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 September 30, 2001
[ ] 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, and 333-59778
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
SEPTEMBER 30, 2001
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
SEPTEMBER 30, DECEMBER 31,
2001 2000
-------------- --------------
(Unaudited)
ASSETS
Investments, at value:
Real estate properties
(cost: $2,067,155,954
and $1,818,143,290) ..................... $2,148,086,834 $1,899,254,344
Real estate joint venture
(cost: $24,832,709 and $24,674,574) ..... 26,301,767 26,035,867
Mortgages
(cost: $4,779,096 and $-) ............... 4,779,096 --
Marketable securities
(cost: $889,302,914 and $462,959,529) ... 889,298,400 463,828,568
Cash ........................................ -- 715,866
Other ....................................... 37,622,600 33,265,757
-------------- --------------
TOTAL ASSETS 3,106,088,697 2,423,100,402
-------------- --------------
LIABILITIES
Amounts due to bank ......................... 361,296 --
Accrued real estate property level expenses
and taxes ................................. 32,868,275 24,396,036
Security deposits held ...................... 7,915,530 6,817,972
Other ....................................... 874,602 1,736,106
-------------- --------------
TOTAL LIABILITIES 42,019,703 32,950,114
-------------- --------------
MINORITY INTEREST IN SUBSIDIARY 7,117,189 3,028,217
-------------- --------------
NET ASSETS
Accumulation Fund ........................... 2,949,078,715 2,310,540,978
Annuity Fund ................................ 107,873,090 76,581,093
-------------- --------------
TOTAL NET ASSETS $3,056,951,805 $2,387,122,071
============== ==============
NUMBER OF ACCUMULATION UNITS
OUTSTANDING--Notes 6 and 7 .................. 17,680,657 14,604,673
========== ==========
NET ASSET VALUE PER ACCUMULATION
UNIT--Note 6 ................................ $166.80 $158.21
======= =======
See notes to consolidated financial statements.
3
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
----------- ----------- ------------ ------------
INVESTMENT INCOME
Real estate income, net:
Rental income ................................................ $66,090,617 $52,030,764 $187,666,211 $139,303,225
----------- ----------- ------------ ------------
Real estate property level expenses and taxes:
Operating expenses ........................................... 13,129,336 10,520,678 37,946,240 28,692,285
Real estate taxes ............................................ 7,406,846 5,969,832 21,206,800 16,532,575
----------- ----------- ------------ ------------
Total real estate property level expenses and taxes 20,536,182 16,490,510 59,153,040 45,224,860
----------- ----------- ------------ ------------
Real estate income, net 45,554,435 35,540,254 128,513,171 94,078,365
Income from real estate joint venture ............................ 532,549 397,389 1,461,163 397,389
Interest ......................................................... 7,034,339 6,317,707 19,762,127 17,936,645
Dividends ........................................................ 2,462,873 1,479,219 6,656,243 4,904,265
----------- ----------- ------------ ------------
TOTAL INCOME 55,584,196 43,734,569 156,392,704 117,316,664
----------- ----------- ------------ ------------
Expenses--Note 3:
Investment advisory charges .................................... 2,016,288 1,525,198 4,630,562 4,133,678
Administrative and distribution charges ........................ 2,380,124 1,125,353 6,079,000 3,200,476
Mortality and expense risk charges ............................. 526,855 372,060 1,435,965 1,010,563
Liquidity guarantee charges .................................... 225,794 159,454 616,101 499,519
----------- ----------- ------------ ------------
TOTAL EXPENSES 5,149,061 3,182,065 12,761,628 8,844,236
----------- ----------- ------------ ------------
INVESTMENT INCOME, NET 50,435,135 40,552,504 143,631,076 108,472,428
----------- ----------- ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on :
Real estate properties ....................................... (1,849,467) -- (750,047) --
Marketable securities ........................................ 2,609,001 (241,717) 3,002,430 (330,902)
----------- ----------- ------------ ------------
Net realized gain (loss) on investments 759,534 (241,717) 2,252,383 (330,902)
----------- ----------- ------------ ------------
Net change in unrealized appreciation (depreciation) on:
Real estate properties ....................................... 2,520,743 8,918,621 (180,174) 17,104,717
Real estate joint venture .................................... 122,328 173,358 107,765 173,358
Marketable securities ........................................ (10,703,063) 5,921,339 (873,553) 17,383,119
----------- ----------- ------------ ------------
Net change in unrealized appreciation
(depreciation) on investments (8,059,992) 15,013,318 (945,962) 34,661,194
----------- ----------- ------------ ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (7,300,458) 14,771,601 1,306,421 34,330,292
----------- ----------- ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE MINORITY INTEREST 43,134,677 55,324,105 144,937,497 142,802,720
Minority interest in net increase in net assets
resulting from operations ..................................... (213,578) -- (661,601) --
----------- ----------- ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $42,921,099 $55,324,105 $144,275,896 $142,802,720
=========== =========== ============ ============
See notes to consolidated financial statements.
4
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
FROM OPERATIONS
Investment income, net ................................... $ 50,435,135 $ 40,552,504 $ 143,631,076 $ 108,472,428
Net realized gain (loss) on investments .................. 759,534 (241,717) 2,252,383 (330,902)
Net change in unrealized
appreciation (depreciation) on investments ............. (8,059,992) 15,013,318 (945,962) 34,661,194
Minority interest in net increase in net assets
resulting from operations ............................... (213,578) -- (661,601) --
--------------- --------------- --------------- ---------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 42,921,099 55,324,105 144,275,896 142,802,720
--------------- --------------- --------------- ---------------
FROM PARTICIPANT TRANSACTIONS
Premiums ................................................. 64,683,385 35,830,433 179,047,438 117,271,493
Net transfers from TIAA .................................. (8,847,320) 9,549,641 2,832,842 28,445,126
Net transfers from CREF Accounts ......................... 122,867,598 113,564,961 399,824,442 260,057,798
Annuity and other periodic payments ...................... (2,883,656) (1,932,511) (8,395,796) (5,705,107)
Withdrawals and death benefits ........................... (16,182,680) (10,787,866) (47,755,088) (35,181,565)
--------------- --------------- --------------- ---------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 159,637,327 146,224,658 525,553,838 364,887,745
--------------- --------------- --------------- ---------------
NET INCREASE IN NET ASSETS 202,558,426 201,548,763 669,829,734 507,690,465
NET ASSETS
Beginning of period ...................................... 2,854,393,379 2,001,624,130 2,387,122,071 1,695,482,428
--------------- --------------- --------------- ---------------
End of period ............................................ $ 3,056,951,805 $ 2,203,172,893 $ 3,056,951,805 $ 2,203,172,893
=============== =============== =============== ===============
See notes to consolidated financial statements.
5
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ......... $ 42,921,099 $ 55,324,105 $ 144,275,896 $ 142,802,720
Adjustments to reconcile net increase in net assets
resulting from operations to net cash used in
operating activities:
Increase in investments ..................................... (203,417,494) (206,846,313) (679,347,318) (518,504,709)
Decrease (increase) in other assets ......................... (4,577,027) 854,164 (4,356,843) 4,140,292
Increase (decrease) in other liabilities .................... (1,429,831) 173 (500,208) 468,163
Increase in accrued real estate property level
expenses and taxes ....................................... 4,403,086 3,822,037 8,472,239 4,795,844
Increase in security deposits held .......................... 442,037 476,584 1,097,558 937,401
Increase in minority interest ............................... 314,817 -- 4,088,972 --
------------- ------------- ------------- -------------
NET CASH USED IN
OPERATING ACTIVITIES (161,343,313) (146,369,250) (526,269,704) (365,360,289)
------------- ------------- ------------- -------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums ..................................................... 64,683,385 35,830,433 179,047,438 117,271,493
Net transfers from TIAA ...................................... (8,847,320) 9,549,641 2,832,842 28,445,126
Net transfers from CREF Accounts ............................. 122,867,598 113,564,961 399,824,442 260,057,798
Annuity and other periodic payments .......................... (2,883,656) (1,932,511) (8,395,796) (5,705,107)
Withdrawals and death benefits ............................... (16,182,680) (10,787,866) (47,755,088) (35,181,565)
------------- ------------- ------------- -------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 159,637,327 146,224,658 525,553,838 364,887,745
------------- ------------- ------------- -------------
NET DECREASE IN CASH (1,705,986) (144,592) (715,866) (472,544)
CASH
Beginning of period .......................................... 1,705,986 289,647 715,866 617,599
------------- ------------- ------------- -------------
End of period ................................................ $ -- $ 145,055 $ -- $ 145,055
============= ============= ============= =============
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 holds various properties
in wholly-owned and majority owned subsidiaries which are consolidated for
financial statement purposes.
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. 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 financial statements. 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 subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate properties are
stated at fair value, as determined in accordance with procedures approved by
the Investment Committee of the 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
7
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 REAL ESTATE JOINT VENTURES: Real estate joint venture is stated at
the Account's equity in the net assets of the underlying entity, which values
its real estate holdings at fair value.
VALUATION OF MORTGAGES: Mortgages 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.
VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded on any
United States national securities exchange are valued at the last sale price as
of the close of the principal securities exchange on which such securities are
traded or, if there is no sale, at the mean of the last bid and asked prices on
such exchange. Short-term money market instruments are stated at market value.
Portfolio securities 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
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
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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. 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--REAL ESTATE PROPERTIES
Had the Account's real estate property which was purchased during the nine
months ended September 30, 2001 been acquired at the beginning of the period
(January 1, 2001), rental income and real estate property level expenses and
taxes for the nine months ended September 30, 2001 would have increased by
approximately $11,775,000 and $4,220,000, respectively. In addition, interest
income for the nine months ended September 30, 2001 would have decreased by
approximately $5,405,000. Accordingly, the total proforma effect on the
Account's net investment income for the nine months ended September 30, 2001
would have been an increase of approximately $2,150,000, if the real estate
property acquired during the nine months ended September 30, 2001 had been
acquired at the beginning of the period.
NOTE 5--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,
2001 $ 169,293,000
2002 174,743,000
2003 162,201,000
2004 142,250,000
2005 119,704,000
Thereafter 330,472,000
--------------
Total $1,098,663,000
==============
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
9
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6--CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Selected condensed consolidated financial information for an Accumulation Unit
of the Account is presented below.
FOR THE
NINE MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------------------------
2001 (1) 2000 1999 1998 1997 1996
----------- ----------- ----------- ---------- ---------- ----------
(Unaudited)
Per Accumulation Unit data:
Rental income .............................. $ 11.035 $ 14.530 $ 12.168 $ 10.425 $ 7.288 $ 6.012
Real estate property
level expenses and taxes ................. 3.477 4.674 3.975 3.403 2.218 1.850
----------- ----------- ----------- ---------- ---------- ----------
Real estate income, net 7.558 9.856 8.193 7.022 5.070 4.162
Income from real estate joint venture ...... 0.086 0.056 -- -- -- --
Dividends and interest ..................... 1.548 2.329 2.292 3.082 2.709 3.309
----------- ----------- ----------- ---------- ---------- ----------
Total income 9.192 12.241 10.485 10.104 7.779 7.471
Expense charges (2) ........................ 0.750 0.998 0.853 0.808 0.580 0.635
----------- ----------- ----------- ---------- ---------- ----------
Investment income, net 8.442 11.243 9.632 9.296 7.199 6.836
Net realized and unrealized
gain on investments ...................... 0.149 3.995 1.164 0.579 3.987 1.709
----------- ----------- ----------- ---------- ---------- ----------
Net increase in
Accumulation Unit Value .................. 8.591 15.238 10.796 9.875 11.186 8.545
Accumulation Unit Value:
Beginning of year ........................ 158.206 142.968 132.172 122.297 111.111 102.566
----------- ----------- ----------- ---------- ---------- ----------
End of period ............................ $ 166.797 $ 158.206 $ 142.968 $ 132.172 $ 122.297 $ 111.111
=========== =========== =========== ========== ========== ==========
Total return ................................ 5.43% 10.66% 8.17% 8.07% 10.07% 8.33%
Ratios to Average Net Assets:
Expenses (2) ............................. 0.47% 0.67% 0.63% 0.64% 0.58% 0.61%
Investment income, net ................... 5.24% 7.50% 7.13% 7.34% 7.25% 6.57%
Portfolio turnover rate:
Real estate properties ................... 1.02% 3.87% 4.46% 0% 0% 0%
Securities ............................... 32.67% 32.86% 27.68% 24.54% 7.67% 15.04%
Thousands of Accumulation Units
outstanding at end of period ............. 17,681 14,605 11,487 8,834 6,313 3,296
(1) The percentages shown for this period are not annualized.
(2) Expense charges per Accumulation Unit and the Ratio of Expenses to Average
Net Assets include the portion of expenses related to the minority
interests and exclude real estate property level expenses and taxes. If the
real estate property level expenses and taxes were included, the expense
charge per Accumulation Unit for the nine months ended September 30, 2001
would be $4.227 ($5.672, $4.828, $4.211, $2.798 and $2.485 for the years
ended December 31, 2000, 1999, 1998, 1997 and 1996, respectively), and the
Ratio of Expenses to Average Net Assets for the nine months ended September
30, 2001 would be 2.62% (3.79%, 3.58%, 3.32%, 2.82% and 2.39% for the years
ended December 31, 2000, 1999, 1998, 1997 and 1996, respectively).
10
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7--ACCUMULATION UNITS
Changes in the number of Accumulation Units outstanding were as follows:
FOR THE
NINE MONTHS
ENDED FOR THE
SEPTEMBER 30, YEAR
2001 ENDED
------------- DECEMBER 31,
(Unaudited) 2000
----------
Accumulation Units:
Credited for premiums ....................... 1,096,415 1,074,708
Credited for transfers, net disbursements
and amounts applied to the Annuity Fund ... 1,979,569 2,042,605
Outstanding:
Beginning of year ......................... 14,604,673 11,487,360
---------- ----------
End of period ............................. 17,680,657 14,604,673
========== ==========
NOTE 8--COMMITMENTS
During the normal course of business, the Account enters into discussions and
agreements to purchase or sell real estate properties. As of September 30, 2001,
the Account had two outstanding commitments totaling approximately $66 million
to purchase real estate properties, and one outstanding commitment totaling $11
million to sell a real estate property.
11
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
SEPTEMBER 30, 2001
REAL ESTATE PROPERTIES--70.01%
LOCATION / DESCRIPTION VALUE
- ------------------------------- ---------------
ARIZONA:
Biltmore Commerce Center - Office building ................ $ 30,604,812
Southbank Building - Office building ...................... 13,500,000
CALIFORNIA:
88 Kearny Street - Office building ........................ 84,189,224
Cabot Industrial Portfolio - Industrial building .......... 31,318,516
Eastgate Distribution Center - Industrial building ........ 14,300,000
Larkspur Courts - Apartments .............................. 56,200,000
Northpoint Commerce Center - Industrial building .......... 38,800,000
Ontario Industrial Properties - Industrial building ....... 108,000,000
Westcreek - Apartments .................................... 17,700,000
COLORADO:
Arapahoe Park East - Industrial building .................. 13,609,395
The Lodge at Willow Creek - Apartments .................... 32,300,000
Monte Vista - Apartments .................................. 21,861,135
FLORIDA:
Carolina Apartments - Apartments .......................... 17,285,637
Golfview - Apartments ..................................... 27,400,000
The Greens at Metrowest - Apartments ...................... 14,000,000
Maitland Promenade One - Office building .................. 39,000,000
Plantation Grove - Shopping center ........................ 7,600,000
Quiet Waters Apartments - Apartments ...................... 19,092,988
Royal St. George - Apartments ............................. 16,400,000
Sawgrass Portfolio - Office building ...................... 55,200,000
South Florida Apartment Portfolio- Apartments ............. 44,111,158
Westinghouse Facility - Industrial building .............. 5,300,000
GEORGIA:
Atlanta Industrial Portfolio - Industrial building ........ 40,519,744
ILLINOIS:
Chicago Industrial Portfolio - Industrial building ........ 42,600,000
Columbia Center III - Office building ..................... 39,500,000
Parkview Plaza - Office building .......................... 52,500,000
Rolling Meadows - Shopping center ......................... 12,390,000
KENTUCKY:
IDI Kentucky Portfolio - Industrial building .............. 53,600,000
MARYLAND:
FedEx Distribution Facility - Industrial building ......... 7,600,000
Longview Executive Park - Office building ................. 28,014,149
Saks Distribution Center - Industrial building ............ 31,080,000
MASSACHUSETTS
Batterymarch Park II - Office building ...................... 18,004,125
Needham Corporate Center - Office building ................ 28,156,460
MICHIGAN:
Indian Creek - Apartments ................................. 17,250,000
MINNESOTA:
Interstate Crossing - Industrial building ................. 6,548,695
River Road Distribution Center - Industrial building ...... 4,050,000
NEVADA:
UPS Distribution Facility - Industrial building ........... 11,100,000
12
LOCATION / DESCRIPTION VALUE
- ----------------------- ----------------
NEW JERSEY:
10 Waterview Boulevard - Office building ............... $ 30,400,000
371 Hoes Lane - Office building ........................ 14,700,000
Konica Photo Imaging Headquarters - Industrial
building ............................................. 17,500,000
Morris Corporate Center III - Office building .......... 105,333,000
South River Road Industrial - Industrial building ...... 33,100,000
NEW YORK:
780 Third Avenue - Office building ..................... 179,000,000
The Colorado - Apartments .............................. 60,553,166
NORTH CAROLINA:
Lynnwood Collection - Shopping center .................. 7,900,000
Millbrook Collection - Shopping center ................. 7,200,000
OHIO:
Bent Tree - Apartments ................................. 14,508,675
Bisys Fund Services Building - Office building ......... 20,295,005
Columbus Portfolio - Office building ................... 30,343,805
Northmark Business Center - Office building ............ 12,900,000
OREGON:
Five Centerpointe - Office building .................... 18,666,680
PENNSYLVANIA:
Lincoln Woods - Apartments ............................. 24,600,000
TEXAS:
Butterfield Industrial Park - Industrial building ...... 4,805,590(1)
Dallas Industrial Portfolio - Industrial building ...... 97,283,006
The Legends at Chase Oaks- Apartments .................. 26,000,000
UTAH:
Landmark at Salt Lake City - Industrial building ....... 14,450,000
VIRGINIA:
Ashford Meadows - Apartments ........................... 64,400,000
Fairgate at Ballston - Office building ................. 30,650,969
Monument Place - Office building ....................... 36,100,000
River Oaks - Shopping center ........................... 11,012,829
WASHINGTON:
The Bay Court at Harbour Pointe - Apartments ........... 36,500,000
WASHINGTON DC:
1801 K Street N W - Office building .................... 149,198,071
---------------
TOTAL REAL ESTATE PROPERTIES (Cost $2,067,155,954) ... 2,148,086,834
---------------
(1) Leasehold interest only
REAL ESTATE JOINT VENTURE--0.86%
Teachers REA IV, LLC, which owns
Tyson's Executive Plaza II (50% Account Interest) ...... 26,301,767
---------------
TOTAL REAL ESTATE JOINT VENTURE (Cost $24,832,709) ..... 26,301,767
---------------
MORTGAGES--0.15%
The Georgetown Company - a 90% participation in a
construction loan with a total commitment of $13 million,
bearing interest payable monthly at LIBOR plus 200
basis points, currently 5.50%, due April 1, 2003 with an
option to extend to April 1, 2004 ........................ 4,779,096
---------------
TOTAL MORTGAGES (Cost $4,779,096) ...................... 4,779,096
---------------
13
MARKETABLE SECURITIES--28.98%
REAL ESTATE INVESTMENT TRUSTS--4.70%
SHARES ISSUER VALUE
- ------ ------ -----
40,400 Alexandria Real Estate Equities, Inc. ......... $ 1,593,780
205,000 AMB Property Corporation ...................... 5,022,500
50,200 AMB Property Corp Series A Pfd. ............... 1,265,040
120,000 Apartment Investment & Management Co .......... 5,431,200
230,700 Archstone Communities Trust ................... 6,021,270
95,000 Avalonbay Communities, Inc. ................... 4,536,250
276,800 Boston Properties, Inc. ....................... 10,554,384
230,400 Brandywine Realty Trust ....................... 4,914,432
130,000 Carramerica Realty Series B Pfd. .............. 3,146,000
96,800 Centerpoint Properties Corp. .................. 4,622,200
15,000 Charles E. Smith Residential Realty ........... 772,500
82,900 Chateau Communities, Inc. ..................... 2,441,405
266,900 Cousins Properties, Inc. ...................... 6,605,775
271,300 Duke-Weeks Realty Corp. ....................... 6,427,097
583,533 Equity Office Properties Trust ................ 18,673,056
196,700 Equity Residential Properties Trust Co. ....... 11,487,280
135,200 Hilton Hotels Corp. ........................... 1,061,320
4,000 Home Properties of New York, Inc. ............. 126,560
80,000 Hospitality Properties Trust .................. 1,926,400
297,800 Host Marriott Corp (New) ...................... 2,099,490
93,500 Kimco Realty Corp. ............................ 4,539,425
161,650 Macerich Company .............................. 3,572,465
82,100 Manufactured Home Communities, Inc. ........... 2,497,482
190,000 Mission West Properties Inc. .................. 2,280,000
336,600 Prologis Trust ................................ 7,102,260
130,400 Public Storage, Inc. .......................... 4,355,360
179,000 Reckson Associates Realty Corp. ............... 4,322,850
280,900 Simon Property Group, Inc. .................... 7,559,019
264,000 Starwood Hotels & Resorts Worldwide ........... 5,808,000
2,800 Storage U.S.A.,Inc ............................ 110,880
95,000 Sun Communities, Inc. ......................... 3,481,750
---------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $143,902,106) ....... 144,357,430
---------------
COLLATERALIZED MORTGAGE BACKED SECURITIES--2.97%
PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE
- --------- --------------------------------------
$11,000,000 Ball 2001-116A B
4.654% 09/17/05 .............................. 11,000,000
10,000,000 GSMS 2001-Rock A2FL
3.940% 05/03/11 .............................. 9,925,000
10,000,000 JPMCC 2001-FL1A B
3.890% 06/13/13 .............................. 9,986,000
10,000,000 MSDW Capital
3.960% 02/03/11 .............................. 9,994,000
8,000,000 MSDWC 2001 -FRMA C
4.130% 07/12/16 .............................. 7,995,200
7,500,000 MSDWC 2001 -SGMA B
4.000% 07/11/11 .............................. 7,495,500
10,000,000 Opryland Hotel Trust
4.040% 04/01/04 .............................. 9,990,000
14
PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE
- --------- -------------------------------------- -----
$ 7,500,000 Strategic Hotel Cap
4.680% 04/17/06 .............................. $ 7,340,250
7,500,000 Strategic Hotel Cap
3.920% 04/17/06 .............................. 7,391,250
5,000,000 Trize 2001 - TZHA A3FL
4.010% 03/15/13 .............................. 4,976,500
5,000,000 USC Oakbrook Trust
3.780% 11/01/05 .............................. 4,967,000
---------------
TOTAL COLLATERALIZED MORTGAGE BACKED SECURITIES
(Cost $91,496,484) .......................................... 91,060,700
---------------
COMMERCIAL PAPER--21.31%
PRINCIPAL ISSUER, COUPON AND MATURITY DATE
- --------- --------------------------------
25,000,000 Abbot Laboratories
3.43% 10/09/01 ................................ 24,980,140
40,000,000 American Honda Finance, Corp
3.56% 10/19/01 ................................ 39,939,332
15,700,000 Asset Securitization Cooperative Corp
2.45% 10/18/01 ................................ 15,677,323
25,000,000 Asset Securitization Cooperative Corp
2.60% 11/20/01 ................................ 24,907,618
20,000,000 Canadian Imperial Holdings Inc
2.45% 10/19/01 ................................ 19,969,666
6,700,000 Corporate Asset Funding Corp, Inc
3.43 % 10/25/01 ............................... 6,686,935
32,604,000 Delaware Funding Corp
3.48% 10/15/01 ................................ 32,563,969
50,000,000 Enterprise Funding Corp
3.52% 10/02/01 ................................ 49,982,555
44,500,000 Federal Home Loan Banks
2.75% 10/05/01 ................................ 44,475,253
1,300,000 Federal Home Loan Banks
2.75% 10/05/01 ................................ 1,299,277
2,500,000 Federal Home Loan Banks
3.49% 10/10/01 ................................ 2,497,725
6,000,000 Federal Home Loan Banks
3.49% 10/31/01 ................................ 5,986,250
50,000,000 Federal Home Loan Mortgage Corp
2.75% 10/09/01 ................................ 49,958,290
35,000,000 Federal Home Loan Mortgage Corp
3.53% 10/25/01 ................................ 34,931,487
23,300,000 Federal Home Loan Mortgage Corp
3.34% 11/21/01 ................................ 23,214,023
50,000,000 Federal National Mortgage Association
3.50% 10/02/01 ................................ 49,984,110
42,800,000 Federal National Mortgage Association
3.50% 10/02/01 ................................ 42,786,398
25,000,000 Federal National Mortgage Association
2.68% 12/06/01 ................................ 24,884,520
23,600,000 Gannett, Inc
3.45% 10/05/01 ................................ 23,585,590
36,000,000 Govco Incorporated
3.25% 10/01/01 ................................ 35,990,579
35,000,000 Govco Incorporated
3.47% 10/19/01 ................................ 34,946,916
27,700,000 J.P. Morgan Chase & Co
2.85% 10/11/01 ................................ 27,673,992
15
PRINCIPAL ISSUER, COUPON AND MATURITY DATE
- --------- --------------------------------
$17,000,000 Merck Inc
2.50% 10/22/01 ................................ $ 16,970,534
20,000,000 Morgan Stanley Dean Witter
3.15% 10/05/01 ................................ 19,987,788
---------------
TOTAL COMMERCIAL PAPER (Amortized cost $653,904,324) ........ 653,880,270
---------------
TOTAL MARKETABLE SECURITIES (Cost $889,302,914) ............... 889,298,400
---------------
TOTAL INVESTMENTS--100.00% (Cost $2,986,070,673) .............. $ 3,068,466,097
===============
See notes to consolidated financial statements.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
At September 30, 2001, the Account held a total of 63 real estate
properties representing 70.9% of the Account's total investment portfolio. These
include twenty-two office properties (one of which is held in joint venture), 19
industrial properties, 17 apartment complexes, and 5 neighborhood shopping
centers. During the third quarter, the Account purchased one suburban office
property, three apartment properties, and sold one industrial property. 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, there is
significant competition for institutional quality real estate.
As of September 30, 2001, the Account also held investments in commercial
paper representing 21.3% of the portfolio, real estate investment trusts (REITs)
representing 4.7% of the portfolio, and other real estate related investments,
including commercial mortgage-backed securities (CMBS) and a mortgage,
representing 3.1% of the portfolio.
The tragic events of September 11th had no direct impact on the Account's
real estate holdings, since the Account does not own any property in the New
York City financial district. At present, it is not possible to quantify with
any certainty the short-term or long-term future impact these events will have
on the economy and the real estate market.
RESULTS OF OPERATIONS
- ---------------------
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 2000
The Account's total net return was 5.43% for the nine months ended
September 30, 2001 and 7.68% for the same period in 2000. This decline was due
to the performance of each asset type, i.e, real estate, REITs and commercial
paper, which was down in the nine months ended 2001 as compared to the same
period in 2000.
The Account's net investment income, after deduction of all expenses, was
$143,631,076 for the nine months ended September 30, 2001 and $108,472,428 for
the same period in 2000, a 32% increase. This increase was primarily the result
of a 39% increase in net assets and a 26% increase in the Account's real estate
holdings from September 30, 2000 to September 30, 2001.
The Account had net realized and unrealized gains on investments of
$1,306,421 and $34,330,292 for the nine months ended September 30, 2001 and
2000, respectively. The decrease is due to a modest decrease in the aggregate
market value of the Account's real estate holdings during the first nine months
of 2001, which had increased substantially during the same time period in 2000.
In addition, the Account's marketable securities had an unrealized loss on
investments in the first nine months of 2001 in contrast with the same period in
2000 where the Account had a substantial unrealized gain on investments.
17
The Account's real estate holdings generated approximately 83% and 81% of
the Account's total investment income (before deducting Account level expenses)
during the nine months ended September 30, 2001 and 2000, respectively. The
remaining portion of the Account's total investment income was generated by
marketable securities investments.
Gross real estate rental income was $187,666,211 for the nine months ended
September 30, 2001 and $139,303,225 for the same period in 2000. This increase
was primarily due to the increase in the number of properties owned by the
Account from 58 properties as of September 30, 2000 to 63 properties as of
September 30, 2001. Interest income on the Account's short and intermediate-
term investments for the nine months ended September 30, 2001 and 2000 totaled
$19,762,127 and $17,936,645, respectively. Dividend income on the Account's
investments in REITs totaled $6,656,243 and $4,904,265, respectively, for the
same periods. The increase in interest and dividend income is due to the
increase in such investments by the Account as its net asset base grew.
Total property level expenses for the nine months ended September 30, 2001
were $59,153,040, of which $21,206,800 was attributable to real estate taxes and
$37,946,240 was attributable to operating expenses. Total property level
expenses for the nine months ended September 30, 2000 were $45,224,860, of which
$16,532,575 was attributable to real estate taxes and $28,692,285 represented
operating expenses. The increase in property level expenses during the first
nine months of 2001 reflected the increased number of properties in the Account.
The Account also incurred expenses for the nine months ended September 30,
2001 and 2000 of $4,630,562 and $4,133,678, respectively, for investment
advisory services, $6,079,000 and $3,200,476, respectively, for administrative
and distribution services and $2,052,066 and $1,510,082, respectively, for the
mortality and expense risks assumed and the liquidity guarantee. Such expenses
increased as a result of the larger net asset base in the Account and the
increased costs associated with administering a larger account.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2000
The Account's total net return was 1.46% for the three months ended
September 30, 2001 and 2.67% for the same period in 2000. The lower return in
2001 was due to the performance of each asset type, which was down in the three
months ended September 30, 2001 as compared to the same period in 2000. The
Account's net investment income, after deduction of all expenses, was
$50,435,135 for the three months ended September 30, 2001 and $40,552,504 for
the same period in 2000, a 24% increase. This was primarily the result of an
increase in net assets and the Account's real estate holdings from September 30,
2000 to September 30, 2001.
The Account had a net realized and unrealized loss on investments of
$7,300,458 for the three months ending September 30, 2001 compared to the net
realized and unrealized gains of $14,771,601 for the three months ended
September 30, 2000. The difference was due to the decrease in value of the
Account's marketable securities and to the smaller increase in the aggregate
market value of the Account's real estate holdings in the third quarter 2001 as
compared to the third quarter of 2000, when the Account had substantial
unrealized appreciation
18
on its real estate properties. The Account posted net unrealized gains on its
real estate investments of $2,520,745 and $8,918,621 in the three months ended
September 30, 2001 and 2000, respectively. Also, the Account's marketable
securities (primarily its REIT holdings) decreased substantially in the third
quarter of 2001 compared to an increase in value during the same period in 2000.
The Account posted net unrealized losses on its marketable securities of
$10,703,063 during the third quarter of 2001, as compared with net unrealized
gains of $5,921,339 during the same period in 2000.
The Account's real estate holdings generated approximately 83% and 82% of
the Account's total investment income (before deducting Account level expenses)
during the three months ended September 30, 2001 and 2000, respectively. The
remaining portion of the Account's total investment income was generated by
investments in marketable securities.
Gross real estate rental income was $66,090,617 for the three months ended
September 30, 2001 and $52,030,764 for the same period in 2000. The higher real
estate income for the 2001 period was due primarily to the increase in the
number of properties owned by the Account. Interest income on the Account's
short- and intermediate-term investments for the three months ended September
30, 2001 and 2000 totaled $7,034,339 and $6,317,707, respectively. This increase
was due primarily to the growth of the Account's assets as of September 30, 2001
compared to the earlier time period. Dividend income on the Account's
investments in REITs totaled $2,462,873 and $1,479,219, respectively, for the
same periods.
Total property level expenses for the three months ended September 30, 2001
were $20,536,182, of which $7,406,846 was attributable to real estate taxes and
$13,129,336 represented operating expenses. Total property level expenses for
the three months ended September 30, 2000 were $16,490,510, of which $5,969,832
was attributable to real estate taxes and $10,520,678 was attributable to
operating expenses. The increase in property level expenses during the three
month period ended September 30, 2001 reflected the increased number of
properties in the Account.
The Account also incurred expenses for the three months ended September 30,
2001 and 2000 of $2,016,288 and $1,525,198, respectively, for investment
advisory services, $2,380,124 and $1,125,353, respectively, for administrative
and distribution services and $752,649 and $531,514, respectively, for the
mortality and expense risks assumed and the liquidity guarantee. Such expenses
increased as a result of the larger net asset base of the Account for the three
months ended September 30, 2001 over the three months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the nine months ended September 30, 2001 and 2000, the Account received
$179,047,288 and $117,271,493, respectively, in premiums and $402,657,284 and
$288,502,924, respectively, in net participant transfers from other TIAA and
CREF accounts. The unprecedented volume of net participant's transfers into the
Account through the third quarter of 2001 can be attributed to the continued
decline in the equity markets during the same
19
time period. At September 30, 2001 and 2000, the Account's liquid assets (i.e.,
its REITS, short and immediate term investments, government securities and cash)
had a value of $889,298,400 and $478,107,886, 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 available to meet expense
needs and redemption requests (e.g., cash withdrawals or transfers).
In the unlikely event that the Account's liquid assets and its cash flow
from operating activities and participant transactions are not sufficient to
meet its cash needs, including redemption requests, TIAA's general account will
purchase liquidity units in accordance with TIAA's liquidity guarantee to the
Account.
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)(1)
(B) Bylaws of TIAA (as amended)(2)
20
(4) (A) Forms of RA, GRA, GSRA, SRA, and IRA Real Estate Account
Endorsements(3) and Keogh Contract(4)
(B) Forms of Income-Paying Contracts(3)
(10) (A) Independent Fiduciary Agreement by and among TIAA, the
Registrant, and The Townsend Group(4)
(B) Custodial Services Agreement by and between TIAA and Morgan
Guaranty Trust Company of New York with respect to the Real
Estate Account(3)
(C) Distribution and Administrative Services Agreement by and between
TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as
amended) (filed previously as Exhibit (1))(1)
- ----------
(1) - Previously filed and incorporated herein by reference to the Account's
Registration statement on Form S-1 filed April 27, 2001. (File No. 333-59778).
(2) - 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).
(3) - 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).
(4) - 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 a report on Form 8-K during the
third quarter of 2001.
21
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: November 12, 2001
TIAA REAL ESTATE ACCOUNT
By: TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF
AMERICA
By: /s/ Lisa Snow
------------------------------
Lisa Snow
Vice President and
Chief Counsel, Corporate Law
DATE: November 12, 2001
By: /s/ Richard L. Gibbs
------------------------------
Richard L. Gibbs
Executive Vice President
(Principal Accounting Officer)
22