Tiaa Real Estate Account 10-Q 2004 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10 - Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended March 31, 2004

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________________________ to _____________________

Commission File Numbers 33-92990, 333-13477, 333-22809, 333-59778, 333-83964 and 333-113602

TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)

NEW YORK
(State or other jurisdiction of
incorporation or organization)

     NOT APPLICABLE
(IRS Employer Identification No.)

     C/O TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
730 THIRD AVENUE NEW YORK, NEW YORK
(address of principal executive offices)

10017-3206
(Zip code)

(212) 490-9000
(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                    Yes [X]     No [   ]

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

INDEX TO UNAUDITED FINANCIAL STATEMENTS
OF THE TIAA REAL ESTATE ACCOUNT
March 31, 2004

	Page
Consolidated Statements of Assets and Liabilities	3
Consolidated Statements of Operations	4
Consolidated Statements of Changes in Net Assets	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Consolidated Statement of Investments	13

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
		March 31,		December 31,
		2004		2003
		(Unaudited)
ASSETS
Investments, at value:
Real estate properties
(cost: $4,136,020,556 and $4,112,822,557)		$	4,033,720,430	$	4,020,739,068
Other real estate related investments
(cost: $257,135,984 and $256,127,352)			300,486,586		283,252,850
Marketable securities:
Real estate related
(cost: $297,987,180 and $295,835,312)			331,931,825		318,251,737
Other
(cost: $879,674,202 and $435,725,426)			879,668,299		435,720,073
Other		119,593,088		107,719,658
	TOTAL ASSETS	5,665,400,228		5,165,683,386
LIABILITIES
Mortgage note payable—Note 6			115,000,000		—
Amount due to bank			2,022,437		1,015,345
Payable for securities transactions			3,515,600		—
Accrued real estate property level expenses and taxes			71,567,012		67,791,195
Security deposits held		13,427,315		13,137,670
	TOTAL LIABILITIES	205,532,364		81,944,210
MINORITY INTEREST IN SUBSIDIARIES		252,466,253		290,317,015
NET ASSETS
Accumulation Fund			5,025,609,554		4,621,918,975
Annuity Fund		181,792,057		171,503,186
	TOTAL NET ASSETS	$	5,207,401,611	$	4,793,422,161
NUMBER OF ACCUMULATION UNITS
OUTSTANDING—Notes 7 and 8		26,353,291		24,724,183
NET ASSET VALUE, PER ACCUMULATION UNIT—Note 7		$190.70		$186.94

See notes to consolidated financial statements.

3

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	For the			For the
	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2004			2003
INVESTMENT INCOME
Real estate income net:
Rental income	$	122,283,250		$	95,299,231
Real estate property level expenses and taxes:
Operating expenses		32,102,596			23,292,312
Real estate taxes	18,014,622			12,938,976
Total real estate property level expenses and taxes	50,117,218			36,231,288
Real Estate Income, net		72,166,032			59,067,943
Income from other real estate related investments		4,527,633			5,233,066
Interest		1,772,803			855,144
Dividends	3,954,036			2,152,381
TOTAL INCOME		82,420,504			67,308,534
Expenses—Note 2:
Investment advisory charges		3,154,486			2,795,736
Administrative and distribution charges		4,027,093			3,701,408
Mortality and expense risk charges		867,062			648,144
Liquidity guarantee charges	371,598			198,891
TOTAL EXPENSES		8,420,239			7,344,179
INVESTMENT INCOME, NET		74,000,265			59,964,355
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Marketable securities	13,957,043			(396,673		)
Net realized gain (loss) on investments	13,957,043			(396,673		)
Net change in unrealized appreciation (depreciation) on:
Real estate properties		(10,216,637	)		(18,025,482	)
Other real estate related investments		16,225,104			10,374,095
Marketable securities	11,527,670			(946,351		)
Net change in unrealized depreciation on investments	17,536,137			(8,597,738		)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS	31,493,180			(8,994,411		)
NET INCREASE IN NET ASSETS RESULTING
FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST		105,493,445			50,969,944
Minority interest in net increase in net assets
resulting from continuing operations	(5,871,212		)	(2,688,475		)
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS FROM CONTINUING OPERATIONS	99,622,233			48,281,469
Discontinued operations—Note 3:
Investment income from discontinued operations		—			4,047,893
Realized loss from discontinued operations	—			(772,473		)
Net increase in net assets resulting
from discontinued operations		—			3,275,420
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS	$	99,622,233		$	51,556,889

See notes to consolidated financial statements.

4

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
	For the			For the
	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2004			2003
FROM OPERATIONS
Investment income, net	$	74,000,265		$	59,964,355
Net realized gain (loss) on investments		13,957,043			(396,673	)
Net change in unrealized depreciation on investments		17,536,137			(8,597,738	)
Minority interest in net increase in net assets resulting
from continuing operations		(5,871,212	)		(2,688,475	)
Net increase in net assets resulting from
discontinued operations	—			3,275,420
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS	99,622,233			51,556,889
FROM PARTICIPANT TRANSACTIONS
Premiums		164,850,645			117,091,071
Net transfers from (to) TIAA		20,273,584			(14,252,759	)
Net transfers from CREF Accounts and affiliated mutual funds		160,584,984			65,340,391
Annuity and other periodic payments		(6,225,263	)		(4,762,757	)
Withdrawals and death benefits	(25,126,733		)	(23,230,634		)
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS	314,357,217			140,185,312
NET INCREASE IN NET ASSETS		413,979,450			191,742,201
NET ASSETS
Beginning of period	4,793,422,161			3,675,988,560
End of period	$	5,207,401,611		$	3,867,730,761

See notes to consolidated financial statements.

5

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	For the			For the
	Three Months			Three Months
	Ended			Ended
	March 31,			March 31,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	99,622,233		$	51,556,889
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
Increase in investments		(487,843,412	)		(206,385,455	)
(Increase) decrease in other assets		(11,873,430	)		6,996,978
Increase in accrued real estate property
level expenses and taxes		3,775,817			5,364,616
Increase in security deposits held		289,645			15,862
Increase in mortgage payable		115,000,000			—
Increase (decrease) in other liabilities		4,522,692			(868	)
Increase (decrease) in minority interest	(37,850,762		)	2,468,278
NET CASH USED IN OPERATING ACTIVITIES	(314,357,217		)	(139,983,700		)
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums		164,850,645			117,091,071
Net transfers from (to) TIAA		20,273,584			(14,252,759	)
Net transfers from CREF Accounts and affiliated mutual funds		160,584,984			65,340,391
Annuity and other periodic payments		(6,225,263	)		(4,762,757	)
Withdrawals and death benefits	(25,126,733		)	(23,230,634		)
NET CASH PROVIDED BY PARTICIPANT TRANSACTIONS	314,357,217			140,185,312
NET INCREASE IN CASH		—			201,612
CASH
Beginning of period	—			496,864
End of period	$	—		$	698,476

See notes to consolidated financial statements.

6

TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1—Significant Accounting Policies

The TIAA Real Estate Account (“Account”) is a segregated investment account of Teachers Insurance and Annuity Association of America (“TIAA”) and was established by resolution of TIAA’s Board of Trustees on February 22, 1995, under the insurance laws of the State of New York, for the purpose of funding variable annuity contracts issued by TIAA. The investment objective of the Account is a favorable long-term rate of return primarily through rental income and capital appreciation from real estate investments owned by the Account. The Account holds various properties in wholly-owned and majority-owned subsidiaries which are consolidated for financial statement purposes. The Account also holds various other properties in joint ventures in which the Account does not hold a controlling interest. Such joint venture are not consolidated for financial statement purposes. The Account also invests in publicly-traded securities and other instruments to maintain adequate liquidity for operating expenses, capital expenditures and to make benefit payments. The financial statements were prepared in accordance with accounting principles generally accepted in the United States which may require the use of estimates made by management. Actual results may vary from those estimates. The following is a summary of the significant accounting policies consistently followed by the Account.

Basis of Presentation:The accompanying consolidated financial statements include the Account and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Valuation of Real Estate Properties:Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Investment Committee of the TIAA Board of Trustees and in accordance with the responsibilities of the Board as a whole; accordingly, the Account does not record depreciation. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves subjective judgement because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. Real estate properties owned by the Account are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. The independent fiduciary, The Townsend Group, must approve all independent appraisers used by the Account. The independent fiduciary can also require additional appraisals if it believes that a property’s value has changed materially or otherwise to assure that the Account is valued correctly. TIAA’s appraisal staff performs a valuation review of each real estate property on a quarterly basis and updates the property value if it believes that the value of the property has changed since the previous valuation review or appraisal. Real estate properties subject to a mortgage are generally valued as described; however, the value may be adjusted if it is determined that the outstanding debt could have a material affect on the value of the property. The independent fiduciary reviews and approves any such valuation adjustments which exceed certain prescribed limits before such adjustments are recorded by the Account. TIAA continues to use the revised value to calculate the Account’s net asset value until the next valuation review or appraisal.

Valuation of Mortgages:Mortgages are initially valued at their face amount. Fixed rate mortgages are, thereafter, valued quarterly by discounting payments of principal and interest to their present value using a rate at which commercial lenders would make similar mortgage loans. Floating variable rate mortgages are generally valued at their face amount, although the value may be adjusted as market conditions dictate.

Valuation of Real Estate Joint Ventures:Real estate joint ventures (in which the Accounts does not have a controlling interest and therefore are not consolidated) are stated at the Account’s equity in the net assets of the underlying entities, which values their real estate holdings at fair value.

Valuation of Marketable Securities:Equity securities listed or traded on any national market or exchange are valued at the last sale price as of the close of the principal securities exchange on which such securities

7

are traded or, if there is no sale, at the mean of the last bid and asked prices on such exchange. Debt securities, other than money market instruments, are valued at the most recent bid price or the equivalent quoted yield for such securities (or those of comparable maturity, quality and type). Money market instruments, with maturities of one year or less, are valued in the same manner as debt securities or derived from a pricing matrix that has various types of money market instruments along one axis and various maturities along the other. Portfolio securities and limited partnership interests for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the TIAA Board of Trustees and in accordance with the responsibilities of the Board as a whole.

Accounting for Investments:Real estate transactions are accounted for as of the date on which the purchase or sale transactions for the real estate properties close (settlement date). Rent from real estate properties consists of all amounts earned under tenant operating leases, including base rent, recoveries of real estate taxes and other expenses and charges for miscellaneous services provided to tenants. Rental income is recognized in accordance with the billing terms of the lease agreements. The Account bears the direct expenses of the real estate properties owned. These expenses include, but are not limited to, fees to local property management companies, property taxes, utilities, maintenance, repairs, insurance and other operating and administrative costs. An estimate of the net operating income earned from each real estate property is accrued by the Account on a daily basis and such estimates are adjusted as soon as actual operating results are determined. Realized gains and losses on real estate transactions are accounted for under the specific identification method.

Securities transactions are accounted for as of the date the securities are purchased or sold (trade date). Interest income is recorded as earned and includes accrual of discount and amortization of premium. Dividend income is recorded on the ex-dividend date. Realized gains and losses on securities transactions are accounted for on the specific identification method.

Federal Income Taxes:Based on provisions of the Internal Revenue Code, the Account is taxed as a segregated asset account of TIAA. The Account should incur no material federal income tax attributable to the net investment experience of the Account.

Note 2—Management Agreements

Investment advisory services for the Account are provided by TIAA employees, under the direction of TIAA’s Board of Trustees and its Investment Committee, pursuant to investment management procedures adopted by TIAA for the Account. TIAA’s investment management decisions for the Account are also subject to review by the Account’s independent fiduciary. TIAA also provides all portfolio accounting and related services for the Account.

Distribution and administrative services for the Account are provided by TIAA-CREF Individual & Institutional Services LLC (“Services”) pursuant to a Distribution and Administrative Services Agreement with the Account. Services, a wholly-owned subsidiary of TIAA, is a registered broker-dealer and member of the National Association of Securities Dealers, Inc. Effective January 1, 2004 Services was converted from a regular corporation to limited liability corporation.

TIAA also provides a liquidity guarantee to the Account, for a fee, to ensure that sufficient funds are available to meet participant transfer and cash withdrawal requests in the event that the Account’s cash flows and liquid investments are insufficient to fund such requests. TIAA also receives a fee for assuming certain mortality and expense risks.

The services provided by TIAA and Services are provided at cost. TIAA and Services receive payments from the Account on a daily basis according to formulas established each year with the objective of keeping the payments as close as possible to the Account’s actual expenses. Any differences between actual expenses and the amounts paid are adjusted quarterly.

8

Note 3—Real Estate Properties

There were no real estate purchases during the three months ended March 31, 2004.

Note 4—Leases

The Account’s real estate properties are leased to tenants under operating lease agreements which expire on various dates through 2046. Aggregate minimum annual rentals for the properties owned, excluding short-term residential and storage facility leases, are as follows:

Years Ending
December31,
2004	$	361,887,000
2005		331,539,000
2006		284,003,000
2007		247,915,000
2008		206,424,000
Thereafter	639,883,000
Total	$	2,071,651,000

Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts.

9

Note 5—Investment in Joint Ventures

The Account owns several real estate properties through joint ventures and receives distributions and allocations of profits and losses from the joint ventures based on the Account’s ownership interest percentages. Several of these joint ventures have mortgages payable on the properties owned. The Account’s allocable portion of the mortgages payable at March 31, 2004 is $217,885,752. The Accounts’ equity in the joint ventures at March 31, 2004 is $255,080,358. A condensed summary of the financial position and results of operations of the joint ventures is shown below.

	March31, 2004		December31, 2003
Assets
Real estates properties	$	942,207,905	$	914,645,112
Other assets	28,957,632		24,673,188
Total assets	$	971,165,537	$	939,318,300
Liabilities and Equity
Mortgages payable, including accrued interest	$	435,771,503	$	436,448,116
Other liabilities	25,233,318		20,826,160
Total liabilities		461,004,821		457,274,276
Equity	510,160,716		482,044,024
Total liabilities and equity	$	971,165,537	$	939,318,300
	Three Months
	Ended		Year Ended
	March31, 2004		December31, 2003
Operating Revenues and Expenses
Revenues	$	24,268,571	$	98,912,953
Expenses	15,255,292		57,489,623
Excess of revenues over expenses	$	9,013,279	$	41,423,330
Note 6—Mortgage Note Payable

On March 31, 2004, the Account obtained a mortgage loan totaling $115 million on a portfolio of 32 storage facilities located throughout the U.S. which were purchased at the end of 2003. The interest on the mortgage is paid monthly based on an annual rate of 4.62%. The total principal is due on April 1, 2011.

10

Note 7—Condensed Consolidated Financial Information

Selected condensed consolidated financial information for an Accumulation Unit of the Account is presented below.

	For the
	Three Months
	Ended			For the Years Ended December 31,
	March 31,
	2004 (1)			2003			2002			2001			2000			1999
	(Unaudited)
Per Accumulation Unit Data:
Rental income	$	3.997		$	16.514		$	14.537		$	14.862		$	14.530		$	12.168
Real estate property
level expenses and taxes	1.638			6.263			4.988			4.754			4.674			3.975
Real estate income, net		2.359			10.251			9.549			10.108			9.856			8.193
Income from real estate
joint ventures		0.148			0.790			0.665			0.130			0.056			—
Dividends and interest	0.187			0.788			1.244			1.950			2.329			2.292
Total income		2.694			11.829			11.458			12.188			12.241			10.485
Expense charges (2)	0.275			1.282			1.097			0.995			0.998			0.853
Investment income, net		2.419			10.547			10.361			11.193			11.243			9.632
Net realized and unrealized
gain (loss) on investments	1.343			2.492			(4.621		)	(1.239		)	3.995			1.164
Net increase in
Accumulation Unit Value		3.762			13.039			5.740			9.954			15.238			10.796
Accumulation Unit Value:
Beginning of year	186.939			173.900			168.160			158.206			142.968			132.172
End of period	$	190.701		$	186.939		$	173.900		$	168.160		$	158.206		$	142.968
Total return		2.01	%		7.50	%		3.41	%		6.29	%		10.66	%		8.17	%
Ratios to Average Net Assets:
Expenses (2)		0.17	%		0.76	%		0.67	%		0.61	%		0.67	%		0.63	%
Investment income, net		1.49	%		6.25	%		6.34	%		6.81	%		7.50	%		7.13	%
Portfolio turnover rate:
Real estate properties		0.00	%		5.12	%		0.93	%		4.61	%		3.87	%		4.46	%
Securities		38.63	%		71.83	%		52.08	%		40.62	%		32.86	%		27.68	%
Thousands of Accumulation Units
outstanding at end of period		26,353			24,724			20,347			18,456			14,605			11,487

(1)

The percentages shown for this period are not annualized.

(2)

Expense charges per Accumulation Unit and the Ratio of Expenses to Average Net Assets include the portion of expenses related to the minority interests and exclude real estate property level expenses and taxes. If the real estate property level expenses and taxes were included, the expense charge per Accumulation Unit for the three months ended March 31, 2004 would be $1.913 ($7.545, $6.085, $5.749, $5.672 and $4.828 for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 respectively), and the Ratio of Expenses to Average Net Assets for the three months ended March 31, 2004 would be 1.18% (4.47%, 3.72%, 3.50%, 3.79% and 3.58% for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 respectively).

11

Note 8—Accumulation Units

Changes in the number of Accumulation Units outstanding were as follows:

	For the	For the
	Three Months	Year
	Ended	Ended
	March31, 2004	December31, 2003
	(Unaudited)
Accumulation Units:
Credited for premiums	873,917	2,860,354
Credited (cancelled) for transfers, net disbursements
and amounts applied to the Annuity Fund	755,191	1,517,133
Outstanding:
Beginning of year	24,724,183	20,346,696
End of period	26,353,291	24,724,183
Note 9—Commitments

During the normal course of business, the Account enters into discussions and agreements to purchase or sell real estate properties. Subsequent to March 31, 2004, the Account entered into a contract to purchase a property for approximately $77.8 million.

12

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
March 31, 2004
REAL ESTATE PROPERTIES—72.74%
Location / Description	Value
Arizona:
Biltmore Commerce Center—Office building	$	29,000,000
California:
3 Hutton Centre Drive—Office building		40,002,938
9 Hutton Centre—Office building		21,106,236
88 Kearny Street—Office building		59,501,807
Treat Towers—Office building		113,000,000	(1)
Cabot Industrial Portfolio—Industrial building		56,631,717
Capitol Place—Office building		39,300,000
Eastgate Distribution Center—Industrial building		17,300,000
Kenwood Mews—Apartments		23,920,213
Larkspur Courts—Apartments		54,200,000
The Legacy at Westwood—Apartments		84,600,000
Northpoint Commerce Center—Industrial building		41,653,500
Ontario Industrial Portfolio—Industrial building		128,700,000
Regents Court—Apartments		50,000,000
Westcreek—Apartments		22,300,000
Westwood Marketplace—Shopping center		74,000,000
Colorado:
The Lodge at Willow Creek—Apartments		31,600,000
Monte Vista—Apartments		20,800,000
Connecticut:
Ten & Twenty Westport Road—Office building		144,000,000
Florida:
701 Brickell—Office building		169,000,000
4200 West Cypress Street—Office building		32,851,096
Doral Pointe– Apartments		46,700,000
Golfview—Apartments		28,550,000
The Fairways of Carolina—Apartments		17,300,000
The Greens at Metrowest—Apartments		14,000,000
Maitland Promenade One—Office building		34,007,076
Plantation Grove—Shopping center		9,500,000
Pointe on Tampa Bay—Office building		41,049,488
Quiet Waters at Coquina Lakes—Apartments		18,800,000
Royal St. George—Apartments		17,700,000
Sawgrass Office Portfolio—Office building		47,200,000
South Florida Apartment Portfolio—Apartments		46,698,159
Georgia:
Alexan Buckhead—Apartments		37,500,000
Atlanta Industrial Portfolio—Industrial building		36,100,000
Prominence in Buckhead—Office building		92,800,000	(1)
Illinois:
161 North Clark Street—Office building		210,000,000	(1)
Chicago Caleast Industrial Portfolio—Industrial building		40,232,195	(1)
Chicago Industrial Portfolio—Industrial building		59,144,340	(1)
Columbia Center III—Office building		30,100,000
Oak Brook Regency Towers—Office building		66,900,000
Parkview Plaza—Office building		47,500,000
Rolling Meadows—Shopping center		13,800,000

See notes to consolidated financial statements.

13

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
March 31, 2004
Location / Description	Value
Kentucky:
IDI Kentucky Portfolio—Industrial building	$	52,000,000
Maryland:
Corporate Boulevard—Office building		70,016,212
FEDEX Distribution Facility—Industrial building		7,800,000
Longview Executive Park—Office building		21,511,390
Massachusetts:
Batterymarch Park II—Office building		10,000,000
Longwood Towers—Apartments		76,000,000
Mellon Financial Center at One Boston Place—Office building		249,542,922	(1)
Needham Corporate Center—Office building		11,800,000
Michigan:
Indian Creek—Apartments		17,500,000
Minnesota:
Interstate Crossing—Industrial building		6,537,627
River Road Distribution Center—Industrial building		4,150,000
Nevada:
UPS Distribution Facility—Industrial building		11,800,000
New Jersey:
10 Waterview Boulevard—Office building		27,000,000
371 Hoes Lane—Office building		10,768,473
Konica Photo Imaging Headquarters—Industrial building		19,000,000
Morris Corporate Center III—Office building		85,299,891
NJ Caleast Industrial Portfolio—Industrial building		39,850,807
South River Road Industrial—Industrial building		32,200,000
New York:
780 Third Avenue—Office building		182,000,000
The Colorado—Apartments		54,519,183
North Carolina:
The Lynnwood Collection—Shopping center		8,100,000
The Millbrook Collection—Shopping center		7,200,000
Ohio:
Bent Tree—Apartments		13,300,000
BISYS Fund Services Building—Office building		36,000,000	(1)
Columbus Portfolio—Office building		21,800,000
Northmark Business Center III—Office building		5,206,756
Oregon:
Five Centerpointe—Office building		13,800,000
Pennsylvania:
Lincoln Woods—Apartments		26,701,124
Tennessee:
Memphis Caleast Industrial Portfolio—Industrial building		43,036,559	(1)
Summit Distribution Center—Industrial building		22,100,000
Texas:
Butterfield Industrial Park—Industrial building		4,500,000	(2)
Dallas Industrial Portfolio—Industrial building		133,300,000
The Legends at Chase Oaks—Apartments		26,000,000
Utah:
Landmark at Salt Lake City—Industrial building		12,300,000

See notes to consolidated financial statements.

14

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
March 31, 2004
Location / Description	Value
Virginia:
Ashford Meadows—Apartments	$	62,700,000
Fairgate at Ballston—Office building		28,436,694
Monument Place—Office building		33,266,052
Washington:
Rainier Corporate Park—Industrial building		53,994,267
Washington DC:
1015 15th Street—Office building		55,902,159
The Farragut Building—Office building		44,100,000
Other:
Storage Portfolio	183,631,549		(1)(3)
TOTAL REAL ESTATE PROPERTIES(Cost $4,136,020,556)	4,033,720,430
OTHER REAL ESTATE RELATED INVESTMENTS—5.42%
REAL ESTATE JOINT VENTURE—4.60%
Florida Mall Association, Ltd.
The Florida Mall (50% Account Interest)*		110,465,138
Teachers REA IV, LLC, which owns
Tyson’s Executive Plaza II (50% Account Interest)		25,562,187
West Dade County Associates
Miami International Mall (50% Account Interest)*		40,894,284
West Town Mall Joint Venture
West Town Mall (50% Account Interest)*	78,158,749
TOTAL REAL ESTATE JOINT VENTURE(Cost $211,605,443)	255,080,358
LIMITED PARTNERSHIPS—0.82%
Essex Apartment Value Fund, L.P. (10% Account Interest)		20,864,368
MONY/Transwestern Mezzanine Realty Partners L.P.
(19.76% Account Interest)	24,541,860
TOTAL LIMITED PARTNERSHIP(Cost $45,530,541)	45,406,228
TOTAL OTHER REAL ESTATE RELATED INVESTMENTS(Cost $257,135,984)	300,486,586

(1	)	This amount reflects the market value of the property as stated in the consolidated financial statements,
		which includes minority interest.
(2	)	Leasehold interest only.
(3	)	32 facilities located throughout the U.S.
*		The market value reflects the Account’s interest in the joint venture after debt.

See notes to consolidated financial statements.

15

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
March 31, 2004
MARKETABLE SECURITIES—21.84%
REAL ESTATE RELATED—5.98%
REAL ESTATE INVESTMENT TRUSTS—5.03%
Shares	Issuer	Value
550,000	Affordable Residential Communities	$	10,175,000
215,000	Amli Residential Properties		6,073,750
45,325	Archstone-Smith Trust		1,337,541
560,000	Ashford Hospitality Trust		5,706,400
246,600	Boston Properties Inc		13,392,846
285,000	BRE Properties		9,781,200
126,630	Capital Lease Funding Inc		1,623,397
40,200	Cedar Shopping Centers Inc		570,438
30,000	Chelsea Property Group Inc		1,888,200
89,300	Entertainment Properties Trust		3,653,263
300,000	Equity Office Properties Trust		8,667,000
203,800	Equity Residential		6,083,430
50,000	Essex Property Trust Inc		3,275,000
400,000	Falcon Financial Investment		3,716,000
114,700	Hilton Hotels Corp		1,863,875
216,000	Home Properties Inc		8,802,000
822,800	Host Marriott Corp		10,515,384
1,700	HRPT Properties Trust		19,210
300,000	Interstate Hotels & Resorts		1,770,000
234,700	Istar Financial Inc		9,927,810
514,600	Keystone Property Trust		12,509,926
100,000	Kimco Realty Corp		5,098,000
698,670	Lexington Corporate Properties Trust		15,224,019
100,000	Liberty Property Trust		4,500,000
200,000	Macerich Company/ The		10,780,000
975,600	Meristar Hospitality Trust		6,780,420
200,000	Mission West Properties, Inc		2,650,000
110,000	New Plan Excel Realty Trust		3,008,500
130,000	Post Properties, Inc		3,744,000
75,000	Prentiss Properties Trust		2,767,500
330,000	Prologis Trust		11,837,100
119,200	Ramco-Gershenson Properties		3,361,440
200,490	Reckson Associates Realty Corp		5,641,789
200,000	Rouse Co/The		10,720,000
235,900	Simon Property Group, Inc		13,785,996
303,820	Sunset Financial Resources		3,843,323
230,400	The St Joe Company		9,374,976
750,000	United Dominion Realty Trust		14,715,000
216,458	Ventas Inc		5,948,266
115,500	Vornado Realty Trust		6,985,440
81,300	Washington Real Estate Inv		2,638,185
290,975	Weingarten Realty Investors		10,067,735
170,000	Windrose Medical Properties		2,114,800
206,200	Winston Hotels Inc	2,173,348
TOTAL REAL ESTATE INVESTMENT TRUSTS(Cost $244,761,448)		279,111,507

See notes to consolidated financial statements.

16

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
March 31, 2004
COMMERCIAL MORTGAGE BACKED SECURITIES—0.95%
Principal		Issuer, Current Rate and Maturity Date	Value
$	10,000,000	GSMS 2001-Rock A2FL
		1.460% 05/03/18	$	9,911,860
	20,000,000	LBF 1.49%
		1.470% 06/14/17		20,003,320
	10,000,000	MSDWC 2001-280 A2F
		1.490% 02/03/11		9,804,160
	8,222,447	Opryland Hotel Trust
		1.556% 04/01/11		8,222,323
	5,000,000	Trize 2001—TZHA A3FL
		1.460% 03/15/13	4,878,655
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES
		(Cost $53,225,732)	52,820,318
TOTAL REAL ESTATE RELATED(Cost $297,987,180)			331,931,825
OTHER—15.86%
COMMERCIAL PAPER—9.89%
	25,000,000	American Express Centurion Bank
		1.020% 04/29/04		24,999,594
	15,000,000	Bank of America
		1.060% 04/01/04		15,000,032
	10,000,000	Bank of Montreal
		1.020% 06/02/04		9,982,063
	5,145,000	Barclay’s U.S. Funding Corp
		1.020% 04/05/04		5,144,271
	14,115,000	Barclay’s U.S. Funding Corp
		1.020% 04/02/04		14,114,200
	5,200,000	Barclay’s U.S. Funding Corp
		1.010% 04/27/04		5,196,061
	22,000,000	CC (USA), Inc
		1.040% 05/04/04		21,978,807
	4,340,000	Ciesco LP
		1.030% 04/14/04		4,338,278
	17,575,000	Ciesco LP
		1.030% 05/21/04		17,549,604
	7,935,000	Corporate Asset Funding Corp, Inc
		1.020% 05/25/04		7,922,635
	8,000,000	Corporate Asset Funding Corp, Inc
		1.030% 05/27/04		7,987,080
	15,000,000	Delaware Funding Corp
		1.020% 04/28/04		14,988,217
	10,000,000	Edison Asset Securitization, LLC
		1.030% 04/08/04		9,997,733
	13,735,000	Edison Asset Securitization, LLC
		1.040% 04/19/04		13,727,678

See notes to consolidated financial statements.

17

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
March 31, 2004
Principal		Issuer, Current Rate and Maturity Date	Value
$	23,735,000	FCAR Owner Trust I
		1.040% 04/15/04	$	23,725,012
	5,300,000	FCAR Owner Trust I
		1.030% 05/17/04		5,292,942
	4,800,000	Fortune Brands
		1.020% 04/06/04		4,799,184
	20,000,000	Fortune Brands
		1.030% 04/20/04		19,988,778
	25,000,000	General Electric Capital Corp
		1.030% 04/06/04		24,995,750
	25,000,000	Goldman Sachs Group, LP
		1.050% 04/05/04		24,996,354
	23,000,000	Govco Incorporated
		1.030% 05/06/04		22,976,540
	24,435,000	Greyhawk Funding LLC
		1.045% 06/09/04		24,386,299
	13,899,000	Kitty Hawk Funding Corp
		1.030% 04/23/04		13,890,031
	8,285,000	Links Finance L.L.C.
		1.050% 05/06/04		8,276,549
	14,015,000	Paccar Financial Corp
		1.000% 04/26/04		14,004,777
	6,905,000	Paccar Financial Corp
		1.020% 06/24/04		6,888,207
	10,000,000	Park Avenue Receivables Corp
		1.020% 04/30/04		9,991,583
	25,000,000	Preferred Receivables Funding Corp
		1.030% 04/27/04		24,981,063
	9,120,000	Rabobank USA Financial Corp
		1.030% 04/23/04		9,114,115
	9,420,000	Receivables Capital Corp
		1.030% 06/10/04		9,400,957
	13,763,000	Receivables Capital Corp
		1.030% 04/26/04		13,752,762
	11,715,000	Royal Bank of Scotland PLC
		1.020% 05/07/04		11,702,719
	10,000,000	Royal Bank of Scotland PLC
		1.020% 05/05/04		9,990,083
	16,475,000	Shell Finance (U.K.) PLC
		1.060% 05/12/04		16,455,395
	15,000,000	Societe Generale North America, Inc
		1.040% 04/13/04		14,994,475
	10,000,000	Societe Generale North America, Inc
		1.090% 09/02/04		9,954,361
	1,245,000	UBS Finance, (Delaware) Inc
		1.040% 06/07/04		1,242,590
	4,900,000	UBS Finance, (Delaware) Inc
		1.040% 06/28/04		4,887,407
	16,940,000	UBS Finance, (Delaware) Inc
		1.020% 04/22/04		16,929,544

See notes to consolidated financial statements.

18

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
March 31, 2004
Principal		Issuer, Current Rate and Maturity Date	Value
$	6,000,000	Wells Fargo
		1.020% 05/13/04	$	5,999,852
	22,035,000	Yorktown Capital, LLC
		1.035% 04/12/04	22,027,508
	TOTAL COMMERCIAL PAPER(Amortized cost $548,580,098)		548,571,090
GOVERNMENT AGENCY BONDS—5.97%
	19,640,000	Federal Home Loan Banks
		1.000% 04/16/04		19,631,446
	1,300,000	Federal Home Loan Banks
		1.000% 05/07/04		1,298,677
	14,600,000	Federal Home Loan Mortgage Corp
		1.000% 05/11/04		14,583,539
	25,000,000	Federal Home Loan Mortgage Corp
		1.010% 06/21/04		24,942,486
	20,550,000	Federal Home Loan Mortgage Corp
		1.005% 06/01/04		20,514,608
	23,350,000	Federal Home Loan Mortgage Corp
		1.000% 05/18/04		23,318,867
	5,810,000	Federal National Mortgage Association
		1.020% 04/21/04		5,806,679
	9,550,000	Federal National Mortgage Association
		1.000% 05/26/04		9,535,144
	18,740,000	Federal National Mortgage Association
		1.000% 04/14/04		18,732,858
	29,875,000	Federal National Mortgage Association
		0.995% 06/09/04		29,816,910
	18,255,000	Federal National Mortgage Association
		1.000% 05/19/04		18,230,153
	11,100,000	Federal National Mortgage Association
		1.080% 08/04/04		11,059,985
	52,500,000	Federal National Mortgage Association
		1.090% 07/28/04		52,322,987
	37,985,000	Federal National Mortgage Association
		1.000% 04/07/04		37,977,836
	24,285,000	Federal National Mortgage Association
		1.010 06/30/04		24,222,385
	19,120,000	Federal National Mortgage Association
		0.980% 05/03/04	19,102,649
	TOTAL GOVERNMENT AGENCY BONDS(Amortized cost $331,094,104)		331,097,209
TOTAL OTHER(Cost $879,674,202)			879,668,299
TOTAL MARKETABLE SECURITIES(Cost $1,177,661,382)			1,211,600,124
TOTAL INVESTMENTS—100.00%(Cost $5,570,817,922)			$	5,545,807,140

See notes to consolidated financial statements.

19

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF ACCOUNT’S
          FINANCIAL CONDITION AND OPERATING RESULTS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and notes contained in this report.

As of March 31, 2004, the Account owned a total of 87 real estate properties, representing 77.34% of the Account’s total investment portfolio. This real estate portfolio includes 35 office properties (six of which are held in joint ventures), 21 industrial properties (including three joint ventures), 22 apartment complexes, 8 retail properties (including three joint ventures, each owning a regional mall, in which the Account owns a 50% partnership interest), and a 75% joint venture partnership interest in a portfolio of storage facilities.

During the first quarter of 2004, the Account did not purchase any real estate properties. The Account did purchase the remaining 20% partnership interest in an existing joint venture for the amount of $11.2 million and also placed leverage on an existing joint venture. Since the end of the quarter, the Account has entered into a contract to purchase a retail property located in the Washington, D.C. area for an approximate purchase price of $77.8 million.

The two charts below reflect the diversification of the Account’s real estate assets by region and property type as well as its ten largest holdings. All information is based on the value of each property as stated in the consolidated financial statements as of March 31, 2004.

Diversification of Account’s Real Estate Assets

	East		Midwest		South		West		Various		TOTAL
	(26)		(14)		(24)		(22)		(1)		(87)
Office (35)	23.3	%	9.7	%	9.7	%	7.4	%	0		50.1	%
Industrial (21)	3.5	%	2.5	%	5.6	%	7.6	%	0		19.2	%
Residential (22)	5.2	%	0.7	%	5.9	%	6.7	%	0		18.5	%
Retail (8)	0.4	%	0.3	%	5.5	%	1.7	%	0		7.9	%
Other (1)*	0.0	%	0.0	%	0.0	%	0.0	%	4.3	%	4.3	%
TOTAL (87)	32.4	%	13.2	%	26.7	%	23.4	%	4.3	%	100.0	%

(	)	Number of properties in parentheses.
*		Represents a portfolio of storage facilities located in various regions.

						% of		Total
		Property	Value			Net		Real
Property Name	State	Type	(000,000)			Assets		Estate
Mellon Financial Center at
One Boston Place	MA	Office	$	249.5	(1)(2)	4.79	%	5.82	%
161 North Clark Street	IL	Office	$	210.0	(1)(3)	4.03	%	4.90	%
Storage Portfolio	Various	Other—	$	183.6	(1)(4)	3.53	%	4.28	%
		Commercial(3)
780 Third Avenue	NY	Office	$	182.0		3.50	%	4.24	%
701 Brickell	FL	Office	$	169.0		3.25	%	3.94	%
Ten & Twenty Westport Road	CT	Office	$	144.0		2.77	%	3.36	%
Dallas Industrial Portfolio	TX	Industrial	$	133.3		2.56	%	3.11	%
Ontario Industrial Portfolio	CA	Industrial	$	128.7		2.47	%	3.00	%
Treat Towers	CA	Office	$	113.0	(1)(5)	2.17	%	2.63	%
The Florida Mall	FL	Retail	$	110.5	(6)	2.12	%	2.58	%

(1	)	This amount represents the value as reported in the March 31,2004Consolidated Statement of Investments, which includes minority interests.
(2	)	The value of the Account’s interest in the property is $125.2 million, representing 2.40% of Total Net Assets and 2.92% of the Total Real Estate Portfolio.

20

(3	)	The value of the Account’s interest in the property is $157.5 million, representing 3.02% of Total Net Assets and 3.67% of the Total Real Estate Portfolio.
(4	)	This property is subject to debt. The value of the Account’s joint venture interest less the debt is $51.5 million, representing 0.99% of Total Net Assets and 1.2% of the Total Real Estate Portfolio.
(5	)	The value of the Account’s interest in the property is $84.8 million, representing 1.63% of Total Net Assets and 2.16% of the Total Real Estate Portfolio.
(6	)	This property is held in an unconsolidated joint venture and is subject to debt. The value represents the Account’s Joint Venture interest in the property and is net of leverage.

As of March 31, 2004, the Account also held investments in real estate investment trusts (REITs), representing 5.03% of the portfolio, commercial mortgage-backed securities (CMBS), representing 0.95% of the portfolio, real estate limited partnerships, representing 0.82% of the portfolio, and commercial paper and government agency bonds, representing 15.86% of the portfolio.

Real Estate Market Outlook In General

The U.S. economy displayed continued signs of recovery in the 1st Quarter of 2004. The Bureau of Labor Statistics (BLS) reported that nonfarm payroll employment increased by 308,000 in March, the biggest gain since April 2000, and The Federal Reserve reported that economic activity continued to expand in virtually all districts in January and February. Growth was described as “moderate” in some districts, “firm” in others, and “showing signs of accelerating” in others. Employment was reported to be growing slowly in most districts, but the sizeable job growth reported by the BLS points to a pickup in hiring in March.

As a result of the employment gains reported by the BLS, the office market showed modest improvement. Office market vacancies inched downward for the third consecutive quarter with preliminary 1st Quarter 2004 vacancies averaging 16.7% nationally compared to 16.8% in 4th Quarter 2003. Industrial market data indicates that industrial markets have firmed, though vacancies inched up, with preliminary 1st Quarter 2004 vacancies averaging 11.7% compared to 11.6% as of 4th Quarter 2003.

Apartment markets have stabilized. M/PF Research reported that vacancy rates in institutional grade apartments averaged 7.3% in 4th Quarter 2003 compared with 7.0% in 4th Quarter 2002. (1st Quarter 2004 data are not yet available. Because of seasonality in leasing, it is best to compare available data with data for the same quarter in the prior year.) However, vacancies in the common sample, or properties surveyed in December 2003 and again in December 2002, were unchanged at 7.0%. The slight drop in overall occupancy is therefore primarily due to new supply rather than occupancy erosion in existing projects.

Retail vacancies rose modestly due in part to bankruptcy filings and store closures by companies like KB Toys, Footstar and Gadzooks. Vacancies in regional malls remain modest but rose to 5.8% in 1st Quarter 2004 from 5.6% in 4th Quarter 2003. Similarly, vacancies in neighborhood and community centers remain modest, but edged up to 7.0% from 6.9% in 4th Quarter 2003. Nonetheless, fundamentals remain solid with The Federal Reserve reporting that consumer spending rose in most districts during January and February, and many retailers have reported healthy March sales gains.

While the longevity and strength of the economic recovery are not predictable, an array of recent economic data point to a pickup in momentum. The index of leading economic indicators rose 0.3% percent in March, and posted a 4.4% gain in the previous 12 months, which is the largest 12 month increase since April 1984. Though many economists are projecting GDP growth of approximately 4% for the second quarter, space demand often lags by several quarters, and the near-term outlook for commercial real estate markets remains uncertain.

Results of Operations

When reviewing this discussion, it is important to note that when the Account owns a controlling interest (over 50%) in a joint venture, consistent with accounting principles generally accepted in the United States (GAAP), the Account’s consolidated financial statements and all financial data discussed in the report reflect 100% of the

21

market value, free and clear of leverage, if applicable, of the joint venture’s assets. The interests of the other joint venture partners are reflected as minority interests in the Account’s consolidated financial statements. When the Account does not have a controlling interest in a joint venture, then only the Account’s net investment in the joint venture is recorded by the Account.

Note also that all of the Account’s properties are appraised and revalued on a quarterly basis, in accordance with the valuation policies described in Note 1 to the Consolidated Financial Statements. Until a property is sold, these changes in property values are recorded as unrealized gains or losses. Upon the sale of a property, the difference between the Account’s then current cost for the property (original purchase price plus the cost of any capital improvements made) and the sale price is recorded as a realized gain or loss on discontinued operations.

Note also that in accordance with the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 144 (SFAS No. 144), the income and gains from properties sold or held for sale during the periods covered were removed from continuing operations in the accompanying consolidated financial statements and were reclassified as discontinued operations. For more details, see “Results from Discontinued Operations” below.

Three Months Ended March 31, 2004 Compared to
Three Months Ended March 31, 2003

Results from Continuing Operations

Performance

The Account’s total net return was 2.01% for the three months ended March 31, 2004 and 1.38% for the three months ended March 31, 2003. This increase in the Account’s total return was due to the fact that during the first quarter of 2004, the Account had strong income return on its real estate holdings, which were augmented by capital appreciation on several of these holdings.

In addition, the strong performance of the REIT market positively enhanced the return on the Account’s REIT holdings. The performance of the Account’s real estate and real estate related holdings can be attributed to the continued strong preference of institutional investors for real estate as an asset class. The first quarter total return on the Account’s real estate was strong due to the capital appreciation of several of its properties.

The Account’s net investment income after deduction of all expenses was 23.4% higher for the three months ended March 31, 2004 compared to the same period in 2003. This increase was primarily due to a 34.6% increase in total net assets and a 22.17% increase in the Account’s real estate holdings over the same period.

The Account’s real estate holdings, including joint venture investments, generated approximately 93% and 96% of the Account’s total investment income (before deducting Account level expenses) during the three months ended March 31, 2004 and 2003, respectively. The remaining portion of the Account’s total investment income was generated by marketable securities investments.

Gross real estate rental income increased approximately 28% in the three months ended March 31, 2004 over the same period in 2003. This increase was primarily due to the increased number of properties owned by the Account as of March 31, 2004 as compared with March 31, 2003. Income from real estate joint ventures was $4,527,633 in the first quarter of 2004, as compared with $5,233,066 for the same period in 2003. Interest income on the Account’s marketable securities investments increased from $855,144 for first quarter of 2003 to $1,772,803 for first quarter of 2004 due to the increase in the amount of non-real estate assets held by the Account. Dividend income on the Account’s REIT investments increased from $2,152,381 for the three months ended March 31, 2003 to $3,954,036 for the three months ended March 31, 2004. The increase in dividend income was primarily due to the increase in the Account’s number of REIT holdings, as well as the high volatility of the REIT market.

22

Total property level expenses for the three months ended March 31, 2004 and 2003 were $50,117,218, and $36,231,288, respectively. In three months ended March 31, 2004 and 2003, 64% of the total expenses represented operating expenses and 36% represented real estate taxes. The 38% increase in property level expenses from the first quarter of 2003 to first quarter of 2004 reflected the increased investment in real estate by the Account (76 properties as of the first quarter of 2003 compared to 87 properties as of the first quarter of 2004).

The Account also incurred expenses for the three months ended March 31, 2004 and 2003 of $3,154,486 and $2,795,736, respectively, for investment advisory services, $4,027,093 and $3,701,408, respectively, for administrative and distribution services and $1,238,660 and $847,035, respectively, for the mortality and expense risk charges and the liquidity guarantee charges. The 15% increase in expenses is primarily a result of the larger net asset base in the Account and increased costs associated with managing and administering a larger account.

Including net gains and losses realized by the Account for properties sold (see details under “Results from Discontinued Operations”), the Account had a 93% increase in net assets resulting from operations ($99,622,233 as of March 31, 2004 as compared to $51,556,889 as of March 31, 2003). The increase is due to the substantial realized and unrealized gains on the Account’s marketable securities and joint venture properties.

The Account had net realized and unrealized gains on investments of $31,493,180 for the three months ended March 31, 2004, as compared to realized and unrealized losses on investments of $8,994,411 for the three months ended March 31, 2003. The increase in the net realized and unrealized gains is primarily due to the substantial net realized and unrealized gain of $25,484,713 on the Account’s marketable securities for the three months ended March 31, 2004, as compared to net realized and unrealized losses of $1,343,024 for the same period in 2003. The net gains on the Account’s marketable securities for the period ended March 31, 2004 was due to activity in the REIT market. In addition, the Account’s joint ventures had unrealized gains of $16,225,104 as of March 31, 2004 as compared to gains of $10,374,095 for the same period in 2003. The unrealized gain on the Account’s joint venture holdings for the period ended March 31, 2004 can be attributed to the increase in value of three regional malls in which it owns a joint venture interest. The unrealized losses on the Account’s real estate holdings of $10,216,637 for the three months ended March 31, 2004 were substantially less than the unrealized losses of $18,025,482 for the three months ended March 31, 2003.

Results from Discontinued Operations

In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets(“SFAS No. 144”). The Account sold no properties during the three months ended March 31, 2004, and two real estate properties in 2003. In accordance with SFAS No. 144, the investment income and realized loss for the three months ended March 31, 2003 related to the properties sold during 2003, was removed from continuing operations in the accompanying consolidated financial statements and was classified as discontinued operations. The income for the three months ended March 31, 2003 from the properties sold during 2003, consisted of rental income of $5,625,136 less operating expenses of $958,976 and real estate taxes of $618,267, resulting in net investment income of $4,047,893. At the time of sale, the property sold during the three months ended March 31, 2003 had a cost of $6,247,473 and the proceeds of sale were $5,475,000, resulting in a net realized loss of $772,473.

Liquidity and Capital Resources

At March 31, 2004 and 2003, the Account’s liquid assets (i.e., its REITs, CMBSs, commercial paper, government securities and cash) had a value of $1,211,600,124 and $480,825,626, respectively. The increase in the Account’s liquid assets was primarily due to the net positive inflow of transfers and premiums at the same time when there was no purchase activity during the first three months of 2004.

23

During the three months ended March 31, 2004, the Account received $164,850,645 in premiums and $180,858,568 in net participants’ transfers from TIAA, the CREF Accounts and affiliated mutual funds, while for the same time period in 2003, the Account received $117,091,071 in premiums and $51,087,632 in net participant transfers. The Account’s liquid assets, exclusive of the REITs, will continue to be available to purchase additional suitable real estate properties and to meet expense needs and redemption requests (i.e., cash withdrawals or transfers). In the unlikely event that the Account’s liquid assets and its cash flow from operating activities and participant transactions are not sufficient to meet its cash needs, including redemption requests, TIAA’s general account will purchase liquidity units in accordance with TIAA’s liquidity guarantee to the Account.

The Account, under certain conditions more fully described in the Account’s prospectus, may borrow money and assume or obtain a mortgage on a property—i.e., to make leveraged real estate investments. Also, to meet any short-term cash needs, the Account may obtain a line of credit whose terms may require that the Account secure a loan with one or more of its properties. The Account’s total borrowings may not exceed 20% of the Account’s total net asset value.

Effects of Inflation and Increasing Operating Expenses

Inflation, along with increased insurance and security costs, may increase property operating expenses in the future. We anticipate that these increases in operating expenses will generally be billed to tenants either through contractual lease provisions in office, industrial, and retail properties or through rent increases in apartment complexes. However, depending on how long any vacant space in a property remains unleased, the Account may not be able to recover the full amount of such increases in operating expenses.

Critical Accounting Policies

The consolidated financial statements of the Account are prepared in conformity with accounting principles generally accepted in the United States.

In preparing the Account’s consolidated financial statements, management is required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances—the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Management believes that the following policies related to the valuation of the Account’s assets reflected in the Account’s consolidated financial statements affect the significant judgments, estimates and assumptions used in preparing its financial statements:

Valuation of Real Estate Properties:Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Investment Committee of the TIAA Board of Trustees. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves subjective judgment because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. The Account’s properties are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. TIAA’s appraisal staff performs a valuation of each real estate property on a quarterly basis and updates the property value if it believes that the value of the property has changed since the previous valuation or appraisal. The appraisals are performed in accordance with Uniform Standards of Professional Appraisal Practices (USPAP), the real estate appraisal industry standards created by The Appraisal Foundation. Real estate appraisals are estimates of property values based on a professional’s opinion.

Valuation of Mortgages:Mortgages are initially valued at their face amount. Fixed rate mortgages are thereafter valued quarterly by discounting payments of principal and interest to their present value using a rate at which commercial lenders would make similar mortgage loans. Floating variable rate mortgages are generally valued at their face amount, although the value may be adjusted as market conditions dictate.

24

Valuation of Real Estate Joint Ventures:Real estate joint ventures are stated at the Account’s equity in the net assets of the underlying joint venture entities, which value their real estate holdings at fair value.

Valuation of Marketable Securities:Equity securities listed or traded on any United States national securities exchange are valued at the last sale price as of the close of the principal securities exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such exchange. Debt securities, other than money market instruments, are valued at the most recent bid price or the equivalent quoted yield for such securities (or those of comparable maturity, quality and type). Money market instruments, with maturities of one year or less, are valued in the same manner as debt securities or derived from a pricing matrix that has various types of money market instruments along one axis and various maturities along the other. Portfolio securities and limited partnership interests for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the Board of Trustees and in accordance with the responsibilities of the Board as a whole.

Forward-Looking Statements

Some statements in this report which are not historical facts may be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or management’s present expectations.

Caution should be taken not to place undue reliance on management’s forward-looking statements, which represent management’s views only as of the date this report is filed. Neither management nor the Account undertake any obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2004, 21.84% of the Account’s investments were in market risk sensitive instruments, comprised entirely of marketable securities. These include real estate investment trusts (REITs), commercial mortgage-backed securities (CMBSs), and high-quality short-term debt instruments (i.e., commercial paper). The Consolidated Statement of Investments for the Account sets forth the terms of these instruments, along with their fair value, as determined in accordance with procedures described in Note 1 to the Account’s financial statements. Note that the Account does not currently invest in derivative financial instruments.

The Account’s investments in marketable securities are subject to the following general risks:

• financial risk—for debt securities, the possibility that the issuer won’t be able to pay principal and interest when due, and for common or preferred stock, the possibility that the issuer’s current earnings will fall or that its overall financial soundness will decline, reducing the security’s value.
  
• market risk—price volatility due to changing conditions in the financial markets and, particularly for debt securities, changes in overall interest rates.
  
• interest rate volatility,which may affect current income from an investment.

In addition, mortgage-backed securities are subject to prepayment risk—i.e., the risk that borrowers will repay the loans early. If the underlying mortgage assets experience greater than anticipated payments of principal, the Account could fail to recoup some or all of its initial investment in these securities. The market value of these securities is also highly sensitive to changes in interest rates. Note that the potential for appreciation, which could otherwise be expected to result from a decline in interest rates, may be limited by any increased prepayments.

25

In addition to these risks, REITs and mortgage-backed securities are subject to many of the same general risks inherent in real estate investing, making mortgage loans and investing in debt securities. For more information on the risks associated with all of the Account’s investments, see the Account’s most recent prospectus.

Item 4. CONTROLS AND PROCEDURES.

(a)Evaluation of disclosure controls and procedures. An evaluation was performed as of March 31, 2004, under the supervision of the registrant’s management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures. Based on that evaluation, the registrant’s management, including the principal executive officer and principal financial officer, concluded that the registrant’s disclosure controls and procedures were effective for this quarterly reporting period.

(b)Changes in internal controls over financial reporting. There have been no significant changes in the registrant’s internal controls over financial reporting that occurred during the registrant’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting.

26

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.
There are no material current or pending legal proceedings that the Account is a party to, or to which the Account’s assets are subject.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
Item 5. OTHER INFORMATION.
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)	EXHIBITS
	(3)	(A)	Charter of TIAA (as amended)1
		(B)	Bylaws of TIAA (as amended)1
	(4)	(A)	Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account Endorsements2, Keogh Contract3 and Retirement Select and Retirement Select Plus Contracts and Endorsements1
		(B)	Forms of Income-Paying Contracts2
	(10)	(A)	Independent Fiduciary Agreement by and among TIAA, the Registrant, and The Townsend Group3, as amended5
		(B)	Custodial Services Agreement by and between TIAA and Morgan Guaranty Trust Company of New York with respect to the Real Estate Account (Agreement assigned to Bank of New York, January 1996)2
		(C)	Distribution and Administrative Services Agreement by and between TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as amended) (filed previously as Exhibit (1))1
	(31)	Rule 13a-15(e)/15d-15(e) Certifications
	(32)	Section 1350 Certifications

1 Previously filed and incorporated herein by reference to the Account’s Pre-Effective Amendment No. 1 to the Registration statement on Form S-1 filed April 29, 2004 (File No. 333-113602).

27

2	Previously filed and incorporated herein by reference to Post-Effective Amendment No. 2 to the Account’s Registration Statement on Form S-1 filed April 30, 1996 (File No. 33-92990).
3	Previously filed and incorporated herein by reference to Post-Effective Amendment No. 6 to the Account’s Registration Statement on Form S-1 filed April 26, 2000 (File No. 333-22809).
4	Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 2 to the Registration statement on Form S-1 filed April 29, 2002 (File No. 333-83964).
5	Previously filed and incorporated herein by reference to the Account's Post-Effective Amendment No. 2 to the Registration Statement on Form S-1 filed April 29, 2003 (File No. 333-83964).
	(b)	REPORTS ON 8-K. The Account filed a report on Form 8-K on January 21, 2004 under Item 5 of the form with respect to the acquisition of properties for its portfolio.

28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE: May 3, 2004
	TIAA REAL ESTATE ACCOUNT
	By:	TEACHERS INSURANCE AND
		ANNUITY ASSOCIATION OF AMERICA
	By:	/s/ Herbert M. Allison, Jr.
		Herbert M. Allison, Jr.
		Chairman of the Board, President
		and Chief Executive Officer

DATE: May 3, 2004
	By:	/s/ Elizabeth A. Monrad
		Elizabeth A. Monrad
		Executive Vice President and
		Chief Financial Officer

29