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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________________ to _____________________
Commission File Numbers 33-92990, 333-13477 and 333-22809
TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of
incorporation or organization)
NOT APPLICABLE
(IRS Employer Identification No.)
C/O TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
730 THIRD AVENUE
NEW YORK, NEW YORK
(address of principal executive offices)
10017-3206
(Zip code)
(212) 490-9000
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
OF THE TIAA REAL ESTATE ACCOUNT
SEPTEMBER 30, 1999
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,
1999 1998
-------------- --------------
(Unaudited)
ASSETS
Investments, at value:
Real estate properties
(cost: $1,201,446,196 and $775,801,883).................................. $1,249,166,153 $ 820,211,240
Marketable securities
(cost: $354,774,251 and $402,041,089).................................... 336,293,946 391,033,557
Cash....................................................................... 817,851 572,343
Other...................................................................... 28,704,442 17,786,291
-------------- --------------
TOTAL ASSETS 1,614,982,392 1,229,603,431
--------------- --------------
LIABILITIES
Accrued real estate property level expenses and taxes....................... 18,431,097 11,432,529
Security deposits held...................................................... 3,094,628 1,890,423
-------------- --------------
TOTAL LIABILITIES 21,525,725 13,322,952
-------------- --------------
MINORITY INTEREST - 19,913,592
-------------- --------------
NET ASSETS
Accumulation Fund........................................................... 1,544,372,745 1,167,591,317
Annuity Fund................................................................ 49,083,922 28,775,570
-------------- --------------
TOTAL NET ASSETS $1,593,456,667 $1,196,366,887
============== ==============
NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 6 and 7....................... 11,068,765 8,833,911
========== =========
NET ASSET VALUE, PER ACCUMULATION UNIT--Note 6................................ $139.53 $132.17
======= =======
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
--------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
INVESTMENT INCOME
Real estate income, net:
Rental income................................................. $37,182,213 $20,564,416 $91,378,964 $58,220,663
----------- ----------- ----------- -----------
Real estate property level expenses and taxes:
Operating expenses.......................................... 7,484,048 4,428,664 19,030,118 12,556,909
Real estate taxes........................................... 4,818,340 2,440,211 10,696,731 6,786,316
----------- ----------- ----------- -----------
Total real estate property level expenses and taxes 12,302,388 6,868,875 29,726,849 19,343,225
----------- ----------- ----------- -----------
Real estate income, net 24,879,825 13,695,541 61,652,115 38,877,438
Interest......................................................... 3,371,143 4,097,962 13,144,718 11,323,545
Dividends........................................................ 1,954,756 2,256,331 5,907,159 6,113,150
----------- ----------- ----------- -----------
TOTAL INCOME 30,205,724 20,049,834 80,703,992 56,314,133
----------- ----------- ----------- -----------
Expenses--Note 3:
Investment advisory charges.................................... 886,712 827,691 3,308,768 2,350,238
Administrative and distribution charges........................ 885,890 642,375 2,638,022 1,867,980
Mortality and expense risk charges............................. 272,184 181,414 739,137 481,849
Liquidity guarantee charges.................................... 117,089 19,415 405,982 69,009
----------- ----------- ----------- -----------
TOTAL EXPENSES 2,161,875 1,670,895 7,091,909 4,769,076
----------- ----------- ----------- -----------
INVESTMENT INCOME, NET 28,043,849 18,378,939 73,612,083 51,545,057
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Real estate properties........................................ - - 6,205,560 -
Marketable securities......................................... (827,090) (2,736,288) (1,213,198) (2,405,079)
----------- ----------- ----------- -----------
Net realized gain (loss) on investments (827,090) (2,736,288) 4,992,362 (2,405,079)
----------- ----------- ----------- -----------
Net change in unrealized appreciation (depreciation) on:
Real estate properties........................................ 5,696,933 16,112,956 3,310,600 28,936,361
Marketable securities......................................... (11,727,299) (10,132,955) (7,472,773) (17,536,392)
----------- ----------- ----------- -----------
Net change in unrealized appreciation (depreciation)
on investments (6,030,366) 5,980,001 (4,162,173) 11,399,969
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (6,857,456) 3,243,713 830,189 8,994,890
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE MINORITY INTEREST 21,186,393 21,622,652 74,442,272 60,539,947
Minority interest in net increase in net assets
resulting from operations..................................... - (1,396,577) 1,364,619 (2,972,932)
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $21,186,393 $20,226,075 $75,806,891 $57,567,015
=========== =========== =========== ===========
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
-------------------------------- --------------------------------
1999 1998 1999 1998
---- ---- ---- ----
FROM OPERATIONS
Investment income, net.................................. $ 28,043,849 $ 18,378,939 $ 73,612,083 $ 51,545,057
Net realized gain (loss) on investments................. (827,090) (2,736,288) 4,992,362 (2,405,079)
Net change in unrealized appreciation (depreciation)
on investments......................................... (6,030,366) 5,980,001 (4,162,173) 11,399,969
Minority interest in net increase in net assets
resulting from operations.............................. - (1,396,577) 1,364,619 (2,972,932)
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 21,186,393 20,226,075 75,806,891 57,567,015
-------------- -------------- -------------- --------------
FROM PARTICIPANT TRANSACTIONS
Premiums................................................ 30,175,399 19,966,212 91,734,806 66,137,439
TIAA seed money withdrawn--Note 1....................... - (12,511,192) - (68,304,733)
Net transfers from (to) TIAA............................ 3,589,292 (1,483,703) 22,324,653 21,100,141
Net transfers from CREF Accounts........................ 60,732,012 26,228,774 232,458,291 198,210,094
Annuity and other periodic payments..................... (1,171,035) (543,326) (3,231,887) (1,495,244)
Withdrawals............................................. (7,715,984) (4,440,177) (21,003,332) (10,098,269)
Death benefits.......................................... (137,438) (450,061) (999,642) (584,149)
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 85,472,246 26,766,527 321,282,889 204,965,279
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS 106,658,639 46,992,602 397,089,780 262,532,294
NET ASSETS
Beginning of period..................................... 1,486,798,028 1,001,358,407 1,196,366,887 785,818,715
-------------- -------------- -------------- --------------
End of period........................................... $1,593,456,667 $1,048,351,009 $1,593,456,667 $1,048,351,009
============== ============== ============== ==============
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
----------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations......... $ 21,186,393 $ 20,226,075 $ 75,806,891 $ 57,567,015
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
Increase in investments.................................... (104,388,541) (44,457,246) (374,215,302) (264,754,540)
Decrease (increase) in other assets........................ (3,342,347) 68,076 (10,918,151) (168,581)
Decrease in payable for securities transactions ........... (4,258,977) (4,723,995) - (10,463)
Increase in other liabilities.............................. 6,149,077 466,011 8,202,773 644,601
Increase (decrease) in minority interest................... - 1,043,889 (19,913,592) 1,355,646
------------- ------------ ------------- -------------
NET CASH USED IN
OPERATING ACTIVITIES (84,654,395) (27,377,190) (321,037,381) 205,366,322)
------------- ------------ ------------- -------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums.................................................... 30,175,399 19,966,212 91,734,806 66,137,439
TIAA seed money withdrawn--Note 1........................... - (12,511,192) - (68,304,733)
Net transfers from (to) TIAA................................ 3,589,292 (1,483,703) 22,324,653 21,100,141
Net transfers from CREF Accounts............................ 60,732,012 26,228,774 232,458,291 198,210,094
Annuity and other periodic payments......................... (1,171,035) (543,326) (3,231,887) (1,495,244)
Withdrawals................................................. (7,715,984) (4,440,177) (21,003,332) (10,098,269)
Death benefits.............................................. (137,438) (450,061) (999,642) (584,149)
------------- ------------ ------------- -------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 85,472,246 26,766,527 321,282,889 204,965,279
------------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH 817,851 (610,663) 245,508 (401,043)
CASH
Beginning of period......................................... - 617,218 572,343 407,598
------------- ------------ ------------- -------------
End of period............................................... $ 817,851 $ 6,555 $ 817,851 $ 6,555
============= ============ ============= =============
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. Teachers REA, LLC, a wholly-owned
subsidiary of the Account, began operations in July 1996 and holds one property
in Virginia. Light Street Partners, L.P. ("Light Street"), a partnership in
which the Account holds a 100% interest, began operations in March 1997 and
holds seven office buildings throughout the United States. Prior to April 30,
1999, when the Account purchased the remaining 10% interest, the Account had a
90% interest in Light Street. Teachers REA II, LLC, a wholly-owned subsidiary of
the Account, began operations in October 1997 and holds one property in
Pennsylvania. Teachers REA III, LLC, a wholly-owned subsidiary of the Account,
began operations in July 1998 and holds one property in Florida.
The 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 shared in the prorata 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 on October 2, and November 1, 1995, respectively. In August
1996, the Account's net assets first reached $200 million and, as required under
a five year repayment schedule approved by the New York State Insurance
Department ("NYID"), TIAA began to redeem its seed money Accumulation Units in
monthly installments of 16,667 Units beginning in September 1996. Since the
Account's assets have been growing rapidly, TIAA in October 1997, with NYID
approval, modified the seed money redemption schedule by increasing the monthly
redemption of Units at a level equal to the value of 25% of the Account's net
asset growth for the prior month, with no fewer than 16,667 Units and no more
than 100,000 Units to be redeemed each month. These withdrawals were made at
prevailing daily net asset values and are reflected in the accompanying
consolidated financial statements. At December 31, 1998, all of TIAA's
Accumulation Units had been withdrawn.
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, 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 Association of Securities Dealers, Inc.,
provides administrative and distribution services pursuant to a Distribution and
Administrative Services Agreement with the Account.
Note 2--Significant Accounting Policies
The preparation of financial statements may require management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, income,
expenses and related disclosures. Actual results may differ from those
estimates. The following is a summary of the significant accounting policies
followed by the Account, which are in conformity with generally accepted
accounting principles.
7
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 2--Significant Accounting Policies - (Concluded)
Basis of Presentation: The accompanying consolidated financial statements
include the Account and its wholly-owned subsidiaries, Teachers REA, LLC,
Teachers REA II, LLC, Teachers REA III, LLC, Inc. and Light Street. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Valuation of Real Estate Properties: Investments in real estate properties are
stated at fair value, as determined in accordance with procedures approved by
the Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole; accordingly, the Account does not
record depreciation. Fair value for real estate properties is defined as the
most probable price for which a property will sell in a competitive market under
all conditions requisite to a fair sale. Determination of fair value involves
subjective judgement because the actual market value of real estate can be
determined only by negotiation between the parties in a sales transaction. Real
estate properties owned by the Account are initially valued at their respective
purchase prices (including acquisition costs). Subsequently, independent
appraisers value each real estate property at least once a year. The independent
fiduciary must approve all independent appraisers used by the Account. The
independent fiduciary can also require additional appraisals if it believes that
a property's value has changed materially or otherwise to assure that the
Account is valued correctly. TIAA's appraisal staff performs a valuation review
of each real estate property on a quarterly basis and updates the property value
if it believes that the value of the property has changed since the previous
valuation review or appraisal. The independent fiduciary reviews and approves
any such valuation adjustments which exceed certain prescribed limits. TIAA
continues to use the revised value to calculate the Account's net asset value
until the next valuation review or appraisal.
Valuation of Marketable Securities: Equity securities listed or traded on any
United States national securities exchange are valued at the last sales price as
of the close of the principal securities exchange on which such securities are
traded or, if there is no sale, at the mean of the last bid and asked prices on
such exchange. Short-term money market instruments are stated at market value.
Portfolio securities for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole.
Accounting for Investments: Real estate transactions are accounted for as of the
date on which the purchase or sale transactions for the real estate properties
close (settlement date). Rent from real estate properties consists of all
amounts earned under tenant operating leases, including base rent, recoveries of
real estate taxes and other expenses and charges for miscellaneous services
provided to tenants. Rental income is recognized in accordance with the billing
terms of the lease agreements. The Account bears the direct expenses of the real
estate properties owned. These expenses include, but are not limited to, fees to
local property management companies, property taxes, utilities, maintenance,
repairs, insurance and other operating and administrative costs. An estimate of
the net operating income earned from each real estate property is accrued by the
Account on a daily basis and such estimates are adjusted as soon as actual
operating results are determined. Realized gains and losses on real estate
transactions are accounted for under the specific identification method.
Securities transactions are accounted for as of the date the securities are
purchased or sold (trade date). Interest income is recorded as earned and, for
short-term money market instruments, includes accrual of discount and
amortization of premium. Dividend income is recorded on the ex-dividend date.
Realized gains and losses on securities transactions are accounted for on the
average cost basis.
Federal Income Taxes: Based on provisions of the Internal Revenue Code, the
Account is taxed as a segregated asset account of TIAA. The Account should incur
no material federal income tax attributable to the net investment experience of
the Account.
8
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. Prior to April 30, 1999, an affiliate of the former minority partner
in Light Street provided certain management services for the properties owned by
Light Street. The charges for such services, for the nine months ended September
30, 1999, amounted to $345,928 for investment advisory expenses and $104,673 for
administrative expenses which are recorded accordingly in the accompanying
consolidated statements of operations. TIAA also provides a liquidity guarantee
to the Account, for a fee, to ensure that sufficient funds are available to meet
participant transfer and cash withdrawal requests in the event that the
Account's cash flows and liquid investments are insufficient to fund such
requests. TIAA also receives a fee for assuming certain mortality and expense
risks.
Fee payments are made from the Account on a daily basis to TIAA and Services
according to formulas established each year with the objective of keeping the
fees as close as possible to the Account's actual expenses. Any differences
between actual expenses and daily charges are adjusted quarterly.
Note 4--Real Estate Properties
Had the Account's real estate property which was purchased during the nine
months ended September 30, 1999 been acquired at the beginning of the period
(January 1, 1999), rental income and real estate property level expenses and
taxes for the nine months ended September 30, 1999 would have increased by
approximately $25,856,000 and $9,934,000, respectively. In addition, interest
income for the nine months ended September 30, 1999 would have decreased by
approximately $12,875,000. Accordingly, the total proforma effect on the
Account's net investment income for the nine months ended September 30, 1999
would have been an increase of approximately $3,047,000, if the real estate
property acquired during the nine months ended September 30, 1999 had been
acquired at the beginning of the period. Several of these properties had little
or no net rental activity prior to purchase by the Account because they were
recently constructed. In such cases, there was little or no real estate income
to offset the proforma decline in interest income, resulting in a net decrease
in net investment income from this calculation. This increase is not indicative
of expected future results because all of these properties were substantially
rented at the time of purchase.
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,
------------
1999 $ 65,069,000
2000 86,257,000
2001 75,719,000
2002 65,102,000
2003 55,097,000
Thereafter 174,351,000
------------
Total $521,595,000
============
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 For the Years Ended July 3, 1995
Nine Months December 31 (Commencement of
Ended -------------------------------- Operations) to
September 30, 1999 (1) 1998 1997 1996 December 31, 1995 (1)
---------------------- ---- ---- ---- ---------------------
(Unaudited)
Per Accumulation Unit Data:
Rental income...................... $ 8.663 $ 10.425 $ 7.288 $ 6.012 $ 0.159
Real estate property
level expenses and taxes ........ 2.818 3.403 2.218 1.850 0.042
-------- -------- -------- -------- --------
Real estate income, net 5.845 7.022 5.070 4.162 0.117
Dividends and interest............. 1.806 3.082 2.709 3.309 2.716
-------- -------- -------- -------- --------
Total income 7.651 10.104 7.779 7.471 2.833
Expenses charges (2)............... 0.673 0.808 0.580 0.635 0.298
-------- -------- -------- -------- --------
Investment income, net 6.978 9.296 7.199 6.836 2.535
Net realized and unrealized
gain on investments.............. 0.375 0.579 3.987 1.709 0.031
-------- -------- -------- -------- --------
Net increase in
Accumulation Unit Value.......... 7.353 9.875 11.186 8.545 2.566
Accumulation Unit Value:
Beginning of period.............. 132.172 122.297 111.111 102.566 100.000
-------- -------- -------- -------- --------
End of period.................... $139.525 $132.172 $122.297 $111.111 $102.566
======== ======== ======== ======== ========
Total return......................... 5.56% 8.07% 10.07% 8.33% 2.57%
Ratios to Average Net Assets:
Expenses (2)..................... 0.50% 0.64% 0.58% 0.61% 0.30%
Investment income, net........... 5.21% 7.34% 7.25% 6.57% 2.51%
Portfolio turnover rate:
Real estate properties........... 2.92% 0% 0% 0% 0%
Securities....................... 25.95% 24.54% 7.67% 15.04% 0%
Thousands of Accumulation Units
outstanding at end of period..... 11,069 8,834 6,313 3,296 1,172
(1) The percentages shown for this period are not annualized.
(2) Expense charges per Accumulation Unit and the Ratio of Expenses to Average
Net Assets include the portion of expenses related to the 10% minority
interest in Light Street and exclude real estate property level expenses
and taxes. If the real estate property level expenses and taxes were
included, the expense charge per Accumulation Unit for the nine months
ended September 30, 1999 would be $3.491 ($4.211, $2.798 and $2.485 for the
years ended December 31, 1998, 1997 and 1996, respectively, and $0.340 for
the period July 3, 1995 through December 31, 1995) and the Ratio of
Expenses to Average Net Assets for the nine months ended September 30, 1999
would be 2.61% (3.32%, 2.82% and 2.39% for the years ended December 31,
1998, 1997 and 1996, respectively, and 0.34% for the period July 3, 1995
through December 31, 1995).
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:
Nine Months Year
Ended Ended
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
Accumulation Units:
Credited for premiums............................. 674,114 511,462
Credited for transfers, net of disbursements and
amounts applied to the Annuity Fund.............. 1,560,740 2,009,434
Outstanding:
Beginning of year.............................. 8,833,911 6,313,015
---------- ---------
End of period.................................. 11,068,765 8,833,911
========== =========
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, 1999,
the Account had one outstanding commitment totaling approximately $15.2 million
to purchase one real estate property. The property was purchased on October 15,
1999.
11
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
September 30, 1999
REAL ESTATE PROPERTIES--78.79%
Location / Description Value
- ---------------------- -----
Arizona:
Biltmore Commerce Center - Office building......................................................... $ 38,500,000
Southbank Building - Office building............................................................... 13,000,000
California:
Eastgate Distribution Center - Industrial building................................................. 13,300,000
IDI California Portfolio - Industrial building..................................................... 36,500,000
Ontario Industrial Properties - Industrial building................................................ 24,650,000
Westcreek - Apartments ........................................................................... 15,300,000
Larkspur Courts - Apartments....................................................................... 53,039,488
88 Kearny Street - Office building ................................................................ 65,995,171
Colorado:
Arapahoe Park East - Industrial building........................................................... 11,850,000
The Lodge at Willow Creek - Apartments............................................................. 30,000,000
Monte Vista - Apartments .......................................................................... 20,000,000
Florida:
Corporate Center at Sawgrass - Office building..................................................... 14,200,000
Golfview - Apartments ............................................................................. 27,510,000
The Greens at Metrowest - Apartments............................................................... 14,100,000
Plantation Grove - Shopping center................................................................. 7,300,000
Royal St. George - Apartments...................................................................... 16,500,000
Sawgrass Portfolio - Office building............................................................... 9,608,160
Westinghouse Facility - Industrial building........................................................ 6,200,000
Georgia:
Brixworth - Apartments............................................................................. 16,900,000
Illinois:
Columbia Center III - Office building.............................................................. 41,403,925
Glenpointe Business Park - Industrial building..................................................... 15,800,000
Parkview Plaza - Office building................................................................... 52,452,871
Rockrun Business Park - Industrial building........................................................ 9,350,000
Rolling Meadows - Shopping center.................................................................. 12,335,000
Woodcreek Business Park - Industrial building...................................................... 6,600,000
Kentucky:
IDI Kentucky Portfolio - Industrial building....................................................... 24,999,850
Iowa:
Interstate Acres - Industrial building............................................................. 14,204,718
Maryland:
FedEx Distribution Facility - Industrial building.................................................. 7,800,000
Longview Executive Park - Office building.......................................................... 28,000,000
Saks Distribution Center - Industrial building .................................................... 30,225,000
Massachusetts:
Two Newton Center - Office building................................................................ 20,333,867
Michigan:
Indian Creek - Apartments.......................................................................... 17,100,000
Minnesota:
Interstate Crossing - Industrial building.......................................................... 6,300,000
River Road Distribution Center - Industrial building............................................... 4,262,168
Nevada:
UPS Distribution Facility - Industrial building.................................................... 11,000,000
New Jersey:
371 Hoes Lane - Office building.................................................................... 16,800,000
10 Waterview Boulevard - Office building........................................................... 31,063,635
12
New York:
The Colorado - Apartments.......................................................................... $ 56,532,950
780 Third Avenue - Office building................................................................. 162,000,000
North Carolina:
Lynwood Collection - Shopping center............................................................... 7,500,000
Millbrook Collection - Shopping center............................................................. 7,100,000
Ohio:
Bent Tree - Apartments ............................................................................ 14,500,000
Northmark Business Center - Office building........................................................ 12,700,000
Oregon:
Five Centerpointe - Office building................................................................ 18,000,000
Pennsylvania:
Lincoln Woods - Apartments ........................................................................ 22,750,000
Texas:
Butterfield Industrial Park - Industrial building.................................................. 4,850,000(1)
The Crest at Shadow Mountain - Apartments.......................................................... 9,700,000
The Legends at Chase Oaks - Apartments............................................................. 27,800,000
Utah:
USF&G Building - Office building................................................................... 8,700,000
Virginia:
Fairgate at Ballston - Office building............................................................. 30,608,796
River Oaks - Shopping center....................................................................... 12,503,714
Monument Place - Office building................................................................... 34,616,910
Washington:
The Bay Court at Harbour Pointe - Apartments....................................................... 34,819,930
-------------
TOTAL REAL ESTATE PROPERTIES (Cost $1,201,446,196)............................................... 1,249,166,153
-------------
(1) Leasehold interest only.
MARKETABLE SECURITIES--21.21%
REAL ESTATE INVESTMENT TRUSTS--5.85%
Shares Issuer Value
------ ------ -----
89,900 AMB Property Corporation Series A............................................ 1,932,850
19,200 Avalon Bay Communities, Inc. Pfd Series F.................................... 451,200
46,800 Boston Properties, Inc....................................................... 1,436,175
112,400 Bradley Real Estate, Inc..................................................... 2,065,350
140,400 Brandywine Realty Trust...................................................... 2,281,500
34,900 Camden Property Trust........................................................ 937,937
200,000 Carramerica Realty Corporation, Pfd Series B................................. 3,850,000
98,000 Centerpoint Properties Corp.................................................. 3,240,125
88,900 Colonial Properties Trust.................................................... 2,378,075
243,400 Cornerstone Properties, Inc.................................................. 3,711,850
113,100 Corporate Office Properties Trust, Inc....................................... 855,319
90,000 Developers Diversified Realty Corp........................................... 1,867,500
221,300 Duke-Weeks Realty Corp....................................................... 4,315,350
234,100 Equity Office Properties Trust............................................... 5,442,825
200,000 Equity Office Properties Trust Pfd Series A.................................. 4,775,000
121,700 Equity Residential Properties Trust.......................................... 5,157,037
100,000 Equity Residential, Pfd Series G............................................. 2,075,000
100,000 Equity Residential Properties, Pfd Series L.................................. 2,150,000
25,000 Federal Realty Investment Trust Pfd.......................................... 462,500
25,300 Felcor Lodging Trust Inc..................................................... 442,750
100,000 First Industrial Realty Trust, Inc. Pfd...................................... 2,290,625
98,300 Gables Residential Trust, Pfd Series A....................................... 1,953,712
74,900 Hospitality Properties Trust................................................. 1,652,481
700 Host Marriott Corp........................................................... 6,650
13
Shares Issuer Value
------ ------ -----
63,700 LaSalle Hotel Properties.................................................... $ 824,119
149,800 Macerich Company............................................................ 3,464,125
65,159 New Plan Excel Realty Trust................................................. 1,160,645
19,900 Prologis Trust-Pfd Series A................................................. 477,600
127,700 Public Storage, Inc......................................................... 3,216,444
93,600 Rouse Company............................................................... 2,152,800
280,900 Simon Property Group, Inc................................................... 6,302,694
100,000 Spieker Properties, Inc..................................................... 3,468,750
131,100 Starwood Hotels & Resorts Worldwide......................................... 2,925,169
65,500 Storage USA, Inc............................................................ 1,801,250
140,400 Taubman Centers, Inc........................................................ 1,614,600
35,000 Taubman Centers, Inc Pfd Series A........................................... 669,375
151,700 Trinet Corporation Realty Trust, Inc........................................ 3,612,356
26,000 Trinet Corporate Realty Trust, Pfd Class B.................................. 468,000
62,800 United Dominion Realty Trust, Inc........................................... 1,318,800
122,100 Urban Shopping Centers, Inc................................................. 3,540,900
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $111,036,870)..................................... 92,749,438
-----------
CORPORATE BONDS-- 0.62%
Principal Issuer, Coupon and Maturity Date Value
--------- -------------------------------- -----
$ 5,000,000 Avco Financial Services, Inc.
5.75% 01/23/01............................................................ 4,956,350
5,000,000 Ford Motor Credit Co.
5.75% 01/25/01............................................................ 4,960,000
-----------
TOTAL CORPORATE BONDS (Cost $10,034,650)..................................................... 9,916,350
-----------
GOVERNMENT AGENCIES--1.68%
Principal Issuer, Coupon and Maturity Date Value
--------- -------------------------------- -----
4,200,000 Federal Home Loan Mortgage Corporation
4.70% 10/13/99............................................................ 4,192,169
748,000 Federal Home Loan Mortgage Corporation
5.25% 10/14/99............................................................ 746,504
10,000,000 Federal Home Loan Mortgage Corporation
4.72% 11/02/99............................................................ 9,952,578
10,000,000 Federal Home Loan Mortgage Corporation
4.74% 11/04/99............................................................ 9,949,717
1,795,000 Federal National Mortgage Association
5.18% 11/02/99............................................................ 1,786,511
-----------
TOTAL GOVERNMENT AGENCIES (Amortized cost $26,640,014)....................................... 26,627,479
-----------
COMMERCIAL PAPER--13.06%
Principal Issuer, Coupon and Maturity Date Value
--------- -------------------------------- -----
20,000,000 Asset Securitization Cooperative Corp
5.33% 10/12/99............................................................ 19,963,599
8,850,000 Conagra, Inc.
5.42% 10/05/99............................................................ 8,843,087
8,600,000 Corporate Asset Funding Corp., Inc.
5.34% 10/13/99............................................................ 8,583,049
10,000,000 Eastman Kodak Co.
5.30% 11/15/99............................................................ 9,929,666
5,600,000 Enterprise Funding Corporation
5.38% 11/22/99............................................................ 5,554,637
14
Principal Issuer, Coupon and Maturity Date Value
--------- -------------------------------- -----
$11,360,000 Gillette Co
5.57% 10/01/99............................................................ $ 11,360,000
13,125,000 GPU Capital, Inc.
5.56% 10/12/99............................................................ 13,100,675
20,000,000 GTE Corp.
5.39% 10/14/99............................................................ 19,957,910
8,350,000 Lockheed Martin
5.50% 10/01/99............................................................ 8,348,682
2,300,000 McGraw Hill, Inc.
5.12% 10/19/99............................................................ 2,293,414
1,590,000 National Rural Utilities COOP Finance
5.29% 11/16/99............................................................ 1,578,574
12,100,000 National Rural Utilities COOP Finance
5.31% 11/12/99............................................................ 12,021,777
7,000,000 Paccar Financial Corp.
5.29% 10/21/99............................................................ 6,977,886
18,250,000 Park Avenue Receivables Corp.
5.37% 10/08/99............................................................ 18,227,856
25,000,000 Park Avenue Receivables Corp.
5.37% 10/07/99............................................................ 24,973,452
7,370,000 Public Svc Elec & Gas Co.
5.45% 10/25/99............................................................ 7,341,468
12,365,000 SBC Communications Inc.
5.28% 11/18/99............................................................ 12,272,358
10,000,000 Toronto Dominion Holdings (U.S.)
5.32% 12/29/99............................................................ 9,850,822
5,850,000 Walt Disney Co.
4.79% 11/01/99............................................................ 5,821,767
--------------
TOTAL COMMERCIAL PAPER (Amortized cost $207,062,717)........................................ 207,000,679
--------------
TOTAL MARKETABLE SECURITIES (Cost $354,774,251).............................................. 336,293,946
--------------
TOTAL INVESTMENTS--100.00% (Cost $1,556,220,447)........................................... $1,585,460,099
==============
See notes to consolidated financial statements.
15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
At September 30, 1999, the Account had acquired a total of 53 real
estate properties, including seventeen office properties, sixteen industrial
properties, five neighborhood shopping centers and fifteen apartment complexes
representing 78.79% of the Account's total investment portfolio. The Account
also held investments in commercial paper, representing 13.06% of the portfolio,
real estate investment trusts (REITs), representing 5.85% of the portfolio,
investments in U.S. government agencies, representing 1.68% of the portfolio,
and corporate bonds, representing 0.62% of the portfolio.
The Account purchased one apartment property and four office properties
during the third quarter of 1999 and has purchased one additional office
property and sold an apartment property since the end of the quarter. The
Account continues to pursue suitable property acquisitions, and is currently in
various stages of negotiations with a number of prospective sellers. While
attractive acquisition prospects are available in the current market,
significant competition exists for the most desirable properties.
Results of Operations-Nine Months Ended September 30, 1999 Compared to
Nine Months Ended September 30, 1998
The Account's total net return was 5.56% for the nine months ended
September 30, 1999 and 6.26% for the same period in 1998. This decline was due
to the reduced amount of net realized and unrealized gains on investments during
the 1999 period. The Account's net investment income, after deduction of all
expenses, was $73,612,083 for the nine months ended September 30, 1999 and
$51,545,057 for the same period in 1998, a 43% increase. This increase was
primarily the result of a 52% increase in net assets from September 30, 1998 to
September 30, 1999.
The Account had net realized and unrealized gains on investments of
$830,189 and $8,994,890 for the nine months ended September 30, 1999 and
September 30, 1998, respectively. This decrease was due to several factors. The
Account's net realized and unrealized appreciation on its real estate
investments was $9,516,160 during the first nine months of 1999, compared with
$28,936,361 in the same period of 1998. This difference was due in part to the
fact that real estate owned by the Account at September 30, 1998 had appreciated
significantly more during the first nine months of 1998 than the real estate
owned by the Account at September 30, 1999 had appreciated during the first nine
months of 1999. The appreciation of the Account's real estate during the nine
month periods in 1999 and 1998 was offset by realized and unrealized losses on
the Account's marketable securities during those periods. The decrease in market
value of the Account's REIT holdings resulted in net realized and unrealized
losses of $8,685,971 for first nine months of 1999 as compared with losses of
$19,941,471 on the Account's marketable securities for the same period of 1998.
The Account's real estate holdings generated approximately 76% and 69%
of the Account's total investment income (before deducting Account level
expenses) during the nine months ended September 30, 1999 and September 30,
1998, respectively. The remaining portion of the Account's total investment
income was generated by marketable securities investments.
16
Gross real estate rental income was $91,378,964 for the nine months
ended September 30, 1999 and $58,220,663 for the same period in 1998. This
increase was primarily due to the increase in the number of properties owned by
the Account from 38 properties as of September 30, 1998 to 53 properties as of
September 30, 1999. Interest income on the Account's short- and intermediate-
term investments for the nine months ended September 30, 1999 and 1998 totaled
$13,144,718 and $11,323,545, respectively. This increase was due primarily to
the growth in the Account's assets. Dividend income on the Account's investments
in REITs totaled $5,907,159 and $6,113,150, respectively, for the same periods.
Shares of REITs totaled 5.85% of the Account investments as of September 30,
1999 and 11.24% as of September 30, 1998. The decrease in the Account's REIT
allocation accounted for the decreased dividend income for first nine months of
1999, as compared with the same period in 1998.
Total property level expenses for the nine months ended September 30,
1999 were $29,726,849, of which $10,696,731 was attributable to real estate
taxes and $19,030,118 represented operating expenses. Total property level
expenses for the nine months ended September 30, 1998 were $19,343,225, of which
$6,786,316 was attributable to real estate taxes and $12,556,909 was
attributable to operating expenses. The increase in property level expenses
during the first nine months of 1999 reflected the increased number of
properties in the Account.
The Account also incurred expenses for the nine months ended September
30, 1999 and 1998 of $3,308,768 and $2,350,238, respectively, for investment
advisory services, $2,638,022 and $1,867,980, respectively, for administrative
and distribution services and $1,145,119 and $550,858 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 for the first
nine months of 1999 over the first nine months of 1998.
Three Months Ended September 30, 1999 Compared to
Three Months Ended September 30, 1998
The Account's total net return was 1.38% for the three months ended
September 30, 1999 and 2.00% for the same period in 1998. This decline was
primarily attributable to a lower level of realized and unrealized gains on real
estate investments for the period in 1999 as compared with 1998. The Account's
net investment income, after deduction of all expenses, was $28,043,849 for the
three months ended September 30, 1999 and $18,378,939 for the same period in
1998, a 53% increase. This increase was the result of the growing base of net
assets from September 30, 1998 to September 30, 1999. The Account had net
realized and unrealized losses on investments of $6,857,456 and net realized and
unrealized gains of $3,243,713 for the three months ended September 30, 1999 and
1998, respectively. This decrease was primarily the result of the net realized
and unrealized losses of the Account's marketable securities together with the
lower unrealized gains from the Account's real estate properties.
The Account's real estate holdings generated approximately 82% and 68%
of the Account's total investment income (before deducting Account level
expenses) during the three months ended September 30, 1999 and September 30,
1998, respectively. The remaining portion of the Account's total investment
income was generated by investments in marketable securities.
17
Gross real estate rental income was $37,182,213 for the three months
ended September 30, 1999 and $20,564,416 for the same period in 1998. The higher
real estate income for the 1999 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, 1999 and 1998 totaled $3,371,143 and $4,097,962, respectively. This decrease
was due primarily to the increased real estate allocation of as September 30,
1999 compared to the earlier time period. Dividend income on the Account's
investments in REITs totaled $1,954,756 and $2,256,331, respectively, for the
same periods. This decrease was primarily due to the decrease in the Account's
REIT allocation.
Total property level expenses for the three months ended September 30,
1999 were $12,302,388, of which $4,818,340 was attributable to real estate taxes
and $7,484,048 represented operating expenses. Total property level expenses for
the three months ended September 30, 1998 were $6,868,875, of which $2,440,221
was attributable to real estate taxes and $4,428,664 was attributable to
operating expenses. The increase in property level expenses during the three
month period ended September 30, 1999 reflected the increased number of
properties in the Account.
The Account also incurred expenses for the three months ended September
30, 1999 and 1998 of $886,712 and $827,691, respectively, for investment
advisory services, $885,890 and $642,375, respectively, for administrative and
distribution services and $389,273 and $200,829, 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, 1999 over the three months ended September 30, 1998.
Liquidity and Capital Resources
For the nine months ended September 30, 1999 and 1998, the Account
received $91,734,806 and $66,137,439, respectively, in premiums and $254,782,944
and $219,310,235, respectively, in net participant transfers from other TIAA and
CREF accounts. The increase in premium income is primarily due to the growing
number of participants in the Account.
At September 30, 1999 and 1998, the Account's liquid assets (i.e., its
REITs, short- and intermediate-term investments, government securities and cash)
had a value of $337,111,797 and $421,680,797 respectively. The REIT holdings at
September 30, 1999 and 1998 were $92,749,438 and $119,785,013, 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).
If the Account's liquid assets and its cash flow from operating activities
and participant transactions are not sufficient to meet its cash needs,
including redemption requests, TIAA's general account will purchase liquidity
units in accordance with TIAA's liquidity guarantee to the Account.
18
Year 2000 Issues
TIAA is dedicated to providing uninterrupted, high-quality service before,
during, and after the Year 2000. To achieve this goal, we have carried out an
extensive Year 2000 plan to remediate, test and certify all internal computer
systems, and to verify, to the extent possible, that external service providers
will be ready for the Year 2000. To date, we have completed testing and
certification of our mission critical internal corporate systems and have
successfully tested the critical interfaces we have with a majority of our major
service providers, vendors, and suppliers. TIAA has been actively working with
all those responsible for property computer systems, i.e., management companies
and certain tenants, to assure that they have implemented plans to remediate and
test property systems in a timely manner. In addition, we are making contingency
plans intended to lessen the effect unexpected systems failures (internal and
external) or unusual market conditions may have on operations.
Based on all our efforts and testing to date, we are confident that we are
well-prepared for the Year 2000 transition. However, we can't guarantee complete
success or eliminate the possibility that interaction with outside computer
systems or other factors could affect Account operations. If the systems the
Account relies upon do fail or produce faulty data, there could be delays in
properly processing transactions, or we may be unable temporarily to engage in
normal business activities. Also, the Account's performance could be affected if
the properties, companies or government entities in which the Account invests
are negatively affected by the Year 2000.
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.
19
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 September 30, 1999
- --------------------
* - Previously filed and incorporated herein by reference to Post-Effective
Amendment No. 2 to the Account's Registration Statement on Form S-1 filed April
30, 1996 (File No. 33-92990).
** - Previously filed and incorporated herein by reference to the Account's
Form 10-Q Quarterly Report for the period ended September 30, 1997 filed
November 13, 1997 (File No. 33-92990).
*** - Previously filed and incorporated herein by reference to Pre-Effective
Amendment No. 1 to the Account's Registration Statement on Form S-1 filed April
29, 1997 (File No. 333-22809).
(b) REPORTS ON 8-K. The Account filed a report on Form 8-K on August 11, 1999
under Item 5 of the form with respect to the acquisition of properties for its
portfolio.
20
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 10, 1999
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: November 10, 1999
By: /s/ Richard L. Gibbs
-------------------------------
Richard L. Gibbs
Executive Vice President
(Principal Accounting Officer)
21