SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________________ to _____________________
Commission File Number 33-92990
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
JUNE 30, 1996
Page
Statements of Assets and Liabilities .................. 3
Statements of Operations .............................. 4
Statements of Changes in Net Assets ................... 5
Statements of Cash Flows .............................. 6
Notes to Financial Statements ......................... 7
Statement of Investments .............................. 13
2
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
June 30, December 31,
1996 1995
------------ -------------
(Unaudited)
ASSETS
Investments, at value:
Real estate properties
(Cost: $85,317,574 and $43,989,665) ....................... $ 85,885,380 $ 43,989,665
Marketable securities
(Amortized cost: $82,753,934
and $73,972,831) ......................................... 82,854,516 73,992,569
Cash ........................................................ 346,203 396,787
Receivable from securities transactions ..................... 10,700,000 23,150,000
Other ....................................................... 2,456,867 1,648,400
------------ ------------
TOTAL ASSETS 182,242,966 143,177,421
------------ ------------
LIABILITIES
Payable for securities transactions ......................... 10,832,809 22,788,035
Other ....................................................... 2,341,829 131,041
------------ ------------
TOTAL LIABILITIES 13,174,638 22,919,076
------------ ------------
NET ASSETS
Accumulation Fund ........................................... 166,106,139 120,258,345
Annuity Fund ................................................ 2,962,189 --
------------ ------------
TOTAL NET ASSETS $169,068,328 $120,258,345
============ ============
NUMBER OF ACCUMULATION UNITS
OUTSTANDING--Notes 6 and 7 .................................. 1,561,082 1,172,498
============ ============
NET ASSET VALUE,
PER ACCUMULATION UNIT--Note 6 ............................... $106.40 $102.57
============ ============
See notes to financial statements.
3
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF OPERATIONS (Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30, 1996 June 30, 1996
------------- -------------
INVESTMENT INCOME
Income:
Real estate income, net:
Rental income .................................. $2,271,715 $3,933,580
---------- ----------
Real estate property level expenses and
taxes:
Operating expenses ............................ 511,017 828,888
Real estate taxes ............................. 212,886 405,405
---------- ----------
Total real estate property
level expenses and taxes 723,903 1,234,293
---------- ----------
Real estate income, net 1,547,812 2,699,287
Interest ........................................ 1,137,192 2,283,539
Dividends ....................................... 50,825 60,825
---------- ----------
TOTAL INCOME 2,735,829 5,043,651
---------- ----------
Expenses--Note 3:
Investment advisory .............................. 136,267 180,588
Administrative ................................... 48,135 123,311
Mortality and expense risk charges ............... 14,687 18,094
Liquidity guarantee charges ...................... (901) 803
---------- ----------
TOTAL EXPENSES 198,188 322,796
---------- ----------
INVESTMENT INCOME, NET 2,537,641 4,720,855
---------- ----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain (loss) on
marketable securities .......................... (370) 40,235
---------- ----------
Net change in unrealized appreciation on:
Real estate properties ......................... 483,125 567,806
Marketable securities .......................... 174,079 80,844
---------- ----------
Net change in unrealized appreciation 657,204 648,650
---------- ----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 656,834 688,885
---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $3,194,475 $5,409,740
========== ==========
See notes to financial statements.
4
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30, 1996 June 30, 1996
------------- -------------
FROM OPERATIONS
Investment income, net ............................. $ 2,537,641 $ 4,720,855
Net realized gain (loss) on
marketable securities ............................. (370) 40,235
Net change in unrealized appreciation
on investments .................................... 657,204 648,650
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 3,194,475 5,409,740
------------ ------------
FROM PARTICIPANT TRANSACTIONS
Premiums ........................................... 1,735,461 3,052,001
Disbursements and transfers:
Net transfers from TIAA ........................... 2,494,392 4,335,446
Net transfers from CREF Accounts .................. 16,068,204 36,273,968
Annuity and other periodic payments ............... (41,036) (42,370)
Withdrawals ....................................... (142,905) (192,124)
Death benefits .................................... -- (26,678)
------------ ------------
INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 20,114,116 43,400,243
------------ ------------
NET INCREASE IN NET ASSETS 23,308,591 48,809,983
NET ASSETS
Beginning of period ................................ 145,759,737 120,258,345
------------ ------------
End of period ...................................... $169,068,328 $169,068,328
============ ============
See notes to financial statements.
5
TIAA REAL ESTATE ACCOUNT
STATEMENTS OF CASH FLOWS (Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30, 1996 June 30, 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets
resulting from operations ........................... $ 3,194,475 $ 5,409,740
Adjustments to reconcile net increase
in net assets resulting from operations
to net cash used in operating activities:
Increase in investments ............................ (23,340,824) (50,757,662)
Decrease in receivable from securities
transactions ..................................... 7,530,000 12,450,000
Increase in other assets ........................... (846,361) (808,467)
Decrease in payable for securities
transactions ..................................... (7,452,143) (11,955,226)
Increase in other liabilities ...................... 1,146,940 2,210,788
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (19,767,913) (43,450,827)
------------ ------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums ............................................. 1,735,461 3,052,001
Disbursements and transfers:
Net transfers from TIAA ............................. 2,494,392 4,335,446
Net transfers from CREF Accounts .................... 16,068,204 36,273,968
Annuity and other periodic payments ................. (41,036) (42,370)
Withdrawals ......................................... (142,905) (192,124)
Death benefits ...................................... -- (26,678)
------------ ------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 20,114,116 43,400,243
------------ ------------
NET INCREASE (DECREASE) IN CASH 346,203 (50,584)
CASH
Beginning of period .................................. -- 396,787
------------ ------------
End of period ........................................ $ 346,203 $ 346,203
============ ============
See notes to financial statements.
6
TIAA REAL ESTATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Unaudited)
Note 1--Organization
The TIAA Real Estate Account ("Account") is a segregated investment account of
Teachers Insurance and Annuity Association of America ("TIAA") and was
established by resolution of TIAA's Board of Trustees on February 22, 1995 under
the insurance laws of the State of New York for the purpose of funding variable
annuity contracts issued by TIAA.
The Account commenced operations on July 3, 1995 with a $100,000,000 seed money
investment by TIAA. TIAA purchased 1,000,000 Accumulation Units in the Account
and such Units share in the pro rata investment experience of the Account and
are subject to the same valuation procedures and expense deductions as all other
Accumulation Units of the Account. The initial registration statement of the
Account filed by TIAA with the Securities and Exchange Commission ("Commission")
under the Securities Act of 1933 became effective on October 2, 1995. The
Account began to offer Accumulation Units and Annuity Units to participants
other than TIAA starting October 2, and November 1, 1995, respectively. At June
30, 1996, amounts retained by TIAA in the Account remained at 1,000,000
Accumulation Units with a total value of $106,404,500.
TIAA will redeem a portion of its seed money Accumulation Units monthly (at the
net asset value at the time of redemption), according to a five year repayment
schedule approved by the State of New York Insurance Department. This schedule
requires TIAA to begin redeeming the seed money Accumulation Units on October 2,
1997, or on the date the Account's net assets first reach $200 million,
whichever comes first.
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 will also invest in
publicly-traded securities and other instruments to maintain adequate liquidity
for operating expenses and capital expenditures and to make benefit payments.
TIAA employees, under the direction of TIAA's Board of Trustees and its Mortgage
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 subject to review by the Account's
independent fiduciary, Institutional Property Consultants, Inc. 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
7
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 following is a summary of the significant accounting policies followed by
the Account, which are in conformity with generally accepted accounting
principles.
Valuation of Real Estate Properties: Investments in real estate properties are
stated at fair value, as determined in accordance with procedures approved by
the Mortgage 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 that the Account uses. 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 performs a valuation review of each real
estate property on a quarterly basis and updates the property value if it
believes that the value of the property has changed since the previous valuation
review or appraisal. The independent fiduciary reviews and approves any such
valuation adjustments which exceed certain prescribed limits. TIAA continues to
use the revised value to calculate the Account's net asset value until the next
valuation review or appraisal.
Valuation of Marketable Securities: Equity securities listed or traded on any
United States national securities exchange are valued at the last sales price as
of the close of the principal securities exchange on which such securities are
traded or, if there is no sale, at the mean of the last bid and asked prices.
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 Mortgage
Committee of the Board of Trustees and in accordance with the responsibilities
of the Board as a whole.
8
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
paid to local property management companies, property taxes, utilities,
maintenance, repairs, insurance and other operating and administrative costs. An
estimate of the net operating income earned from each real estate property is
accrued by the Account on a daily basis and such estimates are adjusted as soon
as actual operating results are determined. Realized gains and losses on real
estate transactions are accounted for under the specific identification method.
Securities transactions are accounted for as of the date the securities are
purchased or sold (trade date). Interest income is recorded as earned and, for
short-term money market instruments, includes accrual of discount and
amortization of premium. Dividend income is recorded on the ex-dividend date.
Realized gains and losses on security transactions are accounted for on the
average cost basis.
Federal Income Taxes: Based on provisions of the Internal Revenue Code, no
federal income taxes are attributable to the net investment experience of the
Account.
Note 3--Management Agreements
All 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 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.
9
Note 4--Real Estate Properties
Had the Account's real estate properties which were purchased in 1996 been
acquired at the beginning of the current period (January 1, 1996), rental income
and real estate property level expenses and taxes for the six months ended June
30, 1996 would have increased by approximately $1,532,000 and $615,000,
respectively. In addition, interest income for the six months ended June 30,
1996 would have decreased by approximately $746,000. Accordingly, the total pro
forma effect on the Account's net investment income for the six months ended
June 30, 1996 would have been an increase of approximately $171,000, if the real
estate properties acquired during 1996 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 2015. Aggregate minimum annual
rentals for the properties owned, excluding short-term residential leases, are
as follows:
Years Ending
December 31,
------------
1996 $ 4,113,000
1997 3,971,000
1998 3,814,000
1999 3,558,000
2000 3,149,000
Thereafter 17,398,000
-----------
Total $36,003,000
===========
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
10
Note 6--Condensed Financial Information
Selected condensed financial information for an Accumulation Unit of the Account
is presented below.
July 3, 1995
For the Six (Commencement
Months Ended of Operations) to
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
Per Accumulation Unit Data:
Rental income .................................. $ 2.819 $ 0.159
Real estate property
level expenses and taxes ...................... .884 0.042
-------- --------
Real estate income, net 1.935 0.117
Dividends and interest ......................... 1.680 2.716
-------- --------
Total income 3.615 2.833
Expense charges (1) ............................ .231 0.298
-------- --------
Investment income, net 3.384 2.535
Net realized and unrealized
gain on investments ........................... .455 0.031
-------- --------
Net increase in
Accumulation Unit Value ........................ 3.839 2.566
Accumulation Unit Value:
Beginning of period ............................ 102.566 100.000
-------- --------
End of period .................................. $106.405 $102.566
======== ========
Total return .................................... 3.74% 2.57%
Ratios to Average Net Assets:
Expenses (1) .................................. .22% 0.30%
Investment income, net ......................... 3.26% 2.51%
Portfolio turnover rate:
Real estate properties ......................... 0% 0%
Securities ..................................... 19.67% 0%
Thousands of Accumulation Units
outstanding at end of period ................... 1,561 1,172
(1) Expense charges per Accumulation Unit and the Expenses Ratio to Average Net
Assets exclude real estate property level operating expenses and taxes. If
included, the expense charge per Accumulation Unit for the six months ended
June 30, 1996 would be $1.115 ($0.340 for the period July 3, 1995 through
December 31, 1995) and the Expenses Ratio to Average Net Assets for the six
months ended June 30, 1996 would be 1.07% (0.34% for the period July 3, 1995
through December 31, 1995).
11
Note 7--Accumulation Units
Changes in the number of Accumulation Units outstanding were as follows:
July 3, 1995
For the Six (Commencement
Months Ended of Operations) to
June 30, 1996 December 31, 1995
------------- ------------------
(Unaudited)
Accumulation Units:
Credited for premiums
and TIAA seed money investment ....... 29,214 1,004,905
Credited for net transfers
and disbursements .................... 359,370 167,593
Outstanding:
Beginning of period ................... 1,172,498 --
--------- ---------
End of period ......................... 1,561,082 1,172,498
========= =========
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 June 30, 1996, the
Account had outstanding commitments to purchase real estate properties (subject
to various closing conditions) of approximately $20.5 million. Of that amount, a
purchase of real estate property totalling approximately $13.0 million was
closed in July 1996.
12
TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS (Unaudited)
JUNE 30, 1996
REAL ESTATE PROPERTIES--50.90%
Location Description Value
-------- ----------- -----
Atlanta, Georgia(1) Apartments ................. $15,705,000
El Paso, Texas(2) Industrial building ........ 4,500,000
Fridley, Minnesota(1) Industrial building ........ 4,150,000
Littleton, Colorado(1) Apartments ................. 17,664,248
Ocoee, Florida(1) Shopping center ............ 7,365,000
Orlando, Florida(1) Apartments ................. 12,529,106
Phoenix, Arizona(1) Office building ............ 10,500,000
Raleigh, North Carolina(1) Shopping center ............ 6,769,308
Raleigh, North Carolina(1) Shopping center ............ 6,702,718
-----------
TOTAL REAL ESTATE PROPERTIES
(Cost $85,317,574) ................................. 85,885,380
-----------
- ----------
(1) Fee interest
(2) Leasehold interest
MARKETABLE SECURITIES--49.10%
Shares Issuer Value
------ ------ -----
REAL ESTATE INVESTMENT TRUSTS--2.93%:
30,000 Associated Estates Realty Corporation . . . . . 630,000
25,000 Avalon Properties, Inc. . . . . . . . . . . . . 543,750
25,000 Camden Property Trust . . . . . . . . . . . . . 593,750
29,000 Cali Realty Corporation . . . . . . . . . . . . 703,250
29,000 CBL & Associates Properties, Inc. . . . . . . . 648,875
20,000 Colonial Properties Trust . . . . . . . . . . . 485,000
25,000 Hospitality Properties Trust . . . . . . . . . 668,750
26,000 Weeks Corporation . . . . . . . . . . . . . . . 676,000
---------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Cost $4,825,683) . . . . . . . . . . . . . . . . . 4,949,375
---------
See notes to financial statements.
13
Principal Issuer, Coupon and Maturity Date Value
- --------- -------------------------------- -----
COMMERCIAL PAPER--41.53%:
$6,279,000 Associates Corporation of North America
5.27% 07/03/96. . . . . . . . . . . . . . . . . $ 6,276,007
10,000,000 Coca-Cola Company
5.30% 07/29/96. . . . . . . . . . . . . . . . . 9,955,755
7,650,000 Conagra, Inc.
5.55% 07/29/96. . . . . . . . . . . . . . . . . 7,615,601
5,200,000 Dupont (E.I.) De Nemours & Co.
5.35% 07/24/96. . . . . . . . . . . . . . . . . 5,180,965
7,320,000 Goldman Sachs Group
5.33% 08/05/96. . . . . . . . . . . . . . . . . 7,279,826
4,860,000 Heinz Corporation
5.36% 07/11/96. . . . . . . . . . . . . . . . . 4,851,742
4,893,000 Phillip Morris Co.
5.28% 08/01/96. . . . . . . . . . . . . . . . . 4,869,111
9,120,000 Schering Corporation
5.27% 07/16/96. . . . . . . . . . . . . . . . . 9,097,681
5,000,000 UBS Finance, Inc.
5.58% 07/01/96. . . . . . . . . . . . . . . . . 4,999,234
10,000,000 Whirlpool Finance Corporation
5.38% 08/07/96. . . . . . . . . . . . . . . . . 9,941,545
------------
TOTAL COMMERCIAL PAPER
(Amortized cost $70,085,407) . . . . . . . . . . . . . . 70,067,467
------------
GOVERNMENT AGENCIES--4.64%:
8,000,000 Federal National Mortgage Association
5.20% 11/14/96. . . . . . . . . . . . . . . . . 7,837,674
------------
TOTAL GOVERNMENT AGENCIES
(Amortized cost $7,842,844). . . . . . . . . . . . . . . 7,837,674
------------
TOTAL MARKETABLE SECURITIES
(Amortized cost $82,753,934). . . . . . . . . . . . . . . . . 82,854,516
------------
TOTAL INVESTMENTS--100.00%
(Cost $168,071,508) . . . . . . . . . . . . . . . . . . . . . $168,739,896
============
See notes to financial statements.
14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The TIAA Real Estate Account (the "Account") began operating on July 3,
1995 and interests in the Account began being offered to participants on October
2, 1995.
The Account's first real estate acquisition closed on November 22, 1995.
Through June 30, 1996, the Account acquired a total of nine real estate
properties, representing 50.90% of the Account's total investment portfolio,
including two industrial properties, three neighborhood shopping centers, one
office property and three apartment complexes. The Account purchased an
additional shopping center property in early July, 1996. The Account continues
to pursue suitable property acquisitions, and is currently in various stages of
negotiations with a number of prospective sellers. While attractive acquisition
prospects are available in the current market, significant competition exists
for the desirable properties.
As of June 30 1996, 49.10% of the Account's portfolio was invested in
marketable securities. These investments consisted of eight real estate
investment trusts (REITs), representing 2.93% of the portfolio, and various
short-term instruments, representing 46.17% of the portfolio.
Results of Operations
- ---------------------
The Account's net investment income, after deduction of all expenses, was
$2,537,641 for the three months ended June 30, 1996 and $4,720,855 for the six
months ended June 30, 1996. In addition, the Account had net realized and
unrealized gains on investments of $656,834 and $688,885 for the three month and
six month periods ended June 30, 1996, respectively. Net unrealized gains on
real estate properties accounted for approximately 74% and 88% of the net change
in unrealized appreciation for those periods. Such gains resulted from the
periodic revaluations of the Account's properties, which gains were based, in
part, on our experience in operating the properties providing us with better
estimates of future income and expenses, and, in part, to increasing prices for
certain property types held by the Account. The Account's total return was 2.03%
and 3.74% for the three month and six month periods ended June 30, 1996,
respectively, and its cumulative total return was 5.11% for the period from
October 2, 1995 (the initial effective date of the Account's registration
statement) to June 30, 1996.
Approximately 57% of the Account's total investment income received during
the quarter ended June 30, 1996 was generated by the Account's real estate
holdings, with the remainder generated by marketable securities investments.
However, as the Account
15
approaches its goal of being approximately 70% to 80% invested in real estate,
the Account's future investment income will be affected to a greater degree by
its real estate holdings. Assuming little change in current economic conditions,
this anticipated increase in real estate holdings should have a positive impact
on the Account's total return.
Gross real estate income was $2,271,715 for the three months ended June 30,
1996 and $3,933,580 for the six months ended June 30, 1996. Interest income on
the Account's short-term investments for the three month and six month periods
ended June 30, 1996 totaled $1,137,192 and $2,283,539, respectively. Dividend
income on the Account's investments in REITs totaled $50,825 and $60,825,
respectively, for the same periods. Total property-level expenses for the three
month period were $723,903, of which $212,886 were attributable to real estate
taxes and $511,017 to other operating expenses. Total property-level expenses
for the six month period were $1,234,293 of which $405,405 were attributable to
real estate taxes and $828,888 to other operating expenses. The Account also
incurred expenses for the three month and six month periods ended June 30, 1996
of $136,267 and $180,588, respectively, for investment advisory services
provided by TIAA, $48,135 and $123,311, respectively, for administrative and
distribution services provided by TIAA-CREF Individual and Institutional
Services, Inc. and $13,786 and $18,897, respectively, for the mortality and
expense risks assumed and the liquidity guarantee provided by TIAA.
Liquidity and Capital Resources
- -------------------------------
In addition to TIAA's initial $100 million seed money investment, the
Account has received over $61.2 million in premiums and net participant
transfers from accumulations in other TIAA and CREF accounts since it commenced
operations through June 30, 1996, and has earned $7,361,252 in net investment
income. Real estate properties costing $85,317,574 million have been purchased
through June 30, 1996. At June 30, 1996, the Account's liquid assets (i.e., its
short-term investments, REITs and cash) had a value of $83,200,719. It is
anticipated that much of this amount will be used by the Account to purchase
additional suitable real estate properties. The remaining assets will continue
to be invested in marketable securities to meet expense needs and redemption
requests (e.g., cash withdrawals or transfers).
If the Account's cash flows from operating activities, participant
transactions and liquid investments are not enough to meet its cash needs
including redemption requests, TIAA's general account will purchase liquidity
units in accordance with the liquidity guarantee.
16
TIAA has agreed to begin redeeming the Accumulation Units related to its
seed money investment on October 2, 1997, or on the date the Account's net
assets reach $200 million, whichever comes first. We expect the Account's net
assets to reach the $200 million threshold shortly. At such time, TIAA will
begin redeeming a portion of the Accumulation Units related to its seed money
investment monthly, according to a five-year repayment schedule approved by the
New York Insurance Department.
No major capital expenditures for any of the properties purchased through
June 30, 1996 have been made or are expected to be made in 1996. There are no
leases expiring in the industrial or office properties in 1996 and only a small
portion of the leased space in the neighborhood shopping centers is due to
expire in 1996. We do not expect the Account to incur any major construction
costs or leasing commissions in order to re-lease that space. For the apartment
complexes, we expect the Account to incur only routine recurring costs to
re-lease apartments that become vacant, i.e. painting and carpet cleaning or
replacement.
Effects of Inflation
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In recent years, inflation has been modest. To the extent that inflation
may increase property operating expenses in the future, such increases can
generally be billed to tenants either through contractual lease provisions in
office, industrial, and retail properties or through rent increases in apartment
complexes. However, to the extent there is unrented space in a property, the
Account may not be able to recover the full amount of such increases in
operating expenses.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
There are no material current or pending legal proceedings that the Account
is a party to, or to which the Account's assets are subject.
Item 2. CHANGES IN SECURITIES.
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
Item 5. OTHER INFORMATION.
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
(3) (A) Charter of TIAA (as amended) *
(B) Bylaws of TIAA (as amended)
(4) (A) Forms of RA, GRA, GSRA, SRA, and IRA Real Estate Account
Endorsements *
(B) Forms of Income-Paying Contracts *
(10) (A) Independent Fiduciary Agreement by and among TIAA, the Registrant,
and Institutional Property Consultants, Inc. *
(B) Custodial Services Agreement by and between TIAA and Morgan
Guaranty Trust Company of New York with respect to the Real Estate
Account *
(C) Distribution and Administrative Services Agreement by and between
TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as
amended) (filed previously as Exhibit (1)) *
(27) Financial Data Schedule of the Account's Financial Statements for
the three months ended June 30, 1996
- ----------
* 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).
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(b) REPORTS ON 8-K. The Account filed reports on Form 8-K on on June
24, 1996 under Item 5 of the form with respect to the acquisition
of a property for its portfolio.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: August 8, 1996
TIAA REAL ESTATE ACCOUNT
By: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Peter C. Clapman
------------------------------
Peter C. Clapman
Senior Vice President and
Chief Counsel, Investments
DATE: August 8, 1996
By: /s/ Richard L. Gibbs
------------------------------
Richard L. Gibbs
Executive Vice President
(Principal Accounting Officer)
20