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, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO _____________
COMMISSION FILE NUMBERS 33-92990, 333-13477, 333-22809, 333-59778, AND 333-83964
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, 2002
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
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, DECEMBER 31,
2002 2001
-------------- --------------
(UNAUDITED)
ASSETS
Investments, at value:
Real estate properties
(cost: $2,271,508,760 and $2,276,414,478) .......................... $2,291,493,823 $2,330,914,466
Mortgages
(cost: $9,029,391 and $7,265,887) .................................. 9,029,391 7,265,887
Other real estate related investments, including joint ventures
(cost: $36,606,991 and $30,925,755) ................................ 40,106,658 34,430,886
Marketable securities:
Real estate related
(cost: $291,444,634 and $301,967,699) ............................ 300,263,609 305,250,475
Other
(cost: $720,068,117 and $548,265,288) ............................ 719,942,783 548,243,870
Cash .................................................................... -- 275,457
Other ................................................................... 48,063,287 44,003,409
-------------- --------------
TOTAL ASSETS 3,408,899,551 3,270,384,450
-------------- --------------
LIABILITIES
Amount due to bank ....................................................... 1,535,121 --
Accrued real estate property level expenses and taxes .................... 35,346,049 39,595,315
Security deposits held ................................................... 8,412,383 8,767,676
Other .................................................................... 1,626,627 618,289
-------------- --------------
TOTAL LIABILITIES 46,920,180 48,981,280
-------------- --------------
MINORITY INTEREST IN SUBSIDIARIES ........................................ 8,731,850 7,735,993
-------------- --------------
NET ASSETS
Accumulation Fund ....................................................... 3,234,046,328 3,103,639,556
Annuity Fund ............................................................ 119,201,193 110,027,621
-------------- --------------
TOTAL NET ASSETS $3,353,247,521 $3,213,667,177
============== ==============
NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 5 and 6 .................. 19,084,840 18,456,445
============== ==============
NET ASSET VALUE, PER ACCUMULATION UNIT--Note 5 .......................... $ 169.46 $ 168.16
============== ==============
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,
2002 2001
------------ ------------
INVESTMENT INCOME
Real estate income net:
Rental income .................................................................. $ 71,031,600 $ 59,051,511
------------ ------------
Real estate property level expenses and taxes:
Operating expenses ........................................................... 15,862,483 12,452,128
Real estate taxes ............................................................ 8,919,915 6,466,659
------------ ------------
Total real estate property level expenses and taxes 24,782,398 18,918,787
------------ ------------
Real estate income, net 46,249,202 40,132,724
Income from real estate joint venture ............................................ 444,992 406,109
Interest ..................................................................... 3,829,944 6,215,939
Dividends .................................................................... 2,449,673 2,186,860
------------ ------------
TOTAL INCOME 52,973,811 48,941,632
------------ ------------
Expenses--Note 2:
Investment advisory charges .................................................... 1,969,475 2,318,695
Administrative and distribution charges ........................................ 2,392,877 1,021,735
Mortality and expense risk charges ............................................. 566,289 433,859
Liquidity guarantee charges .................................................... 232,308 179,193
------------ ------------
TOTAL EXPENSES 5,160,949 3,953,482
------------ ------------
INVESTMENT INCOME, NET 47,812,862 44,988,150
------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Real estate properties ......................................................... -- 1,098,884
Marketable securities .......................................................... 4,320,393 (120,488)
------------ ------------
Net realized gain on investments 4,320,393 978,396
Net change in unrealized appreciation (depreciation) on:
Real estate properties ......................................................... (34,514,925) (2,798,262)
Real estate joint venture ...................................................... (5,464) (10,600)
Marketable securities .......................................................... 5,432,283 (1,627,660)
------------ ------------
Net change in unrealized appreciation (depreciation) on investments (29,088,106) (4,436,522)
------------ ------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (24,767,713) (3,458,126)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM CONTINUING OPERATIONS BEFORE
DISCONTINUED OPERATIONS AND MINORITY INTEREST 23,045,149 41,530,024
------------ ------------
Discontinued Operations--Note 3:
Income from discontinued operations .............................................. 44,110 276,485
Realized gain from discontinued operations ....................................... 2,137,146 --
------------ ------------
Net increase in net assets resulting from discontinued operations 2,181,256 276,485
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE MINORITY INTEREST 25,226,405 41,806,509
Minority interest in net increase in net assets
resulting from operations ...................................................... (119,166) --
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 25,107,239 $ 41,806,509
============ ============
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,
2002 2001
------------ -------------
FROM OPERATIONS
Investment income, net .......................................................... $ 47,812,862 $ 44,988,150
Net realized gain on investments ................................................ 4,320,393 978,396
Net change in unrealized appreciation (depreciation) on investments ............. (29,088,106) (4,436,522)
Discontinued operations ......................................................... 2,181,256 276,485
Minority interest in net increase in net assets resulting from operations ....... (119,166) --
--------------- ---------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 25,107,239 41,806,509
--------------- ---------------
FROM PARTICIPANT TRANSACTIONS
Premiums ........................................................................ 82,678,200 54,863,370
Net transfers from (to) TIAA .................................................... (24,925,067) 3,247,366
Net transfers from CREF Accounts ................................................ 84,046,717 148,229,089
Annuity and other periodic payments ............................................. (3,888,693) (2,948,575)
Withdrawals and death benefits .................................................. (23,438,052) (15,920,450)
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 114,473,105 187,470,800
--------------- ---------------
NET INCREASE IN NET ASSETS 139,580,344 229,277,309
NET ASSETS
Beginning of year ............................................................... 3,213,667,177 2,387,122,071
--------------- ---------------
End of period ................................................................... $ 3,353,247,521 $ 2,616,399,380
=============== ===============
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,
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ............................ $ 25,107,239 $ 41,806,509
Adjustments to reconcile net increase in net assets resulting From operations
to net cash used in operating activities:
Increase in investments ....................................................... (134,730,680) (231,307,137)
Increase in other assets ...................................................... (4,059,878) (1,161,557)
Increase (decrease) in accrued real estate property level expenses and taxes .. (4,249,266) 1,897,343
Increase (decrease) in security deposits held ................................. (355,293) 375,564
Increase (decrease) in other liabilities ...................................... 2,543,459 (685,988)
Increase in minority interest ................................................. 995,857 1,192,976
------------- -------------
NET CASH USED IN
OPERATING ACTIVITIES (114,748,562) (187,882,290)
------------- -------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums ........................................................................ 82,678,200 54,863,370
Net transfers from (to) TIAA .................................................... (24,925,067) 3,247,366
Net transfers from CREF Accounts ................................................ 84,046,717 148,229,089
Annuity and other periodic payments ............................................. (3,888,693) (2,948,575)
Withdrawals and death benefits .................................................. (23,438,052) (15,920,450)
------------- -------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 114,473,105 187,470,800
------------- -------------
NET DECREASE IN CASH (275,457) (411,490)
CASH
Beginning of year ............................................................... 275,457 715,866
------------- -------------
End of period ................................................................... $ -- $ 304,376
============= =============
See notes to consolidated financial statements.
6
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The TIAA Real Estate Account ("Account") is a segregated investment account of
Teachers Insurance and Annuity Association of America ("TIAA") and was
established by resolution of TIAA's Board of Trustees on February 22, 1995,
under the insurance laws of the State of New York, for the purpose of funding
variable annuity contracts issued by TIAA. The 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. The financial statements were prepared in accordance with accounting
principles generally accepted in the United States which may require the use of
estimates made by management. Actual results may vary from those estimates. The
following is a summary of the significant accounting policies consistently
followed by the Account.
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the Account and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate properties are
stated at fair value, as determined in accordance with procedures approved by
the Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole; accordingly, the Account does not
record depreciation. Fair value for real estate properties is defined as the
most probable price for which a property will sell in a competitive market under
all conditions requisite to a fair sale. Determination of fair value involves
subjective judgement because the actual market value of real estate can be
determined only by negotiation between the parties in a sales transaction. Real
estate properties owned by the Account are initially valued at their respective
purchase prices (including acquisition costs). Subsequently, independent
appraisers value each real estate property at least once a year. The independent
fiduciary, The Townsend Group, must approve all independent appraisers used by
the Account. The independent fiduciary can also require additional appraisals if
it believes that a property's value has changed materially or otherwise to
assure that the Account is valued correctly. TIAA's appraisal staff performs a
valuation review of each real estate property on a quarterly basis and updates
the property value if it believes that the value of the property has changed
since the previous valuation review or appraisal. 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 REAL ESTATE JOINT VENTURES: Real estate joint ventures are 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 initially valued at their face amount.
Fixed rate mortgages are, thereafter, valued quarterly by discounting payments
of principal and interest to their present value using a rate at which
commercial lenders would make similar mortgage loans. Floating variable rate
mortgages are generally valued at their face amount, although the value may be
adjusted as market conditions dictate.
VALUATION OF 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, including limited partnership interests, for which
market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Investment Committee of the
Board of Trustees and in accordance with the responsibilities of the Board as a
whole.
7
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.
RECENT ACCOUNTING PRONOUNCEMENTS: In October 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS No. 144").
SFAS No. 144 provides accounting guidance for financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. It also supersedes the accounting and
reporting of APB Opinion No. 30 "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions" related to the
disposal of a segment of a business. The Account adopted SFAS No. 144 as of
January 1, 2002.
RECLASSIFICATIONS: Certain amounts in the 2001 consolidated financial statements
have been reclassified to conform with the 2002 presentation.
NOTE 2--MANAGEMENT AGREEMENTS
Investment advisory services for the Account are provided by TIAA employees,
under the direction of TIAA's Board of Trustees and its Investment Committee,
pursuant to investment management procedures adopted by TIAA for the Account.
TIAA's investment management decisions for the Account are also subject to
review by the Account's independent fiduciary. TIAA also provides all portfolio
accounting and related services for the Account.
Distribution and administrative services for the Account are provided by
TIAA-CREF Individual & Institutional Services, Inc. ("Services") pursuant to a
Distribution and Administrative Services Agreement with the Account. Services, a
wholly-owned subsidiary of TIAA, is a registered broker-dealer and member of the
National Association of Securities Dealers, Inc.
TIAA also provides a liquidity guarantee to the Account, for a fee, to ensure
that sufficient funds are available to meet participant transfer and cash
withdrawal requests in the event that the Account's cash flows and liquid
investments are insufficient to fund such requests. TIAA also receives a fee for
assuming certain mortality and expense risks.
The services provided by TIAA and Services are provided at cost. TIAA and
Services receive payments from the Account on a daily basis according to
formulas established each year with the objective of keeping the payments as
close as possible to the Account's actual expenses. Any differences between
actual expenses and the amounts paid are adjusted quarterly.
8
NOTE 3--REAL ESTATE PROPERTIES
There were no real estate properties acquired during the three months ended
March 31, 2002.
On January 31, 2002, the Account sold a real estate property. The income from
this property during 2002 (prior to the sale) consisted of rental income of
$104,047 less operating expenses of $35,769 and real estate taxes of $24,168
resulting in net investment income of $44,110. At the time of sale, the property
had a cost of $11,112,854 and the proceeds of sale were $13,250,000 resulting in
a realized gain of $2,137,146.
NOTE 4--LEASES
The Account's real estate properties are leased to tenants under operating lease
agreements which expire on various dates through 2031. Aggregate minimum annual
rentals for the properties owned, excluding short-term residential leases, are
as follows:
Years Ending
December 31,
------------
2002 $ 192,002,725
2003 179,276,013
2004 158,747,020
2005 136,717,209
2006 104,833,680
Thereafter 314,972,477
--------------
Total $1,086,549,124
==============
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
THREE MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
MARCH 31, ---------------------------------------------------------
2002 (1) 2001 2000 1999 1998 1997
------------ -------- -------- -------- -------- --------
(Unaudited)
Per Accumulation Unit Data:
Rental income .......................... $ 3.518 $ 14.862 $ 14.530 $ 12.168 $ 10.425 $ 7.288
Real estate property
Level expenses and taxes ............. 1.227 4.754 4.674 3.975 3.403 2.218
-------- -------- -------- -------- -------- --------
Real estate income, net 2.291 10.108 9.856 8.193 7.022 5.070
Income from real estate joint venture .. 0.022 0.130 0.056 -- -- --
Dividends and interest ................. 0.311 1.950 2.329 2.292 3.082 2.709
-------- -------- -------- -------- -------- --------
Total income 2.624 12.188 12.241 10.485 10.104 7.779
Expense charges (2) .................... 0.256 0.995 0.998 0.853 0.808 0.580
-------- -------- -------- -------- -------- --------
Investment income, net 2.368 11.193 11.243 9.632 9.296 7.199
Net realized and unrealized
gain (loss) on investments ........... (1.072) (1.239) 3.995 1.164 0.579 3.987
-------- -------- -------- -------- -------- --------
Net increase in
Accumulation Unit Value .............. 1.296 9.954 15.238 10.796 9.875 11.186
Accumulation Unit Value:
Beginning of year .................... 168.160 158.206 142.968 132.172 122.297 111.111
-------- -------- -------- -------- -------- --------
End of period ........................ $169.456 $168.160 $158.206 $142.968 $132.172 $122.297
======== ======== ======== ======== ======== ========
Total return ............................ 0.77% 6.29% 10.66% 8.17% 8.07% 10.07%
Ratios to Average Net Assets:
Expenses (2) ......................... 0.16% 0.61% 0.67% 0.63% 0.64% 0.58%
Investment income, net ............... 1.46% 6.81% 7.50% 7.13% 7.34% 7.25%
Portfolio turnover rate:
Real estate properties ............... 0.17% 4.61% 3.87% 4.46% 0% 0%
Securities ........................... 48.42% 40.62% 32.86% 27.68% 24.54% 7.67%
Thousands of Accumulation Units
outstanding at end of period.......... 19,085 18,456 14,605 11,487 8,834 6,313
(1) The percentages shown for this period are not annualized.
(2) Expense charges per Accumulation Unit and the Ratio of Expenses to Average
Net Assets include the portion of expenses related to the minority
interests and exclude real estate property level expenses and taxes. If the
real estate property level expenses and taxes were included, the expense
charge per Accumulation Unit for the three months ended March 31, 2002
would be $1.483 ($5.749, $5.672, $4.828, $4.211 and $2.798 for the years
ended December 31, 2001, 2000, 1999, 1998 and 1997 respectively), and the
Ratio of Expenses to Average Net Assets for the three months ended March
31, 2002 would be 0.91% (3.50%, 3.79%, 3.58%, 3.32% and 2.82% for the years
ended December 31, 2001, 2000, 1999, 1998 and 1997 respectively).
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, 2002 DECEMBER 31, 2001
-------------- -----------------
(Unaudited)
Accumulation Units:
Credited for premiums............................. 488,857 1,542,511
Credited for transfers, net disbursements and
amounts applied to the Annuity Fund............. 139,538 2,309,261
Outstanding:
Beginning of year............................... 18,456,445 14,604,673
---------- ----------
End of period................................... 19,084,840 18,456,445
========== ==========
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 April 30, 2002, the
Account had outstanding commitments to purchase two office buildings, three
retail properties and six warehouse buildings in the total amount of
approximately $417.4 million. In addition, the Account had an outstanding
commitment to sell one property for approximately $12.5 million.
11
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
MARCH 31, 2002
REAL ESTATE PROPERTIES--68.18%
LOCATION / DESCRIPTION VALUE
- ---------------------- -----
ARIZONA:
Biltmore Commerce Center - Office building.................................. $ 30,420,397
CALIFORNIA:
9 Hutton Centre - Office building .......................................... 19,600,000
88 Kearny Street - Office building ......................................... 79,750,000
Cabot Industrial Portfolio - Industrial building ........................... 39,398,283
Eastgate Distribution Center - Industrial building.......................... 14,500,000
Kenwood Mews - Apartments .................................................. 22,700,000
Larkspur Courts - Apartments................................................ 53,200,000
Northpoint Commerce Center - Industrial building............................ 37,400,000
Ontario Industrial Portfolio - Industrial building.......................... 108,000,000
Westcreek - Apartments ..................................................... 17,900,000
COLORADO:
Arapahoe Park East - Industrial building.................................... 12,300,000
The Lodge at Willow Creek - Apartments...................................... 30,500,000
Monte Vista - Apartments .................................................. 21,500,000
CONNECTICUT:
Ten & Twenty Westport Road - Office building................................ 140,000,000
FLORIDA:
Doral Pointe- Apartments.................................................... 45,341,796
Golfview - Apartments ...................................................... 25,070,702
The Greens at Carolina - Apartments......................................... 16,100,000
The Greens at Metrowest - Apartments........................................ 14,100,000
Maitland Promenade One - Office building.................................... 37,600,000
Plantation Grove - Shopping center.......................................... 7,700,000
Quiet Waters at Coquina Lakes - Apartments.................................. 17,600,000
Royal St. George - Apartments............................................... 16,400,000
Sawgrass Portfolio - Office building........................................ 48,400,000
South Florida Apartment Portfolio - Apartments.............................. 46,700,000
Westinghouse Facility - Industrial building................................ 5,300,000
GEORGIA:
Atlanta Industrial Portfolio - Industrial building.......................... 38,500,000
ILLINOIS:
Chicago Industrial Portfolio - Industrial building.......................... 42,600,000
Columbia Center III - Office building....................................... 35,500,000
Parkview Plaza - Office building............................................ 50,000,000
Rolling Meadows - Shopping center........................................... 12,390,000
KENTUCKY:
IDI Kentucky Portfolio - Industrial building................................ 53,300,000
MARYLAND:
FedEx Distribution Facility - Industrial building........................... 7,500,000
Longview Executive Park - Office building................................... 28,203,098
MASSACHUSETTS
Batterymarch Park II - Office building........................................ 17,500,000
Needham Corporate Center - Office building.................................. 27,700,000
MICHIGAN:
Indian Creek - Apartments................................................... 16,800,000
See notes to consolidated financial statements.
12
LOCATION / DESCRIPTION VALUE
- ---------------------- -----
MINNESOTA:
Interstate Crossing - Industrial building................................... $ 6,700,000
River Road Distribution Center - Industrial building........................ 4,100,000
NEVADA:
UPS Distribution Facility - Industrial building............................. 11,100,000
NEW JERSEY:
10 Waterview Boulevard - Office building.................................... 29,300,000
371 Hoes Lane - Office building............................................. 13,132,726
Konica Photo Imaging Headquarters - Industrial building..................... 17,800,000
Morris Corporate Center III - Office building............................... 103,000,000
South River Road Industrial - Industrial building........................... 32,700,000
NEW YORK:
780 Third Avenue - Office building.......................................... 179,000,000
The Colorado - Apartments................................................... 58,000,000
NORTH CAROLINA:
The Lynnwood Collection - Shopping center................................... 7,900,000
The Millbrook Collection - Shopping center.................................. 7,200,000
OHIO:
Bent Tree - Apartments .................................................... 13,900,000
Bisys Fund Services Building - Office building.............................. 20,000,000
Columbus Portfolio - Office building........................................ 25,630,443
Northmark Business Center III - Office building............................. 11,600,000
OREGON:
Five Centerpointe - Office building......................................... 17,600,683
PENNSYLVANIA:
Lincoln Woods - Apartments ................................................. 24,600,000
TEXAS:
Butterfield Industrial Park - Industrial building........................... 4,600,000(1)
Dallas Industrial Portfolio - Industrial building........................... 97,300,000
The Legends at Chase Oaks - Apartments...................................... 26,000,000
UTAH:
Landmark at Salt Lake City - Industrial building............................ 13,000,000
VIRGINIA:
Ashford Meadows - Apartments ............................................... 63,500,000
Fairgate at Ballston - Office building...................................... 29,900,000
Monument Place - Office building............................................ 35,400,000
WASHINGTON DC:
1015 15th Street - Office building.......................................... 49,055,695
1801 K Street N W - Office building......................................... 152,000,000
--------------
TOTAL REAL ESTATE PROPERTIES (Cost $2,271,508,760).......................... 2,291,493,823
--------------
(1) Leasehold interest only.
MORTGAGES--0.27%
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 3.90%, due April 1, 2003 with an option to
extend to April 1, 2004....................................................... 9,029,391
--------------
TOTAL MORTGAGES (Cost $9,029,391)........................................... 9,029,391
--------------
See notes to consolidated financial statements.
13
OTHER REAL ESTATE RELATED INVESTMENTS--1.19%
VALUE
REAL ESTATE JOINT VENTURE--0.85%
Teachers REA IV, LLC, which owns
Tyson's Executive Plaza II (50% Account Interest)....................... $ 28,632,778
--------------
TOTAL REAL ESTATE JOINT VENTURE (Cost $25,133,111)........................ 28,632,778
--------------
LIMITED PARTNERSHIPS-- 0.34%
MONY/Transwestern Mezzanine Realty Partners L.P. ........................... 7,010,914
Essex Apartment Value Fund, L.P. ........................................... 4,462,966
--------------
TOTAL LIMITED PARTNERSHIP (Cost $11,473,880).............................. 11,473,880
--------------
TOTAL OTHER REAL ESTATE RELATED INVESTMENTS (Cost $36,606,991)................ 40,106,658
--------------
MARKETABLE SECURITIES--30.36%
REAL ESTATE RELATED--8.94%
REAL ESTATE INVESTMENT TRUSTS--3.59%
SHARES ISSUER
------ ------
39,500 Alexandria Real Estate Equities, Inc. .................... 1,761,700
185,000 AMB Property Corporation ................................. 5,087,500
100,000 Apartment Investment & Management Co ..................... 4,837,000
310,325 Archstone-Smith Trust .................................... 8,313,607
116,700 Avalonbay Communities, Inc. .............................. 5,811,660
305,800 Boston Properties, Inc.................................... 12,063,810
36,800 Centerpoint Properties Corp............................... 1,989,040
164,500 Chateau Communities, Inc.................................. 4,726,085
90,000 Corporate Office Properties Trust, Inc.................... 1,179,000
216,900 Cousins Properties, Inc................................... 5,650,245
226,300 Duke Realty Corp.......................................... 5,883,800
445,333 Equity Office Properties Trust............................ 13,355,536
318,400 Equity Residential Properties Trust Co.................... 9,150,816
114,700 Hilton Hotels Corp........................................ 1,640,210
222,800 Host Marriott Corp (New).................................. 2,662,460
37,100 Kilroy Realty............................................. 1,046,591
155,750 Kimco Realty Corp......................................... 5,093,025
32,100 Manufactured Home Communities, Inc........................ 1,059,300
240,500 Mission West Properties Inc............................... 3,150,550
241,600 Prologis Trust............................................ 5,641,360
35,600 Public Storage, Inc....................................... 1,317,556
163,800 Reckson Associates Realty Corp............................ 4,039,308
200,100 Rouse Co.................................................. 6,199,098
185,900 Simon Property Group, Inc................................. 6,065,917
38,000 Starwood Hotels & Resorts Worldwide....................... 1,429,180
37,600 Sun Communities, Inc...................................... 1,477,680
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $110,465,543)......................... 120,632,034
--------------
See notes to consolidated financial statements.
14
COLLATERALIZED MORTGAGE BACKED SECURITIES--5.35%
PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE
--------- -------------------------------------- -----
$ 11,000,000 Ball 2001-116A B
2.490% 09/17/05.......................................... $ 10,944,373
10,000,000 Calwest Industrial
2.280% 02/15/07........................................... 9,999,990
19,946,280 COMM 2.35
2.350% 11/15/13........................................... 19,963,234
20,000,000 CSFB 2001-TFLA
2.350% 11/13/13.......................................... 20,017,400
19,898,018 GGPMP 3.20
3.200% 02/15/14.......................................... 19,922,692
9,945,527 GGPMP 2.60
2.600% 02/15/14.......................................... 9,951,295
10,000,000 GSMS 2001-Rock A2FL
2.230% 05/03/11.......................................... 9,733,510
9,746,642 JPMCC 2001-FL1A B
2.280% 06/13/13.......................................... 9,712,080
10,000,000 MSDW Capital
2.260% 02/03/11.......................................... 9,834,980
8,000,000 MSDWC 2001 - FRMA C
2.480% 07/12/16.......................................... 7,794,464
7,500,000 MSDWC 2001 - SGMA B
2.310% 07/11/11.......................................... 7,429,065
9,977,444 MSDWC 2001 - XLF A1
2.370% 10/07/13.......................................... 9,989,617
10,000,000 Opryland Hotel Trust
2.330% 04/01/04.......................................... 9,978,100
7,484,348 Strategic Hotel Cap
3.090% 04/17/06.......................................... 7,241,930
7,484,348 Strategic Hotel Cap
2.330% 04/17/06.......................................... 7,228,930
5,000,000 Trize 2001 - TZHA A3FL
2.270% 03/15/13.......................................... 4,922,865
5,000,000 USC Oakbrook Trust
2.070% 11/01/05.......................................... 4,967,050
---------------
TOTAL COLLATERALIZED MORTGAGE BACKED SECURITIES (Cost $180,979,091)............. 179,631,575
--------------
TOTAL REAL ESTATE RELATED (Cost $291,444,634).................................. 300,263,609
--------------
OTHER--21.42%
COMMERCIAL PAPER--21.42%
PRINCIPAL ISSUER, COUPON AND MATURITY DATE VALUE
--------- -------------------------------- -----
20,300,000 American Honda Finance Corp
1.790% 04/17/02.......................................... 20,280,715
19,035,000 Asset Securitization Cooperative Corp
1.83% 04/19/02........................................... 19,015,013
16,500,000 Beta Finance Inc
1.92% 06/24/02........................................... 16,423,839
25,000,000 The Canadian Wheat Board
1.810% 05/07/02.......................................... 24,950,168
See notes to consolidated financial statements.
15
PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE
--------- -------------------------------------- -----
$ 20,000,000 Caterpillar Financial Services Corp
1.830% 05/28/02.......................................... $ 19,938,000
25,000,000 Ciesco LP
1.820% 05/03/02.......................................... 24,955,277
2,900,000 Corporate Asset Funding Corp, Inc
1.850% 04/01/02.......................................... 2,899,567
20,200,000 Corporate Asset Funding Corp, Inc
1.820% 05/17/02.......................................... 20,148,860
18,715,000 Edison Asset Securitization LLC
1.80% 04/01/02........................................... 18,712,208
14,240,000 Federal Home Loan Banks
1.750% 05/08/02.......................................... 14,211,678
7,280,000 Federal Home Loan Banks
1.770% 05/15/02.......................................... 7,262,797
15,560,000 Federal Home Loan Mortgage Corp
1.720% 04/02/02.......................................... 15,556,905
4,920,000 Federal Home Loan Mortgage Corp
1.730% 04/16/02.......................................... 4,915,646
29,975,000 Federal Home Loan Mortgage Corp
1.750% 04/23/02.......................................... 29,938,155
27,885,000 Federal Home Loan Mortgage Corp
1.750% 05/16/02.......................................... 27,817,705
22,150,000 Federal National Mortgage Association
1.730% 04/03/02.......................................... 22,144,587
14,020,000 Federal National Mortgage Association
1.730% 04/24/02.......................................... 14,002,078
40,050,000 Federal National Mortgage Association
1.770% 05/22/02.......................................... 39,941,264
16,900,000 FHLMC
1.785% 04/23/02.......................................... 16,879,227
26,500,000 FNMA
1.763% 04/03/02.......................................... 26,493,478
22,500,000 General Electric Capital
1.840% 05/16/02.......................................... 22,444,200
24,376,000 Goldman Sachs Group LP
1.910% 06/17/02.......................................... 24,272,539
10,000,000 Govco Incorporated
1.810% 04/24/02.......................................... 9,987,000
8,785,000 Govco Incorporated
1.810% 05/01/02.......................................... 8,770,182
10,000,000 Home Depot Funding Corp
1.750% 05/21/02.......................................... 9,972,617
25,000,000 J.P Morgan Chase & Co
1.930% 06/21/02.......................................... 24,888,582
1,100,000 Kimberly-Clark Corp
1.770% 04/12/02.......................................... 1,099,209
9,585,000 Kitty Hawk Funding Corp
1.870% 05/10/02.......................................... 9,564,424
478,000 Kitty Hawk Funding Corp
1.930% 06/28/02.......................................... 475,583
20,000,000 McGraw-Hill, Inc
1.860% 06/19/02.......................................... 19,912,988
15,000,000 Moriarty LLC
1.920% 06/13/02.......................................... 14,939,517
See notes to consolidated financial statements.
16
PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE
--------- -------------------------------------- -----
$ 20,425,000 Morgan Stanley Dean Witter
1.820% 04/10/02.......................................... $ 20,412,404
11,800,000 Paccar Financial Corp
1.750% 04/24/02.......................................... 11,784,660
2,185,000 Paccar Financial Corp
1.750% 04/26/02.......................................... 2,181,941
3,485,000 Paccar Financial Corp
1.880% 06/12/02.......................................... 3,471,314
17,740,000 Pharmacia Corp
1.780% 04/11/02.......................................... 17,728,148
16,900,000 Pitney Bowes Inc
1.650% 04/18/02.......................................... 16,883,100
22,940,000 Preferred Receivables Funding Corp
1.810% 04/08/02.......................................... 22,928,211
20,000,000 Procter & Gamble
1.760% 05/01/02.......................................... 19,966,266
25,000,000 SBC International Inc
1.830% 05/13/02.......................................... 24,942,500
12,000,000 Schering Corp
1.770% 04/05/02.......................................... 11,995,823
11,940,000 Schering Corp
1.730% 04/09/02.......................................... 11,933,250
23,000,000 SIGMA Finance
1.930% 6/18/02........................................... 22,901,158
--------------
TOTAL COMMERCIAL PAPER (Amortized cost $720,068,117)............................ 719,942,783
--------------
TOTAL OTHER (Cost $720,068,117)................................................. 719,942,783
--------------
TOTAL MARKETABLE SECURITIES (Cost $1,011,512,751)............................... 1,020,206,392
--------------
TOTAL INVESTMENTS--100.00% (Cost $3,328,657,893)................................ $3,360,836,264
==============
See notes to consolidated financial statements.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
As of March 31, 2002, the TIAA Real Estate Account owned a total of 64
real estate properties, including 24 office properties (two of which are held in
joint venture), 18 industrial properties (including one development project
joint venture), 18 apartment complexes, and 4 neighborhood shopping centers. As
of March 31, 2002, these properties represented 69.0% of the Account's total
investment portfolio.
During the first quarter of 2002, the Account made one fund investment
and sold one office property, but did not purchase any real estate properties.
In May of 2002, the Account purchased a 50% interest in each of three joint
venture partnerships which owned three regional malls for an aggregate equity
investment of approximately $198.8 million. Each property is subject to an
existing mortgage, which was an existing obligation of the partnerships. The
Account also currently has outstanding commitments to purchase two office
buildings and six warehouses in the total amount of $218.4 Million. The Account
continues to pursue suitable real estate properties for acquisition, and is
currently in various stages of negotiations with a number of prospective
sellers.
As of March 31, 2002, the Account also held investments in commercial
paper, representing 21.4% of the portfolio, commercial mortgage backed
securities (CMBS), representing 5.4% of the portfolio, real estate investment
trusts (REITS), representing 3.6% of the portfolio, mortgages, representing 0.3%
of the portfolio and real estate-related limited partnerships, representing 0.3%
of the portfolio.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2001:
RESULTS FROM CONTINUING OPERATIONS
The Account's total net return was 0.77% for the three months ended
March 31, 2002 and 1.67% for the same quarter in 2001. The performance of the
Account was negatively affected by the decline in market value of some of the
Account's real estate properties, which was due in part to the continued effects
of the recessionary economy, which began in March 2001. The Account's net
investment income, after deduction of all expenses, was $47,812,862 for the
three months ended March 31, 2002 and $44,988,150 for the three months ended
March 31, 2001, a 6.3% increase. This increase was primarily the result of a 28%
increase in the Account's net assets and a 16% increase in the Account's real
estate holdings during the period from March 31, 2001 to March 31, 2002.
The Account had net realized and unrealized losses on investments of
$24,767,713 for the three month period ended March 31, 2002 compared with net
realized and unrealized losses on investments of $3,458,126 for the same period
in 2001. The unrealized losses as of March 2002 can be attributed to the
substantial decline, in the amount of $34,514,925, in the aggregate market value
of the Account's real estate holdings during the first quarter of 2002 as
compared to a
18
$2,798,262 net loss in the aggregate market value of the Account's real estate
properties during the same period of 2001. The Account's marketable securities
in the first quarter 2002 had realized and unrealized gains totaling $9,752,676
as compared to a realized and unrealized loss of $1,748,148 in 2001.
The Account's real estate holdings generated approximately 87% and 82%
of the Account's total investment income (before deducting account level
expenses) during the three months ended March 31, 2002 and 2001,
respectively. The remaining portion of the Account's total investment income was
generated by investments in marketable securities.
Gross real estate rental income was $71,031,600 for the three months
ended March 31, 2002 and $59,051,511 for the same period in 2001. This increase
was primarily due to the increase in the number of properties owned by the
Account, from 57 properties at the end of 2001 to 64 at the end of the first
quarter 2002. Interest income on the Account's short-term investments decreased
from $6,215,939 in for the first quarter 2001 to $3,829,944 for the first
quarter 2002. Dividend income on the Account's REIT investments increased
slightly from $2,186,860 to $2,449,673 for the same periods.
Total property level expenses for the three months ended March 31, 2002
were $24,782,398, of which $15,862,483 represented operating expenses and
$8,919,915 were attributable to real estate taxes. Total property level expenses
for the three months ended March 31, 2001 were $18,918,787, of which $12,452,128
represented operating expenses and $6,466,659 were attributable to real estate
taxes. The increase in property level expenses reflected the increased number of
properties in the Account.
The Account incurred expenses for the three months ended March 31,
2002 and 2001 of $1,969,475 and $2,318,695, respectively, for investment
advisory services, $2,392,877 and $1,021,735, respectively, for administrative
and distribution services, and $798,597 and $613,052, respectively, for
mortality and expense risk charges and liquidity guarantee charges. Such
expenses generally increased as a result of the larger net asset base of the
Account. The expenses for investment advisory services in 2001, however, were
higher because they included an expense adjustment to reflect a change in
the way certain investment expenses are allocated to the Account.
RESULTS FROM DISCONTINUED OPERATIONS
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS No. 144"). The Account
adopted SFAS No. 144 as of January 1, 2002. On January 31, 2002, the Account
sold a real estate property. In accordance with SFAS 144, the investment income
and realized gain for the three months ended March 31, 2002 and 2001 relating to
that property were removed from continuing operations and classified as
discontinued operations. The income from this property during the first quarter
of 2002 (prior to the sale) consisted of rental income of $104,047 less
operating expenses of $35,769 and real estate taxes of $24,168 resulting in net
investment income of $44,110. The income from this property during the first
quarter of 2001 consisted of rental income of $397,353 less operating expenses
of $52,412 and real estate taxes of $68,456 resulting in net investment income
of $276,485. At the time of sale, the property had a cost of $11,112,854 and the
proceeds of sale were $13,250,000 resulting in a realized gain of $2,137,146.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002 and 2001, the Account's liquid assets (i.e., its
cash, REITs, short- and intermediate-term investments, and government
securities) had a value of $1,020,206,392 and $627,396,773, respectively. For
the three months ended March 31,2002, the Account received $82,678,200 in
premiums and $59,121,650 in net participant transfers from other TIAA and CREF
accounts, while for the same period in 2001, the Account received $54,863,370 in
premiums and $151,476,455 in net participant transfers from other TIAA and CREF
accounts. The decline in volume of net participants transfers into the Account
may be due in part to the strengthening of the equity markets. As of March 31,
2002, the Account received $13.0 million
19
in proceeds from the sale of a property.
We plan to use much of the Account's liquid assets as of March 31,
2002, 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). 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 Group4
(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 filed a report on Form 8-K on January 8, 2002
under Item 5 of the form with respect to the acquisition of properties for its
portfolio.
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: May 13, 2002
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: May 13, 2002
By: /s/ Richard L. Gibbs
---------------------------------
Richard L. Gibbs
Executive Vice President
(Principal Accounting Officer)
22