The Account also incurred expenses for the years ended December 31, 2005 and 2004 of $19,603,225 and $14,393,388, respectively, for investment advisory services, $27,130,406 and $16,372,446, respectively, for administrative and distribution services and, $9,366,566 and $5,962,591 respectively, for mortality, expense risk and liquidity guarantee charges. The overall 53% increase in expenses is a result of the larger net asset base in the Account, and the increased costs associated with managing and administering the Account.
The Account had net realized and unrealized gains on investments of $765,970,272 for the year ended December 31, 2005, as compared with net realized and unrealized gains on investments of $414,580,303 for the year ended December 31, 2004. This positive variance is primarily due to a substantial increase in net realized and unrealized gain on the Account’s real estate properties of $590,179,625 for the year ended December 31, 2005 as compared to $184,531,410 for the year ended December 31, 2004. The increase in net realized and unrealized gains is due to the capital appreciation of real estate assets attributable to the continued inflow of capital into the real estate market from institutional and other investors, which had the effect of increasing the value of real estate. This trend, which began in 2004 and increased in 2005, is evidenced by the net realized gain of $90.3 million on the properties sold in 2005. The net proceeds of these sales was $511.5 milllion. The Account also had unrealized gains on its real estate joint ventures and limited partnership holdings of $168,723,129 for the year ended December 31, 2005, as compared to unrealized gains of $161,584,369 for the same period in 2004. This increase was due to the unrealized gains posted in 2005 on the properties in which the Account has an interest. The Account’s marketable securities for the year ended December 31, 2005 had net realized and unrealized gains totaling $7,067,518 as compared with net realized and unrealized gains of $68,464,524 for the year ended December 31, 2004. The primary factor in the decline is the net effect of the relatively weak performance of the REIT market on the Account’s real estate equity securities in 2005 as compared to the strong performance of this market in 2004.
The Account’s total return was 12.57% for the year ended December 31, 2004 and 7.50% for 2003. The substantial increase in the Account’s overall performance on a year-to-year basis reflects the strong performance of the Account’s real estate properties and real estate-related (real estate equity securities, CMBS and limited partnerships) investments. The market value of the Account’s real estate portfolio increased substantially in 2004, as did the value of its real estate equity securities holdings. These increases in the real estate and real estate-related assets were due to the significant amount of capital which flowed into the real estate market from institutional investors as well as foreign investors, increasing the price of core real estate investments.
The Account’s net investment income after deduction of all expenses was 23% higher for the year ended December 31, 2004 compared to the same period in 2003. This increase was primarily due to a 51% increase in total net assets, which included a 66% increase in the Account’s real estate holdings, including joint ventures and limited partnerships, over the same period.
The Account’s real estate holdings, including joint venture and fund investments, generated approximately 88% and 93% of the Account’s total investment income (before deducting Account level expenses) during 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 10% in the year ended December 31, 2004 as compared to the same period in 2003. This increase was due to the increased number of properties owned by the Account. Income from the real estate joint ventures was $57,275,242 for the year ended December 31, 2004 as compared with $31,989,569 for the year ended December 31, 2003. This increase in joint venture income was due to positive leasing activity at several retail properties as well as the purchase of an additional joint venture interest in an existing office property, and the addition of two joint venture investments in 2004. Interest income on the Account’s marketable securities investments increased from $7,221,765 in 2003 to $15,055,451 in 2004 due to the increase in the amount of non-real estate assets held by the Account as well as a slight increase in short term rates from 2003 to 2004. Dividend income on the Account’s real estate equity securities and limited partnership investments increased from $12,240,166 for the year ended December 31, 2003 to $26,568,264 for the year ended December 31, 2004. This increase was due to the strong performance of the real estate market reflecting the increased inflow of capital into real estate-related investments.
Total property level expenses for the years ended December 31, 2004 and 2003 were $157,768,776, and $136,678,570, respectively. This 15% increase in property level expenses reflected the increased number of real estate properties owned by the Account from 2003 to 2004. In addition, during 2004, the Account incurred interest expense of $830,361 related to the mortgages.
The Account also incurred expenses for the years ended December 31, 2004 and 2003 of $14,393,388 and $12,751,191 respectively, for investment advisory services, $16,372,446 and $14,786,580 respectively, for administrative and distribution services and $5,962,591 and $4,116,294 respectively, for mortality, expense risk and liquidity guarantee charges. The overall 16% increase in expenses is a result of the larger net asset base in the Account, and the increased costs associated with managing and administering the Account.
Net Realized and Unrealized Gains and Losses on Investments
The Account had net realized and unrealized gains on investments of $414,580,303 for the year ended December 31, 2004, as compared with net realized and unrealized gains on investments of $58,837,371 for the year ended December 31, 2003. The increase in net realized and unrealized gains is primarily due to the substantial net realized and unrealized gain on the Account’s real estate properties of $184,531,410 for the year ended December 31, 2004 as compared to net realized and unrealized losses for the year ended December 31, 2003 of $5,040,820. In addition, the Account had an unrealized gain on its joint venture holdings of $161,584,369 for the year ended December 31, 2004 as compared to unrealized gain of $23,914,271 for the year ended December 31, 2003. The substantial net gains in the year ending December 31, 2004 are due to the increase in market value of its real estate portfolio, particularly in the value of three regional malls in which the Account owns joint venture interests. The Account’s marketable securities for the year ended December 31, 2004 had net
20
realized and unrealized gains totaling $68,464,524 as compared with net realized and unrealized gains of $39,963,920 for the year ended December 31, 2003.
During 2004, the Account sold five properties. Proceeds of sale were $113,765,000 and cost at the time of sale was $99,937,568, resulting in a realized gain of $13,827,432. During 2003, the Account sold two properties. Proceeds of sale were $187,225,000 and cost at the time of sale was $154,626,452, resulting in a realized gain of $32,598,548.
Liquidity and Capital Resources
At year end 2005 and 2004, the Account’s liquid assets (i.e., its real estate equity securities, CMBSs, commercial paper and government securities) had a value of $2,089,557,113 and $1,045,733,841, respectively. The increase in the Account’s liquid assets was primarily due to the net positive inflow from transfers and premiums into the Account, which likely is in response to the strong relative performance of the Account.
In 2005, the Account received $968,189,436 in premiums and $1,435,432,984 in net participant transfers from TIAA, CREF Accounts and affiliated mutual funds, while for 2004 the Account received $738,048,183 in premiums and $1,188,465,203 in net participants’ transfers. Real estate acquisitions totaling approximately $1.9 billion and $2.5 billion were made during 2005 and 2004, respectively. The Account’s liquid assets will continue to be available to purchase additional suitable real estate properties and to meet expense needs and redemption requests (i.e., cash withdrawals, benefits, 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., make leveraged real estate investments. Note that the Account changed its borrowing policy in 2005 to expand the circumstances under which it could borrow. Also, to meet any short-term cash needs, the Account may obtain a line of credit whose terms may require that the Account secure the 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, utilities and security costs, may increase property operating expenses in the future. These increases in operating expenses are generally 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.
21
Critical Accounting Policies
The 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 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 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 and mortgage notes payable 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. Short-term money market instruments are stated at market value. 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.
Accumulation and Annuity Fund:The Accumulation Fund represents the net assets attributable to participants in the accumulation phase of their investment. The Annuity Fund represents the net assets attributable to the participants currently receiving annuity payments. The net increase or decrease in net assets from investment operations is apportioned between
22
the accounts based upon their relative daily net asset values. Once an Account participant begins receiving lifetime annuity income benefits, monthly payment levels cannot be reduced as a result of the Account’s adverse mortality experience. In addition, the contracts are required to stipulate the maximum expense charge that can be assessed, which is equal to 2.50% of average net assets per year. Accordingly, a small risk charge is paid by the Account to TIAA to assume these risks.
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.
The Account has limited partnerships interests in various real estate funds (limited partnerships). The Account records its contributions as increases to the investments and distributions from the investments are treated as either income or return of capital as determined by the management of the limited partnerships. Unrealized gains and losses are calculated and recorded quarterly when our accounting records are compared to the fund’s financial statements and we true up our equity value.
Income from joint ventures is recorded based on the Account’s proportional interest in the income earned by the joint venture that has been distributed from the joint venture to the Account.
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 or as soon as the Account is informed of the dividend. Realized gains and losses on securities transactions are accounted for on the specific identification method.
Mortgage Notes Payable:Commencing in 2005, the Account separately reports mortgage notes payable at estimated market value. Estimated market values are based on the amount at which the liability could be settled (either transferred or paid back) in a current transaction exclusive of direct transaction costs. Different assumptions or changes in future market conditions could significantly affect estimated market value. At times, the Account may assume debt in connection with the purchase of real estate. For debt assumed, the Account allocates a portion of the purchases price to the below or above market debt and amortized the premium or discount over the remaining life of the debt.
Foreign currency transactions and translation:Portfolio investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of securities, income receipts and
23
expense payments made in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the respective dates of the transactions. The effect of changes in foreign currency exchange rates on portfolio investments are included in the net realized and unrealized gains and losses on investments. Net realized gains and losses on foreign currency transactions include maturities of forward foreign currency contracts, disposition of foreign currencies, and currency gains and losses between the accrual and receipt dates of portfolio investment income and between the trade and settlement dates of portfolio investment transactions.
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.
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Account’s real estate and real estate-related investments, which as of December 31, 2005 represented 81.82% of the Account’s investments (not including real estate equity securities), expose the Account to a variety of risks. These risks include, but are not limited to:
- General Real Estate Risk — The risk that the Account’s property values or rental andoccupancy rates could go down due to general economic conditions, a weak market forreal estate generally, and changing supply and demand for certain types of properties;
- Appraisal Risk — The risk that the sale price of an Account property (i.e., the valuethat would be determined by negotiations between independent parties) might differsubstantially from its estimated or appraised value, leading to losses or reduced profitsto the Account upon sale;
- Risk Relating to Property Sales — The risk that the Account might not be able to sell aproperty at a particular time for its full value, particularly in a poor market. This mightmake it difficult to raise cash quickly and also could lead to Account losses; and
- Risks of Borrowing — The risk that interest rate changes may impact Account returns ifthe Account takes out a mortgage on a property or buys a property subject to a mortgage.
As of December 31, 2005, 18.19% of the Account’s investments were in market risk sensitive instruments, comprised entirely of marketable securities. These include real estate equity securities, commercial mortgage-backed securities (CMBSs), and high-quality short-term debt instruments (i.e., commercial paper and government agency instruments). The 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 payprincipal and interest when due, and for common or preferred stock, the possibilitythat the issuer’s current earnings will fall or that its overall financial soundness willdecline, 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.
In addition to these risks, real estate equity securities 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.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
| | | Page |
| Report of Management Responsibility | | 27 |
| Report of the Audit Committee | | 28 |
| |
| Audited Financial Statements: | | |
| Statements of Assets and Liabilities | | 29 |
| Statements of Operations | | 30 |
| Statements of Changes in Net Assets | | 31 |
| Statements of Cash Flows | | 32 |
| Notes to Financial Statements | | 33 |
| Statements of Investments | | 40 |
| Report of Independent Registered Public Accounting Firm. | | 51 |
26
REPORT OF MANAGEMENT RESPONSIBILITY
To the Participants of the
TIAA Real Estate Account:
The accompanying financial statements of the TIAA Real Estate Account (“Account”) of Teachers Insurance and Annuity Association of America (“TIAA”) are the responsibility of TIAA’s management. They have been prepared in accordance with accounting principles generally accepted in the United States of America and have been presented fairly and objectively in accordance with such principles.
TIAA has established and maintains a sound system of internal controls and disclosure controls designed to provide reasonable assurance that assets are properly safeguarded and transactions are properly executed in accordance with management’s authorization, and to carry out the ongoing responsibilities of management for reliable financial statements. In addition, TIAA’s internal audit personnel provide a continuing review of the internal controls and operations of the Account, and the chief audit executive regularly reports to the TIAA Audit Committee.
The accompanying financial statements have been audited by an independent registered public accounting firm. To maintain auditor independence and avoid any conflict of interest, it continues to be the Account’s policy that any management advisory or consulting services be obtained from a firm other than the independent registered public accounting firm. The reports of the independent registered public accounting firms, which follow the statements of investments, express independent opinions on the fairness of presentation of these financial statements.
The Audit Committee of the TIAA Board of Trustees, consisting entirely of trustees who are not officers of TIAA, meets regularly with management, representatives of PricewaterhouseCoopers LLP and the internal audit group to review matters relating to financial reporting, internal controls and auditing. In addition to the annual audit of the Account’s financial statements by the independent registered public accounting firm, the New York State Insurance Department and other state insurance departments perform periodic examinations of the Account’s operations.
| March 14, 2006 | /s/ Herbert M. Allison, Jr. |
| |
|
| | Herbert M. Allison, Jr.
Chairman, President and
Chief Executive Officer |
| | |
| | |
| | /s/ Russell Noles |
| |
|
| | Russell Noles
Vice President and Acting
Chief Financial Officer |
27
REPORT OF THE AUDIT COMMITTEE
To the Participants of the
TIAA Real Estate Account:
The TIAA Audit Committee (“Committee”) oversees the financial reporting process of the TIAA Real Estate Account (“Account”) on behalf of TIAA’s Board of Trustees. The Committee operates in accordance with a formal written charter (copies of which are available upon request) which describes the Audit Committee’s responsibilities. All members of the Committee are independent, as defined under the listing standards of the New York Stock Exchange.
Management has the primary responsibility for the Account’s financial statements, development and maintenance of a strong system of internal controls and disclosure controls, and compliance with applicable laws and regulations. In fulfilling its oversight responsibilities, the Committee reviewed and approved the audit plans of the internal audit group and the independent registered public accounting firm in connection with their respective audits of the Account. The Committee also meets regularly with the internal audit group and the independent registered public accounting firm, both with and without management present, to discuss the results of their examinations, their evaluation of internal controls, and the overall quality of financial reporting. As required by its charter, the Committee will evaluate rotation of the independent registered public accounting firm whenever circumstances warrant, but in no event will the evaluation be later than between their fifth and tenth years of service.
The Committee reviewed and discussed the accompanying audited financial statements with management, including a discussion of the quality and appropriateness of the accounting principles and financial reporting practices followed, the reasonableness of significant judgments, and the clarity and completeness of disclosures in the financial statements. The Committee has also discussed the audited financial statements with PricewaterhouseCoopers LLP, the independent registered public accounting firm responsible for expressing an opinion on the conformity of these audited financial statements with accounting principles generally accepted in the United States of America.
The discussion with PricewaterhouseCoopers LLP focused on their judgments concerning the quality and appropriateness of the accounting principles and financial reporting practices followed by the Account, the clarity and completeness of the financial statements and related disclosures, and other significant matters, such as any significant changes in accounting policies, internal controls, management judgments and estimates, and the nature of any uncertainties or unusual transactions. In addition, the Committee discussed with PricewaterhouseCoopers LLP the auditors’ independence from management and the Account, and has received a written disclosure regarding such independence, as required by the Independence Standards Board.
Based on the review and discussions referred to above, the Committee has approved the release of the accompanying audited financial statements for publication and filing with appropriate regulatory authorities.
Rosalie J. Wolf, Audit Committee Chair
Donald K. Peterson, Audit Committee Member
Leonard S. Simon, Audit Committee Member
David F. Swensen, Audit Committee Member
Paul R. Tregurtha, Audit Committee Member
March 14, 2006
28
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
| | | | | |
| | | December 31, | | December 31, |
| | | 2005 | | 2004 |
| |
|
| |
|
|
| ASSETS | | | | | | |
| Investments, at value: | | | | | | |
| Real estate properties | | | | | | |
| (cost: $7,386,769,868 and $5,315,565,355) | | $ | 7,977,600,751 | | $ | 5,391,469,250 |
| Real estate joint ventures and limited partnerships | | | | | | |
| (cost: $1,086,041,287 and $1,085,720,476) | | | 1,418,583,542 | | | 1,288,715,399 |
| Marketable securities: | | | | | | |
| Real estate related | | | | | | |
| (cost: $433,482,015 and $326,109,979) | | | 448,662,598 | | | 369,744,168 |
| Other | | | | | | |
| (cost: $1,640,676,190 and $676,124,265) | | | 1,640,894,515 | | | 675,989,673 |
| |
|
| |
|
|
| Total investments | | | | | | |
| (cost: $10,546,969,360 and $7,403,520,075) | | | 11,485,741,406 | | | 7,725,918,490 |
| |
|
| |
|
|
| Cash | | | 1,211,370 | | | — |
| Due from investment advisor | | | 7,717,256 | | | 4,185,034 |
| Other | | | 190,756,381 | | | 113,876,400 |
| |
|
| |
|
|
| TOTAL ASSETS | | | 11,685,426,413 | | | 7,843,979,924 |
| |
|
| |
|
|
| LIABILITIES | | | | | | |
| Mortgage notes payable—Note 5 | | | 973,502,186 | | | 499,479,256 |
| Amounts due to bank | | | — | | | 231,476 |
| Payable for securities transactions | | | 993,809 | | | — |
| Accrued real estate property level expenses | | | 145,789,277 | | | 84,959,882 |
| Security deposits held | | | 16,430,039 | | | 13,759,324 |
| |
|
| |
|
|
| TOTAL LIABILITIES | | | 1,136,715,311 | | | 598,429,938 |
| |
|
| |
|
|
| NET ASSETS | | | | | | |
| Accumulation Fund | | | 10,227,655,797 | | | 7,015,717,162 |
| Annuity Fund | | | 321,055,305 | | | 229,832,824 |
| |
|
| |
|
|
| TOTAL NET ASSETS | | $ | 10,548,711,102 | | $ | 7,245,549,986 |
| |
|
| |
|
|
| NUMBER OF ACCUMULATION UNITS | | | | | | |
| OUTSTANDING—Notes 6 and 7 | | | 42,623,491 | | | 33,337,597 |
| |
|
| |
|
|
| NET ASSET VALUE, PER ACCUMULATION UNIT—Note 6 | | $ | 239.95 | | $ | 210.44 |
| |
|
| |
|
|
See notes to the financial statements.
29
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF OPERATIONS
| | | Years Ended December 31, | |
| |
|
| |
| | | 2005 | | | 2004 | | 2003 | |
| |
|
| | |
|
| |
|
| |
| |
| INVESTMENT INCOME | | | | | | | | | | | |
| Real estate income, net: | | | | | | | | | | | |
| Rental income | | $ | 618,633,580 | | | $ | 397,198,276 | | $ | 361,616,650 | |
| |
|
| | |
|
| |
|
| |
| Real estate property level expenses and taxes: | | | | | | | | | | | |
| Operating expenses | | | 150,501,136 | | | | 100,991,997 | | | 87,238,469 | |
| Real estate taxes | | | 88,014,264 | | | | 55,946,418 | | | 49,440,101 | |
| Interest expense | | | 40,028,630 | | | | 830,361 | | | — | |
| |
|
| | |
|
| |
|
| |
| Total real estate property level expenses and taxes | | | 278,544,030 | | | | 157,768,776 | | | 136,678,570 | |
| |
|
| | |
|
| |
|
| |
| Real estate income—net | | | 340,089,550 | | | | 239,429,500 | | | 224,938,080 | |
| Income from joint ventures | | | 63,580,501 | | | | 57,275,242 | | | 31,989,569 | |
| Dividends | | | 25,130,706 | | | | 26,568,264 | | | 12,240,166 | |
| Interest | | | 54,114,448 | | | | 15,055,451 | | | 7,221,765 | |
| |
|
| | |
|
| |
|
| |
| TOTAL INCOME | | | 482,915,205 | | | | 338,328,457 | | | 276,389,580 | |
| |
|
| | |
|
| |
|
| |
| Expenses—Note 2: | | | | | | | | | | | |
| Investment advisory charges | | | 19,603,225 | | | | 14,393,388 | | | 12,751,191 | |
| Administrative and distribution charges | | | 27,130,406 | | | | 16,372,446 | | | 14,786,580 | |
| Mortality and expense risk charges | | | 6,196,549 | | | | 4,093,858 | | | 2,916,880 | |
| Liquidity guarantee charges | | | 3,170,017 | | | | 1,868,733 | | | 1,199,414 | |
| |
|
| | |
|
| |
|
| |
| TOTAL EXPENSES | | | 56,100,197 | | | | 36,728,425 | | | 31,654,065 | |
| |
|
| | |
|
| |
|
| |
| INVESTMENT INCOME—NET | | | 426,815,008 | | | | 301,600,032 | | | 244,735,515 | |
| |
|
| | |
|
| |
|
| |
| REALIZED AND UNREALIZED | | | | | | | | | | | |
| GAIN (LOSS) ON INVESTMENTS | | | | | | | | | | | |
| Net realized gain (loss) on: | | | | | | | | | | | |
| Real estate properties | | | 84,764,142 | | | | 13,827,432 | | | 32,598,548 | |
| Marketable securities | | | 35,168,209 | | | | 47,375,999 | | | 7,692,266 | |
| |
|
| | |
|
| |
|
| |
| Total realized gain (loss) on investments | | | 119,932,351 | | | | 61,203,431 | | | 40,290,814 | |
| |
|
| | |
|
| |
|
| |
| Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | |
| Real estate properties and debt | | | 505,415,483 | | | | 170,703,978 | | | (37,639,368 | ) |
| Real estate joint ventures and limited partnerships | | | 168,723,129 | | | | 161,584,369 | | | 23,914,271 | |
| Marketable securities | | | (28,100,691 | ) | | | 21,088,525 | | | 32,271,654 | |
| |
|
| | |
|
| |
|
| |
| Net change in unrealized appreciation (depreciation) on investments | | | 646,037,921 | | | | 353,376,872 | | | 18,546,557 | |
| |
|
| | |
|
| |
|
| |
| NET REALIZED AND UNREALIZED | | | | | | | | | | | |
| GAIN (LOSS) ON INVESTMENTS | | | 765,970,272 | | | | 414,580,303 | | | 58,837,371 | |
| |
|
| | |
|
| |
|
| |
| NET INCREASE IN NET ASSETS | | | | | | | | | | | |
| RESULTING FROM OPERATIONS | | $ | 1,192,785,280 | | | $ | 716,180,335 | | $ | 303,572,886 | |
| |
|
| | |
|
| |
|
| |
See notes to the financial statements.
30
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
| | | | | |
| | | Years Ended December 31, | |
| |
|
| |
| | | 2005 | | | 2004 | | | 2003 | |
| |
|
| | |
|
| | |
|
| |
| FROM OPERATIONS | | | | | | | | | | | | |
| Investment income, net | | $ | 426,815,008 | | | $ | 301,600,032 | | | $ | 244,735,515 | |
| Net realized gain on investments | | | 119,932,351 | | | | 61,203,431 | | | | 40,290,814 | |
| Net change in unrealized appreciation (depreciation) | | | | | | | | | | | | |
| on investments | | | 646,037,921 | | | | 353,376,872 | | | | 18,546,557 | |
| |
|
| | |
|
| | |
|
| |
| NET INCREASE IN NET ASSETS | | | | | | | | | | | | |
| RESULTING FROM OPERATIONS | | | 1,192,785,280 | | | | 716,180,335 | | | | 303,572,886 | |
| |
|
| | |
|
| | |
|
| |
| |
| FROM PARTICIPANT TRANSACTIONS | | | | | | | | | | | | |
| Premiums | | | 968,189,436 | | | | 738,048,183 | | | | 515,435,665 | |
| Net transfers from (to) TIAA | | | 197,272,397 | | | | 147,340,801 | | | | 30,198,200 | |
| Net transfers from CREF Accounts | | | 1,238,160,587 | | | | 1,041,124,402 | | | | 403,594,402 | |
| Annuity and other periodic payments | | | (44,487,142 | ) | | | (30,761,316 | ) | | | (22,213,682 | ) |
| Withdrawals and death benefits | | | (248,759,442 | ) | | | (159,804,580 | ) | | | (113,153,870 | ) |
| |
|
| | |
|
| | |
|
| |
| NET INCREASE IN NET ASSETS RESULTING | | | | | | | | | | | | |
| FROM PARTICIPANTTRANSACTIONS | | | 2,110,375,836 | | | | 1,735,947,490 | | | | 813,860,715 | |
| |
|
| | |
|
| | |
|
| |
| NET INCREASE IN NET ASSETS | | | 3,303,161,116 | | | | 2,452,127,825 | | | | 1,117,433,601 | |
| |
| NET ASSETS | | | | | | | | | | | | |
| Beginning of year | | | 7,245,549,986 | | | | 4,793,422,161 | | | | 3,675,988,560 | |
| |
|
| | |
|
| | |
|
| |
| End of year | | $ | 10,548,711,102 | | | $ | 7,245,549,986 | | | $ | 4,793,422,161 | |
| |
|
| | |
|
| | |
|
| |
See notes to the financial statements.
31
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF CASH FLOWS
| | | | | |
| | | Years Ended December 31, | |
| |
|
| |
| | | 2005 | | | 2004 | | | 2003 | |
| |
|
| |
|
|
| | |
|
| |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | | |
| Net increase in net assets resulting from operations | | $ | 1,192,785,280 | | | $ | 716,180,335 | | | $ | 303,572,886 | |
| Adjustments to reconcile net increase in net assets resulting | | | | | | | | | | | | |
| from operations to net cash used in operating activities: | | | | | | | | | | | | |
| Purchases of real estate properties | | | (1,864,646,776 | ) | | | (1,690,454,136 | ) | | | (326,513,028 | ) |
| Capital improvements on real estate properties | | | (83,150,771 | ) | | | (37,811,864 | ) | | | (26,697,465 | ) |
| Proceeds from sale of real estate properties | | | 511,500,399 | | | | 113,765,000 | | | | 187,225,000 | |
| Decrease (increase) in other investments | | | (1,313,788,390 | ) | | | (648,107,782 | ) | | | (958,290,679 | ) |
| Increase in other assets | | | (80,412,203 | ) | | | (30,270,749 | ) | | | (19,808,324 | ) |
| Increase (decrease) in amounts due to bank | | | (231,476 | ) | | | (783,869 | ) | | | 1,015,345 | |
| Increase in accrued real estate property level expenses | | | | | | | | | | | | |
| and taxes | | | 60,829,395 | | | | 25,445,331 | | | | 18,678,441 | |
| Increase in security deposits held | | | 2,670,715 | | | | 621,654 | | | | 1,419,425 | |
| Increase (decrease) in other liabilities | | | (1,162,347 | ) | | | — | | | | — | |
| Net realized gain on investments | | | (119,932,351 | ) | | | (13,827,432 | ) | | | (32,598,548 | ) |
| Unrealized (gain) loss on investments | | | (646,037,921 | ) | | | (170,703,978 | ) | | | 37,639,368 | |
| |
|
| | |
|
| | |
|
| |
| NET CASH USED IN | | | | | | | | | | | | |
| OPERATINGACTIVITIES | | | (2,341,576,446 | ) | | | (1,735,947,490 | ) | | | (814,357,579 | ) |
| |
|
| | |
|
| | |
|
| |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
| Premiums | | | 968,189,436 | | | | 738,048,183 | | | | 515,435,665 | |
| Net transfers from (to) TIAA | | | 197,272,397 | | | | 147,340,801 | | | | 30,198,200 | |
| Net transfers from CREF Accounts | | | 1,238,160,587 | | | | 1,041,124,402 | | | | 403,594,402 | |
| Principal payments of mortgages | | | (173,361 | ) | | | — | | | | — | |
| Proceeds from mortgage financing | | | 232,585,341 | | | | — | | | | — | |
| Annuity and other periodic payments | | | (44,487,142 | ) | | | (30,761,316 | ) | | | (22,213,682 | ) |
| Withdrawals and death benefits | | | (248,759,442 | ) | | | (159,804,580 | ) | | | (113,153,870 | ) |
| |
|
| | |
|
| | |
|
| |
| NET CASH PROVIDED BY | | | | | | | | | | | | |
| FINANCINGACTIVITIES | | | 2,342,787,816 | | | | 1,735,947,490 | | | | 813,860,715 | |
| |
|
| | |
|
| | |
|
| |
| |
| NET INCREASE (DECREASE) IN CASH | | | 1,211,370 | | | | — | | | | (496,864 | ) |
| CASH | | | | | | | | | | | | |
| Beginning of year | | | — | | | | — | | | | 496,864 | |
| |
|
| | |
|
| | |
|
| |
| End of year | | $ | 1,211,370 | | | $ | — | | | $ | — | |
| |
|
| | |
|
| | |
|
| |
| Supplemental disclosure: Cash paid for interest | | $ | 38,267,618 | | | $ | 121,408 | | | $ | — | |
| |
|
| | |
|
| | |
|
| |
| Non-cash activity: Debt assumed upon purchase of real estate | | $ | 211,400,000 | | | $ | 499,479,256 | | | $ | — | |
| |
|
| | |
|
| | |
|
| |
See notes to the financial statements.
32
TIAA REAL ESTATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
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 real estate properties directly and through wholly-owned subsidiaries. The Account also holds interests in joint ventures and limited partnerships that own real estate. 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 of America, 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 of the Account.
Basis of Presentation:The accompanying financial statements include the Account and those subsidiaries wholly-owned by TIAA for the benefit of the Account. 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 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 and that such change is not reflected in the quarterly appraisal. The independent fiduciary must also approve an appraisal where a property’s value changed by 6% or more from the most recent annual appraisal. The independent fiduciary is appointed by a special subcommittee of TIAA’s Board of Trustees. 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 including debt assumed in connection with the purchase of real estate, are generally valued as described. However, beginning in 2005 the value of the mortgage is appraised independently of the property and its fair value is reported separately, whereas in 2004, any change in the fair value of the mortgage, including debt assumed in connection with the purchase of real estate, was shown as an adjustment to the real estate property value. The fair value of the outstanding mortgage could have a material affect on the equity investment 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. The Account continues to use the revised value to calculate the Account’s net asset value until the next valuation review or appraisal.
Valuation of Real Estate Joint Ventures:Real estate joint ventures are stated at the Account’s equity in the net assets of the underlying entities, which value their real estate holdings and mortgage notes payable at fair value.
33
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 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.
Accumulation and Annuity Funds:The Accumulation Fund represents the net assts attributable to participants in the accumulation phase of their investment. The Annuity Fund represents the net assets attributable to the participants currently receiving annuity payments. The net increase or decrease in net assets from investment operations is apportioned between the accounts based upon their relative daily net asset values. Once an Account participant begins receiving lifetime annuity income benefits, monthly payment levels cannot be reduced as a result of the Account’s adverse mortality experience. In addition, the contracts are required to stipulate the maximum expense charge that can be assessed, which is equal to 2.50% of average net assets per year. Accordingly, a small risk charge is paid by the Account to TIAA to assume these risks.
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. The Account recognizes a gain to the extent that the contract sales price exceeds the cost-to-date of the property being sold. A loss occurs when the cost-to-date exceeds the sales price. As the Account is marked-to-market and all properties are appraised quarterly, any accumulated unrealized gains and losses are reversed in the same period in which the realized gains and losses are recognized.
The Account has limited partnership interests in various real estate funds (limited partnerships). The Account records its contributions as increases to the investments and distributions from the investments are treated as either income or return of capital as determined by the management of the limited partnerships. Unrealized gains and losses are calculated and recorded quarterly when the Account’s accounting records are compared to the financial statements of the limited partnerships.
Income from joint ventures is recorded based on the Account’s proportional interest in the income earned by the joint venture that has been distributed from the joint venture to the Account.
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 or as soon as the Account is informed of the dividend. Realized gains and losses on securities transactions are accounted for on the specific identification method.
34
Mortgage Notes Payable:Commencing in 2005, the Account separately reports mortgage notes payable at estimated market value. Estimated market values are based on the amount at which the liability could be settled (either transferred or paid back) in a current transaction exclusive of direct transaction costs. Different assumptions or changes in future market conditions could significantly affect estimated market value. At times, the Account may assume debt in connection with the purchase of real estate. For debt assumed, the Account allocates a portion of the purchase price to the below or above market rate debt and amortizes the premium or discount over the remaining life of the debt.
Foreign currency transactions and translation:Portfolio investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of securities, income receipts and expense payments made in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the respective dates of the transactions. The effect of changes in foreign currency exchange rates on portfolio investments are included in the net realized and unrealized gains and losses on investments. Net realized gains and losses on foreign currency transactions include disposition of foreign currencies and currency gains and losses between the accrual and receipt dates of portfolio investment income and between the trade and settlement dates of portfolio investment transactions.
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.
The services performed 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.
TIAA also provides a liquidity guarantee to the Account, for an annual rate of .04% of net assets, 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 imposes a daily charge for bearing certain mortality and expense risks in connection with the contracts equivalent to an annual rate of .07% of net assets of the Account.
35
Note 3—Leases
The Account’s real estate properties are leased to tenants under operating lease agreements which expire on various dates through 2031. Aggregate minimum annual rentals for the properties owned, excluding short-term residential leases, are as follows:
| Years Ending | | | |
| December 31, | | | |
| | | |
| 2006 | | $ | 653,416,605 |
| 2007 | | | 611,538,186 |
| 2008 | | | 549,973,188 |
| 2009 | | | 491,561,855 |
| 2010 | | | 396,090,166 |
| 2011-2031 | | | 1,198,826,686 |
| |
|
|
| |
| Total | | $ | 3,901,406,686 |
| |
|
|
Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts.
Note 4—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 mortgage notes payable on the properties owned. The Account’s allocated portion of the mortgage notes payable is $468,664,313 and $345,136,785 at December 31, 2005 and 2004, respectively. The Accounts’ equity in the joint ventures at December 31, 2005 and 2004 was $1,222,036,564 and $1,257,893,004, respectively. A condensed summary of the financial position and results of operations of the joint ventures is shown below.
| | | | | | December 31, 2005 | | December 31, 2004 |
| | | | |
|
| |
|
|
| Assets | | | | | | | | | |
| Real estates properties, at value | | | | | $ | 2,989,209,293 | | $ | 2,760,426,300 |
| Other assets | | | | | | 80,768,265 | | | 55,021,655 |
| | | | |
|
| |
|
|
| Total assets | | | | | $ | 3,069,977,558 | | $ | 2,815,447,955 |
| | | | |
|
| |
|
|
| Liabilities and Equity | | | | | | | | | |
| Mortgages notes payable | | | | | $ | 865,828,626 | | $ | 618,773,569 |
| Other liabilities | | | | | | 70,471,251 | | | 47,389,201 |
| | | | |
|
| |
|
|
| Total liabilities | | | | | | 936,299,877 | | | 666,162,770 |
| Equity | | | | | | 2,133,677,681 | | | 2,149,285,185 |
| | | | |
|
| |
|
|
| Total liabilities and equity | | | | | $ | 3,069,977,558 | | $ | 2,815,447,955 |
| | | | |
|
| |
|
|
| |
| | | Year Ended | | Year Ended | | Year Ended |
| | | December 31, 2005 | | December 31, 2004 | | December 31, 2003 |
| |
|
| |
|
| |
|
|
| Operating Revenues and Expenses | | | | | | | | | |
| Revenues | | $ | 270,519,206 | | $ | 250,697,181 | | $ | 145,432,123 |
| Expenses | | | 142,782,169 | | | 122,017,640 | | | 77,571,384 |
| |
|
| |
|
| |
|
|
| Excess of revenues over expenses | | $ | 127,737,037 | | $ | 128,679,541 | | $ | 67,860,739 |
| |
|
| |
|
| |
|
|
36
Note 5—Mortgage Notes Payable
At December 31, 2005 and 2004, the Account had outstanding mortgage balances on the properties as follows:
| | | Interest | | Amount | | Amount | | | |
| Property | | Rate Percentage | | 2005 | | 2004 | | | Due |
| |
| |
|
| |
|
| | |
|
| 50 Fremont | | 6.40 paid monthly(d) | | $ | 135,000,000 | | $ | 135,000,000 | | | August 21, 2013 |
| Ontario Industrial Portfolio | | 7.24 paid monthly(a) | | | 9,305,895 | | | 9,479,256 | | | May 1, 2011 |
| IDX Tower | | 6.40 paid monthly(d) | | | 145,000,000 | | | 145,000,000 | | | August 21, 2013 |
| 1001 Pennsylvania Ave | | 6.40 paid monthly(d) | | | 210,000,000 | | | 210,000,000 | | | August 21, 2013 |
| 99 High Street | | 5.5245 paid monthly(b) | | | 185,000,000 | | | — | | | November 11, 2015 |
| Reserve at Sugarloaf | | 5.49 paid monthly(c) | | | 26,400,000 | | | — | | | June 1, 2013 |
| Westferry Circus | | 5.4003 paid quarterly(d) | | | 230,429,185 | | | — | | | November 15, 2012 |
| | | |
|
| |
|
| | | |
| Total maturities | | | | $ | 941,135,080 | | $ | 499,479,256 | | | |
| Net unrealized loss | | | | | 32,367,106 | |
|
| | | |
| | | |
|
| | | | | | |
| Total Mortgage Notes Payable | | | $ | 973,502,186 | | | | | | |
| | |
|
| | | | | | |
| (a) | Principal payments due monthly with balloon payment of $8,127,115 due on May 1, 2011. The rate of 7.24% paid monthly is fixed. Debt was assumed at the time of acquisition. |
| |
| (b) | Debt assumed in conjunction with property acquired in 2005 the mortgage was refinanced on October 21, 2005 at a fixed rate of 5.5245%. |
| |
| (c) | Debt assumed in conjunction with property acquired in 2005 at a fixed rate of 5.49%. |
| |
| (d) | The mortgage is interest only with balloon payment at maturity. The interest rate is fixed. |
| |
Principal on mortgage notes payable is due as follows:
| | | Amount |
| |
|
|
| 2006 | | $ | 186,862 |
| 2007 | | | 201,415 |
| 2008 | | | 215,163 |
| 2009 | | | 233,858 |
| 2010 | | | 252,070 |
| Thereafter | | | 940,045,712 |
| |
|
|
| Total maturities | | $ | 941,135,080 |
| |
|
|
37
Note 6—Condensed Financial Information
Selected condensed financial information for an Accumulation Unit of the Account is presented below.
| | Years Ended December 31, |
| |
|
|
|
|
|
|
|
| |
| | 2005 | | 2004 | | 2003 | | 2002 | | 2001 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Per Accumulation Unit data: | | | | | | | | | | | | | | | | |
| Rental income | | $ | 15.604 | | $ | 13.422 | | $ | 15.584 | | $ | 14.225 | | $ | 14.862 | |
| Real estate property level expenses and taxes | | | 7.026 | | | 5.331 | | | 5.890 | | | 4.819 | | | 4.754 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Real estate income, net | | | 8.578 | | | 8.091 | | | 9.694 | | | 9.406 | | | 10.108 | |
| Income from real estate joint ventures | | | 1.604 | | | 1.935 | | | 1.379 | | | 0.807 | | | 0.130 | |
| Dividends and interest | | | 1.998 | | | 1.406 | | | 0.839 | | | 1.249 | | | 1.950 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total income | | | 12.180 | | | 11.432 | | | 11.912 | | | 11.462 | | | 12.188 | |
| Expense charges (1) | | | 1.415 | | | 1.241 | | | 1.365 | | | 1.101 | | | 0.995 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Investment income, net | | | 10.765 | | | 10.191 | | | 10.547 | | | 10.361 | | | 11.193 | |
| Net realized and unrealized | | | | | | | | | | | | | | | | |
| gain (loss) on investments | | | 18.744 | | | 13.314 | | | 2.492 | | | (4.621 | ) | | (1.239 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net increase in Accumulation Unit Value | | | 29.509 | | | 23.505 | | | 13.039 | | | 5.740 | | | 9.954 | |
| Accumulation Unit Value: | | | | | | | | | | | | | | | | |
| Beginning of year | | | 210.444 | | | 186.939 | | | 173.900 | | | 168.160 | | | 158.206 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| End of year | | $ | 239.953 | | $ | 210.444 | | $ | 186.939 | | $ | 173.900 | | $ | 168.160 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total return | | | 14.02 | % | | 12.57 | % | | 7.50 | % | | 3.41 | % | | 6.29 | % |
| Ratios to Average Net Assets: | | | | | | | | | | | | | | | | |
| Expenses (1) | | | 0.63 | % | | 0.63 | % | | 0.76 | % | | 0.67 | % | | 0.61 | % |
| Investment income, net | | | 4.82 | % | | 5.17 | % | | 5.87 | % | | 5.65 | % | | 6.81 | % |
| Portfolio turnover rate: | | | | | | | | | | | | | | | | |
| Real estate properties | | | 6.72 | % | | 2.32 | % | | 5.12 | % | | 0.93 | % | | 4.61 | % |
| Securities | | | 77.63 | % | | 143.47 | % | | 71.83 | % | | 52.08 | % | | 40.62 | % |
| Thousands of Accumulation Units | | | | | | | | | | | | | | | | |
| outstanding at end of year | | | 42,623 | | | 33,338 | | | 24,724 | | | 20,347 | | | 18,456 | |
| Net assets end of year (in thousands) | | $ | 10,548,711 | | $ | 7,245,550 | | $ | 4,793,422 | | $ | 3,675,989 | | $ | 3,213,667 | |
| (1) | Expense charges per Accumulation Unit and the Ratio of Expenses to Average Net Assets exclude real estate property level expenses. If the real estate property level expenses were included, the expense charge per Accumulation Unit for the year ended December 31, 2005 would be $8.441 ($6.572, $7.255, $5.920 and $5.749 for the years ended December 31, 2004, 2003, 2002 and 2001, respectively), and the Ratio of Expenses to Average Net Assets for the year ended December 31, 2005 would be 3.78% (3.33%, 4.04%, 3.61% and 3.50% for the years ended December 31, 2004, 2003, 2002 and 2001, respectively). |
| |
38
Note 7—Accumulation Units
Changes in the number of Accumulation Units outstanding were as follows:
| | | For the Years Ended December 31, |
| |
|
| | | 2005 | | 2004 | | 2003 |
| |
| |
| |
|
| Credited for premiums | | 4,335,121 | | 3,746,093 | | 2,860,354 |
| Credited (cancelled) for transfers, net disbursements | | | | | | |
| and amounts applied to the Annuity Fund | | 4,950,773 | | 4,867,321 | | 1,517,133 |
| Outstanding: | | | | | | |
| Beginning of year | | 33,337,597 | | 24,724,183 | | 20,346,696 |
| |
| |
| |
|
| End of year | | 42,623,491 | | 33,337,597 | | 24,724,183 |
| |
| |
| |
|
Note 8—Commitments
During the normal course of business, the Account enters into discussions and agreements to purchase or sell real estate properties. As of December 31, 2005, the Account had two outstanding commitments to purchase a bulk distribution warehouse property for approximately $34.7 million (which has closed subsequent to December 31, 2005) and a mixed use project comprised of an office building and a retail component for a total net amount of $85 million. This property will be subject to approximately $112.7 million in debt. Subsequent to December 31, 2005 the Account placed approximately $153 million in debt on Lincoln Centre which was purchased in the 4th quarter of 2005.
In addition, the Account has outstanding commitments to purchase interests in six limited partnerships and to purchase shares in a private real estate equity investment trusts, which total $366.7 million. As of December 31, 2005, $101.3 million remains to be funded under these commitments.
Other than lawsuits in the ordinary course of business, that are expected to have no material impact, there are no lawsuits in which the Account is a party.
39
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF INVESTMENTS
December 31, 2005 and 2004
REAL ESTATE PROPERTIES —69.46% and 69.78%
| | Value | |
|
| |
| Location / Description | 2005 | | 2004 | |
|
|
| |
|
| |
| Alabama: | | | | | | |
| Inverness Center - Office building | $ | 98,090,987 | | $ | — | |
| Arizona: | | | | | | |
| Biltmore Commerce Center - Office building | | — | | | 34,104,182 | |
| Mountain RA Industrial Portfolio - Industrial building | | 5,754,652 | | | 5,513,947 | |
| California: | | | | | | |
| 3 Hutton Centre Drive - Office building | | 48,349,580 | | | 41,106,333 | |
| 9 Hutton Centre - Office building | | 26,746,837 | | | 23,169,449 | |
| 50 Fremont - Office building | | 373,010,003 | (1) | | 323,264,602 | (1) |
| 88 Kearny Street - Office building | | 81,567,474 | | | 69,026,718 | |
| Cabot Industrial Portfolio - Industrial building | | 77,000,000 | | | — | |
| Capitol Place - Office building | | 48,000,000 | | | 42,400,000 | |
| Centerside I - Office building | | 66,000,000 | | | 65,037,900 | |
| Centre Pointe and Valley View - Industrial building | | 28,000,000 | | | 25,329,023 | |
| Eastgate Distribution Center - Industrial building | | 22,000,000 | | | 18,800,000 | |
| Embarcadero Center West - Office building | | 205,965,261 | | | — | |
| Kenwood Mews - Apartments | | 30,000,000 | | | 27,700,000 | |
| Larkspur Courts - Apartments | | 86,000,000 | | | 66,000,000 | |
| The Legacy at Westwood - Apartments | | 100,000,000 | | | 90,750,000 | |
| Northern CA RA Industrial Portfolio - Industrial building | | 62,325,024 | | | 59,169,642 | |
| Northpoint Commerce Center - Industrial building | | — | | | 46,000,000 | |
| Ontario Industrial Portfolio - Industrial building | | 230,000,000 | (1) | | 187,079,256 | (1) |
|
| Regents Court - Apartments | | 62,500,000 | | | 56,700,000 | |
| Southern CA RA Industrial Portfolio - Industrial building | | 89,017,793 | | | 89,097,299 | |
| U.S. Bank Plaza - Office building | | 159,000,000 | | | — | |
| Westcreek - Apartments | | 30,939,671 | | | 28,161,865 | |
| West Lake North Business Park - Office building | | 57,600,000 | | | 50,021,000 | |
| Westwood Marketplace - Shopping center | | 86,000,000 | | | 80,019,410 | |
| Colorado: | | | | | | |
| The Lodge at Willow Creek - Apartments | | 34,600,000 | | | 32,201,274 | |
| The Market at Southpark - Shopping center | | 34,001,746 | | | 33,522,400 | |
| Monte Vista - Apartments | | 24,647,901 | | | 22,501,650 | |
| Palomino Park - Apartments | | 176,232,394 | | | — | |
| Connecticut: | | | | | | |
| Ten & Twenty Westport Road - Office building | | 157,000,000 | | | 148,000,000 | |
| Delaware: | | | | | | |
| Mideast RA Industrial Portfolio- Industrial building | | 14,258,555 | | | 16,543,121 | |
| Florida: | | | | | | |
| 701 Brickell - Office building | | 201,173,724 | | | 177,000,000 | |
| 4200 West Cypress Street - Office building | | 36,691,519 | | | 33,900,000 | |
| The Fairways of Carolina - Apartments | | 21,100,000 | | | 18,100,000 | |
| Golfview - Apartments | | 30,835,506 | | | 28,543,437 | |
| The Greens at Metrowest - Apartments | | 18,200,000 | | | 14,623,330 | |
| Maitland Promenade One - Office building | | 37,817,891 | | | 36,053,639 | |
| Plantation Grove - Shopping center | | 13,800,000 | | | 11,200,000 | |
| Pointe on Tampa Bay - Office building | | 44,711,876 | | | 40,551,310 | |
| Quiet Waters at Coquina Lakes - Apartments | | 20,912,293 | | | 19,200,000 | |
| Royal St. George - Apartments | | 21,400,000 | | | 19,400,000 | |
40
| | | Value |
| | | |
| Location / Description | | 2005 | | 2004 |
| |
| |
|
|
| Sawgrass Office Portfolio - Office building | | $ | 59,700,000 | | $ | 52,000,000 |
| South Florida Apartment Portfolio - Apartments | | | 56,400,000 | | | 47,700,000 |
| Suncrest Village - Shopping center | | | 16,400,000 | | | — |
| Urban Centre - Office building | | | 106,007,400 | | | — |
| Georgia: | | | | | | |
| Alexan Buckhead - Apartments | | | 34,800,000 | | | 37,500,000 |
| Atlanta Industrial Portfolio - Industrial building | | | 73,825,000 | | | 37,750,840 |
| Reserve at Sugarloaf - Apartments | | | 44,800,000 | (1) | | — |
| Glenridge Walk - Apartments | | | 45,300,000 | | | — |
| 1050 Lenox Park - Apartments | | | 71,000,000 | | | — |
| Shawnee Ridge Industrial Portfolio - Industrial building | | | 44,418,860 | | | — |
| Illinois: | | | | | | |
| Chicago CalEast Industrial Portfolio- Industrial building | | | 74,622,731 | | | 42,000,000 |
| Chicago Industrial Portfolio - Industrial building | | | 72,000,000 | | | 70,002,239 |
| Columbia Centre III - Office building | | | 28,700,000 | | | 28,900,000 |
| East North Central RA Industrial Portfolio- Industrial building | | | 37,717,159 | | | 23,734,331 |
| Oak Brook Regency Towers - Office building | | | 73,400,000 | | | 68,400,000 |
| Parkview Plaza - Office building | | | 54,500,000 | | | 48,700,000 |
| Rolling Meadows - Shopping center | | | — | | | 15,750,000 |
| Kentucky: | | | | | | |
| IDI Kentucky Portfolio - Industrial building | | | 58,500,000 | | | 49,000,000 |
| Maryland: | | | | | | |
| Corporate Boulevard - Office building | | | — | | | 65,038,710 |
| FEDEX Distribution Facility - Industrial building | | | 8,500,000 | | | 8,200,000 |
| GE Appliance East Coast Distribution Facility - Industrial building | | | 46,470,475 | | | — |
| Massachusetts: | | | | | | |
| 99 High Street - Office building | | | 276,266,900 | (1) | | — |
| Batterymarch Park II - Office building | | | 11,472,283 | | | 10,700,000 |
| Longwood Towers - Apartments | | | — | | | 82,500,000 |
| Needham Corporate Center - Office building | | | 17,143,612 | | | 15,030,046 |
| Northeast RA Industrial Portfolio- Industrial building | | | 29,000,000 | | | 33,110,903 |
| Michigan: | | | | | | |
| Indian Creek - Apartments | | | — | | | 18,825,000 |
| Minnesota: | | | | | | |
| Interstate Crossing - Industrial building | | | — | | | 7,300,000 |
| River Road Distribution Center - Industrial building | | | — | | | 4,600,000 |
| Nevada: | | | | | | |
| UPS Distribution Facility - Industrial building | | | 15,000,000 | | | 12,900,000 |
| New Jersey: | | | | | | |
| 10 Waterview Boulevard - Office building | | | 27,500,000 | | | 26,400,000 |
| 371 Hoes Lane - Office building | | | 11,700,000 | | | 10,666,570 |
| Konica Photo Imaging Headquarters - Industrial building | | | 25,300,000 | | | 21,200,000 |
| Morris Corporate Center III - Office building | | | 97,400,000 | | | 82,300,000 |
| NJ CalEast Industrial Portfolio- Industrial building | | | 42,000,000 | | | 39,300,000 |
| Plainsboro Plaza - Shopping center | | | 50,745,252 | | | — |
| South River Road Industrial - Industrial building | | | 55,000,000 | | | 34,900,000 |
| New York: | | | | | | |
| 780 Third Avenue - Office building | | | 230,000,000 | | | 197,000,000 |
| The Colorado - Apartments | | | 85,048,163 | | | 58,156,056 |
| Ohio: | | | | | | |
| Bent Tree - Apartments | | | — | | | 13,600,000 |
| Columbus Portfolio - Office building | | | 23,000,000 | | | 21,500,000 |
41
| | | Value | |
| |
| |
| Location / Description | | | 2005 | | | 2004 | |
| |
|
| | |
| |
| Oregon: | | | | | | | |
| Five Centerpointe - Office building | | $ | — | | $ | 14,500,000 | |
| Pennsylvania: | | | | | | | |
| Lincoln Woods - Apartments | | | 35,528,316 | | | 31,472,870 | |
| Tennessee: | | | | | | | |
| Memphis CalEast Industrial Portfolio- Industrial building | | | 54,000,000 | | | 47,400,000 | |
| Summit Distribution Center- Industrial building | | | 25,900,000 | | | 23,800,000 | |
| Texas: | | | | | | | |
| Butterfield Industrial Park - Industrial building | | | 4,618,955 | (2) | | 4,600,000 | (2) |
| Dallas Industrial Portfolio - Industrial building | | | 146,000,000 | | | 138,500,000 | |
| Four Oaks Place - Office building | | | 295,239,109 | | | 255,357,238 | |
| The Caruth - Apartments | | | 61,200,000 | | | — | |
| The Legends at Chase Oaks - Apartments | | | 28,499,971 | | | 27,051,851 | |
| Lincoln Centre - Office building | | | 255,311,299 | | | — | |
| The Maroneal - Apartments | | | 35,000,000 | | | — | |
| United Kingdom: | | | | | | | |
| 1& 7 Westferry Circus - Office building | | | 373,116,817 | (1) | | — | |
| Utah: | | | | | | | |
| Landmark at Salt Lake City (Building #4) - Industrial building | | | 14,700,000 | | | 12,500,000 | |
| Virginia: | | | | | | | |
| 8270 Greensboro Drive - Office building | | | 60,200,000 | | | — | |
| Ashford Meadows - Apartments | | | 78,904,526 | | | 68,000,000 | |
| Fairgate at Ballston - Office building | | | 35,300,000 | | | 28,500,017 | |
| Monument Place - Office building | | | 53,000,000 | | | 37,000,000 | |
| One Virginia Square - Office building | | | 47,000,000 | | | 42,500,000 | |
| Washington: | | | | | | | |
| IDX Tower - Office building | | | 370,000,000 | (1) | | 347,978,282 | (1) |
| Northwest RA Industrial Portfolio- Industrial building | | | 19,700,000 | | | 19,438,852 | |
| Rainier Corporate Park - Industrial building | | | 64,273,372 | | | 56,035,878 | |
| Regal Logistics Campus - Industrial building | | | 63,103,879 | | | — | |
| Washington DC: | | | | | | | |
| 1001 Pennsylvania Avenue - Office building | | | 502,993,710 | (1) | | 466,424,940 | (1) |
| 1015 15th Street - Office building | | | 73,121,166 | | | 59,000,134 | |
| 1900 K Street - Office building | | | 230,000,000 | | | 219,453,706 | |
| The Farragut Building - Office building | | | — | | | 46,500,000 | |
| Mazza Gallerie - Shopping center | | | 86,001,109 | | | 81,000,000 | |
| |
|
| | |
| |
| |
| TOTAL REAL ESTATE PROPERTIES | | | | | | | |
| (Cost $7,386,769,868 and $5,315,565,355) | | | 7,977,600,751 | | | 5,391,469,250 | |
| |
|
| | |
| |
OTHER REAL ESTATE RELATED INVESTMENTS—12.35% and 16.68% | | | | | | | |
| REAL ESTATE JOINT VENTURE—10.64% and 16.28% | | | | | | | |
| Teachers REA LLC, which owns | | | | | | | |
| Cabot Industrial Portfolio (100% Account Interest) | | | — | | | 60,600,000 | |
| Bisys Crossings I, LLC | | | | | | | |
BISYS Fund Services Building (96% Account Interest) | | | — | | | 34,751,940 | |
| GA-Buckhead LLC | | | | | | | |
| Prominence in Buckhead (75% Account Interest) | | | 97,142,406 | | | 80,618,771 | |
| IL-161 Clark Street LLC | | | | | | | |
| 161 North Clark Street (75% Account Interest) | | | 175,578,714 | | | 157,282,972 | |
| One Boston Place REIT | | | | | | | |
| One Boston Place (50.25% Account Interest) | | | 149,723,498 | | | 139,382,942 | |
| Storage Portfolio I, LLC | | | | | | | |
| Storage Portfolio (3) (75% Account Interest) | | | 63,237,298 | (4) | | 50,430,399 | (4) |
42
| | | | | | Value | |
| | | | |
| |
Location / Description | | | | 2005 | | | 2004 | |
| | |
| |
| |
| CA-Treat Towers LP | | | | | | |
| Treat Towers (75% Account Interest) | $ | 93,964,192 | | $ | 88,524,364 | |
| Strategic Ind Portfolio I, LLC | | | | | | |
| IDI Nationwide Industrial Portfolio (3) (60% Account Interest) | | 66,871,766 | (4) | | 64,041,442 | (4) |
| CA-Colorado Center LP | | | | | | |
| Yahoo! Center (50% Account Interest) | | 138,531,366 | (4) | | 222,702,820 | |
| Florida Mall Associates, Ltd. | | | | | | |
| The Florida Mall (50% Account Interest) | | 208,013,192 | (4) | | 162,632,565 | (4) |
| Teachers REA IV, LLC, which owns | | | | | | |
| Tyson’s Executive Plaza II (50% Account Interest) | | 34,032,806 | | | 27,894,742 | |
| West Dade Associates | | | | | | |
| Miami International Mall (50% Account Interest) | | 82,290,482 | (4) | | 61,577,257 | (4) |
| West Town Mall, LLC | | | | | | |
| West Town Mall (50% Account Interest) | | 112,650,844 | (4) | | 107,452,790 | (4) |
|
|
| |
|
| |
| |
| TOTAL REAL ESTATE JOINT VENTURE | | | | | | |
| (Cost $888,034,873 and $1,060,788,631) | | 1,222,036,564 | | | 1,257,893,004 | |
|
|
| |
|
| |
| |
| LIMITED PARTNERSHIPS— 1.71% and 0.40% | | | | | | |
| Cobalt Industrial REIT (10.00% Account Interest) | | 8,352,409 | | | — | |
| Colony Realty Partners, LP (5.27% Account Interest) | | 13,481,704 | | | — | |
| Essex Apartment Value Fund, LP (10% Account Interest) | | 487,306 | | | 11,434,495 | |
| Heitman Value Partners, LP (8.43% Account Interest) | | 8,106,810 | | | 3,766,214 | |
| Lion Gables Apartment Fund, LP (18.45% Account Interest) | | 150,000,000 | | | — | |
| MONY/Transwestern Mezzanine Realty Partners II, LLC | | | | | | |
| (16.67% Account Interest) | | 14,142,822 | | | 3,134,952 | |
| MONY/Transwestern Mezzanine Realty Partners, LP | | | | | | |
| (19.75% Account Interest) | | 1,975,927 | | | 12,486,734 | |
|
|
| |
|
| |
| |
| TOTAL LIMITED PARTNERSHIP | | | | | | |
| (Cost $198,006,414 and $24,931,845) | | 196,546,978 | | | 30,822,395 | |
|
|
| |
|
| |
| |
| TOTAL OTHER REAL ESTATE RELATED INVESTMENTS | | | | | | |
| (Cost $1,086,041,287 and $1,085,720,476) | | 1,418,583,542 | | | 1,288,715,399 | |
|
|
| |
|
| |
| |
| MARKETABLE SECURITIES—18.19% and 13.54% | | | | | | |
| |
| REAL ESTATE RELATED—3.91% and 4.79% | | | | | | |
| |
| REAL ESTATE EQUITY SECURITIES—3.72% and 4.25% | | | | | | |
| Shares | | | | | | | | |
| | | | | | | | |
| 2005 | | 2004 | | Issuer | | | | | | |
| |
| |
| | | | | | |
| 75,000 | | — | | Aames Investment Corp | | 484,500 | | | — | |
| — | | 70,000 | | Acadia Realty Trust | | — | | | 1,141,000 | |
| 550,000 | | 550,000 | | Affordable Residential Communities | | 5,241,500 | | | 7,892,500 | |
| 36,685 | | 36,685 | | AMB Property Corp | | 1,803,801 | | | 1,481,707 | |
| 40,000 | | 446,100 | | American Campus Communities | | 992,000 | | | 10,032,789 | |
| 919,000 | | — | | American Financial Realty | | 11,028,000 | | | — | |
| — | | 140,000 | | Amli Residential Properties | | — | | | 4,480,000 | |
| 450,000�� | | 46,000 | | Archstone-Smith Trust | | 18,850,500 | | | 1,761,800 | |
| 150,000 | | 232,900 | | Ashford Hospitality Trust | | 1,573,500 | | | 2,531,623 | |
| 40,000 | | — | | Avalonbay Communities Inc | | 3,570,000 | | | — | |
| 150,000 | | — | | Bimini Mortgage Management-A | | 1,357,500 | | | — | |
43
| Shares | | | | Value |
|
|
| | | |
|
|
|
|
|
| 2005 | | 2004 | | Issuer | | | 2005 | | | 2004 |
| |
| |
| | |
| | |
|
| — | | 150,000 | | Boston Properties Inc. | | $ | — | | $ | 9,700,500 |
| — | | 150,000 | | Brandywine Realty Trust | | | — | | | 4,408,500 |
| 30,000 | | 35,000 | | BRE Properties | | | 1,364,400 | | | 1,410,850 |
| 270,000 | | — | | Brookfield Properties | | | 7,943,400 | | | — |
| — | | 60,000 | | Capital Lease Funding Inc. | | | — | | | 750,000 |
| 194,000 | | — | | Carramerica Realty Corp | | | 6,718,220 | | | — |
| 424,000 | | — | | Cedar Shopping Centers Inc. | | | 5,965,680 | | | — |
| 50,000 | | 60,000 | | Centerpoint Properties Trust | | | 2,474,000 | | | 2,873,400 |
| 280,000 | | — | | Cogdell Spencer Inc. | | | 4,729,200 | | | — |
| — | | 143,000 | | Corporate Office Properties | | | — | | | 4,197,050 |
| 976,000 | | — | | Deerfield Triarc Capital Cor | | | 13,371,200 | | | — |
| 380,000 | | 434,000 | | Developers Diversified Realty | | | 17,867,600 | | | 19,256,580 |
| — | | 1,072,990 | | Digital Realty Trust Inc. | | | — | | | 14,453,175 |
| 193,400 | | — | | Duke Realty Corp. | | | 6,459,560 | | | — |
| 1,087,000 | | — | | ECC Capital Corp. | | | 2,456,620 | | | — |
| 600,000 | | — | | Education Realty Trust Inc | | | 7,734,000 | | | — |
| — | | 31,875 | | Equity Lifestyle Properties | | | — | | | 1,139,532 |
| — | | 147,518 | | Equity Office Properties Trust | | | — | | | 4,295,724 |
| 180,000 | | 180,000 | | Equity Residential | | | 7,041,600 | | | 6,512,400 |
| 580,577 | | 594,500 | | Extra Space Storage Inc. | | | 8,940,886 | | | 7,924,685 |
| — | | 413,873 | | Falcon Financial Investment | | | — | | | 2,897,111 |
| 1,367,000 | | 1,367,000 | | Feldman Mall Properties | | | 16,417,670 | | | 17,784,670 |
| 111,600 | | — | | First Potomac Realty Trust | | | 2,968,560 | | | — |
| 110,000 | | 110,000 | | General Growth Properties | | | 5,168,900 | | | 3,977,600 |
| — | | 75,000 | | Glenborough Realty Trust Inc. | | | — | | | 1,596,000 |
| 404,800 | | 912,000 | | GMH Communities Trust | | | 6,278,448 | | | 12,859,200 |
| 348,700 | | 38,818 | | Gramercy Capital Corp. | | | 7,943,386 | | | 799,651 |
| 300,000 | | 72,550 | | Great Wolf Resorts Inc. | | | 3,093,000 | | | 1,620,767 |
| — | | 75,000 | | HealthCare Realty Trust Inc. | | | — | | | 3,052,500 |
| 562,000 | | 350,000 | | Hersha Hospitality Trust | | | 5,063,620 | | | 4,007,500 |
| 150,000 | | — | | Highland Hospitality Corp. | | | 1,657,500 | | | — |
| 60,000 | | — | | Hilton Hotels Corp. | | | 1,446,600 | | | — |
| 80,000 | | 168,000 | | Home Properties Inc. | | | 3,264,000 | | | 7,224,000 |
| 450,000 | | 325,000 | | Homebanc Corp/Ga. | | | 3,366,000 | | | 3,146,000 |
| 300,000 | | — | | Host Marriott Corp | | | 5,685,000 | | | — |
| — | | 74,257 | | Impac Mortgage Holdings Inc. | | | — | | | 1,683,406 |
| 300,000 | | 300,000 | | Interstate Hotels & Resorts | | | 1,311,000 | | | 1,608,000 |
| 80,000 | | — | | Istar Financial Inc | | | 2,852,000 | | | — |
| 1,958,000 | | 1,908,000 | | Jameson Inns Inc | | | 4,209,700 | | | 3,758,760 |
| 100,000 | | — | | JER Investors Trust Inc. | | | 1,695,000 | | | — |
| 108,000 | | 54,000 | | Kimco Realty Corp | | | 3,464,640 | | | 3,131,460 |
| 426,000 | | 324,443 | | Kite Realty Group Trust | | | 6,590,220 | | | 4,957,489 |
| 300,000 | | — | | KKR Financial Corp | | | 7,197,000 | | | — |
| 200,000 | | — | | Lasalle Hotel Properties | | | 7,344,000 | | | — |
| 120,000 | | 215,078 | | Lexington Corporate Properties Trust | | | 2,556,000 | | | 4,856,461 |
| 1,266,660 | | 1,266,660 | | Lodgian Inc | | | 13,591,262 | | | 15,579,918 |
| 200,000 | | 162,000 | | LTC Properties Inc | | | 4,206,000 | | | 3,225,420 |
| 75,000 | | 150,000 | | Macerich Company/The | | | 5,035,500 | | | 9,420,000 |
| 400,000 | | 30,420 | | Mack-Cali Realty Corp. | | | 17,280,000 | | | 1,400,233 |
| 200,000 | | — | | Medical Properties Trust Inc. | | | 1,956,000 | | | — |
| 40,000 | | 40,000 | | Mills Corp/The | | | 1,677,600 | | | 2,550,400 |
| 100,000 | | 150,000 | | Mission West Properties | | | 974,000 | | | 1,596,000 |
| 331,200 | | — | | Monmouth REIT-CLA | | | 2,656,224 | | | — |
| 300,000 | | — | | Mortgageit Holdings Inc | | | 4,098,000 | | | — |
44
| | | Shares | | | Value |
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| | | 2005 | | 2004 | | Issuer | | 2005 | | | 2004 |
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|
| | | 130,000 | | — | | NewCastle Investment Corp | $ | 3,230,500 | | $ | — |
| | | — | | 270,000 | | New York Mortgage Trust Inc | | — | | | 3,024,000 |
| | | — | | 100,000 | | Northstar Realty Finance Cor | | — | | | 1,145,000 |
| | | 100,000 | | — | | Novastar Financial Inc. | | 2,811,000 | | | — |
| | | 525,000 | | 525,000 | | Origen Financial Inc. | | 3,738,000 | | | 3,927,000 |
| | | 328,100 | | 70,700 | | Parkway Properties | | 13,169,934 | | | 3,588,025 |
| | | — | | 75,000 | | Prentiss Properties Trust | | — | | | 2,865,000 |
| | | 400,000 | | 200,000 | | Prologis Trust | | 18,688,000 | | | 8,666,000 |
| | | 30,000 | | — | | Public Storage, Inc. | | 2,031,600 | | | — |
| | | 100,000 | | — | | RAIT Investment Trust | | 2,592,000 | | | — |
| | | — | | 507,000 | | Reckson Associates Realty Corp | | — | | | 16,634,670 |
| | | 236,000 | | 45,000 | | Regency Centers Corp. | | 13,912,200 | | | 2,493,000 |
| | | 384,000 | | — | | Republic Property Trust | | 4,608,000 | | | — |
| | | 305,721 | | 255,900 | | Simon Property Group Inc. | | 23,427,400 | | | 16,549,053 |
| | | 350,000 | | — | | Starwood Hotels & Resorts | | 22,351,000 | | | — |
| | | 303,820 | | 303,820 | | Sunset Financial Resources | | 2,576,394 | | | 3,162,766 |
| | | — | | 315,000 | | Sunstone Hotel Investors Inc. | | — | | | 6,545,700 |
| | | 111,200 | | 268,200 | | Thomas Properties Group | | 1,391,112 | | | 3,416,868 |
| | | 50,000 | | 1,500,000 | | Trizec Properties Inc. | | 1,146,000 | | | 28,380,000 |
| | | 100,000 | | 100,000 | | United Dominion Realty Trust | | 2,344,000 | | | 2,480,000 |
| | | 95,000 | | 77,558 | | Ventas Inc. | | 3,041,900 | | | 2,125,865 |
| | | 200,000 | | 50,000 | | Vornado Realty Trust | | 16,694,000 | | | 3,806,500 |
| | | 944 | | — | | Windrose Medical Properties | | 14,028 | | | — |
| | | | | | |
|
| |
|
|
| |
| | | TOTAL REAL ESTATE EQUITY SECURITIES | | | | | |
| | | (Cost $411,877,936 and $284,166,107 ) | | 426,781,565 | | | 327,785,808 |
| | |
|
| |
|
|
| |
| COMMERCIAL MORTGAGE BACKED SECURITIES—0.19% and 0.54% | | | | | |
| | | Principal | | | | | | |
| |
| | | | | | |
| | | 2005 | | 2004 | | Issuer, Current Rate and Maturity Date | | | | | |
| |
| |
| |
| | | | | |
| $ | | — | | $10,000,000 | | Bear Stearns CMS | | | | | |
| | | | | | | 3.436% 05/14/16 | | — | | | 10,006,950 |
| | | — | | 10,000,000 | | COMM 2004 HTL1 A1 | | | | | |
| | | | | | | 4.008% 07/15/16 | | — | | | 10,013,820 |
| 10,000,000 | | 10,000,000 | | GSMS 2001-Rock A2FL | | | | | |
| | | | | | 4.680% 05/03/18 | | 10,217,650 | | | 10,070,610 |
| 10,000,000 | | 10,000,000 | | MSDWC 2001-280 A2F | | | | | |
| | | | | | | 4.710% 02/03/16 | | 10,061,730 | | | 9,915,150 |
| | | 1,601,634 | | 1,940,947 | | Trize 2001 - TZHA A3FL | | | | | |
| | | | | | | 4.740% 03/15/13 | | 1,601,653 | | | 1,951,830 |
| | | | | | |
|
| |
|
|
| |
| | | TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES | | | | | |
| | | (Cost $21,604,079 and $41,943,872) | | 21,881,033 | | | 41,958,360 |
| | |
|
| |
|
|
| |
| | | TOTAL REAL ESTATE RELATED | | | | | |
| | | (Cost $433,482,015 and $326,109,979 ) | | 448,662,598 | | | 369,744,168 |
| | |
|
| |
|
|
45
| OTHER—14.28% and 8.75% | |
| | | | | | |
| COMMERCIAL PAPER—11.67% and 4.51% | | | | | |
| Principal | | | | Value |
| | | |
|
|
|
|
| 2005 | | 2004 | | Issuer, Current Rate and Maturity Date | | 2005 | | | 2004 |
| |
| |
| |
| | |
|
| $25,000,000 | $ | — | | Abbey National North America LLC | | | | | |
| | | | 4.330% 01/05/06 | $ | 24,994,000 | | $ | — |
| 25,000,000 | | — | | Abbey National PLC | | | | | |
| | | | 4.280% 01/17/06 | | 24,999,500 | | | — |
| 10,000,000 | | — | | Alabama Power Co | | | | | |
| | | | 4.250% 01/12/06 | | 9,989,100 | | | — |
| 25,000,000 | | — | | American Express Centurion Bank | | | | | |
| | | | 4.310% 01/19/06 | | 25,000,000 | | | — |
| 2,430,000 | | 25,000,000 | | American Honda Finance, Corp | | | | | |
| | | | 4.240% 01/09/06 | | 2,428,250 | | | 24,981,667 |
| 10,000,000 | | — | | Atlantis One Funding Corp | | | | | |
| | | | 4.380% 02/24/06 | | 9,936,500 | | | — |
| 25,000,000 | | — | | Atlantis One Funding Corp | | | | | |
| | | | 4.210% 02/08/06 | | 24,890,750 | | | — |
| 25,000,000 | | — | | Bank of Montreal | | | | | |
| | | | 4.290%01/26/06 | | 24,999,500 | | | — |
| 30,000,000 | | — | | Barclay’s Bank, PLC | | | | | |
| | | | 4.420%03/14/06 | | 29,998,200 | | | — |
| 15,000,000 | | — | | Barclay’s Bank, PLC | | | | | |
| | | | 4.330%08/30/06 | | 14,999,400 | | | — |
| 18,040,000 | | — | | Becton Dickinson & Co. | | | | | |
| | | | 4.210% 01/24/06 | | 17,994,719 | | | — |
| 13,100,000 | | 10,000,000 | | Beta Finance, Inc | | | | | |
| | | | 4.160%01/12/06 | | 13,085,590 | | | 9,991,445 |
| 11,000,000 | | 15,000,000 | | Beta Finance, Inc | | | | | |
| | | | 4.070%01/17/06 | | 10,981,190 | | | 14,980,050 |
| — | | 18,100,000 | | BMW US Capital Corp | | | | | |
| | | | 3.550% 10/06/05 | | — | | | 18,077,073 |
| 20,000,000 | | — | | Calyon | | | | | |
| | | | 4.100% 01/19/06 | | 19,997,800 | | | — |
| 10,000,000 | | — | | Canadian Wheat Board (The) | | | | | |
| | | | 4.320% 02/06/06 | | 9,959,500 | | | — |
| 14,000,000 | | 13,000,000 | | CC (USA), Inc | | | | | |
| | | | 4.000% 01/13/06 | | 13,982,920 | | | 12,988,878 |
| 40,000,000 | | 3,100,000 | | Ciesco LP | | | | | |
| | | | 4.280% 01/23/06 | | 39,903,200 | | | 3,097,537 |
| 10,000,000 | | — | | Ciesco LP | | | | | |
| | | | 4.370% 02/24/06 | | 9,936,500 | | | — |
| 37,000,000 | | — | | Citigroup Funding Inc. | | | | | |
| | | | 4.220% 01/20/06 | | 36,925,260 | | | — |
| 13,000,000 | | — | | Citigroup Funding Inc. | | | | | |
| | | | 4.350%02/21/06 | | 12,923,560 | | | — |
| 24,150,000 | | — | | Colgate-Palmolive Co | | | | | |
| | | | 4.250% 01/06/06 | | 24,141,306 | | | — |
| 15,000,000 | | 25,000,000 | | Corporate Asset Funding Corp, Inc | | | | | |
| | | | 4.270% 01/13/06 | | 14,981,700 | | | 24,949,625 |
46
| Principal | | | | Value |
| | | |
|
|
|
|
| 2005 | | 2004 | | Issuer, Current Rate and Maturity Date | | 2005 | | | 2004 |
| |
| |
| |
| | |
|
| $ 5,035,000 | $ | — | | Corporate Asset Funding Corp, Inc | | | | | |
| | | | | 4.200% 01/23/06 | $ | 5,022,815 | | $ | — |
| 16,000,000 | | — | | Corporate Asset Funding Corp, Inc | | | | | |
| | | | | 4.210% 01/25/06 | | 15,957,440 | | | — |
| 5,905,000 | | — | | Corporate Asset Funding Corp, Inc | | | | | |
| | | | | 4.290% 01/31/06 | | 5,884,982 | | | — |
| 2,020,000 | | — | | Corporate Asset Funding Corp, Inc | | | | | |
| | | | | 4.360%02/17/06 | | 2,008,930 | | | — |
| 25,000,000 | | — | | Deutsche Bank | | | | | |
| | | | | 4.270% 02/14/06 | | 24,997,000 | | | — |
| 50,000,000 | | — | | Dexia Bank | | | | | |
| | | | | 4.280% 01/30/06 | | 49,998,000 | | | — |
| 8,000,000 | | — | | Dorada Finance Inc | | | | | |
| | | | | 3.900% 01/23/06 | | 7,980,640 | | | — |
| 20,000,000 | | — | | Dorada Finance Inc | | | | | |
| | | | | 4.350% 02/27/06 | | 19,865,600 | | | — |
| 21,500,000 | | — | | Dorada Finance Inc | | | | | |
| | | | | 4.250% 02/16/06 | | 21,384,975 | | | — |
| 13,000,000 | | — | | Edison Asset Securitization, LLC | | | | | |
| | | | | 4.190% 01/17/06 | | 12,977,770 | | | — |
| 20,000,000 | | — | | Edison Asset Securitization, LLC | | | | | |
| | | | | 4.360% 02/22/06 | | 19,877,800 | | | — |
| 7,248,000 | | — | | Edison Asset Securitization, LLC | | | | | |
| | | | | 4.420%04/07/06 | | 7,162,981 | | | — |
| 20,000,000 | | — | | FCAR Owner Trust I | | | | | |
| | | | | 4.340% 02/07/06 | | 19,915,000 | | | — |
| 17,000,000 | | — | | First Tennessee National Bank | | | | | |
| | | | | 4.330% 02/06/06 | | 16,999,660 | | | — |
| — | | 2,670,000 | | Fortune Brands | | | | | |
| | | | | 2.060%01/11/05 | | — | | | 2,668,205 |
| 21,590,000 | | — | | General Electric Capital Corp | | | | | |
| | | | | 4.440% 04/28/06 | | 21,282,342 | | | — |
| 25,000,000 | | — | | General Electric Capital Corp | | | | | |
| | | | | 4.520%06/28/06 | | 24,435,000 | | | — |
| 35,000,000 | | — | | Goldman Sachs Group, LP | | | | | |
| | | | | 4.280%02/03/06 | | 34,870,150 | | | — |
| 10,000,000 | | 15,000,000 | | Govco Incorporated | | | | | |
| | | | | 4.080%01/18/06 | | 9,981,700 | | | 14,990,833 |
| 9,000,000 | | 10,000,000 | | Govco Incorporated | | | | | |
| | | | | 4.390% 03/14/06 | | 8,922,420 | | | 9,986,700 |
| 29,140,000 | | — | | Govco Incorporated | | | | | |
| | | | | 4.040% 01/09/06 | | 29,118,436 | | | — |
| 5,015,000 | | — | | Grampian Funding LLC | | | | | |
| | | | | 4.320% 01/23/06 | | 5,002,814 | | | — |
| 20,000,000 | | — | | Grampian Funding LLC | | | | | |
| | | | | 4.040% 02/01/06 | | 19,929,600 | | | — |
| 10,000,000 | | 25,000,000 | | Greyhawk Funding LLC | | | | | |
| | | | | 4.000% 01/06/06 | | 9,996,300 | | | 24,948,000 |
| — | | 10,750,000 | | Harley- Davidson Funding Corp | | | | | |
| | | | | 2.230%02/14/05 | | — | | | 10,718,556 |
47
| Principal | | | | Value |
| | | |
|
|
|
|
| 2005 | | 2004 | | Issuer, Current Rate and Maturity Date | | 2005 | | | 2004 |
| |
| |
| |
| | |
|
| $25,000,000 | | — | | Harrier Finance Funding (US) LLC | | | | | |
| | | | | 3.930% 01/25/06 | $ | 24,933,500 | | $ | — |
| 10,085,000 | | — | | HBOS Treasury Srvcs Plc | | | | | |
| | | | | 4.200% 02/15/06 | | 10,033,163 | | | — |
| 31,740,000 | | 15,000,000 | | Kitty Hawk Funding Corp | | | | | |
| | | | | 4.300% 01/12/06 | | 31,705,086 | | | 14,975,300 |
| 10,000,000 | | 9,565,000 | | Kitty Hawk Funding Corp | | | | | |
| | | | | 3.890%02/15/06 | | 9,947,600 | | | 9,550,461 |
| 25,000,000 | | — | | Links Finance L.L.C. | | | | | |
| | | | | 4.300%02/10/06 | | 24,884,750 | | | — |
| 25,000,000 | | — | | Links Finance L.L.C. | | | | | |
| | | | | 4.380% 03/13/06 | | 24,787,750 | | | — |
| 10,000,000 | | 10,000,000 | | Paccar Financial Corp | | | | | |
| | | | | 4.020% 01/12/06 | | 9,989,200 | | | 9,984,800 |
| 13,655,000 | | — | | Paccar Financial Corp | | | | | |
| | | | | 4.360%03/03/06 | | 13,557,913 | | | — |
| 20,080,000 | | — | | Park Avenue Receivables Corp | | | | | |
| | | | | 4.270%01/27/06 | | 20,021,166 | | | — |
| 10,000,000 | | — | | Park Avenue Receivables Corp | | | | | |
| | | | | 4.290% 01/04/06 | | 9,998,800 | | | — |
| 10,000,000 | | — | | Preferred Receivables Funding Corp | | | | | |
| | | | | 4.130%01/06/06 | | 9,996,300 | | | — |
| 15,000,000 | | 10,000,000 | | Private Export Funding Corporation | | | | | |
| | | | | 4.080% 02/13/06 | | 14,926,500 | | | 9,992,667 |
| 5,000,000 | | — | | Private Export Funding Corporation | | | | | |
| | | | | 4.440%04/04/06 | | 4,944,250 | | | — |
| 9,000,000 | | — | | Private Export Funding Corporation | | | | | |
| | | | | 4.300% 03/09/06 | | 8,929,260 | | | — |
| 19,150,000 | | — | | Private Export Funding Corporation | | | | | |
| | | | | 4.170% 02/07/06 | | 19,070,145 | | | — |
| 20,000,000 | | — | | Proctor & Gamble | | | | | |
| | | | | 4.030%01/10/06 | | 19,983,200 | | | — |
| 3,500,000 | | — | | Proctor & Gamble | | | | | |
| | | | | 4.090%01/26/06 | | 3,490,445 | | | — |
| — | | 25,000,000 | | Rabobank USA Financial Corp | | | | | |
| | | | | 3.640%11/28/05 | | — | | | 24,946,375 |
| 50,000,000 | | — | | Ranger Funding Company LLC | | | | | |
| | | | | 4.290%01/17/06 | | 49,914,500 | | | — |
| 17,000,000 | | — | | Regions Bank (Alabama) | | | | | |
| | | | | 4.180%01/30/06 | | 16,998,130 | | | — |
| — | | 23,135,000 | | Royal Bank of Canada | | | | | |
| | | | | 3.660% 11/08/05 | | — | | | 23,108,626 |
| — | | 16,430,000 | | Royal Bank of Scotland PLC | | | | | |
| | | | | 3.680% 11/16/05 | | — | | | 16,393,690 |
| 540,000 | | 2,000,000 | | Sherwin-Williams Co | | | | | |
| | | | | 4.070% 02/07/06 | | 537,732 | | | 1,997,467 |
| 14,390,000 | | 15,000,000 | | Sigma Finance Inc | | | | | |
| | | | | 4.030%01/12/06 | | 14,374,171 | | | 14,965,875 |
| 8,000,000 | | — | | Sigma Finance Inc | | | | | |
| | | | | 4.390%03/08/06 | | 7,937,120 | | | — |
48
| | Principal | | | | Value |
|
| | | |
|
|
|
|
| | 2005 | | | 2004 | | Issuer, Current Rate and Maturity Date | | 2005 | | | 2004 |
|
| | |
| |
| |
| | |
|
| $ | 5,000,000 | | $ | — | | Sigma Finance Inc | | | | | |
| | | | | | 3.940% 03/01/06 | $ | 4,965,150 | | $ | — |
| 17,000,000 | | | — | | Sigma Finance Inc | | | | | |
| | | | | | | 4.220% 01/31/06 | | 16,942,370 | | | — |
| | 5,575,000 | | | — | | Sigma Finance Inc | | | | | |
| | | | | | | 4.340% 02/27/06 | | 5,537,536 | | | — |
| | 6,030,000 | | | — | | Societe Generale North America, Inc | | | | | |
| | | | | | | 4.400% 03/20/06 | | 5,974,283 | | | — |
| 27,600,000 | | | — | | Swedish Export Credit Corp | | | | | |
| | | | | | 4.260% 01/18/06 | | 27,550,596 | | | — |
| 15,000,000 | | | — | | Toyota Motor Credit Corp | | | | | |
| | | | | | 4.300% 10/10/06 | | 15,000,900 | | | — |
| — | | | 25,000,000 | | Toronto Dominion Bank | | | | | |
| | | | | | 3.160%09/14/05 | | — | | | 24,977,213 |
| 24,000,000 | | | 25,000,000 | | UBS Finance, (Delaware) Inc | | | | | |
| | | | | | 4.310%02/10/06 | | 23,891,280 | | | 24,990,500 |
| 3,120,000 | | | — | | UBS Finance, (Delaware) Inc | | | | | |
| | | | | | 4.440% 04/19/006 | | 3,079,190 | | | — |
| 25,000,000 | | | — | | Variable Funding Capital Corporation | | | | | |
| | | | | | 4.000%01/05/06 | | 24,993,750 | | | — |
| 5,010,000 | | | — | | Washington Gas Light Co | | | | | |
| | | | | | 4.330%01/09/06 | | 5,006,393 | | | — |
| 20,000,000 | | | — | | Wells Fargo | | | | | |
| | | | | | 4.320% 02/09/06 | | 19,999,600 | | | — |
| 19,460,000 | | | — | | Yorktown Capital, LLC | | | | | |
| | | | | | 4.19% 01/04/06 | | 19,457,665 | | | — |
| 2,625,000 | | | — | | Yorktown Capital, LLC | | | | | |
| | | | | | 4.280% 02/10/06 | | 2,611,893 | | | — |
| 4,066,000 | | | — | | Yorktown Capital, LLC | | | | | |
| | | | | | 4.350% 01/06/06 | | 4,064,496 | | | — |
| | | | | | |
|
| |
|
|
| |
| | TOTAL COMMERCIAL PAPER | | | | | |
| | (Cost $1,340,511,661 and $348,329,276 ) | | 1,340,656,583 | | 348,261,543 |
| |
|
| |
|
| |
| GOVERNMENT AGENCY BONDS—2.61% and 4.24% | | | | | |
| | Principal | | | | Value |
|
| | | |
|
|
|
|
| | 2005 | | | 2004 | | Issuer, Current Rate and Maturity Date | | 2005 | | | 2004 |
|
| | |
| |
| |
| | |
|
| $ | — | | $ | 9,380,000 | | Federal Farm Credit Banks | | | | | |
| | | | | | | 1.780%03/15/05 | $ | — | | $ | 9,334,882 |
| | — | | | 8,603,000 | | Federal Farm Credit Banks | | | | | |
| | | | | | | 1.220%01/07/05 | | — | | | 8,599,403 |
| | 7,030,000 | | | 7,860,000 | | Federal Home Loan Banks | | | | | |
| | | | | | | 3.400%01/03/06 | | 7,027,383 | | | 7,798,928 |
| | — | | | 18,000,000 | | Federal Home Loan Banks | | | | | |
| | | | | | | 3.380% 10/11/05 | | — | | | 17,992,475 |
| | — | | | 22,825,000 | | Federal Home Loan Banks | | | | | |
| | | | | | | 3.590%10/12/05 | | — | | | 22,795,841 |
| | — | | | 20,700,000 | | Federal Home Loan Banks | | | | | |
| | | | | | | 3.640% 11/04/05 | | — | | | 20,636,761 |
49
| | Principal | | | | | Value |
|
| | | | |
|
|
|
| | 2005 | | 2004 | | Issuer, Current Rate and Maturity Date | | | 2005 | | | 2004 |
|
| |
| |
| | |
| | |
|
| $ | — | | $11,245,000 | | Federal Home Loan Banks | | | | | | |
| | | | | | 3.230%09/02/05 | | $ | — | | $ | 11,227,214 |
| | — | | 8,510,000 | | Federal Home Loan Banks | | | | | | |
| | | | | | 2.950% 07/01/05 | | | — | | | 8,471,280 |
| 30,000,000 | | 20,000,000 | | Federal Home Loan Mortgage Corp | | | | | | |
| | | | | | 3.910%01/03/06 | | | 30,000,000 | | | 19,995,222 |
| 18,000,000 | | 15,000,000 | | Federal Home Loan Mortgage Corp | | | | | | |
| | | | | | 4.210% 02/09/06 | | | 17,922,240 | | | 14,993,546 |
| 50,000,000 | | 15,540,000 | | Federal Home Loan Mortgage Corp | | | | | | |
| | | | | | 4.210%01/31/06 | | | 49,839,500 | | | 15,516,366 |
| | 3,840,000 | | — | | Federal Home Loan Mortgage Corp | | | | | | |
| | | | | | 3.740% 01/09/06 | | | 3,837,351 | | | — |
| 37,615,000 | | 22,280,000 | | Federal National Mortgage Association | | | | | | |
| | | | | | 4.150%01/10/06 | | | 37,584,908 | | | 22,094,408 |
| 23,940,000 | | 50,000,000 | | Federal National Mortgage Association | | | | | | |
| | | | | | 4.240%02/23/06 | | | 23,797,557 | | | 49,942,208 |
| 46,555,000 | | 25,000,000 | | Federal National Mortgage Association | | | | | | |
| | | | | | 4.100%01/11/06 | | | 46,512,169 | | | 24,980,590 |
| 29,320,000 | | 31,925,000 | | Federal National Mortgage Association | | | | | | |
| | | | | | 4.200% 02/02/06 | | | 29,217,380 | | | 31,919,281 |
| | 1,766,000 | | 32,184,000 | | Federal National Mortgage Association | | | | | | |
| | | | | | 3.960% 02/15/06 | | | 1,757,135 | | | 32,174,390 |
| 50,000,000 | | 9,270,000 | | Federal National Mortgage Association | | | | | | |
| | | | | | 4.240%02/17/06 | | | 49,737,500 | | | 9,255,335 |
| | 3,015,000 | | — | | Federal National Mortgage Association | | | | | | |
| | | | | | 4.110%02/01/06 | | | 3,004,809 | | | — |
| | | | | | |
|
| | |
|
| |
| | TOTAL GOVERNMENT AGENCY BONDS | | | | | | |
| | (Cost $300,164,529 and $327,794,989 ) | | | 300,237,932 | | | 327,728,130 |
| | |
|
| | |
|
| |
| | TOTAL OTHER(Cost $1,640,676,190 and $676,124,265 ) | | | 1,640,894,515 | | | 675,989,673 |
| | |
|
| | |
|
| |
| | TOTAL MARKETABLE SECURITIES | | | | | | |
| | (Cost $2,074,158,205 and $1,002,234,244) | | | 2,089,557,113 | | | 1,045,733,841 |
| | |
|
| | |
|
| |
| | TOTAL INVESTMENTS—100.00% | | | | | | |
| | (Cost $10,546,969,360 and $7,403,520,075) | | $11,485,741,406 | | $7,725,918,490 |
| | |
| |
|
| (1) | The investment has a mortgage payable outstanding, as indicated in Note 5. |
| |
| (2) | Leasehold interest only. |
| |
| (3) | Located throughout the U.S. |
| |
| (4) | The market value reflects the Account’s interest in the joint venture, net of any debt. |
| |
See notes to the financial statements.
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants of the TIAA Real Estate Account and the
Board of Trustees of Teachers Insurance and Annuity Association of America:
In our opinion, the accompanying statements of assets and liabilities, including the statement of investments, and the related statements of operations, changes in net assets and cash flows, present fairly, in all material respects, the financial position of the TIAA Real Estate Account (the “Account”) at December 31, 2005, the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Account’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 14, 2006
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants of the TIAA Real Estate Account and the
Board of Trustees of Teachers Insurance and Annuity Association of America:
We have audited the accompanying statement of assets and liabilities of the TIAA Real Estate Account (“Account”) of Teachers Insurance and Annuity Association of America (“TIAA”), including the statement of investments, as of December 31, 2004, and the related statements of operations, changes in net assets and cash flows for each of the two years in the period ended December 31, 2004. These financial statements are the responsibility of TIAA’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Account at December 31, 2004, and the results of its operations, changes in its net assets and its cash flows for each of the two years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
| New York, New York | | /s/ Ernst & Young LLP |
| April 14, 2005 | | |
52
ADDITIONAL INFORMATION
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
On February 28, 2005, TIAA and Ernst & Young LLP (“Ernst & Young”) agreed that the relationship between Ernst & Young and TIAA would cease. TIAA has engaged PricewaterhouseCoopers LLP as the independent accountants.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) The registrant maintains a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed in the registrant’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the registrant’s Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and participation of the registrant’s management, including the registrant’s CEO and CFO, the registrant conducted an evaluation of the effectiveness of the registrant’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon the management’s review, the CEO and the CFO concluded that the registrant’s disclosure controls and procedures were effective as of December 31, 2005.
(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.
53
PART III
ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION.
The Real Estate Account has no officers or directors and no TIAA trustee or executive officer receives compensation from the Account. The Trustees and principal executive officers of TIAA, and their principal occupations during the last five years, are as follows:
Trustees
Elizabeth E. Bailey,67
John C. Hower Professor of Public Policy and Management, Wharton School, University of Pennsylvania. Director, CSX Corporation, Altria Group, Inc. and National Bureau of Economic Research. Honorary Trustee, the Brookings Institute.
Robert C. Clark,62
Harvard University Distinguished Service Professor and Austin Wakeman Scott Professor of Law, Harvard Law School, Harvard University, Formerly Dean and Royall Professor of Law, Harvard Law School. Director, Collins & Aikman Corporation, Time Warner, Inc. and Omnicom Group.
Edward M. Hundert, M.D.,49
President, Professor of Biomedical Ethics, Professor of Cognitive Science, Case Western Reserve University. Formerly, Dean, 2000-2002, University of Rochester School of Medicine and Dentistry, Professor of Medical Humanities and Psychiatry, 1997-2002. Member of BioEnterprise and the Cleveland Orchestra. Board Member, Rock and Roll of Fame, the Greater Cleveland Partnership and Nortech.
Marjorie Fine Knowles,66
Professor of Law, Georgia State University College of Law.
Donald K. Peterson,56
Chairman and Chief Executive Officer, Avaya Inc. Formerly, Executive Vice President and Chief Financial Officer, Lucent Technologies. Chairman, Board of Trustees, Worcester Polytechnic Institute.
Sidney A. Ribeau,58
President, Bowling Green University. Director, The Andersons, Convergys and Worthington Industries.
Leonard S. Simon,69
Former Vice Chairman, Charter One Financial, Inc. Formerly, Chairman, President and Chief Executive Officer, RCSB Financial, Inc. and Chairman and Chief Executive Officer, Rochester Community Savings Bank. Director, Landmark Technology Partners, Inc. and Integrated Nano-Technologies, LLC.
54
David F. Swensen,52
Chief Investment Officer, Yale University. Trustee, Brookings Institute, Carnegie Institution of Washington, Carnegie Corporation, Yale New Haven Hospital, Howard Hughes Medical Institute, Courtauld Institute of Art, Wesleyan University, and Hopkins School.
Ronald L. Thompson,56
Former Chairman and Chief Executive Officer, Midwest Stamping and Manufacturing Company. Director, Interstate Bakeries Corporation, Ralston Purina, Ryerson Tull Inc., and Washington University in St. Louis.
Marta Tienda,55
Professor of Demographic Studies, Princeton University. Director, Office of Population Research, Princeton University, 1998-2002. Director, Corporation of Brown University, the Princeton Healthcare System, Federal Reserve Bank of New York, Sloan Foundation, Jacobs Foundation and Hispanic Business Incorporated.
Paul R. Tregurtha,70
Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran Transportation Company, Inc.; Vice Chairman, Interlake Steamship Company and Lakes Shipping Company; Formerly, Chairman, Meridian Aggregates, L.P. Director, FPL Group, Inc.
Rosalie J. Wolf,64
Managing Partner, Botanica Capital Partners LLC. Formerly, Managing Director, Offit Hall Capital Management LLC and its predecessor company, Laurel Management Company LLC; formerly, Treasurer and Chief Investment Officer, The Rockefeller Foundation. Director, North European Oil Royalty Trust and Sanford C. Bernstein Fund, Inc.
Officer—Trustees
Herbert M. Allison, Jr.,62
Chairman, President and Chief Executive Officer, TIAA. President and Chief Executive Officer, CREF. Formerly, President, Chief Operating Officer and Member of the Board of Directors of Merrill Lynch & Co., Inc., 1997-1999 and President and Chief Executive Officer of Alliance for LifeLong Learning, Inc., 1999-2002.
Other Officers
Gary Chinery,56
Vice President and Treasurer, TIAA and CREF.
E. Laverne Jones,57
Vice President and Corporate Secretary, TIAA and CREF.
Russell G. Noles,47
Vice President and Acting Chief Financial Officer, TIAA and CREF.
John A. Somers,62
Senior Managing Director, Fixed Income and Real Estate Investments.
55
Portfolio Management Team
Margaret A. Brandwein,59
Managing Director—TIAA Real Estate Account.
Thomas Garbutt,47
Managing Director—Real Estate Equities.
Philip J. McAndrews,47
Managing Director—Portfolio Management.
Effective February 1, 2006, the management of the Account’s REIT portfolio was changed. David Copp and Anne Sapp will be responsible for implementing the Account’s REIT investment strategy.
Audit Committee Financial Expert
On August 20, 2003, the Board of Trustees of TIAA determined that Rosalie J. Wolf was qualified and would serve as the audit committee financial expert on the TIAA’s audit committee. Ms. Wolf is independent (as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934) and has not accepted, directly or indirectly, any consulting, advisory or other compensatory fee from TIAA, other than in her capacity as Trustee.
Code of Ethics
The Board of Trustees of TIAA has a code of ethics for senior financial officers, including its principal executive officer, principal financial officer, principal accounting officer, or controller, and persons performing similar functions, in conformity with rules promulgated under the Sarbanes-Oxley Act of 2002. The code of ethics is filed as an exhibit to this annual report. During the reporting period, there were no implicit or explicit waivers granted by the Registrant from any provision of the code of ethics.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TIAA’s general account plays a significant role in operating the Real Estate Account, including providing a liquidity guarantee, and investment management and other services.
Liquidity Guarantee.If the Account’s cash flow is insufficient to fund redemption requests, TIAA’s general account has agreed to fund them by purchasing accumulation units. TIAA thereby guarantees that a participant can redeem accumulation units at their then current daily net asset value. For the year ended December 31, 2005, the Account paid TIAA $3,170,017 for this liquidity guarantee through a daily deduction from the net assets of the Account.
56
Investment Management and Administrative Services/Certain Risks Borne by TIAA.Deductions are made each valuation day from the net assets of the Account for various services required to manage investments, administer the Account and distribute the contracts. These services are performed at cost by TIAA and Services. Deductions are also made each valuation day to cover mortality and expense risks borne by TIAA.
For the year ended December 31, 2005, the Account paid TIAA $19,603,225 for investment management services and $6,196,549 for mortality and expense risks. For the same period, the Account paid Services $27,130,406 for its administrative and distribution services.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
PricewaterhouseCoopers LLP (“PwC”) performs independent audits of the Registrant’s financial statements. To maintain auditor independence and avoid even the appearance of conflicts of interest, the Registrant, as a policy, does not engage PwC for management advisory or consulting services.
Audit Fees.PwC’s fees for professional services rendered for the audit of the registrant’s annual financial statements for the year ended December 31, 2005 and review of financial statements included in the registrant’s annual financial statements was $429,500. Ernst & Young’s fees for professional services rendered for the audit of the Registrant’s annual financial statements (including Sarbanes-Oxley-related activities) for the fiscal years ended December 31, 2004 and December 31, 2003 and review of financial statements included in Registrant’s quarterly reports were $1,804,200 and $151,700, respectively.
Tax Fees.PwC had no tax fees for the fiscal year ended December 31, 2005. Ernst & Young had no tax fees for the fiscal years ended December 31, 2004 and 2003.
All Other Fees.Other than as set forth above, there were no additional fees with respect to Registrant.
Preapproval Policy.In June of 2003, the Registrant’s audit committee (“Audit
Committee”) adopted a Preapproval Policy for External Audit Firm Services (the “Policy”). The Policy describes the types of services that may be provided by the independent auditor to the Registrant without impairing the auditor’s independence. Under the Policy, the Audit Committee is required to preapprove services to be performed by the Registrant’s independent auditor in order to ensure that such services do not impair the auditor’s independence.
The Policy requires the Audit Committee to: (i) appoint the independent auditor to perform the financial statement audit for the Registrant and certain of its affiliates, including approving the terms of the engagement and (ii) preapprove the audit, audit-related and tax services to be provided by the independent auditor and the fees to be charged for provision of such services from year to year.
57
Auditor Fees for Related Entities.The aggregate non-audit fees billed by PwC for services rendered to the Registrant and affiliates performing on-going services to the
Registrant, including TIAA for the year ended December 31, 2005 was $331,500. The aggregate non-audit fees billed by Ernst & Young for services rendered to the Registrant and affiliates performing on-going services to the Registrant, including TIAA, for the years ended December 31, 2004 and 2003 were $204,800 and $171,000, respectively.
PwC’s aggregate fee for professional services rendered in connection with the audit of the financial statements for TIAA and the College Retirement Equities Fund (“CREF”) and their affiliated companies for the year ended December 31, 2005 was $5,709,300. PwC’s aggregate fees for audit related-services provided to TIAA and CREF and their affiliated entities for the year ended December 31, 2005 was $322,000. PwC’s aggregate fees for tax services provided to TIAA and CREF and their affiliated entities for the year ended December 31, 2005 was $166,000. PwC had no additional aggregate fees for other services provided to TIAA and CREF and their affiliated entities for the year ended December 31, 2005. Ernst & Young’s aggregate fees for professional services rendered in connection with the audit of financial statements for TIAA and the College Retirement Equities Fund (“CREF”) and their affiliated entities were $7,703,700 for the year ended December 31, 2004 and $3,955,300 for the year ended December 31, 2003. Ernst & Young’s aggregate fees for audit related-services provided to TIAA and CREF and their affiliated entities were $204,800 for the year ended December 31, 2004 and $171,000 for the year ended December 31, 2003. Ernst & Young’s aggregate fees for tax services provided to TIAA and CREF and their affiliated entities were $250,600 for the year ended December 31, 2004 and $229,900 for the year ended December 31, 2003. Ernst & Young had no additional aggregate fees for other services provided to TIAA and CREF and their affiliated entities for the years ended December 31, 2004 and 2003.
58
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
| | (a) | | | 1. | | | Financial Statements. See Item 8 for required financial statements. |
| |
| | | | 2. | | | Financial Statement Schedules. See Item 8 for required financial statements. |
| |
| | (b) | | | | | | Exhibits. |
| |
| | (1) | | | Distribution and Administrative Services Agreement by and between TIAA and |
| | | | TIAA-CREF Individual & Institutional Services, Inc. (as amended)1and the |
| | | | Amendment thereto5 |
|
| | (3) | | | (A) | | | Charter of TIAA (as amended)4 |
| | | | (B) | | | Bylaws of TIAA (as amended)4 |
| | (4) | | | (A) | | | Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account Contract |
| | | | | | | Endorsements2, Keogh Contract1, Retirement Select and Retirement Select Plus |
| | | | | | | Contracts and Endorsements3and Retirement Choice and Retirement Choice |
| | | | | | | Plus Contracts6 |
| | | | (B) | | | Forms of Income-Paying Contracts2 |
| | (10) | | | (A) | | | Independent Fiduciary Agreement by and among TIAA, the Registrant, and |
| | | | | | | Real Estate Research Corporation |
| | | | (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 The Bank of New York, January, 1996)2 |
| | (14) | | | Code of Ethics |
| | (31) | | | Rule 13a-15(e)/15d-15(e) Certifications |
| | (32) | | | Section 1350 Certifications |
_____________________________
1- Previously filed and incorporated herein by reference to Post-Effective Amendment No. 6 to the Account’s previous Registration Statement on Form S-1, filed April 26, 2000 (File No. 333-22809).
2- Previously filed and incorporated herein by reference to Post-Effective Amendment No. 2 to the Account’s previous Registration Statement on Form S-1 filed April 30, 1996 (File No. 33-92990).
3- Previously filed and incorporated herein by reference to Pre-Effective Amendment No. 1 to the Account’s Registration Statement on Form S-1 filed April 29, 2004 (File No. 333-113602).
4- Previously filed and incorporated herein by reference to Pre-Effective Amendment No. 1 to the Account’s Registration Statement on Form S-1 filed December 21, 2004 (File No. 333-121493).
5- Previously filed and incorporated herein by reference to Pre-Effective Amendment No. 1 to the Account’s Registration Statement on Form S-1 filed April 29, 2005 (File No. 333-121493).
59
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.
| | | 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 |
| |
| | | | March 14, 2006 |
| | |
|
| | | | Date |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons, trustees and officers of Teachers Insurance and Annuity Association of America, in the capacities and on the dates indicated.
| Signature | | Title | | Date |
| |
| /s/ | | Herbert M. Allison, Jr. | | Chairman of the Board, President, and Chief | | 3/14/06 |
|
|
| | | | |
| Herbert M. Allison, Jr. | | Executive Officer (Principal Executive Officer) | | |
| |
| |
| |
| /s/ | | Russell Noles | | Vice President | | 3/14/06 |
|
|
| | | | |
| Russell Noles | | and Acting Chief Financial Officer | | |
60
| Signature of Trustee | | Date | | Signature of Trustee | | Date |
| |
| /s/ | Herbert M. Allison, Jr. | | 3/14/06 | | /s/ | Leonard S. Simon | | 3/14/06 |
|
| | | |
|
| | |
| Herbert M. Allison, Jr. | | | | Leonard S. Simon | | |
| |
| |
| /s/ | Elizabeth E. Bailey | | 3/14/06 | | /s/ | David F. Swensen | | 3/14/06 |
|
| | | |
|
| | |
| Elizabeth E. Bailey | | | | David F. Swensen | | |
| |
| |
| /s/ | Robert C. Clark | | 3/14/06 | | /s/ | Ronald L. Thompson | | 3/14/06 |
|
| | | |
|
| | |
| Robert C. Clark | | | | Ronald L. Thompson | | |
| |
| |
| /s/ | Edward M. Hundert | | 3/14/06 | | /s/ | Marta Tienda | | 3/14/06 |
|
| | | |
|
| | |
| Edward M. Hundert | | | | Marta Tienda | | |
| |
| |
| /s/ | Marjorie Fine Knowles | | 3/14/06 | | /s/ | Paul R. Tregurtha | | 3/14/06 |
|
| | | |
|
| | |
| Marjorie Fine Knowles | | | | Paul R. Tregurtha | | |
| |
| |
| /s/ Donald K. Peterson | | 3/14/06 | | /s/ | Rosalie J. Wolf | | 3/14/06 |
| | | |
|
| | |
| Donald K. Peterson | | | | Rosalie J. Wolf | | |
| |
| |
| /s/ | Sidney A. Ribeau | | 3/14/06 | | | | | |
|
| | | | | | | |
| Sidney A. Ribeau | | | | | | | |
61
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
Because the Registrant has no voting securities, nor its own management or board of directors, no annual report or proxy materials will be sent to contractowners holding interests in the Account.
62
