1,775,760) (0.24)
----------- ------
Net increase in net asset value.............................. 392,334 0.05
----------- ------
End of period: 3/31/96....................................... $99,817,629 $13.49
----------- ------
----------- ------
</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: 800-688-0928
NEW YORK STOCK EXCHANGE SYMBOL:
The New York Stock Exchange Symbol is RFI
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 TOTAL RETURN REALTY 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
Director
Elizabeth O. Reagan
Vice President
INVESTMENT ADVISER
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, NY 10017
(212) 832-3232
FUND ADMINISTRATOR
Princeton Administrators, L.P.
P.O. Box 9011
Princeton, NJ 08543
(800) 688-0928
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
LEGAL COUNSEL
Dechert Price & Rhoads
477 Madison Avenue
New York, NY 10022
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
TOTAL RETURN REALTY FUND
757 THIRD AVENUE
NEW YORK, N.Y. 10017
[LOGO]
COHEN & STEERS
TOTAL RETURN
REALTY FUND
QUARTERLY REPORT
MARCH 31, 1996
