SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10 - Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 [ ] 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 and 333-22809 TIAA REAL ESTATE ACCOUNT (Exact name of registrant as specified in its charter) NEW YORK (State or other jurisdiction of incorporation or organization) NOT APPLICABLE (IRS Employer Identification No.) C/O TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA 730 THIRD AVENUE NEW YORK, NEW YORK (address of principal executive offices) 10017-3206 (Zip code) (212) 490-9000 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. INDEX TO UNAUDITED FINANCIAL STATEMENTS OF THE TIAA REAL ESTATE ACCOUNT MARCH 31, 2000 Page ---- Consolidated Statements of Assets and Liabilities......................... 3 Consolidated Statements of Operations..................................... 4 Consolidated Statements of Changes in Net Assets.......................... 5 Consolidated Statements of Cash Flows..................................... 6 Notes to Consolidated Financial Statements................................ 7 Consolidated Statement of Investments..................................... 12 2 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES MARCH 31, DECEMBER 31, 2000 1999 -------------- -------------- (UNAUDITED) ASSETS Investments, at value: Real estate properties (Cost: $1,255,567,548 and $1,253,650,281) .................................... $1,316,914,696 $1,312,503,554 Marketable securities (Amortized cost: $523,601,687 and $395,662,203) .............................. 505,327,950 374,278,801 Cash ............................................................................. 1,065,120 617,599 Other ............................................................................ 23,983,074 32,057,761 -------------- -------------- TOTAL ASSETS 1,847,290,840 1,719,457,715 -------------- -------------- LIABILITIES Accrued real estate property level expenses and taxes ............................ 16,879,172 18,425,328 Security deposits held ........................................................... 5,675,953 5,549,959 -------------- -------------- TOTAL LIABILITIES 22,555,125 23,975,287 -------------- -------------- NET ASSETS Accumulation Fund ................................................................ 1,765,540,513 1,642,327,173 Annuity Fund ..................................................................... 59,195,202 53,155,255 -------------- -------------- TOTAL NET ASSETS $1,824,735,715 $1,695,482,428 ============== ============== NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 5 and 6 ........................... 12,089,729 11,487,360 ============== ============== NET ASSET VALUE, PER ACCUMULATION UNIT--Note 5 ................................... $146.04 $142.97 ======= ======= See notes to consolidated financial statements. 3 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE FOR THE THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, 2000 1999 ------------ ------------ INVESTMENT INCOME Real estate income net: Rental income ................................................................. $41,821,067 $26,198,891 ------------ ------------ Real estate property level expenses and taxes: Operating expenses .......................................................... 8,971,080 5,580,625 Real estate taxes ........................................................... 4,892,240 2,673,051 ------------ ------------ Total real estate property level expenses and taxes 13,863,320 8,253,676 ------------ ------------ Real estate income, net 27,957,747 17,945,215 Interest ........................................................................ 5,240,939 4,364,165 Dividends ....................................................................... 1,631,830 2,044,302 ------------ ------------ TOTAL INCOME 34,830,516 24,353,682 ------------ ------------ Expenses--Note 3: Investment advisory charges ................................................... 1,538,682 1,044,886 Administrative and distribution charges ....................................... 1,043,496 805,090 Mortality and expense risk charges ............................................ 305,589 218,383 Liquidity guarantee charges ................................................... 167,889 92,520 ------------ ------------ TOTAL EXPENSES 3,055,656 2,160,879 ------------ ------------ INVESTMENT INCOME, NET 31,774,860 22,192,803 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Real estate properties ........................................................ -- 6,205,560 Marketable securities ......................................................... (147,448) (599,143) ------------ ------------ Net realized gain (loss) on investments (147,448) 5,606,417 ------------ ------------ Net change in unrealized appreciation (depreciation) on: Real estate properties ........................................................ 2,493,875 (4,882,840) Marketable securities ......................................................... 3,109,665 (2,786,947) ------------ ------------ Net change in unrealized appreciation (depreciation) on investments 5,603,540 (7,669,787) ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 5,456,092 (2,063,370) ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS BEFORE MINORITY INTEREST 37,230,952 20,129,433 Minority interest in net increase in net assets resulting from operations .................................................... -- (403,153) ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $37,230,952 $19,726,280 ============ ============ See notes to consolidated financial statements. 4 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) FOR THE FOR THE THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, 2000 1999 -------------- -------------- FROM OPERATIONS Investment income net ............................................................ $ 31,774,860 $ 22,192,803 Net realized gain (loss) on marketable securities ................................ (147,448) 5,606,417 Net change in unrealized appreciation (depreciation) on investments .............. 5,603,540 (7,669,787) Minority interest in net increase in net assets resulting from operations ...................................................... -- (403,153) -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 37,230,952 19,726,280 -------------- -------------- FROM PARTICIPANT TRANSACTIONS Premiums ......................................................................... 43,377,241 29,544,538 Net participant transfers from TIAA .............................................. 9,370,357 8,988,259 Net participant transfers from CREF Accounts ..................................... 55,246,632 87,899,065 Annuity and other periodic payments .............................................. (1,968,512) (1,077,854) Withdrawals and death benefits ................................................... (14,003,383) (7,795,019) -------------- -------------- NET INCREASE IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS 92,022,335 117,558,989 -------------- -------------- NET INCREASE IN NET ASSETS 129,253,287 137,285,269 NET ASSETS Beginning of year ................................................................ 1,695,482,428 1,196,366,887 -------------- -------------- End of period .................................................................... $1,824,735,715 $1,333,652,156 ============== ============== See notes to consolidated financial statements. 5 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE FOR THE THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, 2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net increase in net assets resulting from operations ............................. $ 37,230,952 $ 19,726,280 Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: Increase in investments ........................................................ (135,460,291) (134,015,337) Decrease (increase) in other assets ............................................ 8,074,687 (1,735,084) Increase in payable for securities transactions ................................ -- 57,240 Increase (decrease) in accrued real estate property level expenses and taxes ... (1,546,156) 1,018,315 Increase (decrease) in security deposits held .................................. 125,994 (144,559) Decrease in minority interest .................................................. -- (2,980,205) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (91,574,814) (118,073,350) ------------ ------------ CASH FLOWS FROM PARTICIPANT TRANSACTIONS Premiums ......................................................................... 43,377,241 29,544,538 Net participant transfers from TIAA .............................................. 9,370,357 8,988,259 Net participant transfers from CREF Accounts ..................................... 55,246,632 87,899,065 Annuity and other periodic payments .............................................. (1,968,512) (1,077,854) Withdrawals and death benefits ................................................... (14,003,383) (7,795,019) ------------ ------------ NET CASH PROVIDED BY PARTICIPANT TRANSACTIONS 92,022,335 117,558,989 ------------ ------------ NET INCREASE (DECREASE) IN CASH 447,521 (514,361) CASH Beginning of year ................................................................ 617,599 572,343 ------------ ------------ End of period .................................................................... $ 1,065,120 $ 57,982 ============ ============ See notes to consolidated financial statements. 6 TIAA REAL ESTATE ACCOUNT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--ORGANIZATION 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 Account commenced operations on July 3, 1995. Teachers REA, LLC, a wholly owned subsidiary of the Account, began operations in July 1996 and holds two properties in Virginia. Light Street Partners, L.P. ("Light Street"), a partnership in which the Account holds a 100% interest, began operations in March 1997 and holds seven office buildings throughout the United States. Prior to April 30, 1999, when the Account purchased the remaining 10% interest, the Account had a 90% interest in Light Street. Teachers REA II, LLC, a wholly owned subsidiary of the Account, began operations in October 1997 and holds one property in Pennsylvania. Teachers REA III, LLC, a wholly owned subsidiary of the Account, began operations in July 1998 and holds one property in Florida. 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 also invests in publicly-traded securities and other instruments to maintain adequate liquidity for operating expenses, capital expenditures and to make benefit payments. TIAA employees, under the direction of TIAA's Board of Trustees and its Investment Committee, manage the investment of the Account's assets pursuant to investment management procedures adopted by TIAA for the Account. TIAA's investment management decisions for the Account are also subject to review by the Account's independent fiduciary, The Townsend Group. Effective March 1, 2000, the former independent fiduciary, Institutional Property Consultants, Inc., was replaced due to a change in its ownership. TIAA also provides all portfolio accounting and related services for the Account. TIAA-CREF Individual & Institutional Services, Inc. ("Services"), a subsidiary of TIAA, which is registered with the Commission as a broker-dealer and is a member of the National Association of Securities Dealers, Inc., provides administrative and distribution services pursuant to a Distribution and Administrative Services Agreement with the Account. NOTE 2--SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements may require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, expenses and related disclosures. Actual results may differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the Account, which are in conformity with accounting principles generally accepted in the United States. BASIS OF PRESENTATION: The accompanying consolidated financial statements include the Account and its wholly-owned subsidiaries, Teachers REA, LLC, Teachers REA II, LLC, Teachers REA III, LLC, Inc. and Light Street. All significant intercompany accounts and transactions have been eliminated in consolidation. 7 NOTE 2--SIGNIFICANT ACCOUNTING POLICIES - (CONCLUDED) 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 Board of Trustees and in accordance with the responsibilities of the Board as a whole; accordingly, the Account does not record depreciation. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves subjective judgement because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. Real estate properties owned by the Account are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. The independent fiduciary must approve all independent appraisers used by the Account. The independent fiduciary can also require additional appraisals if it believes that a property's value has changed materially or otherwise to assure that the Account is valued correctly. TIAA's appraisal staff performs a valuation review of each real estate property on a quarterly basis and updates the property value if it believes that the value of the property has changed since the previous valuation review or appraisal. The independent fiduciary reviews and approves any such valuation adjustments which exceed certain prescribed limits. TIAA continues to use the revised value to calculate the Account's net asset value until the next valuation review or appraisal. VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded on any United States national securities exchange are valued at the last sales price as of the close of the principal securities exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such exchange. Short-term money market instruments are stated at market value. Portfolio securities for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the Board of Trustees and in accordance with the responsibilities of the Board as a whole. ACCOUNTING FOR INVESTMENTS: Real estate transactions are accounted for as of the date on which the purchase or sale transactions for the real estate properties close (settlement date). Rent from real estate properties consists of all amounts earned under tenant operating leases, including base rent, recoveries of real estate taxes and other expenses and charges for miscellaneous services provided to tenants. Rental income is recognized in accordance with the billing terms of the lease agreements. The Account bears the direct expenses of the real estate properties owned. These expenses include, but are not limited to, fees to local property management companies, property taxes, utilities, maintenance, repairs, insurance and other operating and administrative costs. An estimate of the net operating income earned from each real estate property is accrued by the Account on a daily basis and such estimates are adjusted as soon as actual operating results are determined. Realized gains and losses on real estate transactions are accounted for under the specific identification method. Securities transactions are accounted for as of the date the securities are purchased or sold (trade date). Interest income is recorded as earned and, for short-term money market instruments, includes accrual of discount and amortization of premium. Dividend income is recorded on the ex-dividend date. Realized gains and losses on securities transactions are accounted for on the average cost basis. FEDERAL INCOME TAXES: Based on provisions of the Internal Revenue Code, the Account is taxed as a segregated asset account of TIAA. The Account should incur no material federal income tax attributable to the net investment experience of the Account. 8 NOTE 3--MANAGEMENT AGREEMENTS Under established management agreements, various services necessary for the operation of the Account are provided, at cost, by TIAA and Services. TIAA provides investment management services for the Account while distribution and administrative services are provided by Services in accordance with a Distribution and Administrative Services Agreement between the Account and Services. Prior to April 30, 1999, an affiliate of the former minority partner in Light Street provided certain management services for the properties owned by Light Street. The charges for such services, for the three months ended March 31, 1999 amounted to $186,808 for investment advisory expenses which are recorded accordingly in the accompanying consolidated statements of operations. 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. Fee payments are made from the Account on a daily basis to TIAA and Services according to formulas established each year with the objective of keeping the fees as close as possible to the Account's actual expenses. Any differences between actual expenses and daily charges are adjusted quarterly. NOTE 4--LEASES The Account's real estate properties are leased to tenants under operating lease agreements which expire on various dates through 2021. Aggregate minimum annual rentals for the properties owned, excluding short-term residential leases, are as follows: Years Ending December 31, ------------ 2000 $ 98,811,597 2001 88,314,162 2002 77,150,600 2003 66,532,834 2004 52,000,897 Thereafter 165,656,770 ------------ Total $548,466,860 ============ Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts. 9 NOTE 5--CONDENSED CONSOLIDATED FINANCIAL INFORMATION Selected condensed consolidated financial information for an Accumulation Unit of the Account is presented below. FOR THE JULY 3, 1995 THREE MONTHS FOR THE YEARS ENDED (COMMENCEMENT ENDED DECEMBER 31, OF OPERATIONS) TO MARCH 31, ---------------------------------------------- DECEMBER 31, 2000 (1) 1999 1998 1997 1996 1995 (1) -------- ---- ---- ---- ---- -------- (Unaudited) Per Accumulation Unit Data: Rental income................................. $ 3.402 $ 12.168 $ 10.425 $ 7.288 $ 6.012 $ 0.159 Real estate property level expenses and taxes.................... 1.127 3.975 3.403 2.218 1.850 0.042 -------- -------- -------- -------- -------- -------- Real estate income, net 2.275 8.193 7.022 5.070 4.162 0.117 Dividends and interest........................ 0.559 2.292 3.082 2.709 3.309 2.716 -------- -------- -------- -------- -------- -------- Total income 2.834 10.485 10.104 7.779 7.471 2.833 Expense charges (2)........................... 0.249 0.853 0.808 0.580 0.635 0.298 -------- -------- -------- -------- -------- -------- Investment income, net 2.585 9.632 9.296 7.199 6.836 2.535 Net realized and unrealized gain on investments......................... 0.483 1.164 0.579 3.987 1.709 0.031 -------- -------- -------- -------- -------- -------- Net increase in Accumulation Unit Value..................... 3.068 10.796 9.875 11.186 8.545 2.566 Accumulation Unit Value: Beginning of period......................... 142.968 132.172 122.297 111.111 102.566 100.000 -------- -------- -------- -------- -------- -------- End of period............................... $146.036 $142.968 $132.172 $122.297 $111.111 $102.566 ======== ======== ======== ======== ======== ======== Total return................................... 2.15% 8.17% 8.07% 10.07% 8.33% 2.57% Ratios to Average Net Assets: Expenses (2)................................ 0.17% 0.63% 0.64% 0.58% 0.61% 0.30% Investment income, net...................... 1.81% 7.13% 7.34% 7.25% 6.57% 2.51% Portfolio turnover rate: Real estate properties...................... 0% 4.46% 0% 0% 0% 0% Securities.................................. 3.34% 27.68% 24.54% 7.67% 15.04% 0% Thousands of Accumulation Units outstanding at end of period................ 12,090 11,487 8,834 6,313 3,296 1,172 (1) The percentages shown for this period are not annualized. (2) Expense charges per Accumulation Unit and the Ratio of Expenses to Average Net Assets include the portion of expenses related to the 10% minority interest in Light Street and exclude real estate property level expenses and taxes. If the real estate property level expenses and taxes were included, the expense charge per Accumulation Unit for the three months ended March 31, 2000 would be $1.376 ($4.828, $4.211, $2.798 and $2.485 for the years ended December 31, 1999, 1998, 1997 and 1996 respectively, and $0.340 for the period July 3, 1995 through December 31, 1995) and the Ratio of Expenses to Average Net Assets for the three months ended March 31, 2000 would be 0.97% (3.58%, 3.32%, 2.82% and 2.39% for the years ended December 31, 1999, 1998, 1997 and 1996 respectively, and 0.34% for the period July 3, 1995 through December 31, 1995). 10 NOTE 6--ACCUMULATION UNITS Changes in the number of Accumulation Units outstanding were as follows: FOR THE FOR THE THREE MONTHS YEAR ENDED ENDED MARCH 31, 2000 DECEMBER 31, 1999 -------------- ----------------- (Unaudited) Accumulation Units: Credited for premiums.................................. 300,183 918,728 Credited for transfers, net disbursements and Amounts applied to the Annuity Fund.................. 302,186 1,734,721 Outstanding: Beginning of year.................................... 11,487,360 8,833,911 ---------- ---------- End of period........................................ 12,089,729 11,487,360 ========== ========== 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 March 31, 2000, the Account had one outstanding commitment to purchase a real estate property for approximately $144.5 million. In addition, during April of 2000 the Account purchased one real estate property for approximately $19.6 million and entered into a commitment to purchase another property for approximately $15.6 million. 11 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENT OF INVESTMENTS MARCH 31, 2000 REAL ESTATE PROPERTIES--72.27% LOCATION / DESCRIPTION VALUE - ---------------------- ----- ARIZONA: Biltmore Commerce Center - Office building................................. $ 38,511,506 Southbank Building - Office building....................................... 13,000,000 CALIFORNIA: 88 Kearny Street - Office building ........................................ 72,847,558 Eastgate Distribution Center - Industrial building......................... 13,300,000 Larkspur Courts - Apartments............................................... 56,100,000 Ontario Industrial Properties - Industrial building........................ 63,000,000 Westcreek - Apartments ................................................... 15,700,000 COLORADO: Arapahoe Park East - Industrial building................................... 11,850,000 The Lodge at Willow Creek - Apartments..................................... 30,500,000 Monte Vista - Apartments .................................................. 21,000,000 FLORIDA: Golfview - Apartments ..................................................... 27,510,000 The Greens at Metrowest - Apartments....................................... 14,100,000 Plantation Grove - Shopping center......................................... 7,350,000 Royal St. George - Apartments.............................................. 16,500,000 Sawgrass Portfolio - Office building....................................... 39,200,000 Westinghouse Facility - Industrial building................................ 6,200,000 ILLINOIS: Columbia Center III - Office building...................................... 42,300,000 Glenpointe Business Park - Industrial building............................. 16,108,000 Parkview Plaza - Office building........................................... 52,100,000 Rockrun Business Park - Industrial building................................ 9,350,000 Rolling Meadows - Shopping center.......................................... 11,900,000 Woodcreek Business Park - Industrial building.............................. 7,000,000 IOWA: Interstate Acres - Industrial building..................................... 13,706,417 KENTUCKY: IDI Kentucky Portfolio - Industrial building............................... 25,400,000 MARYLAND: FedEx Distribution Facility - Industrial building.......................... 7,700,000 Longview Executive Park - Office building.................................. 28,400,000 Saks Distribution Center - Industrial building............................. 30,600,000 MASSACHUSETTS: Two Newton Center - Office building........................................ 20,300,000 MICHIGAN: Indian Creek - Apartments.................................................. 17,100,000 MINNESOTA: Interstate Crossing - Industrial building.................................. 6,400,000 River Road Distribution Center - Industrial building....................... 4,300,000 NEVADA: UPS Distribution Facility - Industrial building............................ 11,000,000 NEW JERSEY: 371 Hoes Lane - Office building............................................ 16,800,000 10 Waterview Boulevard - Office building................................... 31,200,000 Konica Photo Imaging Headquarters - Industrial building.................... 17,049,875 12 NEW YORK: 780 Third Avenue - Office building.......................................... $ 163,000,000 The Colorado - Apartments................................................... 56,539,875 NORTH CAROLINA: Lynnwood Collection - Shopping center...................................... 7,700,000 Millbrook Collection - Shopping center..................................... 7,300,000 OHIO: Bent Tree - Apartments .................................................... 14,700,000 Columbus Portfolio - Office building....................................... 33,800,000 Northmark Business Center - Office building................................ 13,000,000 OREGON: Five Centerpointe - Office building........................................ 18,197,727 PENNSYLVANIA: Lincoln Woods - Apartments................................................. 22,950,000 TEXAS: Butterfield Industrial Park - Industrial building.......................... 4,850,000(1) The Crest at Shadow Mountain - Apartments.................................. 10,000,000 The Legends at Chase Oaks - Apartments..................................... 27,200,000 UTAH: USF&G Building - Office building........................................... 8,700,000 VIRGINIA: Fairgate at Ballston - Office building..................................... 30,500,000 Monument Place - Office building........................................... 36,100,000 River Oaks - Shopping center............................................... 11,900,000 WASHINGTON: The Bay Court at Harbour Pointe - Apartments............................... 35,093,738 ------------- TOTAL REAL ESTATE PROPERTIES (Cost $1,255,567,548)........................ 1,316,914,696 ------------- (1) Leasehold interest only. MARKETABLE SECURITIES--27.73% REAL ESTATE INVESTMENT TRUSTS--4.60% SHARES ISSUER VALUE - ------ ------ ----- 89,900 AMB Property Corporation Series A ................................ 1,983,419 100,000 Archstone Communities Trust ...................................... 1,993,750 19,200 Avalon Bay Communities, Inc. Pfd Series F......................... 424,800 46,800 Boston Properties, Inc............................................ 1,488,825 102,400 Bradley Real Estate, Inc.......................................... 1,747,200 130,400 Brandywine Realty Trust........................................... 2,233,100 200,000 Carramerica Realty Corporation, Pfd Series B...................... 3,800,000 58,000 Centerpoint Properties Corp....................................... 2,113,375 23,900 Colonial Properties Trust......................................... 567,625 133,400 Cornerstone Properties, Inc....................................... 2,326,163 108,100 Corporate Office Properties Trust, Inc............................ 885,069 90,000 Developers Diversified Realty Corp................................ 1,704,375 221,300 Duke-Weeks Realty Corp............................................ 4,232,363 214,100 Equity Office Properties Trust.................................... 5,379,262 150,000 Equity Office Properties Trust Pfd Series A....................... 3,384,375 121,700 Equity Residential Properties Trust............................... 4,890,819 100,000 Equity Residential, Pfd Series G.................................. 1,975,000 100,000 Equity Residential Properties, Pfd Series L....................... 1,825,000 25,000 Federal Realty Investment Trust Pfd............................... 431,250 100,000 First Industrial Realty Trust, Inc. Pfd........................... 1,943,750 98,300 Gables Residential Trust, Pfd Series A............................ 1,800,119 74,900 Hospitality Properties Trust...................................... 1,516,725 13 149,800 Macerich Company.................................................. $ 3,089,625 50,000 Manufactured Home Communities, Inc. .............................. 1,156,250 25,159 New Plan Excel Realty Trust ...................................... 345,936 25,000 Prologis Trust ................................................... 481,250 19,900 Prologis Trust-Pfd Series A ...................................... 442,775 127,700 Public Storage, Inc. ............................................. 2,681,700 93,600 Rouse Company .................................................... 1,977,300 280,900 Simon Property Group, Inc. ....................................... 6,741,600 55,000 Spieker Properties, Inc. ......................................... 2,447,500 174,455 Starwood Financial Trust ......................................... 3,074,769 26,000 Starwood Financial, Inc Series C Pfd. ............................ 406,250 140,000 Starwood Hotels & Resorts Worldwide .............................. 3,675,000 35,500 Storage USA, Inc. ................................................ 1,087,187 50,000 Sun Communities, Inc. ............................................ 1,443,750 100,400 Taubman Centers, Inc. ............................................ 1,116,950 35,000 Taubman Centers, Inc Pfd Series A ................................ 595,000 62,800 United Dominion Realty Trust, Inc. ............................... 1,138,250 112,100 Urban Shopping Centers, Inc. ..................................... 3,257,906 -------------- TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $101,828,537)........................ 83,805,362 -------------- CORPORATE BONDS-- 0.54% PRINCIPAL ISSUER, COUPON AND MATURITY DATE VALUE - --------- -------------------------------- ----- $ 5,000,000 Avco Financial Services, Inc. 5.75% 01/23/01.................................................. 4,940,950 5,000,000 Ford Motor Credit Co. 5.75% 01/25/01.................................................. 4,940,250 -------------- TOTAL CORPORATE BONDS (Cost $10,034,650)....................................... 9,881,200 -------------- GOVERNMENT AGENCIES--1.07% PRINCIPAL ISSUER, COUPON AND MATURITY DATE VALUE - --------- -------------------------------- ----- 18,340,000 Federal Home Loan Mortgage Corporation 5.77% 04/18/00.................................................. 18,285,530 1,160,000 Federal Home Loan Mortgage Corporation 5.90% 04/18/00.................................................. 1,156,555 -------------- TOTAL GOVERNMENT AGENCIES (Amortized cost $19,446,797)......................... 19,442,085 -------------- COMMERCIAL PAPER--21.52% PRINCIPAL ISSUER, COUPON AND MATURITY DATE VALUE - --------- -------------------------------- ----- 20,000,000 American Express Credit Corp 5.82% 04/07/00.................................................. 19,976,356 13,125,000 American Telephone & Telegraph Co 5.94% 04/10/00.................................................. 13,102,833 14,200,000 Corporate Asset Funding Corp, Inc. 5.85% 04/19/00.................................................. 14,154,733 7,500,000 CVS Corp 6.22% 04/05/00.................................................. 7,493,438 1,230,000 Emerson Electric Co 5.87% 05/02/00................................................... 1,223,396 6,305,000 Enterprise Funding Corporation 6.07% 04/03/00................................................... 6,301,805 28,044,000 Enterprise Funding Corporation 6.37% 04/03/00................................................... 28,029,790 5,850,000 Equilon Enterprises LLC 5.82% 04/03/00.................................................. 5,847,036 14 PRINCIPAL ISSUER, COUPON AND MATURITY DATE VALUE - --------- -------------------------------- ----- $34,200,000 Ford Motor Credit Corp 6.15% 04/04/00.................................................. $ 34,176,895 38,550,000 General Electric Capital Corp 6.04% 04/10/00.................................................. 38,484,893 24,300,000 General Mills 6.07% 04/07/00.................................................. 24,271,273 6,500,000 General Mills 6.05% 04/10/00.................................................. 6,489,022 10,000,000 GTE Corp 5.89% 04/06/00.................................................. 9,989,867 19,235,000 GTE Corp 5.91% 04/10/00.................................................. 19,202,514 4,800,000 GTE Funding Inc 6.05% 04/10/00.................................................. 4,791,893 22,110,000 Honeywell, Inc 5.9% 05/08/00................................................... 21,969,036 13,125,000 J.P. Morgan & Co 5.85% 04/14/00.................................................. 13,093,967 13,640,000 Motiva Enterprises LLC 6.07% 04/07/00.................................................. 13,623,875 24,500,000 National Fuel Gas Co 6.07% 04/17/00.................................................. 24,428,847 14,745,000 Park Avenue Receivables Corp 5.87% 04/10/00.................................................. 14,720,097 18,474,000 Province of Ontario 5.91% 07/07/00.................................................. 18,165,721 16,045,000 Receivable Capital Corp 5.87% 04/20/00.................................................. 15,991,159 23,000,000 Salomon Smith Barney Holdings Inc 5.85% 04/10/00.................................................. 22,961,155 13,800,000 The Stanley Works 5.88% 05/09/00.................................................. 13,709,702 TOTAL COMMERCIAL PAPER (Amortized cost $392,291,703)......................... 392,199,303 -------------- TOTAL MARKETABLE SECURITIES (Cost $523,601,687)................................ 505,327,950 -------------- TOTAL INVESTMENTS--100.00% (Cost $1,779,169,235)............................... $1,822,242,646 ============== See notes to consolidated financial statements. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. At March 31, 2000, the TIAA Real Estate Account owned a total of 52 real estate properties, including 17 office properties, 16 industrial properties, 14 apartment complexes, and 5 neighborhood shopping centers, representing 72.3% of the Account's total investment portfolio. The Account also held investments in commercial paper, representing 21.5% of the portfolio, real estate investment trusts (REITs), representing 4.6% of the portfolio, U.S. government agencies, representing 1.1% of the portfolio, and corporate bonds, representing 0.5% of the portfolio. The Account did not purchase or sell any properties during the first quarter of 2000. However, since the end of that quarter, the Account purchased an industrial property for approximately $19.6 million. The Account also has an outstanding commitment to purchase an office building for approximately $144.5 million and an industrial property for approximately $15.6 million. The Account continues to pursue suitable property acquisitions, and is currently in various stages of negotiations with a number of prospective sellers. While attractive acquisition prospects are available in the current market, significant competition exists for the most desirable properties. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999: The Account's total net return was 2.15% for the three months ended March 31, 2000 and 1.57% for the same quarter in 1999. The Account's net investment income, after deduction of all expenses, was $31,774,860 for the three months ended March 31, 2000 and $22,192,803 for the three months ended March 31, 1999, a 43% increase. This increase was the result of a 37% increase in net assets and a 59% increase in the Account's real estate holdings during the period from March 31, 1999 to March 31, 2000. The Account had net realized and unrealized gains on investments of $5,456,092 for the three month period ended March 31, 2000 compared with net realized and unrealized losses of $2,063,370 for the same period in 1999. This difference was due, in part, to the fact that the Account's marketable securities (primarily its REIT holdings) increased in value in the first quarter of 2000, in contrast to the first quarter of 1999 where the Account had substantial realized and unrealized losses on its marketable securities. Also, the Account's real estate holdings appreciated more during the first quarter of 2000 than in the same period of 1999. The Account's real estate holdings generated approximately 80% and 74% of the Account's total investment income (before deducting Account level expenses) during the three months ended March 31, 2000 and March 31, 1999, respectively. The remaining portion of the Account's total investment income was generated by investments in marketable securities. 16 Gross real estate rental income was $41,821,067 for the three months ended March 31, 2000 and $26,198,891 for the same period in 1999. This increase was primarily due to the increase in the number of properties owned by the Account - from 46 properties at the end of the first quarter of 1999 to 52 properties at the end of the first quarter of 2000. Interest and dividend income on the Account's marketable securities investments increased from $6,408,467 for the first quarter of 1999 to $6,872,769 for the first quarter of 2000. This increase was primarily due to the fact that the Account had more money invested in marketable securities as the Account's net asset base grew. Total property level expenses for the three months ended March 31, 2000 were $13,863,320, of which $8,971,080 represented operating expenses and $4,892,240 were attributable to real estate taxes. Total property level expenses for the three months ended March 31, 1999 were $8,253,676, of which $5,580,625 were attributable to operating expenses and $2,673,051 were attributable to real estate taxes. The increase in property level expenses reflected the increased number of properties in the Account. The Account also incurred expenses for the three months ended March 31, 2000 and 1999 of $1,538,682 and $1,044,886, respectively, for investment advisory services, $1,043,496 and $805,090, respectively, for administrative and distribution services, and $473,478 and $310,903, respectively, for mortality and expense risk charges and liquidity guarantee charges. Such expenses increased as a result of the larger net asset base of the Account. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000 and 1999, the Account's liquid assets (i.e., its cash, REITs, short- and intermediate-term investments, and government securities) had a value of $506,393,070 and $517,087,027, respectively. We plan to use much of the Account's liquid assets, exclusive of the REITs, to purchase additional suitable real estate properties. The remaining liquid assets, exclusive of the REITs, will continue to be primarily invested in marketable securities to meet expense needs and redemption requests (e.g., cash withdrawals or transfers). If the Account's liquid assets and its cash flow from operating activities and participant transactions are not sufficient to meet its cash needs, including redemption requests, TIAA's general account will purchase liquidity units in accordance with TIAA's liquidity guarantee to the Account. 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. There are no material current or pending legal proceedings that the Account is a party to, or to which the Account's assets are subject. ITEM 2. CHANGES IN SECURITIES. Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. Not applicable. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS (3) (A) Charter of TIAA (as amended) * (B) Bylaws of TIAA (as amended) ** (4) (A) Forms of RA, GRA, GSRA, SRA, and IRA Real Estate Account Endorsements* and Keogh Contract*** (B) Forms of Income-Paying Contracts * (10) (A) Independent Fiduciary Agreement by and among TIAA, the Registrant, and The Townsend Group*** (B) Custodial Services Agreement by and between TIAA and Morgan Guaranty Trust Company of New York with respect to the Real Estate Account * (C) Distribution and Administrative Services Agreement by and between TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as amended) (filed previously as Exhibit (1)) * 18 (27) Financial Data Schedule of the Account's Financial Statements for the three months ended March 31, 2000 - ------------------- * - Previously filed and incorporated herein by reference to Post-Effective Amendment No. 2 to the Account's Registration Statement on Form S-1 filed April 30, 1996 (File No. 33-92990). ** - Previously filed and incorporated herein by reference to the Account's Form 10-Q Quarterly Report for the period ended September 30, 1997 filed November 13, 1997 (File No. 33-92990). *** - Previously filed and incorporated herein by reference to Post-Effective Amendment No. 6 to the Account's Registration Statement on Form S-1 filed April 26, 2000 (File No. 333-22809). (b) REPORTS ON 8-K. The Account did not file any reports on Form 8-K during the first quarter of 2000. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: May 12, 2000 TIAA REAL ESTATE ACCOUNT By: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: /s/ Peter C. Clapman ------------------------------ Peter C. Clapman Senior Vice President and Chief Counsel, Investments DATE: May 12, 2000 By: /s/ Richard L. Gibbs ------------------------------ Richard L. Gibbs Executive Vice President (Principal Accounting Officer) 20