UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________________ to ________________________
Commission File Numbers 33-92990, 333-13477, 333-22809, 333-59778, 333-83964,
333-113602, 333-121493, 333-132580 and 333-141513
TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of
incorporation or organization)
NOT APPLICABLE
(IRS Employer Identification No.)
C/O TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
730 THIRD AVENUE
NEW YORK, NEW YORK
(address of principal executive offices)
10017-3206
(Zip code)
(212) 490-9000
(Registrant’s telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesx Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
o Large accelerated filer o Accelerated filer x Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Nox
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
JUNE 30, 2007
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. | 13 |
2
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
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| June 30, 2007 |
| December 31, 2006 |
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| (Unaudited) |
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ASSETS |
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Investments, at value: |
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Real estate properties |
| $ | 11,518,910,597 |
| $ | 10,743,487,689 |
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Real estate joint ventures and limited partnerships |
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| 3,205,891,104 |
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| 1,948,028,002 |
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Marketable securities: |
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Real estate-related |
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| 530,467,569 |
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| 704,922,323 |
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Other |
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| 2,263,348,220 |
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| 2,038,938,210 |
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Mortgage loan receivable |
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| 74,774,292 |
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| 74,660,626 |
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Total investments |
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| 17,593,391,782 |
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| 15,510,036,850 |
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Cash |
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| 9,084,748 |
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| 3,585,145 |
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Due from investment advisor |
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| 24,023,987 |
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| 8,461,793 |
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Other |
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| 244,990,946 | �� |
| 237,877,545 |
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TOTAL ASSETS |
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| 17,871,491,463 |
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| 15,759,961,333 |
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LIABILITIES |
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Mortgage loans payable—Note 4 |
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| 1,415,709,148 |
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| 1,437,149,148 |
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Payable for securities transactions |
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| — |
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| 1,219,323 |
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Accrued real estate property level expenses |
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| 180,491,061 |
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| 169,657,402 |
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Security deposits held |
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| 25,325,964 |
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| 19,242,948 |
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TOTAL LIABILITIES |
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| 1,621,526,173 |
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| 1,627,268,821 |
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NET ASSETS |
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Accumulation Fund |
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| 15,797,093,703 |
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| 13,722,700,176 |
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Annuity Fund |
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| 452,871,587 |
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| 409,992,336 |
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TOTAL NET ASSETS |
| $ | 16,249,965,290 |
| $ | 14,132,692,512 |
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NUMBER OF ACCUMULATION UNITS |
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| 53,713,414 |
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| 50,146,354 |
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NET ASSET VALUE, PER ACCUMULATION UNIT— Note 5 |
| $ | 294.10 |
| $ | 273.65 |
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See notes to the financial statements.
3
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF OPERATIONS
(Unaudited)
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| For the |
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| 2007 |
| 2006 |
| 2007 |
| 2006 |
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INVESTMENT INCOME |
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Real estate income, net: |
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Rental income |
| $ | 251,739,759 |
| $ | 197,334,348 |
| $ | 497,276,479 |
| $ | 386,184,677 |
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Real estate property level expenses and taxes: |
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Operating expenses |
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| 59,715,554 |
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| 47,292,424 |
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| 126,281,727 |
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| 96,282,898 |
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Real estate taxes |
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| 33,291,885 |
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| 26,982,852 |
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| 64,519,183 |
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| 51,168,767 |
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Interest expense |
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| 20,091,592 |
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| 16,763,342 |
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| 41,668,728 |
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| 32,684,110 |
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Total real estate property level expenses and taxes |
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| 113,099,031 |
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| 91,038,618 |
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| 232,469,638 |
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| 180,135,775 |
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Real estate income, net |
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| 138,640,728 |
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| 106,295,730 |
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| 264,806,841 |
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| 206,048,902 |
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Income from real estate joint ventures and limited partnerships |
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| 19,769,489 |
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| 13,642,202 |
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| 39,367,682 |
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| 24,553,167 |
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Interest |
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| 24,809,032 |
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| 29,954,222 |
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| 50,714,830 |
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| 52,569,354 |
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Dividends |
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| 2,394,980 |
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| 4,811,864 |
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| 4,999,712 |
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| 7,223,519 |
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TOTAL INCOME |
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| 185,614,229 |
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| 154,704,018 |
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| 359,889,065 |
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| 290,394,942 |
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Expenses—Note 2: |
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Investment advisory charges |
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| 12,082,721 |
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| 5,958,340 |
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| 25,225,663 |
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| 12,550,605 |
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Administrative and distribution charges |
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| 15,485,660 |
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| 11,010,515 |
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| 30,943,882 |
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| 20,006,720 |
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Mortality and expense risk charges |
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| 1,958,109 |
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| 1,652,512 |
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| 3,756,416 |
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| 3,540,505 |
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Liquidity guarantee charges |
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| 4,583,391 |
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| 927,841 |
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| 5,680,831 |
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| 1,862,232 |
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TOTAL EXPENSES |
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| 34,109,881 |
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| 19,549,208 |
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| 65,606,792 |
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| 37,960,062 |
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INVESTMENT INCOME, NET |
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| 151,504,348 |
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| 135,154,810 |
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| 294,282,273 |
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| 252,434,880 |
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE |
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Net realized gain (loss) on: |
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Real estate properties |
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| 58,890,253 |
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| (6,050 | ) |
| 66,051,966 |
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| (635,693 | ) |
Real estate joint ventures and limited partnerships |
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| — |
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| — |
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| (611,402 | ) |
| — |
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Marketable securities |
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| 2,866,630 |
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| 2,505,475 |
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| 23,244,949 |
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| (2,309,733 | ) |
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Total realized gain (loss) on investments |
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| 61,756,883 |
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| 2,499,425 |
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| 88,685,513 |
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| (2,945,426 | ) |
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Net change in unrealized appreciation (depreciation) on: |
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Real estate properties |
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| 258,917,071 |
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| 294,852,148 |
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| 532,762,369 |
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| 409,493,184 |
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Real estate joint ventures and limited partnerships |
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| 101,741,588 |
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| 103,639,013 |
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| 213,677,133 |
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| 169,824,808 |
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Marketable securities |
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| (60,029,083 | ) |
| (13,280,130 | ) |
| (57,230,660 | ) |
| 40,767,042 |
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Mortgage loan receivable |
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| 280,514 |
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| — |
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| 113,666 |
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| — |
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Mortgage loans payable |
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| 65,667 |
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| 23,899,362 |
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| 21,431,245 |
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| 24,236,605 |
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Net change in unrealized appreciation on investments and mortgage loans payable |
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| 300,975,757 |
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| 409,110,393 |
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| 710,753,753 |
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| 644,321,639 |
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NET REALIZED AND UNREALIZED GAIN |
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ON INVESTMENTS AND |
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MORTGAGE LOANS PAYABLE |
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| 362,732,640 |
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| 411,609,818 |
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| 799,439,266 |
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| 641,376,213 |
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NET INCREASE IN NET ASSETS |
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RESULTING FROM OPERATIONS |
| $ | 514,236,988 |
| $ | 546,764,628 |
| $ | 1,093,721,539 |
| $ | 893,811,093 |
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See notes to the financial statements.
4
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
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| For the |
| For the |
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| 2007 |
| 2006 |
| 2007 |
| 2006 |
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FROM OPERATIONS |
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Investment income, net |
| $ | 151,504,348 |
| $ | 135,154,810 |
| $ | 294,282,273 |
| $ | 252,434,880 |
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Net realized gain (loss) on investments |
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| 61,756,883 |
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| 2,499,425 |
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| 88,685,513 |
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| (2,945,426 | ) |
Net change in unrealized appreciation on investments and mortgage loans payable |
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| 300,975,757 |
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| 409,110,393 |
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| 710,753,753 |
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| 644,321,639 |
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NET INCREASE IN NET ASSETS |
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RESULTING FROM OPERATIONS |
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| 514,236,988 |
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| 546,764,628 |
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| 1,093,721,539 |
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| 893,811,093 |
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FROM PARTICIPANT TRANSACTIONS |
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Premiums |
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| 306,625,433 |
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| 266,744,344 |
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| 607,169,544 |
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| 530,995,943 |
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Net transfers from TIAA |
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| 52,424,000 |
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| 41,751,124 |
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| 109,800,024 |
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| 100,092,647 |
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Net transfers from CREF Accounts |
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| 356,416,360 |
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| 346,049,773 |
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| 644,221,702 |
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| 610,430,314 |
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Net transfers to TIAA-CREF Institutional Mutual Funds |
|
| (6,482,041 | ) |
| (4,696,416 | ) |
| (28,575,186 | ) |
| (6,025,065 | ) |
Annuity and other periodic payments |
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| (17,762,432 | ) |
| (12,949,809 | ) |
| (36,725,252 | ) |
| (26,603,840 | ) |
Withdrawals and death benefits |
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| (142,685,127 | ) |
| (97,942,813 | ) |
| (272,339,593 | ) |
| (196,954,523 | ) |
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NET INCREASE IN NET ASSETS |
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RESULTING FROM PARTICIPANT |
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TRANSACTIONS |
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| 548,536,193 |
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| 538,956,203 |
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| 1,023,551,239 |
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| 1,011,935,476 |
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NET INCREASE IN NET ASSETS |
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| 1,062,773,181 |
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| 1,085,720,831 |
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| 2,117,272,778 |
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| 1,905,746,569 |
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NET ASSETS |
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Beginning of period |
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| 15,187,192,109 |
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| 11,368,736,840 |
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| 14,132,692,512 |
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| 10,548,711,102 |
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End of period |
| $ | 16,249,965,290 |
| $ | 12,454,457,671 |
| $ | 16,249,965,290 |
| $ | 12,454,457,671 |
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See notes to the financial statements.
5
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF CASH FLOWS
(Unaudited)
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| For the |
| For the |
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| 2007 |
| 2006 |
| 2007 |
| 2006 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net increase in net assets resulting from operations |
| $ | 514,236,988 |
| $ | 546,764,628 |
| $ | 1,093,721,539 |
| $ | 893,811,093 |
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Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: |
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Purchase of real estate properties |
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| (63,453,133 | ) |
| (904,294,008 | ) |
| (402,089,869 | ) |
| (938,986,655 | ) |
Capital improvements on real estate properties |
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| (23,939,118 | ) |
| (29,659,721 | ) |
| (61,080,536 | ) |
| (49,084,038 | ) |
Proceeds from sale of real estate properties |
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| 264,825,000 |
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| — |
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| 286,825,000 |
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| — |
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(Increase) decrease in other investments |
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| (877,328,079 | ) |
| 341,206,070 |
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| (1,128,738,339 | ) |
| (354,631,987 | ) |
Increase in mortgage loan receivable |
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| — |
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| (75,000,000 | ) |
| — |
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| (75,000,000 | ) |
Increase in other assets |
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| (10,007,636 | ) |
| (34,643,521 | ) |
| (22,675,595 | ) |
| (23,569,185 | ) |
Increase in accrued real estate property level expenses |
|
| 7,308,009 |
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| 190,516,570 |
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| 10,833,658 |
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| 159,965,693 |
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Increase in security deposits held |
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| 5,680,515 |
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| 2,000,298 |
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| 6,083,017 |
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| 1,571,676 |
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Increase (decrease) in other liabilities |
|
| — |
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| (22,730,657 | ) |
| (1,219,323 | ) |
| 3,663,779 |
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Net realized (gain) loss on investments |
|
| (61,756,883 | ) |
| (2,230,879 | ) |
| (88,685,513 | ) |
| 3,213,972 |
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Unrealized gain on investments and mortgage loans payable |
|
| (300,975,757 | ) |
| (409,378,939 | ) |
| (710,753,753 | ) |
| (644,590,185 | ) |
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NET CASH USED IN |
|
| (545,410,094 | ) |
| (397,450,159 | ) |
| (1,017,779,714 | ) |
| (1,023,635,837 | ) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Mortgage loan acquired |
|
| — |
|
| — |
|
| — |
|
| 153,000,000 |
|
Principal payments on mortgage loans payable |
|
| (131,233 | ) |
| (44,866 | ) |
| (271,922 | ) |
| (92,631 | ) |
Premiums |
|
| 306,625,433 |
|
| 266,744,344 |
|
| 607,169,544 |
|
| 530,995,943 |
|
Net transfers from TIAA |
|
| 52,424,000 |
|
| 41,751,124 |
|
| 109,800,024 |
|
| 100,092,647 |
|
Net transfers from CREF Accounts |
|
| 356,416,360 |
|
| 346,049,773 |
|
| 644,221,702 |
|
| 610,430,314 |
|
Net transfers to TIAA-CREF Institutional Mutual Funds |
|
| (6,482,041 | ) |
| (4,696,416 | ) |
| (28,575,186 | ) |
| (6,025,065 | ) |
Annuity and other periodic payments |
|
| (17,762,432 | ) |
| (12,949,809 | ) |
| (36,725,252 | ) |
| (26,603,840 | ) |
Withdrawals and death benefits |
|
| (142,685,127 | ) |
| (97,942,813 | ) |
| (272,339,593 | ) |
| (196,954,523 | ) |
|
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NET CASH PROVIDED BY |
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FINANCING ACTIVITIES |
|
| 548,404,960 |
|
| 538,911,337 |
|
| 1,023,279,317 |
|
| 1,164,842,845 |
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NET INCREASE IN CASH |
|
| 2,994,866 |
|
| 141,461,178 |
|
| 5,499,603 |
|
| 141,207,008 |
|
CASH |
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Beginning of period |
|
| 6,089,882 |
|
| 957,200 |
|
| 3,585,145 |
|
| 1,211,370 |
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End of period |
| $ | 9,084,748 |
| $ | 142,418,378 |
| $ | 9,084,748 |
| $ | 142,418,378 |
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|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 20,719,212 |
| $ | 17,158,966 |
| $ | 41,350,573 |
| $ | 32,760,009 |
|
|
|
|
|
|
| ||||||||
Debt assumed in acquisition of properties |
| $ | — |
| $ | 112,700,000 |
| $ | — |
| $ | 112,700,000 |
|
|
|
|
|
|
|
See notes to the financial statements.
6
TIAA REAL ESTATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
Note 1—Organization and 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 real estate joint ventures and limited partnerships in which the Account does not hold a controlling interest; as such, they are not consolidated for financial statement purposes. The Account also invests in mortgage loans receivable collateralized by commercial real estate properties. The Account also invests in publicly-traded securities and other instruments to maintain adequate liquidity for operating expenses, capital expenditures and 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 judgment 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, the properties are valued on a quarterly cycle with an independent appraisal value completed for each real estate property at least once a year. An independent fiduciary, Real Estate Research Corporation, has been appointed by a special subcommittee of TIAA’s Board of Trustees. The independent fiduciary must approve all independent appraisers used by the Account. TIAA’s appraisal staff performs the other quarterly valuations for each real estate property and updates the property value as appropriate. 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. The independent fiduciary can also require additional appraisals if a property’s value has changed materially and such change is not reflected in the quarterly valuation review, or otherwise to ensure that the Account is valued appropriately. The independent fiduciary must also approve an appraisal where a property’s value changed by more than 6% from the most recent independent annual appraisal, more than 4% within any calendar quarter or more than 2% since the prior month. When a real estate property is subject to a mortgage, the mortgage is valued independently of the property and its fair value is reported separately. The independent fiduciary reviews and approves mortgage valuation adjustments which exceed certain prescribed limits before such adjustments are recorded by the Account. The Account continues to use the revised value for each real estate property and mortgage loan payable to calculate the Account’s daily net asset value until the next valuation review or appraisal.
Valuation of Real Estate Joint Ventures and Limited Partnerships: Real estate joint ventures and limited partnerships are stated at the Account’s equity in the net assets of the underlying entities, and for the joint ventures, are adjusted to value their real estate holdings and mortgage notes payable at fair value.
Valuation of Marketable Securities: Equity securities listed or traded on any national market or exchange are valued at the last sale price as of the close of the principal securities exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such exchange.
7
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.
Mortgage Loans Receivable: Mortgage loans receivable are initially valued at the face amount of the mortgage loan funding as representations of fair value. Subsequently, mortgage loans receivable are valued quarterly based on market factors, such as market interest rates and spreads for comparable loans, and the performance of the underlying collateral.
Mortgage Loans Payable:Mortgage loans payable are stated at fair value. Estimated market values of mortgage loans payable 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 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 any changes in foreign currency exchange rates on portfolio investments and mortgage loans payable is included in the net realized and unrealized gains and losses on investments and mortgage loans payable. 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.
Accumulation and Annuity Funds: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 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. The Account pays a fee to TIAA to assume these mortality and expense 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). The Account recognizes a gain on the sale of a real estate property 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 fair valued and all properties are appraised quarterly, any accumulated unrealized gains and losses are reversed in the calculation of realized gains and losses.
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.
8
The Account has limited ownership interests in various real estate funds (limited partnerships and one limited liability corporation) and a private REIT (collectively, the “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 when the financial statements of the limited partnerships are received by the Account.
Income from real estate joint ventures is recorded based on the Account’s proportional interest in the income earned by the joint venture.
Transactions in marketable securities 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 as applicable. 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.
Federal Income Taxes:Based on provisions of the Internal Revenue Code, Section 817, the Account is taxed as a segregated asset account of TIAA and as such, the Account should incur no material federal income tax attributable to the net investment activity of the Account.
Reclassifications:Certain prior period amounts have been reclassified to conform to the current presentation. These reclassifications did not affect the total assets, total net assets or net increase in net assets previously reported.
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 subject to review by the Account’s independent fiduciary. TIAA also provides all portfolio accounting and related services for the Account.
Administrative and distribution 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 a member of the National Association of Securities Dealers, Inc.
TIAA and Services provide their services 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 by the Account are adjusted quarterly.
TIAA also provides a liquidity guarantee to the Account, for a fee, to ensure that sufficient funds are available to meet participant transfer and cash withdrawal requests in the event that the Account’s cash flows and liquid investments are insufficient to fund such requests. TIAA also receives a fee for assuming certain mortality and expense risks.
The expenses for the services noted above that are provided to the Account by TIAA and Services are identified in the accompanying Statements of Operations and are reflected in the Condensed Financial Information disclosed in Note 5.
Note 3—Investment in Joint Ventures and Limited Partnerships
The Account owns interests in 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. At June 30, 2007, the
9
Account held 13 joint venture investments with ownership interest percentages that ranged from 50% to 85%. The Account’s allocated portion of the mortgage notes payable was $1,963,836,860 and $472,167,225 at June 30, 2007 and December 31, 2006, respectively. The Account’s equity in the joint ventures at June 30, 2007 and December 31, 2006 was $2,888,946,450 and $1,668,744,951, respectively. A condensed summary of the financial position and results of operations of the entire joint ventures as a whole is shown below.
|
|
|
|
|
|
|
|
|
| June 30, 2007 |
| December 31, 2006 |
| ||
|
|
|
| ||||
|
| (Unaudited) |
|
|
| ||
Assets |
|
|
|
|
|
|
|
Real estate properties, at value |
| $ | 6,972,135,793 |
| $ | 3,650,902,513 |
|
Other assets |
|
| 236,389,872 |
|
| 101,949,855 |
|
|
|
|
| ||||
Total assets |
| $ | 7,208,525,665 |
| $ | 3,752,852,368 |
|
|
|
|
| ||||
Liabilities and Equity |
|
|
|
|
|
|
|
Mortgage loans payable, at value |
| $ | 2,623,501,974 |
| $ | 875,560,195 |
|
Other liabilities |
|
| 197,303,186 |
|
| 74,287,727 |
|
|
|
|
| ||||
Total liabilities |
|
| 2,820,805,160 |
|
| 949,847,922 |
|
Equity |
|
| 4,387,720,505 |
|
| 2,803,004,446 |
|
|
|
|
| ||||
Total liabilities and equity |
| $ | 7,208,525,665 |
| $ | 3,752,852,368 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| For the Six |
| Year Ended |
| ||
|
|
|
| ||||
|
| (Unaudited) |
|
|
| ||
Operating Revenues and Expenses |
|
|
|
|
|
|
|
Revenues |
| $ | 246,342,479 |
| $ | 299,078,956 |
|
Expenses |
|
| 142,977,897 |
|
| 157,686,944 |
|
|
|
|
| ||||
Excess of revenues over expenses |
| $ | 103,364,582 |
| $ | 141,392,012 |
|
|
|
|
|
The Account invests in limited partnerships that own real estate properties and receives distributions from the limited partnerships based on the Account’s ownership interest percentages. At June 30, 2007, the Account held six limited partnership investments with ownership interest percentages that ranged from 5.27% to 18.45%. The Account’s investment in limited partnerships was $316,944,654 and $279,283,051 at June 30, 2007 and December 31, 2006, respectively.
Note 4—Mortgage Loans Payable
At June 30, 2007, the Account had outstanding mortgage loans payable on the following properties:
|
|
|
|
|
|
|
|
|
Property |
| Interest |
| Amount |
| Due |
| |
|
|
|
| |||||
|
|
|
| (Unaudited) |
|
|
| |
50 Fremont |
| 6.40 paid monthly |
| $ | 135,000,000 |
| August 21, 2013 |
|
Ontario Industrial Portfolio |
| 7.42 paid monthly |
|
| 9,019,283 |
| May 1, 2011 |
|
Fourth & Madison |
| 6.40 paid monthly |
|
| 145,000,000 |
| August 21, 2013 |
|
1001 Pennsylvania Ave |
| 6.40 paid monthly |
|
| 210,000,000 |
| August 21, 2013 |
|
99 High Street |
| 5.5245 paid monthly |
|
| 185,000,000 |
| November 11, 2015 |
|
Reserve at Sugarloaf |
| 5.49 paid monthly |
|
| 26,093,885 |
| June 1, 2013 |
|
1 & 7 Westferry Circus |
| 5.4003 paid quarterly (a) |
|
| 232,585,340 |
| November 15, 2012 |
|
Lincoln Centre |
| 5.51 paid monthly |
|
| 153,000,000 |
| February 1, 2016 |
|
Wilshire Rodeo Plaza |
| 5.28 paid monthly |
|
| 112,700,000 |
| April 11, 2014 |
|
1401 H Street |
| 5.97 paid monthly |
|
| 115,000,000 |
| December 7, 2014 |
|
South Frisco Village |
| 5.85 paid monthly |
|
| 26,250,559 |
| June 1, 2013 |
|
Publix at Weston Commons |
| 5.08 paid monthly |
|
| 35,000,000 |
| January 1, 2036 |
|
|
|
|
|
| ||||
Total principal outstanding |
|
|
| $ | 1,384,649,067 |
|
|
|
Unamortized discount |
|
|
|
| (5,013,838 | ) |
|
|
|
|
|
|
|
|
| ||
Amortized cost |
|
|
|
| 1,379,635,229 |
|
|
|
Fair value adjustment |
|
|
|
| 36,073,919 |
|
|
|
|
|
|
|
|
|
| ||
Total mortgage loans payable |
|
|
| $ | 1,415,709,148 |
|
|
|
|
|
|
|
|
|
|
10
|
|
(a) | The mortgage is denominated in British pounds and the principal has been converted to U.S. dollars at the exchange rate prevailing at the end of the period. The quarterly payments are interest only, with a balloon payment at maturity. The interest rate is fixed. |
Note 5—Condensed Financial Information
Selected condensed financial information for an Accumulation Unit of the Account is presented below.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the |
|
|
| |||||||||||
|
|
|
|
| ||||||||||||
|
|
| Years Ended December 31, |
| ||||||||||||
|
|
|
| |||||||||||||
|
|
| 2006 |
| 2005 |
| 2004 |
| 2003 |
| ||||||
|
|
|
|
|
|
| ||||||||||
|
| (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Per Accumulation Unit data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
| $ | 9.186 |
| $ | 16.717 |
| $ | 15.604 |
| $ | 13.422 |
| $ | 15.584 |
|
Real estate property level expenses and taxes |
|
| 4.294 |
|
| 7.807 |
|
| 7.026 |
|
| 5.331 |
|
| 5.890 |
|
|
|
|
|
|
|
| ||||||||||
Real estate income, net |
|
| 4.892 |
|
| 8.910 |
|
| 8.578 |
|
| 8.091 |
|
| 9.694 |
|
Other income |
|
| 1.756 |
|
| 4.409 |
|
| 3.602 |
|
| 3.341 |
|
| 2.218 |
|
|
|
|
|
|
|
| ||||||||||
Total income |
|
| 6.648 |
|
| 13.319 |
|
| 12.180 |
|
| 11.432 |
|
| 11.912 |
|
Expense charges(2) |
|
| 1.212 |
|
| 1.671 |
|
| 1.415 |
|
| 1.241 |
|
| 1.365 |
|
|
|
|
|
|
|
| ||||||||||
Investment income, net |
|
| 5.436 |
|
| 11.648 |
|
| 10.765 |
|
| 10.191 |
|
| 10.547 |
|
Net realized and unrealized gain on investments and mortgage loans payable |
|
| 15.011 |
|
| 22.052 |
|
| 18.744 |
|
| 13.314 |
|
| 2.492 |
|
|
|
|
|
|
|
| ||||||||||
Net increase in Accumulation Unit Value |
|
| 20.447 |
|
| 33.700 |
|
| 29.509 |
|
| 23.505 |
|
| 13.039 |
|
Accumulation Unit Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
| 273.653 |
|
| 239.953 |
|
| 210.444 |
|
| 186.939 |
|
| 173.900 |
|
|
|
|
|
|
|
| ||||||||||
End of period |
| $ | 294.100 |
| $ | 273.653 |
| $ | 239.953 |
| $ | 210.444 |
| $ | 186.939 |
|
|
|
|
|
|
|
| ||||||||||
| ||||||||||||||||
Total return |
|
| 7.47 | % |
| 14.04 | % |
| 14.02 | % |
| 12.57 | % |
| 7.50 | % |
Ratios to Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses(2) |
|
| 0.44 | % |
| 0.67 | % |
| 0.63 | % |
| 0.63 | % |
| 0.76 | % |
Investment income, net |
|
| 1.95 | % |
| 4.68 | % |
| 4.82 | % |
| 5.17 | % |
| 5.87 | % |
| ||||||||||||||||
Portfolio turnover rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate properties |
|
| 2.02 | % |
| 3.62 | % |
| 6.72 | % |
| 2.32 | % |
| 5.12 | % |
Marketable securities |
|
| 3.14 | % |
| 51.05 | % |
| 77.63 | % |
| 143.47 | % |
| 71.83 | % |
Accumulation Units outstanding at end of period (in thousands) |
|
| 53,713 |
|
| 50,146 |
|
| 42,623 |
|
| 33,338 |
|
| 24,724 |
|
| ||||||||||||||||
Net assets end of period (in thousands) |
| $ | 16,249,965 |
| $ | 14,132,693 |
| $ | 10,548,711 |
| $ | 7,245,550 |
| $ | 4,793,422 |
|
|
|
(1) | Per share amounts and percentages for the interim period have not been annualized. |
|
|
(2) | 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 six months ended June 30, 2007 would be $5.506 ($9.478, $8.441, $6.572, and $7.255 for the years ended December 31, 2006, 2005, 2004, and 2003, respectively), and the Ratio of Expenses to Average Net Assets for the six months ended June 30, 2007 would be 1.98% (3.81%, 3.78%, 3.33%, and 4.04% for the years ended December 31, 2006, 2005, 2004, and 2003, respectively). |
11
Note 6—Accumulation Units
Changes in the number of Accumulation Units outstanding were as follows:
|
|
|
|
|
|
|
|
|
| For the |
| For the Year Ended |
| ||
|
|
|
| ||||
|
| (Unaudited) |
|
|
| ||
Credited for premiums |
| 1,973,963 |
|
| 4,056,196 |
|
|
Net units credited for transfers, net disbursements and amounts applied to the Annuity Fund |
| 1,593,097 |
|
| 3,466,667 |
|
|
Accumulation units outstanding: |
|
|
|
|
|
|
|
Beginning of period |
| 50,146,354 |
|
| 42,623,491 |
|
|
|
|
|
|
|
| ||
End of period |
| 53,713,414 |
|
| 50,146,354 |
|
|
|
|
|
|
|
|
Note 7—Commitments
During the normal course of business, the Account enters into discussions and agreements to purchase or sell real estate properties. As of June 30, 2007, the Account had no outstanding purchase commitments. As of June 30, 2007, the Account had two outstanding commitments to sell several properties for approximately $22.7 million. One of these commitments has subsequently closed, and the other is scheduled to close in the third quarter of 2007.
In addition, the Account had outstanding commitments to purchase interests in five limited partnerships and to purchase shares in a private real estate equity investment trust, whose original commitments totaled $302.5 million in the aggregate. As of June 30, 2007, $43.3 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 to which the Account is a party.
Note 8—New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Account plans to adopt this guidance effective January 1, 2008. The Account is currently assessing the impact of Statement No. 157 but does not expect it to have a significant impact on the Account’s financial position or results of operations when implemented.
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits entities to choose to measure many financial instruments and certain other items at fair value and is expected to expand the use of fair value measurement. The Statement is effective for fiscal years beginning after November 15, 2007. The Account is currently assessing the impact of Statement No. 159 but does not expect it to have a significant impact on the Account’s financial position and results of operations when implemented.
In June 2007, the Accounting Standards Executive Committee (“ACSEC”) of the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (SOP) 07-1, Clarification of the Scope of the Audit and Accounting GuideInvestment Companiesand Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies. The SOP clarifies which entities are required to apply the provisions of the Investment Companies Audit and Accounting Guide and provides guidance on accounting by parent companies and equity method investors for investments in investment companies. The SOP is effective for fiscal years beginning on or after December 15, 2007. The Account is currently assessing the impact of SOP 07-1 on the Account’s financial position, results of operations and additional disclosure requirements.
12
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
REAL ESTATE PROPERTIES—65.47% and 69.27%
|
|
|
|
|
|
|
|
|
| Value |
| ||||
|
|
| |||||
Location / Description |
| 2007 |
| 2006 |
| ||
|
|
| |||||
|
| (Unaudited) |
|
|
|
| |
Alabama: |
|
|
|
|
|
|
|
Inverness Center—Office building |
| $ | 119,500,000 |
| $ | 112,256,914 |
|
Arizona: |
|
|
|
|
|
|
|
Camelback Center—Office building |
|
| 76,450,000 |
|
| — |
|
Kierland Apartment Portfolio—Apartments |
|
| 207,269,837 |
|
| 206,100,000 |
|
Mountain RA Industrial Portfolio—Industrial building |
|
| — |
|
| 6,605,429 |
|
Phoenix Apartment Portfolio—Apartments |
|
| 182,720,106 |
|
| 182,900,000 |
|
California: |
|
|
|
|
|
|
|
3 Hutton Centre Drive—Office building |
|
| 62,504,497 |
|
| 59,011,323 |
|
9 Hutton Centre—Office building |
|
| 32,143,483 |
|
| 29,000,000 |
|
50 Fremont—Office building |
|
| 456,000,000 | (1) |
| 421,000,000 | (1) |
88 Kearny Street—Office building |
|
| 95,746,368 |
|
| 90,310,024 |
|
980 9th Street and 1010 8th Street—Office building |
|
| 176,300,000 |
|
| 168,000,000 |
|
Rancho Cucamonga Industrial Portfolio—Industrial building |
|
| 121,500,000 |
|
| 109,000,000 |
|
Capitol Place—Office building |
|
| 52,700,000 |
|
| 50,331,828 |
|
Centerside I—Office building |
|
| 68,000,000 |
|
| 67,000,000 |
|
Centre Pointe and Valley View—Industrial building |
|
| 33,500,000 |
|
| 32,385,980 |
|
Eastgate Distribution Center—Industrial building |
|
| — |
|
| 25,558,962 |
|
Embarcadero Center West—Office building |
|
| 238,696,851 |
|
| 231,000,000 |
|
Larkspur Courts—Apartments |
|
| 98,000,000 |
|
| 93,043,346 |
|
Northern CA RA Industrial Portfolio—Industrial building |
|
| 63,057,276 |
|
| 71,317,741 |
|
Ontario Industrial Portfolio—Industrial building |
|
| 326,831,938 | (1) |
| 298,045,226 | (1) |
Regents Court—Apartments |
|
| 68,500,000 |
|
| 67,800,000 |
|
Southern CA RA Industrial Portfolio—Industrial building |
|
| 105,645,592 |
|
| 97,558,473 |
|
The Legacy at Westwood—Apartments |
|
| 123,391,367 |
|
| 110,231,593 |
|
Wellpoint—Office building |
|
| 50,000,000 |
|
| 49,000,000 |
|
Westcreek—Apartments |
|
| 36,900,000 |
|
| 35,300,000 |
|
West Lake North Business Park—Office building |
|
| 67,105,342 |
|
| 61,000,000 |
|
Westwood Marketplace—Shopping center |
|
| 94,207,377 |
|
| 91,467,954 |
|
Wilshire Rodeo Plaza—Office building |
|
| 208,309,026 | (1) |
| 204,084,734 | (1) |
Colorado: |
|
|
|
|
|
|
|
Palomino Park—Apartments |
|
| 189,500,000 |
|
| 184,000,000 |
|
The Lodge at Willow Creek—Apartments |
|
| 41,512,556 |
|
| 39,501,399 |
|
The Market at Southpark—Shopping center |
|
| 35,800,000 |
|
| 35,800,000 |
|
Connecticut: |
|
|
|
|
|
|
|
Ten & Twenty Westport Road—Office building |
|
| 183,000,000 |
|
| 175,000,000 |
|
Delaware: |
|
|
|
|
|
|
|
Mideast RA Industrial Portfolio—Industrial building |
|
| — |
|
| 16,014,758 |
|
Florida: |
|
|
|
|
|
|
|
701 Brickell—Office building |
|
| 244,527,991 |
|
| 231,239,379 |
|
4200 West Cypress Street—Office building |
|
| 47,550,343 |
|
| 43,100,425 |
|
Plantation Grove—Shopping center |
|
| 16,000,000 |
|
| 15,010,406 |
|
Pointe on Tampa Bay—Office building |
|
| 58,065,434 |
|
| 50,573,824 |
|
Publix at Weston Commons—Shopping center |
|
| 54,576,264 | (1) |
| 54,411,436 | (1) |
Quiet Waters at Coquina Lakes—Apartments |
|
| 26,009,500 |
|
| 24,006,100 |
|
Royal St. George—Apartments |
|
| 25,000,000 |
|
| 25,000,000 |
|
Sawgrass Office Portfolio—Office building |
|
| 83,000,000 |
|
| 72,000,000 |
|
South Florida Apartment Portfolio—Apartments |
|
| 68,400,000 |
|
| 65,099,785 |
|
See notes to the financial statements.
13
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
| Value |
| ||||
|
|
| |||||
Location / Description |
| 2007 |
| 2006 |
| ||
|
|
| |||||
|
| (Unaudited) |
|
|
|
| |
Florida: (continued) |
|
|
|
|
|
|
|
Suncrest Village—Shopping center |
| $ | 18,875,000 |
| $ | 17,009,378 |
|
The Fairways of Carolina—Apartments |
|
| 27,500,000 |
|
| 25,309,965 |
|
The Greens at Metrowest—Apartments |
|
| — |
|
| 21,011,825 |
|
The North 40 Office Complex—Office building |
|
| 66,000,000 |
|
| 63,500,000 |
|
Urban Centre—Office building |
|
| 128,026,207 |
|
| 121,000,000 |
|
France: |
|
|
|
|
|
|
|
Printemps De L’Homme—Shopping center |
|
| 258,547,472 |
|
| — |
|
Georgia: |
|
|
|
|
|
|
|
1050 Lenox Park—Apartments |
|
| 79,500,000 |
|
| 79,470,836 |
|
Atlanta Industrial Portfolio—Industrial building |
|
| 52,763,259 |
|
| 77,863,416 |
|
Glenridge Walk—Apartments |
|
| 48,700,000 |
|
| 48,710,574 |
|
Reserve at Sugarloaf—Apartments |
|
| 50,405,731 | (1) |
| 49,500,000 | (1) |
Shawnee Ridge Industrial Portfolio—Industrial building |
|
| 76,200,000 |
|
| 76,117,193 |
|
Illinois: |
|
|
|
|
|
|
|
Chicago Caleast Industrial Portfolio—Industrial building |
|
| 75,038,147 |
|
| 74,999,590 |
|
Chicago Industrial Portfolio—Industrial building |
|
| 83,609,064 |
|
| 89,104,640 |
|
East North Central RA Industrial Portfolio—Industrial building |
|
| 37,500,450 |
|
| 37,503,284 |
|
Oak Brook Regency Towers—Office building |
|
| 82,600,000 |
|
| 83,200,000 |
|
Parkview Plaza—Office building |
|
| 62,785,595 |
|
| 59,400,000 |
|
Kentucky: |
|
|
|
|
|
|
|
IDI Kentucky Portfolio—Industrial building |
|
| — |
|
| 66,552,034 |
|
Maryland: |
|
|
|
|
|
|
|
Broadlands Business Park—Industrial building |
|
| 35,501,724 |
|
| 35,002,731 |
|
FEDEX Distribution Facility—Industrial building |
|
| 9,400,000 |
|
| 8,500,000 |
|
GE Appliance East Coast Distribution Facility—Industrial building |
|
| 48,000,000 |
|
| 48,000,000 |
|
Massachusetts: |
|
|
|
|
|
|
|
99 High Street—Office building |
|
| 293,107,432 | (1) |
| 291,806,564 | (1) |
Batterymarch Park II—Office building |
|
| 15,000,000 |
|
| 13,234,314 |
|
Needham Corporate Center—Office building |
|
| 25,430,429 |
|
| 22,712,550 |
|
Northeast RA Industrial Portfolio—Industrial building |
|
| 30,750,000 |
|
| 30,900,000 |
|
The Newbry—Office building |
|
| 371,600,000 |
|
| 370,745,525 |
|
Minnesota: |
|
|
|
|
|
|
|
Champlin Marketplace—Shopping center |
|
| 18,352,263 |
|
| — |
|
Nevada: |
|
|
|
|
|
|
|
UPS Distribution Facility—Industrial building |
|
| 15,600,000 |
|
| 15,000,000 |
|
New Jersey: |
|
|
|
|
|
|
|
10 Waterview Boulevard—Office building |
|
| 32,700,000 |
|
| 32,100,000 |
|
Konica Photo Imaging Headquarters—Industrial building |
|
| 24,000,000 |
|
| 23,100,000 |
|
Marketfair—Shopping center |
|
| 95,062,982 |
|
| 94,058,427 |
|
Morris Corporate Center III—Office building |
|
| 116,285,270 |
|
| 114,857,104 |
|
NJ Caleast Industrial Portfolio—Industrial building |
|
| 44,300,000 |
|
| 41,920,988 |
|
Plainsboro Plaza—Shopping center |
|
| 51,300,000 |
|
| 50,900,000 |
|
South River Road Industrial—Industrial building |
|
| 59,700,000 |
|
| 60,600,000 |
|
New York: |
|
|
|
|
|
|
|
780 Third Avenue—Office building |
|
| 369,500,000 |
|
| 298,000,000 |
|
The Colorado—Apartments |
|
| 109,013,978 |
|
| 100,000,000 |
|
See notes to the financial statements.
14
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
| Value |
| ||||
|
|
| |||||
Location / Description |
| 2007 |
| 2006 |
| ||
|
|
| |||||
|
| (Unaudited) |
|
|
|
| |
Ohio: |
|
|
|
|
|
|
|
Columbus Portfolio—Office building |
| $ | 26,200,000 |
| $ | 24,600,000 |
|
Pennsylvania: |
|
|
|
|
|
|
|
Lincoln Woods—Apartments |
|
| 37,770,032 |
|
| 37,781,555 |
|
Tennessee: |
|
|
|
|
|
|
|
Airways Distribution Center—Industrial building |
|
| 24,300,000 |
|
| 24,857,278 |
|
Memphis Caleast Industrial Portfolio—Industrial building |
|
| — |
|
| 52,500,000 |
|
Summit Distribution Center—Industrial building |
|
| 27,500,000 |
|
| 26,300,000 |
|
Texas: |
|
|
|
|
|
|
|
Butterfield Industrial Park—Industrial building |
|
| 5,250,000 | (2) |
| 5,100,000 | (2) |
Dallas Industrial Portfolio—Industrial building |
|
| 154,053,941 |
|
| 153,210,519 |
|
Four Oaks Place—Office building |
|
| 319,558,643 |
|
| 306,200,984 |
|
Houston Apartment Portfolio—Apartments |
|
| 313,360,035 |
|
| 306,042,523 |
|
Lincoln Centre—Office building |
|
| 292,015,287 | (1) |
| 270,000,000 | (1) |
Park Place on Turtle Creek—Office building |
|
| 44,521,533 |
|
| 44,573,669 |
|
Pinnacle Industrial /DFW Trade Center—Industrial building |
|
| 46,500,000 |
|
| 45,874,807 |
|
Preston Sherry Plaza—Office building |
|
| 45,219,327 |
|
| — |
|
South Frisco Village—Shopping center |
|
| 47,599,531 | (1) |
| 47,014,065 | (1) |
The Caruth—Apartments |
|
| 65,000,000 |
|
| 60,007,237 |
|
The Legends at Chase Oaks—Apartments |
|
| 31,052,492 |
|
| 29,025,236 |
|
The Maroneal—Apartments |
|
| 40,600,000 |
|
| 39,113,694 |
|
United Kingdom: |
|
|
|
|
|
|
|
1 & 7 Westferry Circus—Office building |
|
| 450,833,883 | (1) |
| 428,574,628 | (1) |
Utah: |
|
|
|
|
|
|
|
Landmark at Salt Lake City (Building #4)—Industrial building |
|
| — |
|
| 16,509,871 |
|
Virginia: |
|
|
|
|
|
|
|
8270 Greensboro Drive—Office building |
|
| 63,000,000 |
|
| 62,000,000 |
|
Ashford Meadows—Apartments |
|
| 93,032,847 |
|
| 89,091,341 |
|
Monument Place—Office building |
|
| 65,000,000 |
|
| 58,600,000 |
|
One Virginia Square—Office building |
|
| 60,000,000 |
|
| 53,000,000 |
|
The Ellipse at Ballston—Office building |
|
| 90,009,671 |
|
| 85,439,350 |
|
Washington: |
|
|
|
|
|
|
|
Creeksides at Centerpoint—Office building |
|
| 42,000,000 |
|
| 40,508,139 |
|
Fourth & Madison—Office building |
|
| 462,000,000 | (1) |
| 398,990,017 | (1) |
Millennium Corporate Park—Office building |
|
| 149,000,000 |
|
| 139,107,181 |
|
Northwest RA Industrial Portfolio—Industrial building |
|
| 22,043,570 |
|
| 20,684,499 |
|
Rainier Corporate Park—Industrial building |
|
| 78,000,000 |
|
| 69,362,219 |
|
Regal Logistics Campus—Industrial building |
|
| 69,000,000 |
|
| 66,000,000 |
|
Washington DC: |
|
|
|
|
|
|
|
1001 Pennsylvania Avenue—Office building |
|
| 617,513,982 | (1) |
| 552,502,209 | (1) |
1401 H Street, NW—Office building |
|
| 218,899,654 | (1) |
| 207,806,286 | (1) |
1900 K Street—Office building |
|
| 275,000,000 |
|
| 255,002,226 |
|
Mazza Gallerie—Shopping center |
|
| 92,500,018 |
|
| 86,350,179 |
|
|
|
|
| ||||
TOTAL REAL ESTATE PROPERTIES |
|
| 11,518,910,597 |
|
| 10,743,487,689 |
|
|
|
|
|
See notes to the financial statements.
15
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
OTHER REAL ESTATE-RELATED INVESTMENTS—18.22% and 12.56%
|
|
|
|
|
|
|
|
|
| Value |
| ||||
|
|
| |||||
Location / Description |
| 2007 |
| 2006 |
| ||
|
|
| |||||
|
| (Unaudited) |
|
|
|
| |
REAL ESTATE JOINT VENTURES—16.42% and 10.76% |
|
|
|
|
|
|
|
CA—Colorado Center LP |
| $ | 261,099,350 | (3) | $ | 187,766,625 | (3) |
CA—Treat Towers LP |
|
| 98,654,790 |
|
| 94,023,131 |
|
GA—Buckhead LLC |
|
| 110,578,029 |
|
| 107,256,320 |
|
Florida Mall Associates, Ltd. |
|
| 261,434,421 | (3) |
| 237,919,775 | (3) |
IL—161 Clark Street LLC |
|
| 207,225,503 |
|
| 189,183,793 |
|
MA—One Boston Place REIT |
|
| 226,885,639 |
|
| 177,900,327 |
|
DDR TC LLC |
|
| 1,008,468,996 | (3,4) |
| — |
|
Storage Portfolio I, LLC |
|
| 77,310,328 | (3,4) |
| 74,864,074 | (3,4) |
Strategic Ind Portfolio I, LLC |
|
| 75,824,638 | (3,4) |
| 70,348,753 | (3,4) |
Teachers REA IV, LLC |
|
| 43,325,015 |
|
| 40,570,382 |
|
TREA Florida Retail, LLC |
|
| 270,609,293 |
|
| 265,396,677 |
|
West Dade Associates |
|
| 108,071,761 | (3) |
| 97,300,131 | (3) |
West Town Mall, LLC |
|
| 139,458,687 | (3) |
| 126,214,963 | (3) |
|
|
|
| ||||
TOTAL REAL ESTATE JOINT VENTURES |
|
| 2,888,946,450 |
|
| 1,668,744,951 |
|
|
|
|
| ||||
LIMITED PARTNERSHIPS—1.80% and 1.80% |
|
|
|
|
|
|
|
Cobalt Industrial REIT (10.998% Account Interest) |
|
| 30,097,427 |
|
| 26,506,381 |
|
Colony Realty Partners LP (5.27% Account Interest) |
|
| 30,438,996 |
|
| 26,382,659 |
|
Essex Apartment Fund (10.00% Account Interest) |
|
| 105,490 |
|
| — |
|
Heitman Value Partners Fund (8.43% Account Interest) |
|
| 25,579,054 |
|
| 24,578,388 |
|
Lion Gables Apartment Fund (18.45% Account Interest) |
|
| 198,519,522 |
|
| 179,013,211 |
|
MONY/Transwestern Mezzanine Fund RP (19.75% Account Interest) |
|
| — |
|
| 454,319 |
|
MONY/Transwestern Mezz RP II (16.67% Account Interest) |
|
| 32,204,165 |
|
| 22,348,093 |
|
|
|
|
| ||||
TOTAL LIMITED PARTNERSHIPS |
|
| 316,944,654 |
|
| 279,283,051 |
|
|
|
|
| ||||
TOTAL REAL ESTATE JOINT VENTURES AND LIMITED PARTNERSHIPS |
|
| 3,205,891,104 |
|
| 1,948,028,002 |
|
|
|
|
|
See notes to the financial statements.
16
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
MARKETABLE SECURITIES—15.88% and 17.69%
REAL ESTATE-RELATED MARKETABLE SECURITIES—3.02% and 4.54%
REAL ESTATE EQUITY SECURITIES—3.02% and 3.99%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
| Value |
| ||||||||
|
|
|
| ||||||||||
2007 |
| 2006 |
| Issuer |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||||
|
|
|
|
|
| (Unaudited) |
|
|
| ||||
| 51,200 |
|
| 53,300 |
| Acadia Realty Trust |
| $ | 1,328,640 |
| $ | 1,333,566 |
|
| 85,325 |
|
| 68,700 |
| Affordable Residential Communities LP |
|
| 1,008,542 |
|
| 800,355 |
|
| — |
|
| 68,700 |
| Affordable Residential Communities LP |
|
| — |
|
| 16,488 |
|
| 3,800 |
|
| 3,800 |
| Alexander’s Inc. |
|
| 1,536,150 |
|
| 1,594,670 |
|
| 53,500 |
|
| 54,400 |
| Alexandria Real Estate Equities Inc. |
|
| 5,179,870 |
|
| 5,461,760 |
|
| 177,785 |
|
| 166,985 |
| AMB Property Corp. |
|
| 9,461,718 |
|
| 9,786,991 |
|
| 42,500 |
|
| 42,500 |
| American Campus Communities Inc. |
|
| 1,202,325 |
|
| 1,209,975 |
|
| 234,500 |
|
| 244,900 |
| American Financial Realty Trust |
|
| 2,420,040 |
|
| 2,801,656 |
|
| 174,900 |
|
| 181,500 |
| Apartment Investment & Management Co. |
|
| 8,818,458 |
|
| 10,167,630 |
|
| 399,200 |
|
| 408,900 |
| Archstone-Smith Trust |
|
| 23,596,712 |
|
| 23,802,069 |
|
| 217,000 |
|
| 118,500 |
| Ashford Hospitality Trust Inc. |
|
| 2,551,920 |
|
| 1,475,325 |
|
| 27,500 |
|
| 33,300 |
| Associated Estates Realty Corp. |
|
| 428,725 |
|
| 457,542 |
|
| 142,700 |
|
| 138,900 |
| AvalonBay Communities Inc. |
|
| 16,964,176 |
|
| 18,063,945 |
|
| 119,500 |
|
| 122,400 |
| BioMed Realty Trust Inc. |
|
| 3,001,840 |
|
| 3,500,640 |
|
| 213,200 |
|
| 217,200 |
| Boston Properties Inc. |
|
| 21,774,116 |
|
| 24,300,336 |
|
| 157,200 |
|
| 171,500 |
| Brandywine Realty Trust |
|
| 4,492,776 |
|
| 5,702,375 |
|
| 92,400 |
|
| 94,200 |
| BRE Properties Inc. |
|
| 5,478,396 |
|
| 6,124,884 |
|
| 368,050 |
|
| 220,300 |
| Brookfield Properties Corp. |
|
| 8,947,296 |
|
| 8,664,399 |
|
| 101,300 |
|
| 105,200 |
| Camden Property Trust |
|
| 6,784,061 |
|
| 7,769,020 |
|
| 117,400 |
|
| 121,500 |
| CBL & Associates Properties Inc. |
|
| 4,232,270 |
|
| 5,267,025 |
|
| 74,900 |
|
| 74,900 |
| Cedar Shopping Centers Inc. |
|
| 1,074,815 |
|
| 1,191,659 |
|
| 82,400 |
|
| 87,600 |
| Colonial Properties Trust |
|
| 3,003,480 |
|
| 4,106,688 |
|
| 83,300 |
|
| 80,600 |
| Corporate Office Properties Trust |
|
| 3,416,133 |
|
| 4,067,882 |
|
| 75,500 |
|
| 75,500 |
| Cousins Properties Inc. |
|
| 2,190,255 |
|
| 2,662,885 |
|
| 175,000 |
|
| 179,000 |
| Crescent Real Estate Equities Company |
|
| 3,927,000 |
|
| 3,535,250 |
|
| 300,000 |
|
| — |
| DCT Industrial Trust Inc. |
|
| 3,228,000 |
|
| — |
|
| 222,500 |
|
| 204,000 |
| Developers Diversified Realty Corp. |
|
| 11,727,975 |
|
| 12,841,800 |
|
| 171,000 |
|
| 125,500 |
| DiamondRock Hospitality Co. |
|
| 3,262,680 |
|
| 2,260,255 |
|
| 99,900 |
|
| 84,100 |
| Digital Realty Trust Inc. |
|
| 3,764,232 |
|
| 2,878,743 |
|
| 185,700 |
|
| 123,500 |
| Douglas Emmett Inc. |
|
| 4,594,218 |
|
| 3,283,865 |
|
| 246,400 |
|
| 252,100 |
| Duke Realty Corp. |
|
| 8,789,088 |
|
| 10,310,890 |
|
| 42,900 |
|
| 42,900 |
| EastGroup Properties Inc. |
|
| 1,879,878 |
|
| 2,297,724 |
|
| 49,900 |
|
| 49,900 |
| Education Realty Trust Inc. |
|
| 700,097 |
|
| 737,023 |
|
| 99,300 |
|
| 103,400 |
| Equity Inns Inc. |
|
| 2,224,320 |
|
| 1,650,264 |
|
| 38,800 |
|
| 38,800 |
| Equity Lifestyle Properties Inc. |
|
| 2,024,972 |
|
| 2,111,884 |
|
| — |
|
| 654,500 |
| Equity Office Properties Trust |
|
| — |
|
| 31,527,265 |
|
| 68,300 |
|
| 69,900 |
| Equity One Inc. |
|
| 1,745,065 |
|
| 1,863,534 |
|
| 523,800 |
|
| 544,300 |
| Equity Residential |
|
| 23,900,994 |
|
| 27,623,225 |
|
| 46,200 |
|
| 43,600 |
| Essex Property Trust Inc. |
|
| 5,373,060 |
|
| 5,635,300 |
|
| 117,100 |
|
| 120,200 |
| Extra Space Storage Inc. |
|
| 1,932,150 |
|
| 2,194,852 |
|
| 100,800 |
|
| 103,200 |
| Federal Realty Investment Trust |
|
| 7,787,808 |
|
| 8,772,000 |
|
| 113,200 |
|
| 115,300 |
| FelCor Lodging Trust Inc. |
|
| 2,946,596 |
|
| 2,518,152 |
|
| 80,900 |
|
| 84,300 |
| First Industrial Realty Trust Inc. |
|
| 3,135,684 |
|
| 3,952,827 |
|
| 41,600 |
|
| 41,600 |
| First Potomac Realty Trust |
|
| 968,864 |
|
| 1,210,976 |
|
| 413,900 |
|
| 423,600 |
| General Growth Properties Inc. |
|
| 21,916,005 |
|
| 22,124,628 |
|
See notes to the financial statements.
17
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
| Value |
| ||||||||
|
|
|
| ||||||||||
2007 |
| 2006 |
| Issuer |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
| |
| 66,900 |
|
| 69,600 |
| Glimcher Realty Trust |
| $ | 1,672,500 |
| $ | 1,859,016 |
|
| 73,800 |
|
| 73,800 |
| GMH Communities Trust |
|
| 715,122 |
|
| 749,070 |
|
| 70,900 |
|
| 59,500 |
| Hersha Hospitality Trust |
|
| 838,038 |
|
| 674,730 |
|
| 107,500 |
|
| 107,500 |
| Highland Hospitality Corp. |
|
| 2,064,000 |
|
| 1,531,875 |
|
| 101,700 |
|
| 101,700 |
| Highwoods Properties Inc. |
|
| 3,813,750 |
|
| 4,145,292 |
|
| 60,100 |
|
| 64,000 |
| Home Properties Inc. |
|
| 3,120,993 |
|
| 3,793,280 |
|
| 168,600 |
|
| 147,900 |
| Hospitality Properties Trust |
|
| 6,995,214 |
|
| 7,029,687 |
|
| 936,570 |
|
| 973,570 |
| Host Hotels & Resorts Inc. |
|
| 21,653,498 |
|
| 23,901,143 |
|
| 376,600 |
|
| 396,700 |
| HRPT Properties Trust |
|
| 3,916,640 |
|
| 4,899,245 |
|
| 105,700 |
|
| 116,700 |
| Inland Real Estate Corp. |
|
| 1,794,786 |
|
| 2,184,624 |
|
| 84,800 |
|
| 84,800 |
| Innkeepers USA Trust |
|
| 1,503,504 |
|
| 1,314,400 |
|
| 58,300 |
|
| 59,400 |
| Kilroy Realty Corp. |
|
| 4,129,972 |
|
| 4,633,200 |
|
| 394,521 |
|
| 409,521 |
| Kimco Realty Corp. |
|
| 15,019,414 |
|
| 18,407,969 |
|
| 52,200 |
|
| 55,300 |
| Kite Realty Group Trust |
|
| 992,844 |
|
| 1,029,686 |
|
| 72,900 |
|
| 75,000 |
| LaSalle Hotel Properties |
|
| 3,165,318 |
|
| 3,438,750 |
|
| 164,300 |
|
| 167,000 |
| Liberty Property Trust |
|
| 7,217,699 |
|
| 8,206,380 |
|
| 128,600 |
|
| 135,900 |
| Macerich Co./The |
|
| 10,599,212 |
|
| 11,764,863 |
|
| 121,600 |
|
| 118,700 |
| Mack-Cali Realty Corp. |
|
| 5,288,384 |
|
| 6,053,700 |
|
| 64,900 |
|
| 81,000 |
| Maguire Properties Inc. |
|
| 2,228,017 |
|
| 3,240,000 |
|
| 44,000 |
|
| 44,000 |
| Mid-America Apartment Communities |
|
| 2,309,120 |
|
| 2,518,560 |
|
| — |
|
| 100,200 |
| Mills Corp./The |
|
| — |
|
| 2,004,000 |
|
| — |
|
| 198,000 |
| New Plan Excel Realty Trust |
|
| — |
|
| 5,441,040 |
|
| 28,300 |
|
| 25,100 |
| Parkway Properties Inc./Md |
|
| 1,359,249 |
|
| 1,280,351 |
|
| 65,900 |
|
| 69,500 |
| Pennsylvania Real Estate Investment Trust |
|
| 2,921,347 |
|
| 2,736,910 |
|
| 78,000 |
|
| 79,300 |
| Post Properties Inc. |
|
| 4,066,140 |
|
| 3,624,010 |
|
| 459,800 |
|
| 462,500 |
| Prologis |
|
| 26,162,620 |
|
| 28,106,125 |
|
| 29,400 |
|
| 30,200 |
| PS Business Parks Inc. |
|
| 1,863,078 |
|
| 2,135,442 |
|
| 231,314 |
|
| 241,114 |
| Public Storage Inc. |
|
| 17,769,541 |
|
| 23,508,615 |
|
| 31,500 |
|
| 28,500 |
| Ramco-Gershenson Properties |
|
| 1,131,795 |
|
| 1,086,990 |
|
| — |
|
| 157,000 |
| Reckson Associates Realty Corp. |
|
| — |
|
| 7,159,200 |
|
| 123,800 |
|
| 129,300 |
| Regency Centers Corp. |
|
| 8,727,900 |
|
| 10,107,381 |
|
| 20,600 |
|
| 20,600 |
| Saul Centers Inc. |
|
| 934,210 |
|
| 1,136,914 |
|
| 401,721 |
|
| 412,821 |
| Simon Property Group Inc. |
|
| 37,376,122 |
|
| 41,814,639 |
|
| 106,507 |
|
| 86,300 |
| SL Green Realty Corp. |
|
| 13,195,152 |
|
| 11,458,914 |
|
| 36,500 |
|
| 33,500 |
| Sovran Self Storage Inc. |
|
| 1,757,840 |
|
| 1,918,880 |
|
| 133,600 |
|
| 134,700 |
| Strategic Hotels & Resorts Inc. |
|
| 3,004,664 |
|
| 2,935,113 |
|
| 30,900 |
|
| 30,900 |
| Sun Communities Inc. |
|
| 919,893 |
|
| 999,924 |
|
| 111,300 |
|
| 109,400 |
| Sunstone Hotel Investors Inc. |
|
| 3,159,807 |
|
| 2,924,262 |
|
| 56,300 |
|
| 58,300 |
| Tanger Factory Outlet Centers |
|
| 2,108,435 |
|
| 2,278,364 |
|
| 96,800 |
|
| 98,400 |
| Taubman Centers Inc. |
|
| 4,802,248 |
|
| 5,004,624 |
|
| 245,200 |
|
| — |
| UDR, Inc. |
|
| 6,448,760 |
|
| — |
|
| — |
|
| 250,400 |
| United Dominion Realty Trust Inc. |
|
| — |
|
| 7,960,216 |
|
| 84,300 |
|
| 95,400 |
| U-Store-It Trust |
|
| 1,381,677 |
|
| 1,960,470 |
|
| 255,400 |
|
| 245,800 |
| Vornado Realty Trust |
|
| 28,053,136 |
|
| 29,864,700 |
|
| 81,800 |
|
| 85,500 |
| Washington Real Estate Investment |
|
| 2,781,200 |
|
| 3,420,000 |
|
| 145,300 |
|
| 148,500 |
| Weingarten Realty Investors |
|
| 5,971,830 |
|
| 6,847,335 |
|
| 54,100 |
|
| 44,700 |
| Winston Hotels Inc. |
|
| 811,500 |
|
| 592,275 |
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL REAL ESTATE EQUITY SECURITIES |
|
| 530,467,569 |
|
| 619,342,386 |
| ||||||
|
|
|
|
See notes to the financial statements.
18
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
COMMERCIAL MORTGAGE-BACKED SECURITIES—0.00% and 0.55%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
| Value |
| ||||||||
|
|
|
| ||||||||||
2007 |
| 2006 |
| Issuer, Interest Rate and Maturity Date |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
| |
$ | — |
| $ | 10,000,000 |
| Commercial Mortgage Pass |
| $ | — |
| $ | 10,000,000 |
|
| — |
|
| 3,389,773 |
| Credit Suisse Mortgage Company |
|
| — |
|
| 3,390,255 |
|
| — |
|
| 10,000,000 |
| GS Mortgage Securities Co |
|
| — |
|
| 10,186,930 |
|
| — |
|
| 8,780,566 |
| GS Mortgage Securities Co |
|
| — |
|
| 8,782,059 |
|
| — |
|
| 9,996,970 |
| JP Morgan Chase Commercial |
|
| — |
|
| 9,996,970 |
|
| — |
|
| 9,298,609 |
| Lehman Brothers Floating |
|
| — |
|
| 9,298,971 |
|
| — |
|
| 9,143,864 |
| Morgan Stanley Capital |
|
| — |
|
| 9,144,605 |
|
| — |
|
| 10,000,000 |
| Morgan Stanley Dean Witter |
|
| — |
|
| 10,137,150 |
|
| — |
|
| 14,642,368 |
| Wachovia Bank Commercial |
|
| — |
|
| 14,642,997 |
|
|
|
|
|
|
|
|
|
|
| ||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES |
|
| — |
|
| 85,579,937 |
| ||||||
|
|
|
| ||||||||||
TOTAL REAL ESTATE-RELATED MARKETABLE SECURITIES |
|
| 530,467,569 |
|
| 704,922,323 |
| ||||||
|
|
|
| ||||||||||
OTHER MARKETABLE SECURITIES—12.86% and 13.15% |
|
|
|
|
|
|
| ||||||
| |||||||||||||
COMMERCIAL PAPER—11.77% and 10.79% |
|
|
|
|
|
|
| ||||||
| 25,000,000 |
|
| — |
| Abbey National North America LLC |
|
| 24,745,277 |
|
| — |
|
| 20,000,000 |
|
| — |
| Abbey National North America LLC |
|
| 19,752,554 |
|
| — |
|
| 6,210,000 |
|
| — |
| Abbey National North America LLC |
|
| 6,125,033 |
|
| — |
|
| — |
|
| 25,000,000 |
| Abbey National North America LLC |
|
| — |
|
| 24,945,207 |
|
| 14,655,000 |
|
| — |
| Air Products & Chemicals |
|
| 14,655,000 |
|
| — |
|
| — |
|
| 10,000,000 |
| American Express Bank, FSB |
|
| — |
|
| 10,000,235 |
|
| — |
|
| 1,500,000 |
| American Express Bank, FSB |
|
| — |
|
| 1,499,996 |
|
| — |
|
| 24,000,000 |
| American Express Bank, FSB |
|
| — |
|
| 23,999,578 |
|
| 25,000,000 |
|
| — |
| American Express Centurion Bank |
|
| 25,000,000 |
|
| — |
|
| 10,000,000 |
|
| — |
| American Express Centurion Bank |
|
| 9,999,989 |
|
| — |
|
| 30,000,000 |
|
| — |
| American Express Centurion Bank |
|
| 29,999,985 |
|
| — |
|
See notes to the financial statements.
19
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
| Value |
| ||||||||
|
|
|
| ||||||||||
2007 |
| 2006 |
| Issuer, Interest Rate and Maturity Date |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
| |
$ | 30,000,000 |
| $ | — |
| American Express Centurion Bank |
| $ | 29,999,730 |
| $ | — |
|
| — |
|
| 20,000,000 |
| American Express Centurion Bank |
|
| — |
|
| 19,999,954 |
|
| — |
|
| 19,165,000 |
| American Express Centurion Bank |
|
| — |
|
| 19,164,962 |
|
| — |
|
| 25,000,000 |
| American Express Centurion Bank |
|
| — |
|
| 24,999,988 |
|
| 16,620,000 |
|
| — |
| American Honda Finance Corp. |
|
| 16,595,392 |
|
| — |
|
| 20,000,000 |
|
| — |
| American Honda Finance Corp. |
|
| 19,935,234 |
|
| — |
|
| 10,000,000 |
|
| — |
| American Honda Finance Corp. |
|
| 9,904,847 |
|
| — |
|
| — |
|
| 50,000,000 |
| American Honda Finance Corp. |
|
| — |
|
| 49,853,055 |
|
| — |
|
| 17,475,000 |
| American Honda Finance Corp. |
|
| — |
|
| 17,377,605 |
|
| — |
|
| 10,000,000 |
| Anheuser-Busch Co. |
|
| — |
|
| 9,975,019 |
|
| 10,000,000 |
|
| — |
| Atlantis One Funding Corp. |
|
| 9,886,767 |
|
| — |
|
| 10,000,000 |
|
| — |
| Atlantis One Funding Corp. |
|
| 9,875,050 |
|
| — |
|
| 3,705,000 |
|
| — |
| Bank of Montreal |
|
| 3,681,181 |
|
| — |
|
| 20,000,000 |
|
| — |
| Barclay’s Bank PLC |
|
| 19,998,832 |
|
| — |
|
| 19,735,000 |
|
| — |
| Barclay’s U.S. Funding Corp. |
|
| 19,726,283 |
|
| — |
|
| 15,000,000 |
|
| — |
| Barclay’s U.S. Funding Corp. |
|
| 14,735,866 |
|
| — |
|
| — |
|
| 25,000,000 |
| Barclay’s U.S. Funding Corp. |
|
| — |
|
| 24,912,383 |
|
| 20,000,000 |
|
| — |
| Beta Finance Inc. |
|
| 19,855,312 |
|
| — |
|
| 11,300,000 |
|
| — |
| Beta Finance Inc. |
|
| 11,160,468 |
|
| — |
|
| 8,515,000 |
|
| — |
| BMW US Capital Corp. |
|
| 8,462,448 |
|
| — |
|
| 18,252,000 |
|
| — |
| BMW US Capital Corp. |
|
| 18,112,770 |
|
| — |
|
| — |
|
| 20,000,000 |
| BMW US Capital Corp. |
|
| — |
|
| 19,894,400 |
|
| — |
|
| 23,050,000 |
| BMW US Capital Corp. |
|
| — |
|
| 22,921,533 |
|
| 30,000,000 |
|
| — |
| Calyon |
|
| 29,997,624 |
|
| — |
|
See notes to the financial statements.
20
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
| Value |
| ||||||||
|
|
|
| ||||||||||
2007 |
| 2006 |
| Issuer, Interest Rate and Maturity Date |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
|
$ | 25,000,000 |
| $ | — |
| Calyon |
| $ | 24,997,972 |
| $ | — |
|
| 24,120,000 |
|
| — |
| Canadian Imperial Holdings, Inc. |
|
| 24,091,430 |
|
| — |
|
| 25,000,000 |
|
| — |
| Canadian Imperial Holdings, Inc. |
|
| 24,762,117 |
|
| — |
|
| 10,000,000 |
|
| — |
| CC (USA), Inc. |
|
| 9,988,024 |
|
| — |
|
| 8,700,000 |
|
| — |
| Ciesco LP |
|
| 8,642,145 |
|
| — |
|
| 25,000,000 |
|
| — |
| Ciesco LP |
|
| 24,757,175 |
|
| — |
|
| 25,000,000 |
|
| — |
| Ciesco LP |
|
| 24,753,495 |
|
| — |
|
| 10,000,000 |
|
| — |
| Ciesco LP |
|
| 9,894,080 |
|
| — |
|
| — |
|
| 25,000,000 |
| Ciesco LP |
|
| — |
|
| 24,973,942 |
|
| — |
|
| 14,000,000 |
| Ciesco LP |
|
| — |
|
| 13,952,299 |
|
| 15,000,000 |
|
| — |
| Citigroup Funding Inc. |
|
| 14,984,541 |
|
| — |
|
| 30,000,000 |
|
| — |
| Citigroup Funding Inc. |
|
| 29,960,250 |
|
| — |
|
| 9,355,000 |
|
| — |
| Citigroup Funding Inc. |
|
| 9,334,340 |
|
| — |
|
| 25,000,000 |
|
| — |
| Citigroup Funding Inc. |
|
| 24,705,250 |
|
| — |
|
| 20,000,000 |
|
| — |
| Citigroup Funding Inc. |
|
| 19,755,466 |
|
| — |
|
| — |
|
| 50,000,000 |
| Citigroup Funding Inc. |
|
| — |
|
| 49,934,060 |
|
| — |
|
| 35,825,000 |
| Citigroup Funding Inc. |
|
| — |
|
| 35,647,365 |
|
| 9,995,000 |
|
| — |
| Coca Cola Co. |
|
| 9,949,470 |
|
| — |
|
| 25,000,000 |
|
| — |
| Coca Cola Co. |
|
| 24,634,027 |
|
| — |
|
| 8,165,000 |
|
| — |
| Coca Cola Co. |
|
| 8,039,497 |
|
| — |
|
| 8,500,000 |
|
| — |
| Corporate Asset Funding Corp, Inc. |
|
| 8,477,199 |
|
| — |
|
| 20,000,000 |
|
| — |
| Corporate Asset Funding Corp, Inc. |
|
| 19,925,750 |
|
| — |
|
| 8,075,000 |
|
| — |
| Corporate Asset Funding Corp, Inc. |
|
| 8,037,875 |
|
| — |
|
| 16,490,000 |
|
| — |
| Corporate Asset Funding Corp, Inc. |
|
| 16,394,820 |
|
| — |
|
See notes to the financial statements.
21
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
| Value |
| ||||||||
|
|
|
| ||||||||||
2007 |
| 2006 |
| Issuer, Interest Rate and Maturity Date |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||||
|
|
|
|
|
| (Unaudited) |
|
|
| ||||
$ | 24,075,000 |
| $ | — |
| Corporate Asset Funding Corp, Inc. |
| $ | 23,890,309 |
| $ | — |
|
| 20,000,000 |
|
| — |
| Corporate Asset Funding Corp, Inc. |
|
| 19,843,678 |
|
| — |
|
| — |
|
| 6,000,000 |
| Corporate Asset Funding Corp, Inc. |
|
| — |
|
| 5,982,193 |
|
| — |
|
| 8,760,000 |
| Corporate Asset Funding Corp, Inc. |
|
| — |
|
| 8,725,048 |
|
| — |
|
| 25,000,000 |
| Corporate Asset Funding Corp, Inc. |
|
| — |
|
| 24,867,250 |
|
| — |
|
| 54,000,000 |
| Corporate Asset Funding Corp, Inc. |
|
| — |
|
| 53,705,295 |
|
| 10,000,000 |
|
| — |
| Danske Corp. |
|
| 9,928,473 |
|
| — |
|
| 18,000,000 |
|
| — |
| Deutsche Bank |
|
| 17,998,511 |
|
| — |
|
| 25,000,000 |
|
| — |
| Deutsche Bank |
|
| 24,997,795 |
|
| — |
|
| — |
|
| 3,000,000 |
| Deutsche Bank |
|
| — |
|
| 2,999,962 |
|
| — |
|
| 30,000,000 |
| Deutsche Bank |
|
| — |
|
| 29,999,154 |
|
| 20,000,000 |
|
| — |
| Dorada Finance Inc. |
|
| 19,911,000 |
|
| — |
|
| 13,700,000 |
|
| — |
| Dorada Finance Inc. |
|
| 13,556,905 |
|
| — |
|
| 10,000,000 |
|
| — |
| Dorada Finance Inc. |
|
| 9,894,080 |
|
| — |
|
| 20,000,000 |
|
| — |
| Dorada Finance Inc. |
|
| 19,764,754 |
|
| — |
|
| — |
|
| 7,000,000 |
| Dorada Finance Inc. |
|
| — |
|
| 6,992,704 |
|
| 8,770,000 |
|
| — |
| Dexia Banque |
|
| 8,769,193 |
|
| — |
|
| 22,950,000 |
|
| — |
| Dresdner US Finance Inc. |
|
| 22,875,681 |
|
| — |
|
| 2,190,000 |
|
| — |
| Dresdner US Finance Inc. |
|
| 2,171,395 |
|
| — |
|
| 30,000,000 |
|
| — |
| Edison Asset Securitization, LLC |
|
| 29,897,304 |
|
| — |
|
| 21,304,000 |
|
| — |
| Edison Asset Securitization, LLC |
|
| 21,227,915 |
|
| — |
|
| 15,000,000 |
|
| — |
| Edison Asset Securitization, LLC |
|
| 14,889,103 |
|
| — |
|
| — |
|
| 24,000,000 |
| Edison Asset Securitization, LLC |
|
| — |
|
| 23,939,287 |
|
| — |
|
| 10,000,000 |
| Edison Asset Securitization, LLC |
|
| — |
|
| 9,955,666 |
|
See notes to the financial statements.
22
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Principal |
|
|
| Value |
| |||||||
|
|
|
|
| |||||||||
| 2007 |
|
| 2006 |
| Issuer, Interest Rate and Maturity Date |
| 2007 |
| 2006 |
| ||
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
| (Unaudited) |
|
|
| ||
$ | — |
| $ | 32,900,000 |
| Fairway Finance Company, LLC |
| $ | — |
| $ | 32,826,521 |
|
| 20,000,000 |
|
| — |
| General Electric Capital Corp. |
|
| 19,894,800 |
|
| — |
|
| 21,425,000 |
|
| — |
| General Electric Capital Corp. |
|
| 21,237,887 |
|
| — |
|
| — |
|
| 23,760,000 |
| General Electric Capital Corp. |
|
| — |
|
| 23,704,454 |
|
| — |
|
| 13,155,000 |
| General Electric Capital Corp. |
|
| — |
|
| 13,084,017 |
|
| — |
|
| 30,000,000 |
| General Electric Capital Corp. |
|
| — |
|
| 29,807,499 |
|
| 10,000,000 |
|
| — |
| Goldman Sachs Group Inc. |
|
| 9,958,840 |
|
| — |
|
| 7,000,000 |
|
| — |
| Govco Incorporated |
|
| 6,942,234 |
|
| — |
|
| 5,000,000 |
|
| — |
| Govco Incorporated |
|
| 4,950,699 |
|
| — |
|
| 5,800,000 |
|
| — |
| Govco Incorporated |
|
| 5,727,529 |
|
| — |
|
| 25,000,000 |
|
| — |
| Govco Incorporated |
|
| 24,665,763 |
|
| — |
|
| 19,760,000 |
|
| — |
| Govco Incorporated |
|
| 19,335,506 |
|
| — |
|
| — |
|
| 50,000,000 |
| Govco Incorporated |
|
| — |
|
| 49,977,665 |
|
| — |
|
| 25,700,000 |
| Govco Incorporated |
|
| — |
|
| 25,454,668 |
|
| 10,000,000 |
|
| — |
| Grampian Funding LLC |
|
| 9,948,054 |
|
| — |
|
| 10,000,000 |
|
| — |
| Greyhawk Funding LLC |
|
| 9,886,553 |
|
| — |
|
| — |
|
| 33,000,000 |
| Greyhawk Funding LLC |
|
| — |
|
| 32,829,314 |
|
| 4,060,000 |
|
| — |
| Harrier Finance Funding US, LLC |
|
| 4,028,267 |
|
| — |
|
| — |
|
| 8,415,000 |
| HBOS Treasury Srvcs PLC |
|
| — |
|
| 8,319,680 |
|
| — |
|
| 40,000,000 |
| HSBC Finance Corporation |
|
| — |
|
| 39,859,012 |
|
| — |
|
| 19,000,000 |
| IBM (International Business Machine Corp.) |
|
| — |
|
| 18,966,750 |
|
| — |
|
| 22,200,000 |
| IBM Capital Inc. |
|
| — |
|
| 21,963,166 |
|
| — |
|
| 25,000,000 |
| ING (US) Finance |
|
| — |
|
| 24,695,265 |
|
| 25,000,000 |
|
| — |
| ING (US) Finance |
|
| 24,756,193 |
|
| — |
|
See notes to the financial statements.
23
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
| Value |
| ||||||||
|
|
|
| ||||||||||
2007 |
| 2006 |
| Issuer, Interest Rate and Maturity Date |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
| |
$ | 25,000,000 |
| $ | — |
| ING (US) Finance |
| $ | 24,734,360 |
| $ | — |
|
| — |
|
| 24,000,000 |
| Johnson & Johnson |
|
| — |
|
| 24,000,000 |
|
| — |
|
| 25,000,000 |
| Johnson & Johnson |
|
| — |
|
| 24,941,555 |
|
| 15,000,000 |
|
| — |
| Johnson & Johnson |
|
| 14,823,150 |
|
| — |
|
| 4,875,000 |
|
| — |
| JP Morgan Chase & Co. |
|
| 4,859,928 |
|
| — |
|
| 20,365,000 |
|
| — |
| JP Morgan Chase & Co. |
|
| 20,212,611 |
|
| — |
|
| 18,540,000 |
|
| — |
| JP Morgan Chase & Co. |
|
| 18,382,495 |
|
| — |
|
| 20,000,000 |
|
| — |
| JP Morgan Chase & Co. |
|
| 19,768,704 |
|
| — |
|
| — |
|
| 20,259,000 |
| Kimberly-Clark Worldwide, Inc. |
|
| — |
|
| 20,179,184 |
|
| 27,000,000 |
|
| — |
| Kitty Hawk Funding Corp. |
|
| 26,931,404 |
|
| — |
|
| 10,000,000 |
|
| — |
| Kitty Hawk Funding Corp. |
|
| 9,883,606 |
|
| — |
|
| 10,000,000 |
|
| — |
| Links Finance L.L.C. |
|
| 9,933,500 |
|
| — |
|
| — |
|
| 10,000,000 |
| Links Finance L.L.C. |
|
| — |
|
| 9,979,190 |
|
| 16,205,000 |
|
| — |
| Morgan Stanley Dean Witter |
|
| 16,097,844 |
|
| — |
|
| — |
|
| 30,000,000 |
| Morgan Stanley Dean Witter |
|
| — |
|
| 29,819,598 |
|
| — |
|
| 11,601,000 |
| Pitney Bowes Inc. |
|
| — |
|
| 11,597,578 |
|
| 10,000,000 |
|
| — |
| PNC Bank NA |
|
| 9,999,699 |
|
| — |
|
| 24,600,000 |
|
| — |
| Private Export Funding Corporation |
|
| 24,362,322 |
|
| — |
|
| 27,000,000 |
|
| — |
| Private Export Funding Corporation |
|
| 26,600,797 |
|
| — |
|
| 15,000,000 |
|
| — |
| Private Export Funding Corporation |
|
| 14,767,241 |
|
| — |
|
| 10,240,000 |
|
| — |
| Private Export Funding Corporation |
|
| 10,223,322 |
|
| — |
|
| — |
|
| 20,500,000 |
| Private Export Funding Corporation |
|
| — |
|
| 20,496,976 |
|
| — |
|
| 1,845,000 |
| Private Export Funding Corporation |
|
| — |
|
| 1,842,553 |
|
| — |
|
| 23,000,000 |
| Private Export Funding Corporation |
|
| — |
|
| 22,945,922 |
|
See notes to the financial statements.
24
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
| Value |
| ||||||||
|
|
|
| ||||||||||
2007 |
| 2006 |
| Issuer, Interest Rate and Maturity Date |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||||
|
|
|
|
|
| (Unaudited) |
|
|
| ||||
$ | — |
| $ | 6,000,000 |
| Private Export Funding Corporation |
| $ | — |
| $ | 5,981,485 |
|
| — |
|
| 15,000,000 |
| Private Export Funding Corporation |
|
| — |
|
| 14,903,199 |
|
| — |
|
| 14,120,000 |
| Private Export Funding Corporation |
|
| — |
|
| 13,989,828 |
|
| — |
|
| 25,000,000 |
| Procter & Gamble |
|
| — |
|
| 24,963,380 |
|
| 15,000,000 |
|
| — |
| Procter & Gamble International S.C. |
|
| 14,960,363 |
|
| — |
|
| 12,000,000 |
|
| — |
| Procter & Gamble International S.C. |
|
| 11,931,619 |
|
| — |
|
| 7,595,000 |
|
| — |
| Procter & Gamble International S.C. |
|
| 7,547,282 |
|
| — |
|
| 20,000,000 |
|
| — |
| Procter & Gamble International S.C. |
|
| 19,784,576 |
|
| — |
|
| 23,730,000 |
|
| — |
| Procter & Gamble International S.C. |
|
| 23,432,953 |
|
| — |
|
| 885,000 |
|
| — |
| Procter & Gamble International S.C. |
|
| 873,793 |
|
| — |
|
| 20,000,000 |
|
| — |
| Procter & Gamble International S.C. |
|
| 19,743,822 |
|
| — |
|
| — |
|
| 25,000,000 |
| Procter & Gamble International S.C. |
|
| — |
|
| 24,890,625 |
|
| — |
|
| 50,000,000 |
| Procter & Gamble International S.C. |
|
| — |
|
| 49,686,455 |
|
| 20,000,000 |
|
| — |
| Ranger Funding Company LLC |
|
| 19,967,090 |
|
| — |
|
| 15,000,000 |
|
| — |
| Ranger Funding Company LLC |
|
| 14,944,313 |
|
| — |
|
| 38,550,000 |
|
| — |
| Ranger Funding Company LLC |
|
| 38,544,225 |
|
| — |
|
| — |
|
| 10,000,000 |
| Ranger Funding Company LLC |
|
| — |
|
| 9,967,385 |
|
| — |
|
| 20,000,000 |
| Ranger Funding Company LLC |
|
| — |
|
| 19,931,856 |
|
| — |
|
| 23,760,000 |
| Ranger Funding Company LLC |
|
| — |
|
| 23,616,311 |
|
| 20,000,000 |
|
| — |
| Royal Bank of Canada |
|
| 19,998,042 |
|
| — |
|
| 10,000,000 |
|
| — |
| Royal Bank of Canada |
|
| 9,999,226 |
|
| — |
|
| 35,000,000 |
|
| — |
| Royal Bank of Canada |
|
| 34,996,269 |
|
| — |
|
| — |
|
| 10,000,000 |
| Scaldis Capital LLC |
|
| — |
|
| 9,988,068 |
|
| 2,025,000 |
|
| — |
| Scaldis Capital LLC |
|
| 2,021,662 |
|
| — |
|
See notes to the financial statements.
25
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
| Value |
| ||||||||
|
|
|
| ||||||||||
2007 |
| 2006 |
| Issuer, Interest Rate and Maturity Date |
| 2007 |
| 2006 |
| ||||
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
| |
$ | 15,000,000 |
| $ | — |
| Scaldis Capital LLC |
| $ | 14,968,553 |
| $ | — |
|
| 10,990,000 |
|
| — |
| Scaldis Capital LLC |
|
| 10,919,994 |
|
| — |
|
| — |
|
| 25,000,000 |
| Sheffield Receivables Corporation |
|
| — |
|
| 24,962,735 |
|
| — |
|
| 35,750,000 |
| Sheffield Receivables Corporation |
|
| — |
|
| 35,670,156 |
|
| 20,150,000 |
|
| — |
| Shell International Finance Corp. |
|
| 19,894,832 |
|
| — |
|
| 9,065,000 |
|
| — |
| Sigma Finance Inc. |
|
| 8,910,978 |
|
| — |
|
| 10,615,000 |
|
| — |
| Sigma Finance Inc. |
|
| 10,362,384 |
|
| — |
|
| 25,800,000 |
|
| — |
| Sigma Finance Inc. |
|
| 25,152,479 |
|
| — |
|
| 30,000,000 |
|
| — |
| Societe Generale North America, Inc. |
|
| 29,996,448 |
|
| — |
|
| 20,000,000 |
|
| — |
| Societe Generale North America, Inc. |
|
| 19,813,688 |
|
| — |
|
| 16,000,000 |
|
| — |
| Societe Generale North America, Inc. |
|
| 15,769,440 |
|
| — |
|
| — |
|
| 7,850,000 |
| Societe Generale North America, Inc. |
|
| — |
|
| 7,836,262 |
|
| — |
|
| 25,000,000 |
| Societe Generale North America, Inc. |
|
| — |
|
| 24,937,902 |
|
| 20,000,000 |
|
| — |
| SunTrust Banks, Inc. |
|
| 20,001,820 |
|
| — |
|
| — |
|
| 20,000,000 |
| SunTrust Banks, Inc. |
|
| — |
|
| 20,001,700 |
|
| 10,000,000 |
|
| — |
| Swedish Export Credit Corp. |
|
| 9,989,694 |
|
| — |
|
| 22,500,000 |
|
| — |
| Swedish Export Credit Corp. |
|
| 22,430,830 |
|
| — |
|
| 10,685,000 |
|
| — |
| Swedish Export Credit Corp. |
|
| 10,617,868 |
|
| — |
|
| 20,000,000 |
|
| — |
| Swedish Export Credit Corp. |
|
| 19,871,422 |
|
| — |
|
| 15,000,000 |
|
| — |
| Swedish Export Credit Corp. |
|
| 14,884,085 |
|
| — |
|
| 15,000,000 |
|
| — |
| Swedish Export Credit Corp. |
|
| 14,722,980 |
|
| — |
|
| — |
|
| 14,675,000 |
| Swedish Export Credit Corp. |
|
| — |
|
| 14,657,788 |
|
| — |
|
| 33,895,000 |
| Swedish Export Credit Corp. |
|
| — |
|
| 33,825,624 |
|
| — |
|
| 30,000,000 |
| Swedish Export Credit Corp. |
|
| — |
|
| 29,816,250 |
|
See notes to the financial statements.
26
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Principal |
|
|
|
| Value |
| ||||||
|
|
|
|
| |||||||||
| 2007 |
|
| 2006 |
| Issuer, Interest Rate and Maturity Date |
|
| 2007 |
|
| 2006 |
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
|
$ | — |
| $ | 5,800,000 |
| The Concentrate Manufacturing |
| $ | — |
| $ | 5,790,695 |
|
| 10,000,000 |
|
| — |
| Toronto Dominion Bank |
|
| 9,999,723 |
|
| — |
|
| 20,000,000 |
|
| — |
| Toyota Motor Credit Corp. |
|
| 19,952,932 |
|
| — |
|
| — |
|
| 50,000,000 |
| Toyota Motor Credit Corp. |
|
| — |
|
| 49,846,580 |
|
| — |
|
| 30,000,000 |
| Toyota Motor Credit Corp. |
|
| — |
|
| 29,899,221 |
|
| — |
|
| 19,000,000 |
| U.S. Bancorp |
|
| — |
|
| 18,998,765 |
|
| 19,000,000 |
|
| — |
| U.S. Bancorp |
|
| 18,998,632 |
|
| — |
|
| 19,400,000 |
|
| — |
| UBS Finance, (Delaware) Inc. |
|
| 19,360,013 |
|
| — |
|
| 14,003,000 |
|
| — |
| UBS Finance, (Delaware) Inc. |
|
| 13,937,528 |
|
| — |
|
| 20,965,000 |
|
| — |
| UBS Finance, (Delaware) Inc. |
|
| 20,793,949 |
|
| — |
|
| 11,600,000 |
|
| — |
| UBS Finance, (Delaware) Inc. |
|
| 11,488,562 |
|
| — |
|
| 5,395,000 |
|
| — |
| UBS Finance, (Delaware) Inc. |
|
| 5,312,546 |
|
| — |
|
| — |
|
| 17,500,000 |
| UBS Finance, (Delaware) Inc. |
|
| — |
|
| 17,375,018 |
|
| 25,000,000 |
|
| — |
| Variable Funding Capital Corporation |
|
| 24,943,645 |
|
| — |
|
| — |
|
| 34,530,000 |
| Variable Funding Capital Corporation |
|
| — |
|
| 34,371,217 |
|
| — |
|
| 30,000,000 |
| Variable Funding Capital Corporation |
|
| — |
|
| 29,848,698 |
|
| — |
|
| 25,000,000 |
| Variable Funding Capital Corporation |
|
| — |
|
| 24,870,208 |
|
| 18,200,000 |
|
| — |
| Wal-Mart Stores |
|
| 18,122,867 |
|
| — |
|
| 10,000,000 |
|
| — |
| Yorktown Capital, LLC |
|
| 9,979,073 |
|
| — |
|
| — |
|
| 23,415,000 |
| Yorktown Capital, LLC |
|
| — |
|
| 23,408,027 |
|
|
|
|
|
|
|
|
|
|
| ||||
| TOTAL COMMERCIAL PAPER |
|
| 2,070,762,168 |
|
| 1,672,544,145 |
| |||||
|
|
|
|
|
See notes to the financial statements.
27
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
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| Principal |
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| Value |
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| 2007 |
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| 2006 |
| Issuer, Interest Rate and Maturity Date |
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| 2007 |
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| 2006 |
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GOVERNMENT AGENCY BONDS—1.09% and 2.36% |
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$ | — |
| $ | 17,700,000 |
| Federal Home Loan Banks |
| $ | — |
| $ | 17,694,938 |
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| — |
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| 19,745,000 |
| Federal Home Loan Banks |
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| — |
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| 19,719,628 |
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| — |
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| 39,969,000 |
| Federal Home Loan Banks |
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| — |
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| 39,877,711 |
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| — |
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| 23,753,000 |
| Federal Home Loan Banks |
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| — |
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| 23,563,451 |
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| 17,020,000 |
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| — |
| Federal Home Loan Banks |
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| 17,010,350 |
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| — |
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| 20,220,000 |
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| — |
| Federal Home Loan Mortgage Corporation |
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| 20,088,226 |
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| — |
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| 25,000,000 |
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| — |
| Federal Home Loan Mortgage Corporation |
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| 24,614,725 |
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| — |
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| 33,053,000 |
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| — |
| Federal Home Loan Mortgage Corporation |
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| 32,417,424 |
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| 27,258,000 |
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| — |
| Federal Home Loan Mortgage Corporation |
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| 26,718,455 |
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| — |
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| 13,400,000 |
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| — |
| Federal Home Loan Mortgage Corporation |
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| 13,109,381 |
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| — |
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| — |
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| 13,654,000 |
| Federal Home Loan Mortgage Corporation |
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| — |
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| 13,654,000 |
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| — |
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| 22,250,000 |
| Federal Home Loan Mortgage Corporation |
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| — |
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| 22,208,704 |
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| — |
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| 43,400,000 |
| Federal Home Loan Mortgage Corporation |
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| — |
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| 43,269,887 |
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| — |
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| 50,000,000 |
| Federal Home Loan Mortgage Corporation |
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| — |
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| 49,807,250 |
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| 33,675,000 |
| Federal Home Loan Mortgage Corporation |
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| — |
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| 33,540,367 |
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| 25,000,000 |
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| — |
| Federal National Mortgage Association |
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| 24,868,950 |
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| — |
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| 15,325,000 |
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| — |
| Federal National Mortgage Association |
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| 15,157,835 |
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| — |
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| 19,001,000 |
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| — |
| Federal National Mortgage Association |
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| 18,600,706 |
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| — |
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| — |
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| 30,000,000 |
| Federal National Mortgage Association |
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| — |
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| 29,854,650 |
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| — |
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| 23,768,000 |
| Federal National Mortgage Association |
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| — |
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| 23,751,029 |
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| — |
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| 50,000,000 |
| Federal National Mortgage Association |
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| — |
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| 49,452,450 |
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| TOTAL GOVERNMENT AGENCY BONDS |
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| 192,586,052 |
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| 366,394,065 |
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| TOTAL OTHER MARKETABLE SECURITIES |
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| 2,263,348,220 |
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| 2,038,938,210 |
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| TOTAL MARKETABLE SECURITIES |
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| 2,793,815,789 |
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| 2,743,860,533 |
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See notes to the financial statements.
28
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2007 and December 31, 2006
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| 2007 |
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| 2006 |
| Borrower, Current Rate and Maturity Date |
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| 2006 |
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MORTGAGE LOAN RECEIVABLE—0.43% and 0.48% |
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$ | 75,000,000 |
| $ | 75,000,000 |
| Klingle Corporation |
| $ | 74,774,292 |
| $ | 74,660,626 |
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TOTAL MORTGAGE LOAN RECEIVABLE |
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| 74,774,292 |
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| 74,660,626 |
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TOTAL INVESTMENTS |
| $ | 17,593,391,782 |
| $ | 15,510,036,850 |
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(1) | The investment has a mortgage loan payable outstanding, as indicated in Note 4. |
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(2) | Leasehold interest only. |
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(3) | The market value reflects the Account’s interest in the joint venture, net of any debt. |
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(4) | Located throughout the U.S. |
See notes to the financial statements.
29
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Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF |
| FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and notes contained in this report and with consideration to the sub-section entitled “Forward-Looking Statements,” which begins on page 47, and the section of the Account’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Form 10-K”) entitled “Item 1A. Risk Factors”. The past performance of the Account is not indicative of future results.
2nd Quarter Overview
The TIAA Real Estate Account (the “Account”) invests primarily in commercial real estate in order to meet its investment objective of obtaining favorable long-term returns through rental income and the appreciation of its real estate holdings. In the second quarter of 2007, commercial real estate maintained its strong performance, buoyed by stable real estate market fundamentals, continued liquidity in the commercial real estate market, and an expanding U.S. economy, as discussed in detail in the following section. While Federal Reserve Board Chairman Ben S. Bernanke noted in his July 18, 2007 testimony before the U.S. House of Representatives’ Committee on Financial Services that the rate of U.S. economic growth has moderated in recent quarters, he attributed the moderation to the “ongoing adjustment in the housing sector” and believed that growth was currently “at a pace more consistent with sustainable expansion.” He was optimistic about prospects for the national economy as the drag from the housing sector dissipates: “Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.” Other positive trends noted by Chairman Bernanke were strong growth in the global economy which was likely to benefit U.S. exports, and steady growth in consumer spending and business expenditures on equipment and software. On a negative note, conditions in the subprime mortgage market had deteriorated further and were being monitored closely, but “financing activity in the bond and business loan markets has remained fairly brisk”, with conditions supportive of ongoing growth in business activity.
Investor demand for commercial real estate in the second quarter of 2007 remained strong due to stable real estate market fundamentals and relatively attractive returns when compared to other asset classes. In addition, rental growth continues to support increases in market values. Unlike the single-family housing market, which experienced continued softening in demand and prices and which has been negatively affected by the subprime mortgage issues, commercial real estate investment activity continued at its strong pace. Prices have held firm and, in many cases, have continued to increase. According to Real Capital Analytics, one of the primary industry sources of commercial real estate transaction data, commercial real estate transactional volume in the first half of 2007 totaled approximately $180 billion, up 60% compared with the first half of 2006. However, these results were partly skewed by Blackstone’s $39 billion acquisition of real estate investment trust Equity Office Properties (“EOP”) and the subsequent resale of portions of EOP’s portfolio to other investors, which are also included in
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the year-to-date totals. While management does not believe that investors’ appetite for commercial real estate has weakened, transactional volume has slowed down in some markets and pricing has moderated. A continued slowing economy may negatively impact commercial real estate of the United States.
While management believes that real estate market fundamentals should remain stable and that the economic outlook in the near term remains favorable, commercial real estate markets are cyclical over the longer term and, therefore, are subject to change. Geopolitical and economic risks, changes in interest rates or monetary policy, industry or sector slowdowns, the dynamics of supply and demand for commercial real estate and changing demographics are but a few of the factors which can affect commercial real estate values and, consequently, the performance of the Account. While management cannot predict the exact nature or timing of such changes or the magnitude of their impact, our experience has demonstrated that market fluctuations can and will take place without advance notice, and any significant changes will have a direct and meaningful impact on the returns of the Account. Please also refer to the section of the Account’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Form 10-K”) entitled “Item 1A. Risk Factors” for a more detailed description of the risks associated with an investment in the Account.
It is also important to note that, while the single family residential real estate market remains weak and the subprime mortgage market has deteriorated further, the Account does not directly invest in single family residential real estate. Historically, there has not been a strong link between commercial real estate and single family housing because different market fundamentals drive the performance of each. As discussed subsequently, the problems of subprime lenders could have an impact on certain office markets; however, the Account has minimal exposure to Orange County, California, where some of the largest subprime lenders are headquartered. In addition, the collapse of the subprime lending market combined with a slowing economy has begun to effect the capital markets, by causing volatility in the commercial debt markets, and increasing the cost of borrowing. The capital markets have widened mortgage spreads, which may affect capitalization rates in the long term.
Investments as of June 30, 2007
As of June 30, 2007, the Account had total net assets in the amount of $16,249,965,290, a 30.5% increase from June 30, 2006 and a 15.0% increase from December 31, 2006. The growth in net assets continues to be driven by the steady inflow of premiums and net transfers into the Account and an increase in net investment income and strong capital appreciation on the Account’s investment portfolio during the first six months ended June 30, 2007.
As of June 30, 2007, the Account owned a total of 117 real estate property investments (104 of which were wholly-owned and 13 of which were held in joint ventures) representing 81.9% of the Account’s total investment portfolio. The real estate portfolio included 51 office properties (six of which were held in joint ventures and one located in London, England), 27 industrial properties (including one held in a joint venture), 22
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apartment complexes, 16 retail properties (including five held in joint ventures and one located in Paris, France), and a 75% joint venture interest in a portfolio of storage facilities. Of the 117 real estate property investments, 19 are subject to debt (including seven joint venture properties). Total debt on the Account’s wholly-owned real estate portfolio as of June 30, 2007 was $1,415,709,148, representing 8.7% of Total Net Assets. The Account’s share of joint venture debt is netted out in determining the joint venture values shown in the Statement of Investments, but, when that debt is also considered, total debt on the Account’s portfolio as of June 30, 2007 was $3,379,545,948, representing 20.8% of Total Net Assets.
During the second quarter of 2007, the Account purchased two property investments, for a total equity investment of $63.6 million. These purchases included an office building located in Dallas, Texas for approximately $45.2 million and a retail property located in Champlain, Minnesota, for approximately $18.4 million.
During the second quarter of 2007, the Account sold a portfolio of industrial properties for approximately $260.8 million, which gave the Account a cumulative realized gain of approximately $58.9 million. The portfolio was comprised of six industrial property investments and five individual properties from existing industrial portfolios located throughout the United States.
Management believes that the Account’s real estate portfolio is diversified by location and property type. At June 30, 2007, no single property investment represented more than 5.73% of its total investments or more than 7.0% of its total real estate investments, based on the values of such assets. The following charts reflect the diversification of the Account’s real estate assets by region and property type, list its ten largest holdings, and list its top five overall market exposures by metropolitan area, based on metropolitan divisions, which are subsets of metropolitan statistical areas. All information is based on the values of the properties as stated in the financial statements as of June 30, 2007.
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REAL ESTATE ASSETS |
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| East |
| West |
| South |
| Midwest |
| Various* |
| Foreign** |
| TOTAL |
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| (30) |
| (36) |
| (38) |
| (8) |
| (3) |
| (2) |
| (117) |
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Office (51) |
| 21.3 | % |
| 18.0 | % |
| 10.8 | % |
| 2.6 | % |
| 0.0 | % |
| 3.1 | % |
| 55.8 | % |
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Apartment (22) |
| 1.7 | % |
| 6.6 | % |
| 5.4 | % |
| 0.0 | % |
| 0.0 | % |
| 0.0 | % |
| 13.7 | % |
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Industrial (27) |
| 1.7 | % |
| 5.8 | % |
| 2.7 | % |
| 1.4 | % |
| 0.5 | % |
| 0.0 | % |
| 12.1 | % |
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Retail (16) |
| 1.7 | % |
| 0.9 | % |
| 6.4 | % |
| 0.1 | % |
| 7.0 | % |
| 1.8 | % |
| 17.9 | % |
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Other (1)*** |
| 0.0 | % |
| 0.0 | % |
| 0.0 | % |
| 0.0 | % |
| 0.5 | % |
| 0.0 | % |
| 0.5 | % |
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TOTAL (117) |
| 26.4 | % |
| 31.3 | % |
| 25.3 | % |
| 4.1 | % |
| 8.0 | % |
| 4.9 | % |
| 100.0 | % |
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( ) | Number of property investments in parentheses. |
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* | Represents a portfolio of storage facilities, a portfolio of industrial properties, and a portfolio of primarily retail properties located in various regions across the U.S. |
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** | Represents real estate investments in the United Kingdom and France. |
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*** | Represents a portfolio of storage facilities. |
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Top Ten Real Estate Holdings |
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Property or Joint Venture Name |
| City |
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| Type |
| Market |
| Property as a |
| Property as a | |
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DDR Joint Venture |
| Various |
| USA |
| Retail |
| 1,008.5 | (b) |
| 7.00% |
| 5.73% |
1001 Pennsylvania Avenue |
| Washington |
| DC |
| Office |
| 617.5 | (c) |
| 4.29% |
| 3.51% |
Fourth & Madison |
| Seattle |
| WA |
| Office |
| 462.0 | (d) |
| 3.21% |
| 2.63% |
50 Fremont |
| San Francisco |
| CA |
| Office |
| 456.0 | (e) |
| 3.16% |
| 2.59% |
1 & 7 Westferry Circus |
| London |
| UK |
| Office |
| 450.8 | (f) |
| 3.13% |
| 2.56% |
The Newbry |
| Boston |
| MA |
| Office |
| 371.6 |
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| 2.58% |
| 2.11% |
780 Third Avenue |
| New York City |
| NY |
| Office |
| 369.5 |
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| 2.56% |
| 2.10% |
Ontario Industrial Portfolio |
| Ontario |
| CA |
| Industrial |
| 326.8 | (g) |
| 2.27% |
| 1.86% |
Four Oaks Place |
| Houston |
| TX |
| Office |
| 319.6 |
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| 2.22% |
| 1.82% |
Houston Apartment Portfolio |
| Houston |
| TX |
| Apartment |
| 313.4 |
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| 2.17% |
| 1.78% |
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(a) | Value as reported in the 06/30/07 Statement of Investments. Investments owned 100% by TIAA are reported based on market value. Investments in joint ventures are reported based on the equity method of accounting. |
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(b) | This property is held in a 85%/15% joint venture with Developers Diversified Realty Corporation, and consists of 65 retail properties and 1 apartment property located in 13 states. |
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(c) | This property is shown gross of debt. The value of the Account’s interest less leverage is $399.4 million. |
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(d) | This property is shown gross of debt. The value of the Account’s interest less leverage is $313.6 million. |
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(e) | This property is shown gross of debt. The value of the Account’s interest less leverage is $317.9 million. |
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(f) | This property is shown gross of debt. The value of the Account’s interest less leverage is $194.0 million. The market value has been converted to U.S dollars from Pound Sterling at the exchange rate as of June 30, 2007. |
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(g) | This property is shown gross of debt. The value of the Account’s interest less leverage is $317.3 million. |
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Top Five Overall Metropolitan Area Exposure |
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Metropolitan Area |
| % |
| # of Property |
| Metro Areas as a |
| Metro Area as a |
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Washington-Arlington-Alexandria DC-VA-MD-WV |
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| 99.2 | % |
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| 10 |
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| 11.23 | % |
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| 9.20 | % |
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Boston-Quincy MA |
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| 94.9 | % |
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| 6 |
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| 6.68 | % |
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| 5.47 | % |
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Los Angeles-Long Beach-Glendale CA |
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| 96.1 | % |
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| 8 |
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| 6.55 | % |
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| 5.36 | % |
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San Francisco-San Mateo-Redwood City CA |
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| 94.5 | % |
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| 4 |
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| 6.17 | % |
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| 5.05 | % |
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Seattle-Bellevue-Everett WA |
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| 97.7 | % |
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| 5 |
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| 5.16 | % |
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| 4.23 | % |
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As of June 30, 2007, the Account also held investments in real estate limited partnerships, representing 1.80% of Total Investments, real estate equity securities, representing 3.02% of Total Investments, a mortgage loan receivable representing 0.43% of Total Investments, commercial paper representing 11.77% of Total Investments, and government bonds, representing 1.09% of Total Investments.
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Real Estate Market Outlook—In General
Commercial real estate market statistics discussed in this section are obtained by the Account from sources that management considers reliable, but the data is preliminary for the period ended June 30, 2007 and may be subsequently revised. Prior period data may have been adjusted to reflect updated calculations. Investors should not rely exclusively on the data presented below in forming a judgment regarding the current or prospective performance of the commercial real estate market generally.
The United States commercial real estate markets and the national economy continued to experience improvements in the second quarter of 2007. Commercial real estate market fundamentals remain stable in most markets and across the major sectors (office, industrial, apartments and retail) while the national economy moved ahead modestly. Despite the slower economic growth compared to 2006, capital inflow from investors to commercial real estate assets remained strong in the three months ended June 30, 2007, continuing to support commercial real estate values, while moderating investment returns. Management believes it is important to remember that real estate values can be affected by prospective changes in economic and capital market conditions, as well as by changes in supply and demand at the local level.
The Bureau of Labor Statistics reported that 444,000 jobs were added during the three-month period ended June 30, 2007, compared with 427,000 in the previous quarter. The average gain of 144,000 jobs per month in the second quarter of 2007 fell short of the 189,000 average monthly gain for 2006 as a whole, but is consistent with reports of moderate growth in the first half of 2007. Financial and professional and business services, two key office-using sectors, added 20,000 and 38,000 jobs, respectively, which was in line with job growth during the first quarter of 2007.
Payroll employment growth in the Account’s primary metropolitan areas remained healthy during the second quarter of 2007. Of the Account’s five top metropolitan areas (Washington, D.C., Boston, Los Angeles, San Francisco and Seattle), based on the value of the Account’s property investments, employment growth was the strongest in the Seattle and San Francisco metropolitan areas, where payroll employment grew 3.0% and 2.5%, respectively, in the three months ended June 30, 2007, compared with a 1.4% gain in the U.S. as a whole. Employment growth was also healthy and better than the national average in the Washington D.C. and Boston metropolitan areas, where payroll employment grew 1.8%. Employment in the Los Angeles metropolitan area grew at 1.1%, which was slightly below the national average.
Growth in payroll employment is highly correlated with tenant demand for commercial real estate; however, growth in employment may not immediately result in demand for space. Space demand can lag growth in employment due to the nature of the leasing cycle. The 871,000 jobs created in first half of 2007 have bolstered U.S. real estate market conditions. According to Torto Wheaton Research, an independent subsidiary of CB Richard Ellis and a widely-used source of real estate market data, office vacancies across the nation averaged 12.4% as of the second quarter of 2007, as compared to 12.7% as of the first quarter of 2007. In comparison, for the second quarter of 2007, the vacancy rate of the Account’s office portfolio was considerably lower than the national average at 4.9%.
34
Real estate market conditions in the Account’s top office markets remained stable in the three months ended June 30, 2007. For example, in the Washington, D.C. metropolitan area, office vacancies were below the national average at 9.5% as of the second quarter of 2007. More specifically, vacancies within the District of Columbia, where the largest concentration of the Account’s office investments are located, averaged 6.4% as of the second quarter of 2007. In comparison, the average vacancy rate of the Account’s office portfolio in the Washington, D.C. metropolitan area and the District of Columbia were significantly better than the Washington, D.C. metropolitan and Washington, D.C. averages, and stood at 1.5% and 0.3%, respectively, at the end of the second quarter 2007. Similarly, vacancies in Boston (11.5%), San Francisco (10.4%), Los Angeles (9.6%), and Seattle (8.8%), which are the Account’s other top office markets, were below the national average. Vacancies in each of these markets have declined steadily over the past year. In comparison, the Account’s office portfolios in Los Angeles, San Francisco, and Seattle had vacancy rates of 1.8%, 5.7%, and 6.1%, respectively. The Account’s office portfolio in Boston had a vacancy rate of 15.8%.
Orange County, California, is home to a number of the largest subprime lenders and it is one of the metropolitan markets where the impacts of the recent subprime lending industry’s problems are most likely to be seen. Thus far, one of the larger subprime lenders has terminated a pending lease for new space and others are trying to sublet a portion of their office space. The Account has minimal exposure to the Orange County market. As of June 30, 2007, the Account owns two office buildings in Orange County, with a total value of $94.6 million, which represents 0.54% of the Account’s total assets, and management does not believe that subprime lending industry issues will materially impact the Account’s total performance.
Industrial space demand is related to a number of factors, including the national business cycle, national industrial production, international trade volumes, changes in corporate logistics and distribution systems, and employment growth in the manufacturing, wholesale trade and transportation and warehousing industries. Most of these factors have experienced sustained growth over the last several years. For example, U.S. gross domestic product (GDP), a basic indicator of the national business cycle, grew 3.3% in 2006, after growing 3.2% in 2005. Final estimates from the Bureau of Economic Analysis are that GDP grew at a weak 0.7% rate during the first quarter of 2007. Advance estimates for the second quarter of 2007, which are subject to revision, are that GDP grew 3.4% during the second quarter. The pick-up is partly due to a rebound from a weak first quarter of 2007, and in combination with first quarter readings, suggest a healthy but more moderate rate of economic growth.
Despite softer U.S. macroeconomic conditions, U.S. real estate industrial markets remained stable during the second quarter of 2007. According to Torto Wheaton Research, industrial vacancies nationally were unchanged in the second quarter, averaging 9.3%. In comparison, as of the second quarter of 2007, the vacancy rate of the Account’s industrial portfolio was 4.7%, well below the national average. Riverside County, California and Los Angeles, two of the Account’s top industrial markets, remained strong with average vacancies of 7.3% and 4.4%, respectively, in the second quarter of 2007. Vacancies remained high in Dallas (11.1%), Chicago (10.7%), and Atlanta (12.5%), the Account’s other top
35
industrial markets; however, vacancies in each market have declined over the past year. In comparison, at June 30, 2007, the Account’s industrial portfolio in Riverside was 100% occupied. In the Account’s industrial portfolios in the remaining top industrial markets, Chicago had a vacancy rate of 1.7%, Dallas had a vacancy rate of 2.5% and Atlanta had a vacancy rate of 3.5%.
U.S. apartment markets remained stable in the second quarter of 2007. According to Torto Wheaton Research, apartment vacancy rates in the nation’s largest metropolitan markets averaged 5.1% in the second quarter of 2007, versus 4.7% in the first quarter of 2007. A year-over-year comparison, which accounts for seasonality in leasing patterns, showed that second quarter 2007 vacancies increased 1.1% as compared with the second quarter of 2006. Increases were most prevalent in markets that experienced significant condominium and single-family home development in recent years, suggesting that unsold units are being offered for rent on competitive terms. The average vacancy rate for the Account’s apartment portfolio was 3.1% as of the second quarter of 2007.
Vacancy rates in the Phoenix metropolitan area, the Account’s top apartment market, averaged 7.1% as of the second quarter of 2007. In the Account’s other top apartment markets, vacancies were exceptionally low in Los Angeles (3.7%) and low or modest in Houston (7.8%), Denver (5.4%) and Atlanta (7.3%). In comparison, at June 30, 2007, the Account’s apartment portfolios in Phoenix, Los Angeles, Houston, Denver, and Atlanta had vacancy rates of 7.5%, 5.0%, 1.5%, 2.5%, and 3.0%, respectively.
Retail real estate markets remained stable, but retail sales growth has moderated over the last six months. Preliminary estimates from the U.S. Department of Commerce show that consumer spending on retail goods and food services, a proxy for the types of goods sold at neighborhood shopping centers and regional malls, grew 4.1% in the second quarter of 2007, a healthy increase, but below the 6.9% average increase in 2006. Vacancies in neighborhood and community centers averaged 9.4% as of the second quarter of 2007 versus 8.9% in the first quarter of 2007. The small increase in vacancies may be related to the modest slowdown in retail sales growth. The average vacancy for both the Account’s entire retail portfolio and its neighborhood and community centers, was 2.6%.
Overall, management believes commercial real estate construction remains at levels that are appropriate to meet anticipated near-term demand. According to Torto Wheaton Research, roughly 80 million square feet of multi-tenant office space are expected to be completed in 2007, which is less than the average annual construction of 90 million square feet during the 1999-2001 cyclical peak. Similarly, industrial construction is expected to total roughly 190 million square feet nationally in 2007 as compared with average annual construction of 237 million square feet during the 1999-2001 cyclical peak. Torto Wheaton expects apartment construction to total 225,000 units in 2007, up from an average of 212,000 units during the 1999-2001 cyclical peak. Though Torto Wheaton expects apartment vacancies to increase modestly during the rest of 2007, rents are expected to grow 3.1% over the course of the year. Construction of neighborhood and community centers is expected to total roughly 26 million square feet in 2007, as compared with an average of 29 million square feet during the 1999-2001 cyclical peak.
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Economic Outlook for the Remainder of 2007
On balance, management continues to believe that economic and commercial real estate market fundamentals remain solid, and near-term prospects for U.S. commercial real estate markets should remain stable. Economic growth is moderating and the single-family housing market remains soft; however, Chairman Bernanke expects economic activity to increase in the second half of 2007, and for gross domestic product to grow 2.25-2.50% in 2007 and 2.50-2.75% in 2008. While the Federal Open Market Committee (FOMC) remains focused on inflation, the rate of inflation has moderated in recent months, and according to Chairman Bernanke, “inflation should edge a bit lower over the remainder of this year and next year.” Looking ahead, while the rates of improvement in office, industrial, and apartment market conditions have slowed in recent quarters, management believes the combination of moderate economic growth and low inflation bode well for the sustained performance of the Account. Management also believes, however, that a material, sustained weakening of the United States economy could result in a deeper moderation of real estate market returns. The retail sector faces challenges from elevated energy prices, but consumer spending remains healthy and has proven surprisingly resilient despite recent energy price increases and the slowdown in the single-family housing market. The Account will continue to seek to balance these market fundamentals against pricing pressures when executing its investment strategy. However, market conditions affecting real estate investments at any given time cannot be predicted, and an unexpected, sudden economic downturn in one or a number of the markets in which the Account invests could significantly and adversely impact the Account’s returns.
Results of Operations
Six months ended June 30, 2007 compared to six months ended June 30, 2006
Performance
The Account’s total return was 7.47% for the six months ended June 30, 2007. This was 59 basis points lower than the return of 8.06% for the six months ended June 30, 2006. The Account’s performance in the first half of 2007 was primarily driven by the continued strong performance of its real estate property investments; however, a substantial decrease in the performance of its marketable securities (described in Net Realized and Unrealized Gains and Losses on Investments and Mortgage Loans Payable) and the moderating of capital appreciation on its real estate properties were the primary reasons for the lower performance relative to same period in 2006.
Commercial real estate has been experiencing historically high pricing for the past several years as capital has continued to flow into the asset class. While this increase in property pricing has positively impacted the Account’s net realized and unrealized gains on its real estate assets and joint venture holdings, the underlying property values are subject to decline prospectively, if capital or real estate market conditions experience adverse changes. Real estate as an investment should be considered from a long-term perspective. The Account’s annualized total returns (after expenses) over the past one, three, five, and 10 year periods ended June 30, 2007 were 13.43%, 14.71%, 11.40%, and
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9.82%, respectively. As of June 30, 2007, the Account’s annualized total return since inception was 9.50%.
The Account’s total net assets grew 30.5% from June 30, 2006 to June 30, 2007. The primary drivers of this growth were the Account’s realized and unrealized gains on its investments, significant net inflows from participant transactions, and the Account’s net investment income from its investment portfolio over the last twelve months. Management believes that the net participant transfers into the Account are due to its positive historical performance and its low return volatility relative to other available investment options.
Income and Expenses
The Account’s net investment income, after deduction of all expenses, was 16.6% higher for the six months ended June 30, 2007, as compared to the same period in 2006. This increase was due to a 31.9% increase in net income from the Account’s real estate properties, including joint venture holdings and limited partnerships, which was offset by a 6.8% decrease in income from marketable securities, and a 72.8% increase in Account level expenses, from the six months ended June 30, 2006, as compared to the six months ended June 30, 2007.
The Account’s real estate holdings, including real estate joint ventures and limited partnerships, generated approximately 84.5% and 79.4% of the Account’s total investment income (before deducting Account level expenses) during the six months ended June 30, 2007 and 2006, respectively. The 31.9% increase in the Account’s total investment income derived from its real estate holdings was primarily due to an increase in the Account’s income from its real estate (due to the timing of purchases in the second quarter of 2006), joint ventures and limited partnership holdings. The remaining portion of the Account’s total investment income was generated by investments in marketable securities, including real estate equity securities, commercial paper, government bonds, and an investment in a commercial mortgage loan receivable.
Gross real estate rental income increased approximately 28.8% during the six months ended June 30, 2007, as compared to the same period 2006. This increase was primarily due to income derived from properties acquired during 2006 and 2007, some of which had larger rental income streams due to their larger relative size. Income from real estate joint ventures and limited partnerships was $39,367,682 for the six months ended June 30, 2007, as compared to $24,553,167 for the six months ended June 30, 2006. This 60.3% increase was due to a substantial increase in gross rental income from the increased number of properties owned through the Account’s investments in joint ventures, as well as increased income from limited partnerships. It should be noted that several of the wholly-owned and property investments owned in joint ventures purchased from June 30, 2006 to June 30, 2007 consisted of multiple properties. Investment income on the Account’s investments in marketable securities decreased by 6.8%, from $59,792,873 for the six months ended June 30, 2006 to $55,714,542 for the comparable period in 2007 due to a decrease in the value of REITs, as described in the section, Net Realized and Unrealized Gains and Losses on Investments and Mortgage Loans Payable.
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Total property level expenses for wholly-owned property investments for the six months ended June 30, 2007 and 2006 were $232,469,638 and $180,135,775, respectively. In the six months ended June 30, 2007, operating expenses and real estate taxes represented 54.3% and 27.8% of the total property level expenses, respectively, with the remaining 17.9% representing interest payments on mortgages. In comparison, operating expenses, real estate taxes, and interest expense in the same period of 2006 were relatively similar at 53.5%, 28.4% and 18.1% of total property level expenses, respectively. Overall, property level expenses increased by 29.1% from the six months ended June 30, 2006 to the six months ended June 30, 2007. The majority of this increase (82.8%) was due to increases in operating expenses and real estate taxes associated with the Account’s larger portfolio of wholly-owned property investments. The increase in the interest expense paid on properties subject to a mortgage accounted for 17.2% of the overall increase. As of June 30, 2007, there were 12 wholly-owned properties subject to debt, as compared to nine leveraged properties at June 30, 2006.
The Account incurred overall expenses for the six months ended June 30, 2007 of $65,606,792, which was a 72.8% increase from expenses of $37,960,062 for the six months ended June 30, 2006. The overall change in expenses was primarily due to the growth of the Account’s total net assets (which increased by approximately 30.5% between June 30, 2007 and June 30, 2006), increased actual expenses associated with managing the Account due in part to adjustments made to the allocation methodology, and increases in the Account’s expense deduction rates effective May 1, 2007. Investment advisory charges grew to $25,225,663 for the six months ended June 30, 2007 as compared to $12,550,605 for the six months ended June 30, 2006. The primary component of this increase (approximately $5.2 million) was the result of a reconciliation, during the six month period ended June 30, 2007 and in accordance with the Account’s procedures, of the difference between actual and estimated expenses of the Account. This variance between actual expenses and estimated expenses was primarily the result of higher operational costs (including personnel and other infrastructure costs) due to the Account’s increasing diversity of assets and associated costs due to increased property asset management activities. In addition, the direct investment advisory charges associated with the Account increased with the continued growth of the Account’s total net assets. Total administrative and distribution expenses increased to $30,943,882 for the six months ended June 30, 2007 as compared to $20,006,720 for the six months ended June 30, 2006. Administrative and distribution expenses increased primarily due to adjustments made to the Account’s expense base, in accordance with the Account’s procedures, for any difference between actual and estimated expenses. This increase in expenses primarily resulted from larger allocated operational expenses including technology investments. In addition, the direct administrative and distribution charges associated with the Account increased with the continued growth of the Account’s total net assets. Finally, liquidity guarantee expenses increased to $5,680,831 for the six months ended June 30, 2007 as compared to $1,862,232 for the six months ended June 30, 2006, due to an increase in the liquidity guarantee expense deduction rate, which increased from 0.035% of annual net assets to 0.160% of annual net assets as of May 1, 2007.
Net Realized and Unrealized Gains and Losses on Investments and Mortgage Loans Payable
The Account had net realized and unrealized gains on investments and mortgage loans payable of $799,439,266 for the six months ended June 30, 2007, as compared with net realized and unrealized gains on investments and mortgage loans payable of
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$641,376,213 for the six months ended June 30, 2006. The overall increase was primarily driven by a substantial increase in net realized and unrealized gains on the Account’s real estate properties to $598,814,335 for the six months ended June 30, 2007 from $408,857,491 during the same period in 2006. In addition, the Account had net realized and unrealized gains on its real estate joint ventures and limited partnership holdings of $213,065,731 for the six months ended June 30, 2007, as compared to net realized and unrealized gains of $169,824,808 for the same period in 2006. The increase in net realized and unrealized gains on the Account’s property investments, including those held in joint ventures, was due to the continued liquidity in the commercial real estate markets, combined with healthy real estate market fundamentals, which had the effect of increasing the value of the Account’s existing real estate assets. During the six months ended June 30, 2007, the Account sold one apartment property and a portfolio of several industrial properties for total net proceeds of $282.3 million, and recognized a cumulative net gain of $66.1 million. The Account also posted a net realized and unrealized loss on its marketable securities of $33,985,711 for the six months ended June 30, 2007, as compared to a net realized and unrealized gain of $38,457,309 in the same period of 2006. The losses on the Account’s marketable securities in the six months ended June 30, 2007 were primarily associated with the Account’s investments in real estate equity securities (REITs). The overall REIT market has been volatile and performing poorly as a reaction to a perceived fear of an overall slowdown in the real estate markets and the continued problems of the subprime market.
Three months ended June 30, 2007 compared to three months ended June 30, 2006
Performance
The Account’s total return was 3.31% for the three months ended June 30, 2007. This was 138 basis points lower than the return of 4.69% for the three months ended June 30, 2006. The Account’s performance in the second quarter of 2007 was negatively impacted by lower total interest on its marketable securities and the moderating of capital appreciation on its real estate properties and joint ventures.
Income and Expenses
The Account’s net investment income, after deduction of all expenses, was 12.1% higher for the three months ended June 30, 2007, as compared to the same period in 2006. This increase was due to a 32.1% increase in net income from the Account’s real estate properties, including joint venture holdings and limited partnerships, which was off set by a 21.8% decrease in income from marketable securities, and a 74.5% increase in Account level expenses, from the three months ended June 30, 2006 to the three months ended June 30, 2007.
The Account’s real estate holdings, including real estate joint ventures and limited partnerships, generated approximately 85.3% and 77.5% of the Account’s total investment income (before deducting Account level expenses) during the three months ended June 30, 2007 and 2006, respectively. The 32.1% increase in the Account’s total investment income derived from its real estate holdings was primarily due to an increase
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in the Account’s income from its real estate (due to the timing of purchases in the second quarter of 2006), joint ventures and limited partnership holdings. The remaining portion of the Account’s total investment income was generated by investments in marketable securities, including real estate equity securities, commercial paper, government bonds, and an investment in a commercial mortgage loan receivable.
Gross real estate rental income increased approximately 27.6% in the three months ended June 30, 2007, as compared to the same period in 2006. This increase was primarily due to the increased number and size of the Account’s wholly-owned property investments. Income from real estate joint ventures and limited partnerships was $19,769,489 for the three months ended June 30, 2007, as compared with $13,642,202 for the three months ended June 30, 2006. This 44.9% increase was due to the substantial increase in gross rental income from the increased number of properties owned through the Account’s investments in joint ventures, as well as increased income from limited partnerships. It should be noted that several of the wholly-owned and property investments owned in joint ventures purchased from June 30, 2006 to June 30, 2007 consisted of multiple properties. Investment income on the Account’s investments in marketable securities decreased 21.8% from $34,766,086 for the three months ended June 30, 2006 to $27,204,012 for the comparable period in 2007. This decrease was primarily due to the overall poor performance of the REIT market, which declined by approximately 23% in the second quarter 2007.
Total property level expenses for wholly-owned property investments for the three months ended June 30, 2007 and 2006 were $113,099,031 and $91,038,618, respectively. Total operating expenses on the wholly-owned properties have remained relatively stable as a percentage of Total Income over the past several quarters. In the three months ended June 30, 2007, operating expenses and real estate taxes represented 53% and 29% of the total property level expenses, respectively, with the remaining 18% representing interest payments on mortgages. In comparison, operating expenses, real estate taxes, and interest expense in the same period of 2006 were relatively similar at 52%, 30%, and 18% of total property level expenses, respectively. Overall, property level expenses increased by 24% from the three months ended June 30, 2006 to the quarter ended June 30, 2007. The majority of the increase (85%) resulted from operating expenses and real estate taxes associated with the Account’s larger portfolio of wholly-owned property investments. The increase in the interest expense paid on properties subject to a mortgage accounted for approximately 15% of the overall increase.
The Account incurred overall expenses for the three months ended June 30, 2007 of $34,109,881, which was a 74.5% increase from expenses of $19,549,208 for the three months ended June 30, 2006. The overall change in expenses was primarily due to the growth of the Account’s total net assets (which increased by approximately 30.5% between June 30, 2007 and June 30, 2006), increased actual expenses associated with managing the Account due in part to adjustments made to the allocation methodology, and increases in the Account’s expense deduction rates effective May 1, 2007. Investment advisory charges grew to $12,082,721 for the three months ended June 30, 2007 as compared to $5,958,340 for the three months ended June 30, 2006. This increase in expenses during the three months ended June 30, 2007, as compared to the three months ended June 30, 2006, primarily resulted from higher operational costs (including personnel and other infrastructure costs) due to the Account’s increasing diversity of assets and associated costs due to increased property asset management activities. Also, adjustments were made to the Account’s expense base, in accordance with the Account’s procedures, to reflect the difference between actual and estimated expenses of the Account.
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In addition, the direct investment advisory charges associated with the Account increased with the continued growth of the Account’s total net assets. Total administrative and distribution expenses increased to $15,485,660 for the three months ended June 30, 2007 as compared to $11,010,515 for the three months ended June 30, 2006. Administrative and distribution expenses increased primarily due to adjustments made to the Account’s expense base, in accordance with the Account’s procedures, for any difference between actual and estimated expenses. This increase in expenses primarily resulted from larger allocated operational expenses including technology investments. In addition, the direct administrative and distribution charges associated with the Account increased with the continued growth of the Account’s total net assets. Finally, liquidity guarantee expenses increased to $4,583,391 for the three months ended June 30, 2007 as compared to $927,841 for the three months ended June 30, 2006, due to an increase in the liquidity guarantee expense deduction rate, which increased from 0.035% of annual net assets to 0.160% of annual net assets as of May 1, 2007.
Net Realized and Unrealized Gains and Losses on Investments and Mortgage Loans Payable
The Account had net realized and unrealized gains on investments and mortgage loans payable of $362,732,640 for the three months ended June 30, 2007, as compared with net realized and unrealized gains on investments and mortgage loans payable of $411,609,818 for the three months ended June 30, 2006. The decrease was primarily driven by realized and unrealized losses on the Account’s marketable securities of $57,162,453 for the three months ended June 30, 2007, as compared to net realized and unrealized losses of $10,774,655 in the same period of 2006. The losses on the Account’s marketable securities in the three months ended June 30, 2007 were primarily associated with the unrealized losses on the Account’s investments in real estate equity securities (REITs). The net realized and unrealized gains on the Account’s real estate properties increased to $317,807,324 for the three months ended June 30, 2007 from $294,846,098 during the same period in 2006. In addition, the Account had net realized and unrealized gains on its real estate joint ventures and limited partnership holdings of $101,741,588 for the three months ended June 30, 2007, as compared to net realized and unrealized gains of $103,639,013 for the same period in 2006. The net realized and unrealized gains on the Account’s real estate properties offset the marketable securities losses for this period. The overall REIT market has been volatile and performing poorly as a reaction to a perceived fear of an overall slowdown in the real estate markets and the continued problems of the subprime market. The increase in net realized and unrealized gains on the Account’s property investments, including those held in joint ventures, however, continue to exhibit solid real estate market fundamentals, which have the effect of increasing the values of the Account’s existing real estate assets, as well as supporting the continued liquidity in commercial real estate markets. During the three months ended June 30, 2007, the Account sold a portfolio of several industrial properties for total net proceeds of $260.8 million, and recognized a cumulative net gain of $58.9 million.
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Liquidity and Capital Resources
As of June 30, 2007 and 2006, the Account’s liquid assets (i.e., cash and marketable securities) had a value of $2,802,900,537 and $2,601,540,850, respectively. The increase in the Account’s liquid assets was primarily due to net investment income and net positive inflow from participant transfers and premiums. Management believes that the continued flow into the Account is in response to the continued strong relative performance of the Account.
In the six months ended June 30, 2007, the Account received $607,169,544 in premiums and $725,446,539 in net participant transfers from TIAA, CREF Accounts and affiliated mutual funds, while, for the same period of 2006, the Account received $530,995,943 in premiums and $704,497,896 in net participant transfers. The Account’s net investment income increased from $252,434,880 for the six months ended June 30, 2006 to $294,282,273 for the six months ended June 30, 2007.
The Account’s liquid assets continue to be available to purchase additional suitable real estate properties and to meet the Account’s expense needs and participant 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 participant transfer or cash withdrawal 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 (as supplemented from time to time), may borrow money and assume or obtain a mortgage on a property (i.e., make leveraged real estate investments). Also, to meet any short-term cash needs, the Account may obtain a line of credit whose terms may require that the Account secure the loan with one or more of its properties. The Account’s total borrowings may not exceed 30% of the Account’s Total Net Assets. In calculating this limit, only the Account’s actual percentage interest in any borrowings is included, and not that of any joint venture partner. Further, the Account may only borrow up to 70% of the then-current value of a property, although construction loans may be for 100% of the costs incurred in developing a property.
Effects of Inflation and Increasing Operating Expenses
Inflation, along with increased insurance, taxes, 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. The Account remains responsible for the expenses for unleased space in a property as well as expenses which may not be reimbursed under the terms of an existing lease.
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Critical Accounting Policies
The financial statements of the Account are prepared in conformity with accounting principles generally accepted in the United States of America.
In preparing the Account’s 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 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 judgment 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, the properties are valued on a quarterly cycle with an independent appraisal value completed for each real estate property at least once a year. An independent fiduciary, Real Estate Research Corporation, has been appointed by a special subcommittee of TIAA’s Board of Trustees. The independent fiduciary must approve all independent appraisers used by the Account. TIAA’s appraisal staff performs the other quarterly valuations for each real estate property and updates the property value as appropriate. 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. The independent fiduciary can also require additional appraisals if a property’s value has changed materially and such change is not reflected in the quarterly valuation review, or otherwise to ensure that the Account is valued appropriately. The independent fiduciary must also approve an appraisal where a property’s value changed by more than 6% from the most recent independent annual appraisal, more than 4% within any calendar quarter or more than 2% since the prior month. When a real estate property is subject to a mortgage, the mortgage is valued independently of the property and its fair value is reported separately. The independent fiduciary reviews and approves mortgage valuation adjustments which exceed certain prescribed limits before such adjustments are recorded by the Account. The Account continues to use the revised value for each real estate property and mortgage loan payable to calculate the Account’s daily net asset value until the next valuation review or appraisal.
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Valuation of Real Estate Joint Ventures and Limited Partnerships:Real estate joint ventures and limited partnerships are stated at the Account’s equity in the net assets of the underlying entities and, for the joint ventures, are adjusted to value their real estate holdings and mortgage notes payable at fair value.
Valuation of Marketable Securities:Equity securities listed or traded on any national market or exchange are valued at the last sale price as of the close of the principal securities exchange on which such securities 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.
Mortgage Loans Receivable:Mortgage loans receivable are initially valued at the face amount of the mortgage loan funding as representations of fair value. Subsequently, mortgage loans receivable are valued quarterly based on market factors, such as market interest rates and spreads for comparable loans, and the performance of the underlying collateral.
Mortgage Loans Payable:Mortgage loans payable are stated at fair value. Estimated market values of mortgage loans payable 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 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 effects of any changes in foreign currency exchange rates on portfolio investments and mortgage loans payable are included in the net realized and unrealized gains and losses on investments and mortgage loans payable. 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.
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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 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. The Account pays a fee to TIAA to assume these mortality and expense 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). The Account recognizes a gain on the sale of a real estate property 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 fair valued and all properties are appraised quarterly, any accumulated unrealized gains and losses are reversed in the calculation of realized gains and losses.
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 ownership interests in various real estate funds (limited partnerships and one limited liability corporation) and a private REIT (collectively, the “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.
Transactions in marketable securities 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 as applicable. 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.
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New Accounting Pronouncements:In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Account plans to adopt this guidance effective January 1, 2008. The Account is currently assessing the impact of Statement No. 157 but does not expect it to have a significant impact on the Account’s financial position or results of operations when implemented.
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits entities to choose to measure many financial instruments and certain other items at fair value and is expected to expand the use of fair value measurement. The Statement is effective for fiscal years beginning after November 15, 2007. The Account is currently assessing the impact of Statement No. 159 but does not expect it to have a significant impact on the Account’s financial position and results of operations when implemented.
In June 2007, the Accounting Standards Executive Committee (“ACSEC”) of the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (SOP) 07-1, Clarification of the Scope of the Audit and Accounting GuideInvestment Companiesand Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies. The SOP clarifies which entities are required to apply the provisions of the Investment Companies Audit and Accounting Guide and provides guidance on accounting by parent companies and equity method investors for investments in investment companies. The SOP is effective for fiscal years beginning on or after December 15, 2007. The Account is currently assessing the impact of SOP 07-1 on the Account’s financial position, results of operations, and additional disclosure requirements.
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 include the assumptions underlying these forward-looking statements. Forward-looking statements appear in this report, among other places, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements involve risks and uncertainties, some of which are referenced in the sections of the Form 10-K entitled “Item 1A. Risk Factors” and in this report in the section entitled “Item 3. Quantitative and Qualitative Disclosures About Market Risk,” 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 that this report is filed. Neither management nor the Account undertake any obligation to update
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publicly or revise any forward-looking statement, whether as a result of new information, changed assumptions, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Account’s real estate holdings, including real estate joint ventures and limited partnerships, which, as of June 30, 2007 represented 83.7% of the Account’s total investments, expose the Account to a variety of risks. These risks include, but are not limited to:
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| • | General Real Estate Risk — The risk that the Account’s property values or rental and occupancy rates could go down due to general economic conditions, a weak market for real estate generally, or changing supply and demand for certain types of properties; |
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| • | Appraisal Risk — The risk that the sale price of an Account property (i.e., the value that would be determined by negotiations between independent parties) might differ substantially from its estimated or appraised value, leading to losses or reduced profits to the Account upon sale; |
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| • | Risk Relating to Property Sales — The risk that the Account might not be able to sell a property at a particular time for its full value, particularly in a poor market. This might make it difficult to raise cash quickly and also could lead to Account losses; |
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| • | Risks of Borrowing — The risk that interest rate changes may impact Account returns if the Account takes out a mortgage on a property or buys a property subject to a mortgage; and |
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| • | Foreign Currency Risk — The risk that the value of the Account’s foreign investments, related debt or rental income could increase or decrease due to changes in foreign currency exchange rates or foreign currency exchange control regulations, and hedging against such changes, if undertaken by the Account, may entail additional costs and be unsuccessful. |
As of June 30, 2007, 16.3% of the Account’s total investments were in market risk sensitive instruments, comprised of marketable securities and an adjustable rate mortgage loan receivable. Marketable securities may include real estate equity securities, commercial mortgage-backed securities (CMBS), and high-quality short-term debt instruments (i.e., commercial paper and government agency bonds). The Statement of Investments for the Account sets forth the general financial terms of these instruments, along with their fair values, 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 and mortgage loans receivable are subject to the following general risks:
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| • | Financial Risk — The risk, for debt securities, that the issuer will not be able to pay principal and interest when due and, for common or preferred stock, that the issuer’s current earnings will fall or that its overall financial soundness will decline, reducing the security’s value. |
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| • | Market Risk — The risk that the Account’s investments will experience price volatility due to changing conditions in the financial markets and, particularly for debt securities, changes in overall interest rates. |
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| • | Interest Rate Volatility — The risk that interest rate volatility may affect the Account’s current income from an investment. |
In addition, mortgage-backed securities are subject to prepayment risk or extension risk (i.e., the risk that borrowers will repay the loans earlier or later than anticipated). If the underlying mortgage assets experience faster than anticipated repayments of principal, the Account could fail to recoup some or all of its initial investment in these securities, since the original price paid by the Account was based in part on assumptions regarding the receipt of interest payments. If the underlying mortgage assets are repaid later than anticipated, the Account could lose the opportunity to reinvest the anticipated cash flows at a time when interest rates might be rising. The rate of prepayment depends on a variety of geographic, social and other functions, including prevailing market interest rates and general economic factors. 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. These securities may be harder to sell than other securities.
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.
ITEM 4. CONTROLS AND PROCEDURES.
(a)Evaluation of disclosure controls and procedures. 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 Securities and Exchange Commission’s (SEC) rules and forms, and that such information is accumulated and communicated to management, including the registrant’s Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), 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 as of June 30, 2007. Based upon management’s review, the CEO and the CFO concluded that the registrant’s disclosure controls and procedures were effective as of June 30, 2007.
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(b)Changes in internal controls over financial reporting. There have been no changes in the registrant’s internal controls over financial reporting that occurred during the registrant’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, the registrant’s internal controls over financial reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Account is a party, or to which the Account’s assets are subject.
Item 1A. RISK FACTORS.
Not applicable.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
Item 5. OTHER INFORMATION.
The Code of Ethics for TIAA’s senior financial officers, including its principal executive officer, principal financial officer, principal accounting officer, or controller, and persons performing similar functions, has been filed as an exhibit to the Form 10-K and can also be found on the following two web sites,http://www.tiaa-cref.org/prospectuses/index.htmlandhttp://www.tiaa-cref.org/about/governance/corporate/topics/ annual_reports.html. Information included in such websites is expressly not incorporated by reference into this Quarterly Report on Form 10-Q.
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Item 6. EXHIBITS.
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| (3) | (A) | Charter of TIAA (as amended)1 |
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| (B) | Bylaws of TIAA (as amended)7 |
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| (4) | (A) | Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account Endorsements3, Keogh Contract,4Retirement Select and Retirement Select Plus Contracts and Endorsements2and Retirement Choice and Retirement Choice Plus Contracts.4 |
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| (B) | Forms of Income-Paying Contracts3 |
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| (10) | (A) | Independent Fiduciary Agreement, dated February 22, 2006, by and among TIAA, the Registrant, and Real Estate Research Corporation5 |
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| (B) | Custodial Services Agreement, dated as of June 1, 1995, by and between TIAA and Morgan Guaranty Trust Company of New York on behalf of the Real Estate Account (Agreement assigned to Bank of New York, January 1996)3 |
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| (C) | Distribution and Administrative Services Agreement, dated September 29, 1995, by and between TIAA and TIAA-CREF Individual & Institutional Services, Inc.,3as amended effective as of May 1, 2005,4effective April 28, 20066and effective as of May 1, 20078 |
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| (31) | Rule 13a-15(e)/15d-15(e) Certifications | |
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| (32) | Section 1350 Certifications |
2— Previously filed and incorporated herein by reference to the Account’s Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed April 29, 2004 (File No. 333-113602).
3— Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 2 to the Registration Statement on Form S-1 filed April 30, 1996 (File No. 33-92990).
4— Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed May 2, 2005 (File No. 333-121493).
5— Previously filed and incorporated herein by reference to Exhibit 10.(a) to the Annual Report of the Account filed on March 15, 2006 (File No. 033-92990).
6— Previously filed and incorporated herein by reference to Exhibit 1 to the Account’s Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed May 1, 2007 (File No. 333-132580).
7— Previously filed and incorporated herein by reference to Exhibit 3(B) to the Account’s Quarterly Report on Form 10-Q for the period ended September 30, 2006 and filed with the Commission on November 14, 2006 (File No. 033-92990).
8— Previously filed and incorporated herein by reference to Exhibit 1 to the Account’s Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed May 1, 2007 (File No. 333-141513).
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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.
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| TIAA REAL ESTATE ACCOUNT | |
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| By: | TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA |
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DATE: August 14, 2007 | By: | /s/ Herbert M. Allison, Jr. | |
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| Herbert M. Allison, Jr. |
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| Chairman of the Board, President |
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DATE: August 14, 2007 | By: | /s/ Georganne C. Proctor | |
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| Georganne C. Proctor |
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| Executive Vice President and |
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| Chief Financial Officer |
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