UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-09631
Cohen & Steers Institutional Realty Shares, Inc.
(Exact name of registrant as specified in charter)
280 Park Avenue, New York, NY | 10017 | |||
(Address of principal executive offices) | (Zip code) |
Dana DeVivo
Cohen & Steers Capital Management, Inc.
280 Park Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant’s telephone number, including area code: (212) 832-3232
Date of fiscal year end: December 31
Date of reporting period: June 30, 2018
Item 1. Reports to Stockholders.
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
To Our Shareholders:
We would like to share with you our report for the six months ended June 30, 2018. The total returns for Cohen & Steers Institutional Realty Shares, Inc. (the Fund) and its comparative benchmarks were:
Six Months Ended June 30, 2018 | ||||
Cohen & Steers Institutional Realty Shares | 1.48 | %a | ||
FTSE Nareit Equity REIT Indexb | 1.02 | % | ||
S&P 500 Indexb | 2.65 | % |
The performance data quoted represent past performance. Past performance is no guarantee of future results. The investment return and the principal value of an investment will fluctuate and shares, if redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current total returns of the Fund can be obtained by visiting our website at cohenandsteers.com. The Fund’s returns assume the reinvestment of all dividends and distributions at net asset value (NAV). Fund performance reflects fee waivers and/or expense reimbursements, without which the performance would have been lower. Index performance does not reflect the deduction of any fees, taxes or expenses. An investor cannot invest directly in an index. Performance figures for periods shorter than one year are not annualized.
Please note that distributions paid by the Fund to shareholders are subject to recharacterization for tax purposes and are taxable up to the amount of the Fund’s investment company taxable income and net realized gains. Distributions in excess of the Fund’s investment company taxable income and net realized gains are a return of capital distributed from the Fund’s assets.
Market Review
Despite having one of their worst starts in years, REITs regained their footing to deliver a modestly positive total return for the first half of 2018. The group initially had a sharp decline amid an early-period spike in bond yields and concerns about fundamentals for retail and health care property landlords. REITs turned a corner in March as inflation remained generally benign and global economic momentum slowed, allowing bond yields to stabilize. Better-than-expected national retail sales data added to positive sentiment, as did visible real estate merger and acquisition activity. The turnaround occurred amid valuations that appeared attractive, based both on general discounts to REITs’ underlying net asset values and compared with earnings multiples for S&P 500 companies.
a | The returns shown are based on NAVs calculated for shareholder transactions and may differ from the returns shown in the financial highlights, which reflect adjustments made to the NAVs in accordance with accounting principles generally accepted in the United States of America (GAAP). |
b | The FTSE Nareit Equity REIT Index contains all tax-qualified real estate investment trusts (REITs) except timber and infrastructure REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property that also meet minimum size and liquidity criteria. The S&P 500 Index is an unmanaged index of 500 large-capitalization stocks that is frequently used as a general measure of U.S. stock market performance. |
1
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
The deep discounts to property values sparked a wave of company acquisitions. Regional mall owner GGP endorsed a bid from Brookfield Property Partners, and an affiliate of Greystar Real Estate Partners announced that it would acquire student housing REIT Education Realty Trust (EDR) in a $4.6 billion privatization, at a 26% premium to EDR’s 90-day volume-weighted average share price. Prologis made a bid for its smaller industrial peer DCT Industrial Trust at a 15% premium. In the hotel sector, listed Pebblebrook and private Blackstone made competing offers to acquire LaSalle Hotel Properties.
Fund Performance
The Fund had a positive total return in the period and outperformed its benchmark. Contributors to relative performance included our decision not to own Colony NorthStar. The diversified REIT fell more than 40% on concerns about the company’s health care portfolio and its plans to move into new business segments.
Shopping center and regional mall REITs were among the poorer-performing sectors, although they recovered some of their initial losses as national retail sales appeared to stabilize, easing worries about store closings. An underweight and relatively favorable stock selection in the shopping center sector helped performance. We were overweight DDR Corp., which advanced. The company has been disposing non-core assets and improving its balance sheet.
Data center REITs, which were strong performers in 2017, declined in the period. Stock selection in the sector aided performance, in part because we did not own QTS Realty Trust, which fell sharply after the company announced it was exiting certain cloud computing and managed services markets. Stock selection among specialty real estate companies contributed as well, led by an overweight in Geo Group, which benefited from rising demand for its detention management services. Stock selection in the self storage sector further helped performance.
The industrial property sector outperformed in the period, supported by limited new supply and rising demand. An underweight and stock selection detracted from relative performance, in part as the Fund did not own DCT Industrial Trust, which rallied on the takeover bid from Prologis.
Apartment landlords, which showed an overall modest improvement in fundamentals, performed in line with the index. Stock selection in the sector hindered performance. The Fund was overweight UDR, which had a slight decline, and did not invest in Educational Realty Trust, another beneficiary of takeover activity. Stock selection in the health care property sector also detracted from performance.
2
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Sincerely,
THOMAS N. BOHJALIAN | JON CHEIGH | |
Portfolio Manager | Portfolio Manager |
JASON A. YABLON
Portfolio Manager
The views and opinions in the preceding commentary are subject to change without notice and are as of the date of the report. There is no guarantee that any market forecast set forth in the commentary will be realized. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice and is not intended to predict or depict performance of any investment.
Visit Cohen & Steers online at cohenandsteers.com
For more information about the Cohen & Steers family of mutual funds, visit cohenandsteers.com. Here you will find fund net asset values, fund fact sheets and portfolio highlights, as well as educational resources and timely market updates.
Our website also provides comprehensive information about Cohen & Steers, including our most recent press releases, profiles of our senior investment professionals and their investment approach to each asset class. The Cohen & Steers family of mutual funds invests in major real asset categories including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions.
3
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Performance Review (Unaudited)
Average Annual Total Returns—For Periods Ended June 30, 2018
1 Year | 5 Years | 10 Years | Since Inceptiona | |||||||||||||
Fund | 4.65 | % | 9.07 | % | 8.65 | % | 11.80 | % |
The performance data quoted represent past performance. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate and shares, if redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance information current to the most recent month end can be obtained by visiting our website at cohenandsteers.com. Total return assumes the reinvestment of all dividends and distributions at NAV. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. During the periods presented above, the investment manager waived fees and/or reimbursed expenses. Without this arrangement, performance would have been lower.
The annualized gross and net expense ratios, respectively, were 0.77% and 0.75% as disclosed in the May 1, 2018 prospectus. The investment manager has contractually agreed to waive its fee and/or reimburse expenses so that the Fund’s total annual operating expenses (excluding brokerage fees and commissions, taxes, interest, certain other expenses and, upon approval of the Board of Directors, extraordinary expenses) never exceed 0.75% of the average daily net assets of the Fund. This commitment is currently expected to remain in place for the life of the Fund, can only be amended or terminated by agreement of the Fund’s Board of Directors and the investment manager and will terminate automatically in the event of termination of the investment management agreement between the Fund and the investment manager.
a | Inception date of February 14, 2000. |
4
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Expense Example (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs including investment management fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2018—June 30, 2018.
Actual Expenses
The first line of the following table provides information about actual account values and expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value January 1, 2018 | Ending Account Value June 30, 2018 | Expenses Paid During Perioda January 1, 2018— June 30, 2018 | ||||||||||
Actual (1.48% return) | $ | 1,000.00 | $ | 1,014.80 | $ | 3.75 | ||||||
Hypothetical (5% annual return before expenses) | $ | 1,000.00 | $ | 1,021.08 | $ | 3.76 |
a | Expenses are equal to the Fund’s annualized net expense ratio of 0.75% multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
5
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
June 30, 2018
Top Ten Holdings
(Unaudited)
Security | Value | % of Net Assets | ||||||
Essex Property Trust | $ | 148,564,075 | 5.2 | |||||
UDR | 144,357,367 | 5.1 | ||||||
Prologis | 137,453,500 | 4.8 | ||||||
Equinix | 134,314,832 | 4.7 | ||||||
Extra Space Storage | 133,771,650 | 4.7 | ||||||
Digital Realty Trust | 128,400,573 | 4.5 | ||||||
Boston Properties | 117,118,199 | 4.1 | ||||||
Crown Castle International Corp. | 116,530,885 | 4.1 | ||||||
Simon Property Group | 95,183,693 | 3.3 | ||||||
Hudson Pacific Properties | 84,404,216 | 3.0 |
Sector Breakdown
(Based on Net Assets)
(Unaudited)
6
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
June 30, 2018 (Unaudited)
Number of Shares | Value | |||||||||||
COMMON STOCK | 97.7% | |||||||||||
COMMUNICATIONS—TOWERS | 4.1% | |||||||||||
Crown Castle International Corp. |
| 1,080,791 | $ | 116,530,885 | ||||||||
|
| |||||||||||
REAL ESTATE | 93.6% | |||||||||||
DATA CENTERS | 11.6% | |||||||||||
CyrusOne |
| 1,190,975 | 69,505,301 | |||||||||
Digital Realty Trust |
| 1,150,749 | 128,400,573 | |||||||||
Equinix |
| 312,440 | 134,314,832 | |||||||||
|
| |||||||||||
332,220,706 | ||||||||||||
|
| |||||||||||
DIVERSIFIED | 1.2% | |||||||||||
VEREIT |
| 4,518,363 | 33,616,621 | |||||||||
|
| |||||||||||
HEALTH CARE | 8.7% | |||||||||||
Healthcare Trust of America, Class A |
| 2,933,557 | 79,088,697 | |||||||||
Omega Healthcare Investors |
| 343,768 | 10,656,808 | |||||||||
Physicians Realty Trust |
| 990,109 | 15,782,337 | |||||||||
Sabra Health Care REIT |
| 2,338,471 | 50,814,975 | |||||||||
Ventas |
| 778,969 | 44,362,284 | |||||||||
Welltower |
| 759,678 | 47,624,214 | |||||||||
|
| |||||||||||
248,329,315 | ||||||||||||
|
| |||||||||||
HOTEL | 8.5% | |||||||||||
Hilton Worldwide Holdings |
| 364,329 | 28,840,284 | |||||||||
Host Hotels & Resorts |
| 2,814,016 | 59,291,317 | |||||||||
Park Hotels & Resorts |
| 2,541,677 | 77,851,567 | |||||||||
Red Rock Resorts, Class A |
| 843,687 | 28,263,514 | |||||||||
RLJ Lodging Trust |
| 2,275,140 | 50,166,837 | |||||||||
|
| |||||||||||
244,413,519 | ||||||||||||
|
| |||||||||||
INDUSTRIALS | 5.5% | |||||||||||
Industrial Logistics Properties Trust |
| 907,094 | 20,273,551 | |||||||||
Prologis |
| 2,092,457 | 137,453,500 | |||||||||
|
| |||||||||||
157,727,051 | ||||||||||||
|
|
See accompanying notes to financial statements.
7
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2018 (Unaudited)
Number of Shares | Value | |||||||||||
NET LEASE | 4.0% | |||||||||||
Agree Realty Corp. |
| 477,532 | $ | 25,199,364 | ||||||||
EPR Properties |
| 520,238 | 33,706,220 | |||||||||
Gaming and Leisure Properties |
| 545,924 | 19,544,079 | |||||||||
VICI Properties |
| 1,733,645 | 35,782,433 | |||||||||
|
| |||||||||||
114,232,096 | ||||||||||||
|
| |||||||||||
OFFICE | 13.9% | |||||||||||
Boston Properties |
| 933,808 | 117,118,199 | |||||||||
Cousins Properties |
| 4,851,955 | 47,015,444 | |||||||||
Douglas Emmett |
| 1,623,232 | 65,221,462 | |||||||||
Empire State Realty Trust, Class A |
| 38,103 | 651,561 | |||||||||
Hudson Pacific Properties |
| 2,382,281 | 84,404,216 | |||||||||
Kilroy Realty Corp. |
| 1,099,259 | 83,147,951 | |||||||||
|
| |||||||||||
397,558,833 | ||||||||||||
|
| |||||||||||
RESIDENTIAL | 18.5% | |||||||||||
APARTMENT | 13.1% | |||||||||||
Apartment Investment & Management Co., Class A |
| 1,897,369 | 80,258,709 | |||||||||
Essex Property Trust |
| 621,425 | 148,564,075 | |||||||||
UDR |
| 3,845,428 | 144,357,367 | |||||||||
|
| |||||||||||
373,180,151 | ||||||||||||
|
| |||||||||||
MANUFACTURED HOME | 3.9% | |||||||||||
Equity Lifestyle Properties |
| 309,577 | 28,450,126 | |||||||||
Sun Communities |
| 853,254 | 83,516,502 | |||||||||
|
| |||||||||||
111,966,628 | ||||||||||||
|
| |||||||||||
SINGLE FAMILY | 1.5% | |||||||||||
Invitation Homes |
| 1,881,806 | 43,394,446 | |||||||||
|
| |||||||||||
TOTAL RESIDENTIAL |
| 528,541,225 | ||||||||||
|
| |||||||||||
SELF STORAGE | 8.9% | |||||||||||
Americold Realty Trust |
| 984,030 | 21,668,341 | |||||||||
Extra Space Storage |
| 1,340,263 | 133,771,650 | |||||||||
Iron Mountain |
| 1,224,876 | 42,882,909 | |||||||||
Life Storage |
| 563,037 | 54,789,130 | |||||||||
|
| |||||||||||
253,112,030 | ||||||||||||
|
|
See accompanying notes to financial statements.
8
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2018 (Unaudited)
Number of Shares | Value | |||||||||||
SHOPPING CENTERS | 10.5% | |||||||||||
COMMUNITY CENTER | 6.4% | |||||||||||
Brixmor Property Group |
| 1,259,224 | $ | 21,948,275 | ||||||||
DDR Corp. |
| 2,658,580 | 47,588,582 | |||||||||
Urban Edge Properties |
| 2,327,521 | 53,230,405 | |||||||||
Weingarten Realty Investors |
| 1,910,241 | 58,854,525 | |||||||||
|
| |||||||||||
181,621,787 | ||||||||||||
|
| |||||||||||
REGIONAL MALL | 4.1% | |||||||||||
GGP |
| 965,294 | 19,720,956 | |||||||||
Simon Property Group |
| 559,279 | 95,183,693 | |||||||||
Taubman Centers |
| 63,118 | 3,708,814 | |||||||||
|
| |||||||||||
118,613,463 | ||||||||||||
|
| |||||||||||
TOTAL SHOPPING CENTERS |
| 300,235,250 | ||||||||||
|
| |||||||||||
SPECIALTY | 2.3% | |||||||||||
GEO Group/The |
| 841,169 | 23,165,794 | |||||||||
Lamar Advertising Co., Class A |
| 632,420 | 43,200,610 | |||||||||
|
| |||||||||||
66,366,404 | ||||||||||||
|
| |||||||||||
TOTAL REAL ESTATE |
| 2,676,353,050 | ||||||||||
|
| |||||||||||
TOTAL COMMON STOCK |
| 2,792,883,935 | ||||||||||
|
| |||||||||||
SHORT-TERM INVESTMENTS | 1.9% | |||||||||||
MONEY MARKET FUNDS | ||||||||||||
State Street Institutional Treasury Money Market Fund, Premier Class, 1.74%a |
| 53,665,609 | 53,665,609 | |||||||||
|
| |||||||||||
TOTAL SHORT-TERM INVESTMENTS |
| 53,665,609 | ||||||||||
|
| |||||||||||
TOTAL INVESTMENTSIN SECURITIES | 99.6% | 2,846,549,544 | ||||||||||
OTHER ASSETSIN EXCESSOF LIABILITIES | 0.4 | 10,804,767 | ||||||||||
|
|
|
| |||||||||
NET ASSETS (Equivalent to $42.87 per share based on 66,652,935 shares of common stock outstanding) | 100.0% | $ | 2,857,354,311 | |||||||||
|
|
|
|
See accompanying notes to financial statements.
9
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS—(Continued)
June 30, 2018 (Unaudited)
Glossary of Portfolio Abbreviations
REIT | Real Estate Investment Trust |
Note: Percentages indicated are based on the net assets of the Fund.
a | Rate quoted represents the annualized seven-day yield of the fund. |
See accompanying notes to financial statements.
10
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2018 (Unaudited)
ASSETS: | ||||
Investments in securities, at value (Identified cost—$2,344,749,466) | $ | 2,846,549,544 | ||
Receivable for: | ||||
Investment securities sold | 29,913,092 | |||
Dividends | 11,514,274 | |||
Fund shares sold | 4,224,062 | |||
Other assets | 13,133 | |||
|
| |||
Total Assets | 2,892,214,105 | |||
|
| |||
LIABILITIES: | ||||
Payable for: | ||||
Investment securities purchased | 18,912,298 | |||
Dividends and distributions declared | 7,177,591 | |||
Fund shares redeemed | 7,089,501 | |||
Investment management fees | 1,678,191 | |||
Directors’ fees | 335 | |||
Other liabilities | 1,878 | |||
|
| |||
Total Liabilities | 34,859,794 | |||
|
| |||
NET ASSETS applicable to 66,652,935 shares of $0.001 par value of common stock outstanding | $ | 2,857,354,311 | ||
|
| |||
NET ASSET VALUE PER SHARE: | ||||
($2,857,354,311 ÷ 66,652,935 shares outstanding) | $ | 42.87 | ||
|
| |||
NET ASSETS consist of: | ||||
Paid-in capital | $ | 2,391,991,904 | ||
Dividends in excess of net investment income | (5,917,081 | ) | ||
Accumulated net realized loss | (30,520,590 | ) | ||
Net unrealized appreciation | 501,800,078 | |||
|
| |||
$ | 2,857,354,311 | |||
|
|
See accompanying notes to financial statements.
11
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2018 (Unaudited)
Investment Income: | ||||
Dividend income | $ | 44,429,040 | ||
|
| |||
Expenses: | ||||
Investment management fees | 9,873,281 | |||
Registration and filing fees | 109,065 | |||
Directors’ fees and expenses | 75,985 | |||
Miscellaneous | 12,920 | |||
|
| |||
Total Expenses | 10,071,251 | |||
Reduction of Expenses (See Note 2) | (197,970 | ) | ||
|
| |||
Net Expenses | 9,873,281 | |||
|
| |||
Net Investment Income (Loss) | 34,555,759 | |||
|
| |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on investments in securities | (9,214,210 | ) | ||
Net change in unrealized appreciation (depreciation) on investments in securities | 17,968,321 | |||
|
| |||
Net Realized and Unrealized Gain (Loss) | 8,754,111 | |||
|
| |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 43,309,870 | ||
|
|
See accompanying notes to financial statements.
12
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
For the Six Months Ended June 30, 2018 | For the Year Ended December 31, 2017 | |||||||
Change in Net Assets: |
| |||||||
From Operations: |
| |||||||
Net investment income (loss) | $ | 34,555,759 | $ | 49,330,238 | ||||
Net realized gain (loss) | (9,214,210 | ) | 177,818,624 | |||||
Net change in unrealized appreciation (depreciation) | 17,968,321 | (31,054,375 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets resulting from operations | 43,309,870 | 196,094,487 | ||||||
|
|
|
| |||||
Dividends and Distributions to Shareholders from: |
| |||||||
Net investment income | (46,454,969 | ) | (52,882,009 | ) | ||||
Net realized gain | (22,820,251 | ) | (134,300,152 | ) | ||||
|
|
|
| |||||
Total dividends and distributions to shareholders | (69,275,220 | ) | (187,182,161 | ) | ||||
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|
|
| |||||
Capital Stock Transactions: |
| |||||||
Increase (decrease) in net assets from Fund share transactions | 95,406,870 | 38,227,476 | ||||||
|
|
|
| |||||
Total increase (decrease) in net assets | 69,441,520 | 47,139,802 | ||||||
Net Assets: |
| |||||||
Beginning of period | 2,787,912,791 | 2,740,772,989 | ||||||
|
|
|
| |||||
End of perioda | $ | 2,857,354,311 | $ | 2,787,912,791 | ||||
|
|
|
|
a | Includes dividends in excess of net investment income and accumulated undistributed net investment income of $5,917,081 and $5,982,129, respectively. |
See accompanying notes to financial statements.
13
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
FINANCIAL HIGHLIGHTS (Unaudited)
The following table includes selected data for a share outstanding throughout each period and other performance information derived from the financial statements. It should be read in conjunction with the financial statements and notes thereto.
For the Six Months Ended June 30, 2018 | For the Year Ended December 31, | |||||||||||||||||||||||
Per Share Operating Performance: | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
Net asset value, beginning of period | $ | 43.32 | $ | 43.18 | $ | 45.93 | $ | 50.06 | $ | 40.77 | $ | 42.08 | ||||||||||||
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Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss)a | 0.53 | 0.79 | 0.83 | 0.72 | b | 0.72 | b | 0.71 | ||||||||||||||||
Net realized and unrealized gain (loss) | 0.08 | 2.37 | 1.87 | 1.41 | 11.44 | 0.72 | ||||||||||||||||||
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Total from investment operations | 0.61 | 3.16 | 2.70 | 2.13 | 12.16 | 1.43 | ||||||||||||||||||
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Less dividends and distributions to shareholders from: | ||||||||||||||||||||||||
Net investment income | (0.71 | ) | (0.86 | ) | (0.82 | ) | (0.68 | ) | (0.70 | ) | (0.72 | ) | ||||||||||||
Net realized gain | (0.35 | ) | (2.16 | ) | (4.63 | ) | (5.58 | ) | (2.17 | ) | (2.02 | ) | ||||||||||||
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Total dividends and distributions to shareholders | (1.06 | ) | (3.02 | ) | (5.45 | ) | (6.26 | ) | (2.87 | ) | (2.74 | ) | ||||||||||||
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Net increase (decrease) in net asset value | (0.45 | ) | 0.14 | (2.75 | ) | (4.13 | ) | 9.29 | (1.31 | ) | ||||||||||||||
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Net asset value, end of period | $ | 42.87 | $ | 43.32 | $ | 43.18 | $ | 45.93 | $ | 50.06 | $ | 40.77 | ||||||||||||
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Total investment returnc | 1.45 | %d | 7.47 | % | 5.91 | % | 5.23 | % | 30.18 | % | 3.46 | % | ||||||||||||
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Ratios/Supplemental Data: | ||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 2,857.4 | $ | 2,787.9 | $ | 2,740.8 | $ | 2,931.5 | $ | 3,095.5 | $ | 2,431.1 | ||||||||||||
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Ratio to average daily net assets: | ||||||||||||||||||||||||
Expenses (before expense reduction) | 0.77 | %e | 0.77 | % | 0.76 | % | 0.76 | % | 0.76 | % | 0.77 | % | ||||||||||||
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Expenses (net of expense reduction) | 0.75 | %e | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | ||||||||||||
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Net investment income (loss) (before expense reduction) | 2.61 | %e | 1.77 | % | 1.77 | % | 1.46 | % | 1.54 | % | 1.59 | % | ||||||||||||
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Net investment income (loss) (net of expense reduction) | 2.63 | %e | 1.79 | % | 1.78 | % | 1.47 | % | 1.55 | % | 1.61 | % | ||||||||||||
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Portfolio turnover rate | 29 | %d | 76 | % | 79 | % | 60 | % | 54 | % | 75 | % | ||||||||||||
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a | Calculation based on average shares outstanding. |
b | 13.2% and 13.4% of gross income was attributable to dividends paid by Simon Property Group for the years ended December 31, 2015 and December 31, 2014, respectively. |
c | Return assumes the reinvestment of all dividends and distributions at net asset value. |
d | Not annualized. |
e | Annualized. |
See accompanying notes to financial statements.
14
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS—(Unaudited)
Note 1. Organization and Significant Accounting Policies
Cohen & Steers Institutional Realty Shares, Inc. (the Fund) was incorporated under the laws of the State of Maryland on October 13, 1999 and is registered under the Investment Company Act of 1940 (the 1940 Act), as a non-diversified, open-end management investment company. The Fund’s investment objective is total return.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The Fund is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 946—Investment Companies. The accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America (GAAP). The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New York Stock Exchange (NYSE) are valued, except as indicated below, at the last sale price reflected at the close of the NYSE on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the closing bid and ask prices on such day or, if no ask price is available, at the bid price.
Securities not listed on the NYSE but listed on other domestic or foreign securities exchanges (including NASDAQ) are valued in a similar manner. Securities traded on more than one securities exchange are valued at the last sale price reflected at the close of the exchange representing the principal market for such securities on the business day as of which such value is being determined.
Readily marketable securities traded in the over-the-counter (OTC) market, including listed securities whose primary market is believed by Cohen & Steers Capital Management, Inc. (the investment manager) to be OTC, are valued on the basis of prices provided by a third-party pricing service or third-party broker-dealers when such prices are believed by the investment manager, pursuant to delegation by the Board of Directors, to reflect the fair value of such securities.
Short-term debt securities with a maturity date of 60 days or less are valued at amortized cost, which approximates fair value. Investments in open-end mutual funds are valued at net asset value (NAV).
The policies and procedures approved by the Fund’s Board of Directors delegate authority to make fair value determinations to the investment manager, subject to the oversight of the Board of Directors. The investment manager has established a valuation committee (Valuation Committee) to administer, implement and oversee the fair valuation process according to the policies and procedures approved annually by the Board of Directors. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
15
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)
Securities for which market prices are unavailable, or securities for which the investment manager determines that the bid and/or ask price or a counterparty valuation does not reflect market value, will be valued at fair value, as determined in good faith by the Valuation Committee, pursuant to procedures approved by the Fund’s Board of Directors. Circumstances in which market prices may be unavailable include, but are not limited to, when trading in a security is suspended, the exchange on which the security is traded is subject to an unscheduled close or disruption or material events occur after the close of the exchange on which the security is principally traded. In these circumstances, the Fund determines fair value in a manner that fairly reflects the market value of the security on the valuation date based on consideration of any information or factors it deems appropriate. These may include, but are not limited to, recent transactions in comparable securities, information relating to the specific security and developments in the markets.
The Fund’s use of fair value pricing may cause the NAV of Fund shares to differ from the NAV that would be calculated using market quotations. Fair value pricing involves subjective judgments and it is possible that the fair value determined for a security may be materially different than the value that could be realized upon the sale of that security.
Fair value is defined as the price that the Fund would expect to receive upon the sale of an investment or expect to pay to transfer a liability in an orderly transaction with an independent buyer in the principal market or, in the absence of a principal market, the most advantageous market for the investment or liability. The hierarchy of inputs that are used in determining the fair value of the Fund’s investments is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments may or may not be an indication of the risk associated with those investments.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfer at the end of the period in which the underlying event causing the movement occurred. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. There were no transfers between Level 1 and Level 2 investments as of June 30, 2018.
16
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)
The following is a summary of the inputs used as of June 30, 2018 in valuing the Fund’s investments carried at value:
Total | Quoted Prices in Active Markets for Identical Investments (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Common Stock | $ | 2,792,883,935 | $ | 2,792,883,935 | $ | — | $ | — | ||||||||
Short-Term Investments | 53,665,609 | — | 53,665,609 | — | ||||||||||||
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Total Investmentsa | $ | 2,846,549,544 | $ | 2,792,883,935 | $ | 53,665,609 | $ | — | ||||||||
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a | Portfolio holdings are disclosed individually on the Schedule of Investments. |
Security Transactions and Investment Income: Security transactions are recorded on trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost. Interest income, which includes the amortization of premiums and accretion of discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Distributions from REITs are recorded as ordinary income, net realized capital gain or return of capital based on information reported by the REITs and management’s estimates of such amounts based on historical information. These estimates are adjusted when the actual source of distributions is disclosed by the REITs and actual amounts may differ from the estimated amounts.
Dividends and Distributions to Shareholders: Dividends from net investment income and capital gain distributions are determined in accordance with U.S. federal income tax regulations, which may differ from GAAP. Dividends from net investment income, if any, are declared and paid quarterly. Net realized capital gains, unless offset by any available capital loss carryforward, are typically distributed to shareholders at least annually. Dividends and distributions to shareholders are recorded on the ex-dividend date and are automatically reinvested in full and fractional shares of the Fund based on the NAV per share at the close of business on the payable date unless the shareholder has elected to have them paid in cash.
Dividends from net investment income are subject to recharacterization for tax purposes. Based upon the results of operations for the six months ended June 30, 2018, the investment advisor considers it likely that, a portion of the dividends will be reclassified to distributions from net realized gain and/or return of capital upon the final determination of the Fund’s taxable income after December 31, 2018, the Fund’s fiscal year end.
Income Taxes: It is the policy of the Fund to continue to qualify as a regulated investment company (RIC), if such qualification is in the best interest of the shareholders, by complying with the requirements of Subchapter M of the Internal Revenue Code applicable to RICs, and by distributing substantially all of its taxable earnings to its shareholders. Also, in order to avoid the payment of any federal excise taxes, the Fund will distribute substantially all of its net investment income and net realized gains on a calendar year basis. Accordingly, no provision for federal income or excise tax is
17
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)
necessary. Management has analyzed the Fund’s tax positions taken on federal and applicable state income tax returns as well as its tax positions in non-U.S. jurisdictions in which it trades for all open tax years and has concluded that as of June 30, 2018, no additional provisions for income tax are required in the Fund’s financial statements. The Fund’s tax positions for the tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service, state departments of revenue and by foreign tax authorities.
Note 2. Investment Management Fees and Other Transactions with Affiliates
Investment Management Fees: Cohen & Steers Capital Management, Inc. serves as the Fund’s investment manager pursuant to an investment management agreement (the investment management agreement). Under the terms of the investment management agreement, the investment manager provides the Fund with day-to-day investment decisions and generally manages the Fund’s investments in accordance with the stated policies of the Fund, subject to the supervision of the Board of Directors.
For the services provided to the Fund, the investment manager receives a fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets of the Fund.
The investment manager is also responsible, under the investment management agreement, for the performance of certain administrative functions for the Fund. Additionally, the investment manager pays certain expenses of the Fund, including, but not limited to, administrative and custody fees, transfer agent fees, professional fees, and reports to shareholders.
The investment manager has contractually agreed to waive its fee and/or reimburse the Fund so that the Fund’s total annual operating expenses (excluding brokerage fees and commissions, taxes, and, upon approval of the Board of Directors, extraordinary expenses) never exceed 0.75% of the average daily net assets of the Fund. This commitment is currently expected to remain in place for the life of the Fund, can only be amended or terminated by agreement of the Fund’s Board of Directors and the investment manager and will terminate automatically in the event of termination of the investment management agreement between the Fund and the investment manager. For the six months ended June 30, 2018, fees waived and/or expenses reimbursed totaled $197,970.
Directors’ and Officers’ Fees: Certain directors and officers of the Fund are also directors, officers, and/or employees of the investment manager. The Fund does not pay compensation to directors and officers affiliated with the investment manager.
Other: As of June 30, 2018, approximately 18% of the Fund’s outstanding shares were owned by shareholders investing either directly or indirectly through an account, platform or program sponsored by one financial institution. Investment and asset allocation decisions by either a direct shareholder or financial institution regarding the account, platform or program through which multiple shareholders invest may result in subscription and redemption decisions that have a significant impact on the assets, expenses and trading activities of the Fund. Such a decision may cause the Fund to sell assets at disadvantageous times or prices, and may negatively affect the Fund’s NAV and performance.
18
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)
Note 3. Purchases and Sales of Securities
Purchases and sales of securities, excluding short-term investments, for the six months ended June 30, 2018, totaled $826,055,066 and $774,356,158, respectively.
Note 4. Income Tax Information
As of June 30, 2018, the federal tax cost and net unrealized appreciation (depreciation) in value of investments held were as follows:
Cost of investments in securities for federal income tax purposes | $ | 2,344,749,466 | ||
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Gross unrealized appreciation on investments | $ | 520,621,177 | ||
Gross unrealized depreciation on investments | (18,821,099 | ) | ||
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Net unrealized appreciation (depreciation) on investments | $ | 501,800,078 | ||
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Note 5. Capital Stock
The Fund is authorized to issue 100 million shares of capital stock, at a par value of $0.001 per share. The Board of Directors of the Fund may increase or decrease the aggregate number of shares of common stock that the Fund has authority to issue. Transactions in Fund shares were as follows:
For the Six Months Ended June 30, 2018 | For the Year Ended December 31, 2017 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold | 9,787,217 | $ | 401,522,342 | 14,366,908 | $ | 634,145,548 | ||||||||||
Issued as reinvestment of dividends and distributions | 1,403,340 | 59,100,886 | 4,021,340 | 173,543,399 | ||||||||||||
Redeemed | (8,900,907 | ) | (365,216,358 | ) | (14,886,289 | ) | (656,138,431 | ) | ||||||||
Redemptions in-kinda | — | — | (2,609,326 | ) | (113,323,040 | ) | ||||||||||
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Net increase (decrease) | 2,289,650 | $ | 95,406,870 | 892,633 | $ | 38,227,476 | ||||||||||
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a Certain shareholders of the Fund redeemed shares in-kind.
Note 6. Redemptions In-Kind
The Fund may make payment for Fund shares redeemed wholly or in part by distributing portfolio securities to shareholders. For the year ended December 31, 2017, the Fund had redemptions in-kind with total proceeds in the amount of $113,323,040. The net realized gains on these redemptions in-kind amounted to $8,347,007, which will not be realized for tax purposes. For the six months ended June 30, 2018, the Fund did not have any redemptions in-kind.
19
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)
Note 7. Other Risks
Common Stock Risk: While common stocks have historically generated higher average returns than fixed income securities over the long-term, common stock has also experienced significantly more volatility in those returns, although under certain market conditions, fixed-income investments may have comparable or greater price volatility. An adverse event, such as an unfavorable earnings report, may depress the value of common stock held by the Fund. Also, the price of common stock is sensitive to general movements in the stock market. A drop in the stock market may depress the price of common stock held by the Fund.
Real Estate Market Risk: Since the Fund concentrates its assets in companies engaged in the real estate industry, an investment in the Fund will be closely linked to the performance of the real estate markets. Risks of investing in real estate securities include falling property values due to increasing vacancies, declining rents resulting from economic, legal, tax, political or technological developments, lack of liquidity, limited diversification, and sensitivity to certain economic factors such as interest-rate changes and market recessions. Real estate company prices also may drop because of the failure of borrowers to pay their loans and poor management, and residential developers, in particular, could be negatively impacted by falling home prices, slower mortgage origination and rising construction costs. The risks of investing in REITs are similar to those associated with direct investments in real estate securities.
REIT Risk: In addition to the risks of securities linked to the real estate industry, REITs are subject to certain other risks related to their structure and focus. REITs are dependent upon management skills and generally may not be diversified. REITs are also subject to heavy cash flow dependency, defaults by borrowers and self-liquidation. In addition, REITs could possibly fail to (i) qualify for pass-through of income under applicable tax law, or (ii) maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrower’s or a lessee’s ability to meet its obligations to the REIT. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments.
Small- and Medium-Sized Companies Risk: Real estate companies in the industry tend to be small- to medium-sized companies in relation to the equity markets as a whole. There may be less trading in a smaller company’s stock, which means that buy and sell transactions in that stock could have a larger impact on the stock’s price than is the case with larger company stocks. Smaller companies also may have fewer lines of business so that changes in any one line of business may have a greater impact on a smaller company’s stock price than is the case for a larger company. Further, smaller company stocks may perform differently in different cycles than larger company stocks. Accordingly, real estate company shares can, and at times will, perform differently than large company stocks.
Non-Diversification Risk: As a “non-diversified” investment company, the Fund can invest in fewer individual companies than a diversified investment company. As a result, the Fund is more susceptible to any single political, regulatory or economic occurrence and to the financial condition of individual issuers in which it invests. The Fund’s relative lack of diversity may subject investors to greater risk of loss than a fund that has a diversified portfolio.
20
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)—(Continued)
Regulatory Risk: The U.S. government has proposed and adopted multiple regulations that could have a long-lasting impact on the Fund and on the mutual fund industry in general. The U.S. Securities and Exchange Commission’s (SEC) final rules and amendments to modernize reporting and disclosure and to develop and implement a Liquidity Risk Management Program for open-end investment companies along with other potential upcoming regulations, could, among other things, restrict the Fund’s ability to engage in transactions, impact flows into the Fund and/or increase overall expenses of the Fund. In addition, the SEC, Congress, various exchanges and regulatory and self-regulatory authorities, both domestic and foreign, have undertaken reviews of the use of derivatives by registered investment companies, which could affect the nature and extent of derivatives used by the Fund. While the full extent of these regulations is still unclear, these regulations and actions may adversely affect the instruments in which the Fund invests and its ability to execute its investment strategy. Similarly, regulatory developments in other countries may have an unpredictable and adverse impact on the Fund.
Large Shareholder Risk: The Fund may have one or more large shareholders or a group of shareholders investing in Fund shares indirectly through an account, platform or program sponsored by a financial institution. Investment and asset allocation decisions by such financial institutions regarding the account, platform or program through which multiple shareholders invest may result in subscription and redemption decisions that have a significant impact on the assets, expenses and trading activities of the Fund. Such a decision may cause the Fund to sell assets (or invest cash) at disadvantageous times or prices, increase or accelerate taxable gains or transaction costs and may negatively affect the Fund’s NAV, performance, or ability to satisfy redemptions in a timely manner.
Qualified REIT Dividends Paid by the Fund Ineligible for Pass-Through Deduction: Starting for calendar year 2018, non-corporate taxpayers are permitted to deduct a portion of any amounts received from a REIT that are “qualified REIT dividends.” This deduction is currently not available in respect of such amounts paid by a REIT to the Fund, and distributed by the Fund to its shareholders. As a result, a non-corporate shareholder will generally be subject to a higher effective tax rate on any such amounts received from the Fund compared to the effective rate applicable to any qualified REIT dividends a shareholder would receive if the shareholder invested directly in a REIT.
This is not a complete list of the risks of investing in the Fund. For additional information concerning the risks of investing in the Fund, please consult the Fund’s prospectus.
Note 8. Other
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is dependent on claims that may be made against the Fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote.
Note 9. Subsequent Events
Management has evaluated events and transactions occurring after June 30, 2018 through the date that the financial statements were issued, and has determined that no additional disclosure in the financial statements is required.
21
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
OTHER INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 800-330-7348, (ii) on our website at cohenandsteers.com or (iii) on the SEC’s website at http://www.sec.gov. In addition, the Fund’s proxy voting record for the most recent 12-month period ended June 30 is available by August 31 of each year (i) without charge, upon request, by calling 800-330-7348 or (ii) on the SEC’s website at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available (i) without charge, upon request, by calling 800-330-7348 or (ii) on the SEC’s website at http://www.sec.gov. In addition, the Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
Please note that distributions paid by the Fund to shareholders are subject to recharacterization for tax purposes. The Fund may also pay distributions in excess of the Fund’s net investment company taxable income and net realized gains and this excess would be a tax free return of capital distributed from the Fund’s assets. The final tax treatment of all distributions is reported to shareholders on their 1099-DIV forms, which are mailed after the close of each calendar year.
APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT
The Board of Directors of the Fund, including a majority of the directors who are not parties to the Fund’s investment management agreement (the Management Agreement), or interested persons of any such party (the Independent Directors), has the responsibility under the Investment Company Act of 1940 to approve the Fund’s Management Agreement for its initial two year term and its continuation annually thereafter at a meeting of the Board of Directors called for the purpose of voting on the approval or continuation. The Management Agreement was discussed at a meeting of the Independent Directors held on June 5, 2018 and at meetings of the full Board of Directors held in person on March 20, 2018 and June 12, 2018. At the meeting of the full Board of Directors on June 12, 2018, the Management Agreement was unanimously continued for a term ending June 30, 2019 by the Fund’s Board of Directors, including the Independent Directors. The Independent Directors were represented by independent counsel who assisted them in their deliberations during the meetings and executive sessions.
In considering whether to continue the Management Agreement, the Board of Directors reviewed materials provided by an independent data provider, which included, among other things, fee, expense and performance information compared to peer funds (the Peer Funds) and performance comparisons to a larger category universe; summary information prepared by the Fund’s investment manager (the Investment Manager); and a memorandum from Fund counsel outlining the legal duties of the Board of Directors. The Board of Directors also spoke directly with representatives of the independent data provider and met with investment management personnel. In addition, the Board of Directors considered information provided from time to time by the Investment Manager throughout the year at meetings of the Board of Directors, including presentations by portfolio managers relating to the investment performance of the Fund and the investment strategies used in pursuing the Fund’s objective. In particular, the Board of Directors considered the following:
(i) The nature, extent and quality of services to be provided by the Investment Manager: The Board of Directors reviewed the services that the Investment Manager provides to the Fund, including, but not
22
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
limited to, making the day-to-day investment decisions for the Fund, placing orders for the investment and reinvestment of the Fund’s assets, furnishing information to the Board of Directors of the Fund regarding the Fund’s portfolio, providing individuals to serve as Fund officers, and generally managing the Fund’s investments in accordance with the stated policies of the Fund. The Board of Directors also discussed with officers and portfolio managers of the Fund the types of transactions that were being done on behalf of the Fund. Additionally, the Board of Directors took into account the services provided by the Investment Manager to its other funds and accounts, including those that have investment objectives and strategies similar to those of the Fund. The Board of Directors also considered the education, background and experience of the Investment Manager’s personnel, particularly noting the potential benefit that the portfolio managers’ work experience and favorable reputation can have on the Fund. The Board of Directors further noted the Investment Manager’s ability to attract qualified and experienced personnel. The Board of Directors also considered the administrative services provided by the Investment Manager, including compliance and accounting services. After consideration of the above factors, among others, the Board of Directors concluded that the nature, extent and quality of services provided by the Investment Manager are satisfactory and appropriate.
(ii) Investment performance of the Fund and the Investment Manager: The Board of Directors considered the investment performance of the Fund compared to Peer Funds and compared to a relevant benchmark. The Board of Directors noted that the Fund outperformed the Peer Funds’ medians for the one-, three-, five- and ten-year periods ended March 31, 2018, ranking in the second quintile for each period. The Board of Directors noted that the Fund outperformed its benchmark for the one-, three-, five- and ten-year periods ended March 31, 2018. The Board of Directors engaged in discussions with the Investment Manager regarding the contributors to and detractors from the Fund’s performance during the periods. The Board of Directors also considered supplemental information provided by the Investment Manager, including a narrative summary of various factors affecting performance and the Investment Manager’s performance in managing other real estate funds. The Board of Directors determined that Fund performance, in light of all the considerations noted above, supported the continuation of the Management Agreement.
(iii) Cost of the services to be provided and profits to be realized by the Investment Manager from the relationship with the Fund: The Board of Directors considered the management fee paid by the Fund as well as the Fund’s total expense ratio. As part of its analysis, the Board of Directors gave consideration to the fee and expense analyses provided by the independent data provider. The Board of Directors noted that the Fund’s actual management fee and total expense ratio were lower than the Peer Funds’ medians, ranking in the third and second quintile, respectively. The Board of Directors also considered the effect the unitary fee charged by the Investment Manager, which limits total expenses of the Fund, has on the Fund’s actual management fee ranking. In light of the considerations above, the Board of Directors concluded that the Fund’s current expense structure was satisfactory.
The Board of Directors also reviewed information regarding the profitability to the Investment Manager of its relationship with the Fund. The Board of Directors considered the level of the Investment Manager’s profits and whether the profits were reasonable for the Investment Manager. The Board of Directors took into consideration other benefits to be derived by the Investment Manager in connection with the Management Agreement, noting particularly the research and related services, within the meaning of Section 28(e) of the Securities Exchange Act of 1934, that the Investment Manager receives by allocating the Fund’s brokerage transactions. The Board of Directors further considered that the
23
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Investment Manager continues to reinvest profits back in the business, including upgrading and/or implementing new trading, compliance and accounting systems, and by adding investment personnel to the portfolio management teams. The Board of Directors concluded that the profits realized by the Investment Manager from its relationship with the Fund were reasonable and consistent with the Investment Manager’s fiduciary duties.
(iv) The extent to which economies of scale would be realized as the Fund grows and whether fee levels would reflect such economies of scale: The Board of Directors noted that the Investment Manager pays most of the regular operating costs of the Fund and reimburses the Fund for certain expenses to the extent that total expenses exceed the management fee rate. The Board of Directors determined that there were not at this time significant economies of scale that were not being shared with shareholders. In considering economies of scale, the Board of Directors also noted, as discussed above in (iii), that the Investment Manager continues to reinvest profits back in the business.
(v) Comparison of services to be rendered and fees to be paid to those under other investment management contracts, such as contracts of the same and other investment advisors or other clients: As discussed above in (iii), the Board of Directors compared the fees paid under the Management Agreement to those under other investment management contracts of other investment advisors managing Peer Funds. The Board of Directors also compared the services rendered, fees paid and profitability under the Management Agreement to those under the Investment Manager’s other fund advisory agreements and advisory contracts with institutional and other clients with similar investment mandates, noting that the Investment Manager provides more services to the Fund than it does for institutional or subadvised accounts. The Board of Directors also considered the entrepreneurial risk and financial exposure assumed by the Investment Manager in developing and managing the Fund that the Investment Manager does not have with institutional and other clients and other differences in the management of registered investment companies and institutional accounts. The Board of Directors determined that on a comparative basis the fees under the Management Agreement were reasonable in relation to the services provided.
No single factor was cited as determinative to the decision of the Board of Directors, and each Director may have assigned different weights to the various factors. Rather, after weighing all of the considerations and conclusions discussed above, the Board of Directors, including the Independent Directors, unanimously approved the continuation of the Management Agreement.
24
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Cohen & Steers Privacy Policy
Facts | What Does Cohen & Steers Do With Your Personal Information? | |
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. | |
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
• Social Security number and account balances
• Transaction history and account transactions
• Purchase history and wire transfer instructions | |
How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons Cohen & Steers chooses to share; and whether you can limit this sharing. |
Reasons we can share your personal information | Does Cohen & Steers share? | Can you limit this sharing? | ||
For our everyday business purposes— such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or reports to credit bureaus | Yes | No | ||
For our marketing purposes— to offer our products and services to you | Yes | No | ||
For joint marketing with other financial companies— | No | We don’t share | ||
For our affiliates�� everyday business purposes— information about your transactions and experiences | No | We don’t share | ||
For our affiliates’ everyday business purposes— information about your creditworthiness | No | We don’t share | ||
For our affiliates to market to you— | No | We don’t share | ||
For non-affiliates to market to you— | No | We don’t share | ||
Questions? Call 800.330.7348 |
25
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Cohen & Steers Privacy Policy—(Continued)
Who we are | ||
Who is providing this notice? | Cohen & Steers Capital Management, Inc., Cohen & Steers Asia Limited, Cohen & Steers Japan, LLC, Cohen & Steers UK Limited, Cohen & Steers Securities, LLC, Cohen & Steers Private Funds and Cohen & Steers Open and Closed-End Funds (collectively, Cohen & Steers). | |
What we do | ||
How does Cohen & Steers protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. We restrict access to your information to those employees who need it to perform their jobs, and also require companies that provide services on our behalf to protect your information. | |
How does Cohen & Steers collect my personal information? | We collect your personal information, for example, when you:
• Open an account or buy securities from us
• Provide account information or give us your contact information
• Make deposits or withdrawals from your account
We also collect your personal information from other companies. | |
Why can’t I limit all sharing? | Federal law gives you the right to limit only:
• sharing for affiliates’ everyday business purposes—information about your creditworthiness
• affiliates from using your information to market to you
• sharing for non-affiliates to market to you
State law and individual companies may give you additional rights to limit sharing. | |
Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
• Cohen & Steers does not share with affiliates. | |
Non-affiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
• Cohen & Steers does not share with non-affiliates. | |
Joint marketing | A formal agreement between non-affiliated financial companies that together market financial products or services to you.
• Cohen & Steers does not jointly market. |
26
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
Cohen & Steers Investment Solutions
COHEN & STEERS REAL ASSETS FUND
• | Designed for investors seeking total return and the maximization of real returns during inflationary environments by investing primarily in real assets |
• | Symbols: RAPAX, RAPCX, RAPIX, RAPRX, RAPZX |
COHEN & STEERS GLOBAL REALTY SHARES
• | Designed for investors seeking total return, investing primarily in global real estate equity securities |
• | Symbols: CSFAX, CSFCX, CSSPX, GRSRX, CSFZX |
COHEN & STEERS REALTY SHARES
• | Designed for investors seeking total return, investing primarily in U.S. real estate securities |
• | Symbol: CSRSX |
COHEN & STEERS REAL ESTATE SECURITIES FUND
• | Designed for investors seeking total return, investing primarily in U.S. real estate securities |
• | Symbols: CSEIX, CSCIX, CREFX, CSDIX, CIRRX, CSZIX |
COHEN & STEERS INSTITUTIONAL REALTY SHARES
• | Designed for institutional investors seeking total return, investing primarily in U.S. real estate securities |
• | Symbol: CSRIX |
COHEN & STEERS INTERNATIONAL REALTY FUND
• | Designed for investors seeking total return, investing primarily in international (non-U.S.) real estate securities |
• | Symbols: IRFAX, IRFCX, IRFIX, IRFRX, IRFZX |
COHEN & STEERS GLOBAL INFRASTRUCTURE FUND
• | Designed for investors seeking total return, investing primarily in global infrastructure securities |
• | Symbols: CSUAX, CSUCX, CSUIX, CSURX, CSUZX |
COHEN & STEERS
MLP & ENERGY OPPORTUNITY FUND
• | Designed for investors seeking total return, investing primarily in midstream energy master limited partnership (MLP) units and related stocks |
• | Symbols: MLOAX, MLOCX, MLOIX, MLORX, MLOZX |
COHEN & STEERS
LOW DURATION PREFERREDAND INCOME FUND
• | Designed for investors seeking high current income and capital preservation by investing in low-duration preferred and other income securities issued by U.S. and non-U.S. companies |
• | Symbols: LPXAX, LPXCX, LPXIX, LPXRX, LPXZX |
COHEN & STEERS
PREFERRED SECURITIESAND INCOME FUND
• | Designed for investors seeking total return (high current income and capital appreciation), investing primarily in preferred and debt securities issued by U.S. and non-U.S. companies |
• | Symbols: CPXAX, CPXCX, CPXFX, CPXIX, CPRRX, CPXZX |
COHEN & STEERS DIVIDEND VALUE FUND
• | Designed for investors seeking long-term growth of income and capital appreciation, investing primarily in dividend paying common stocks and preferred stocks |
• | Symbols: DVFAX, DVFCX, DVFIX, DVFRX, DVFZX |
Distributed by Cohen & Steers Securities, LLC
COHEN & STEERS GLOBAL REALTY MAJORS ETF
• | Designed for investors who seek a relatively low-cost passive approach for investing in a portfolio of global real estate equity securities of companies in a specified index |
• | Symbol: GRI |
Distributed by ALPS Distributors, Inc.
ISHARES COHEN & STEERS REALTY MAJORS INDEX FUND
• | Designed for investors who seek a relatively low-cost passive approach for investing in a portfolio of U.S. real estate equity securities of companies in a specified index |
• | Symbol: ICF |
Distributed by SEI Investments Distribution Co.
Please consider the investment objectives, risks, charges and expenses of any Cohen & Steers U.S. registered open-end fund carefully before investing. A summary prospectus and prospectus containing this and other information can be obtained by calling 800-330-7348 or by visiting cohenandsteers.com. Please read the summary prospectus and prospectus carefully before investing.
27
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
OFFICERS AND DIRECTORS
Robert H. Steers
Director and Chairman
Joseph M. Harvey
Director and Vice President
Michael G. Clark
Director
George Grossman
Director
Dean A. Junkans
Director
Gerald J. Maginnis
Director
Jane F. Magpiong
Director
Daphne L. Richards
Director
Frank K. Ross
Director
C. Edward Ward, Jr.
Director
Adam M. Derechin
President and Chief Executive Officer
Thomas N. Bohjalian
Vice President
Jon Cheigh
Vice President
Jason Yablon
Vice President
Francis C. Poli
Secretary and Chief Legal Officer
James Giallanza
Chief Financial Officer
Albert Laskaj
Treasurer
Lisa D. Phelan
Chief Compliance Officer
KEY INFORMATION
Investment Manager
Cohen & Steers Capital Management, Inc
280 Park Avenue
New York, NY 10017
(212) 832-3232
Co-administrator and Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, MA 02111
Transfer Agent
DST Asset Manager Solutions, Inc.
P.O. Box 219953
Kansas City, MO 64121-9953
(800) 437-9912
Legal Counsel
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
Distributor
Cohen & Steers Securities, LLC
280 Park Avenue
New York, NY 10017
NASDAQ Symbol: | CSRIX |
Website: cohenandsteers.com
This report is authorized for delivery only to shareholders of Cohen & Steers Institutional Realty Shares, Inc. unless accompanied or preceded by the delivery of a currently effective prospectus setting forth details of the Fund. Performance data quoted represent past performance. Past performance is no guarantee of future results and your investment may be worth more or less at the time you sell your shares.
28
COHEN & STEERS
INSTITUTIONAL REALTY SHARES
280 PARK AVENUE
NEW YORK, NY 10017
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Semiannual Report June 30, 2018
Cohen & Steers
Institutional
Realty Shares
CSRIXSAR
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Included in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
None.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. |
(b) | There were no changes in the registrant’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13. Exhibits.
(a)(1) | Not Applicable. |
(a)(2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. |
(a)(3) | Not applicable. |
(b) | Certifications of chief executive officer and chief financial officer as required by Rule 30a- 2(b) under the Investment Company Act of 1940. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COHEN & STEERS INSTITUTIONAL REALTY SHARES, INC.
By: | /s/ Adam M. Derechin | |||
Name: Adam M. Derechin Title: President and Chief Executive Officer | ||||
Date: | August 31, 2018 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Adam M. Derechin | |||
Name: Adam M. Derechin Title: President and Chief Executive Officer (Principal Executive Officer) | ||||
By: | /s/ James Giallanza | |||
Name: James Giallanza Title: Chief Financial Officer (Principal Financial Officer) | ||||
Date: August 31, 2018 |