UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file numbers 33-92990 and 333-13477
TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)
New York Not Applicable
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
c/o Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (212) 490-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [X] -- Not Applicable
Aggregate market value of voting stock held by non-affiliates:
Not Applicable
Documents Incorporated by Reference: None
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PART I
ITEM 1. BUSINESS.
General. The TIAA Real Estate Account (the "Real Estate Account" or the
"Account") was established on February 22, 1995, as a separate investment
account of Teachers Insurance and Annuity Association of America ("TIAA"), a
nonprofit New York insurance company, by resolution of TIAA's Board of Trustees.
The Account, which invests mainly in real estate and real estate-related
investments, is a variable annuity investment option offered through individual,
group and tax-deferred annuity contracts available to employees of educational
and research institutions. The Account commenced operations on July 3, 1995,
when TIAA contributed $100 million of seed money to the Account. Participating
interests in the Account were first offered to eligible participants on October
2, 1995.
Investment Practices. The investment objective of the Account is a
favorable rate of return over the long term, 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 liquidity needed for capital expenditures and expenses and to make
distributions.
The Account's target is to invest between 70% and 80% of its assets
directly in real estate or in real estate-related investments. We expect the
majority of the Account's real estate investments to be direct ownership
interests in income-producing real estate, such as office, industrial, retail,
and multi-family residential properties. The Account can also invest in other
real estate or real estate-related investments, through joint ventures, real
estate partnerships or real estate investment trusts. To a limited extent, the
Account can also invest in conventional mortgage loans, participating mortgage
loans, common or preferred stock of companies whose operations involve real
estate (i.e., that own or manage real estate primarily), and collateralized
mortgage obligations.
Between 20% and 30% of the Account's assets are targeted to be invested
in government and corporate debt securities, short-term money market instruments
or cash equivalents, and, to some extent, common or preferred stock of companies
that don't primarily own or manage real estate. In some circumstances, the
Account can increase the portion of its assets invested in debt securities or
money market instruments for a period of time. This could happen because of a
rapid influx of participants' funds, lack of suitable real estate investments,
or a need for more liquidity.
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In order not to be considered an "investment company" under the
Investment Company Act of 1940 (the "1940 Act"), the Account will limit its
holdings of investment securities (as defined under the 1940 Act) to less than
40% of its total assets (not including U.S. Government securities and cash
items).
Net Assets and Portfolio Investments. As of December 31, 1996, the
Account's net assets totaled $369,695,053. Through December 31, 1996, the
Account had acquired a total of thirteen real estate properties, including four
industrial properties, four neighborhood shopping centers, four apartment
complexes and one office building, for an aggregate purchase price of
approximately $131 million. Since that date, the Account has purchased two
apartment complexes for a purchase price of approximately $22 million, and two
industrial properties for a purchase price of approximately of $20 million. Most
of the remainder of the Account's assets have been invested in short-term
instruments or are being held as cash. The Account is continuing to seek
suitable real estate-related investments for its portfolio.
Personnel and Management. The Real Estate Account does not directly
employ any persons nor does the Account have its own management or board of
directors. Rather, TIAA employees, under the direction and control of TIAA's
Board of Trustees and Mortgage Committee (which effective January 24, 1997,
merged with the Finance Committee to become the Investment Committee), manage
the investment of the Account's assets pursuant to investment management
procedures adopted by TIAA for the Account. TIAA and TIAA-CREF Individual &
Institutional Services, Inc. ("Services"), a non-profit subsidiary of TIAA,
provide all portfolio accounting, custodial, and related services for the
Account at cost.
ITEM 2. PROPERTIES.
The properties the Account has purchased since it commenced operations
are described below.
MULTI-FAMILY RESIDENTIAL COMPLEXES
The Crest At Shadow Mountain Apartments - El Paso, Texas
On January 31, 1997, the Account purchased the fee interest (i.e.,
ownership of underlying land and all buildings and other improvements on the
land) in The Crest at Shadow Mountain Apartments, a first class garden apartment
complex located in El Paso, Texas, for a purchase price of approximately
$9,150,000. The property is not subject to a mortgage.
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The Crest at Shadow Mountain Apartments was built in 1992 and is
located on 9.5 acres of land. The complex contains 232 one, two and three
bedroom units in 17 two-story apartment buildings. Buildings are of wood frame
construction with stucco and brick exteriors and pitched composition shingle
roofs. The project includes a community clubhouse/leasing office with a fitness
center, outdoor pool, sports court and sand volleyball court. Apartment units
offer fully equipped kitchens, cable, walk-in closets, ceiling fans, thermo-pane
windows and are wired for contract security systems. There are 332 parking
spaces plus 91 covered carports. The complex is currently 92% occupied with
monthly rents averaging $590 per unit. Rents are comparable with competitive
complexes and are not subject to rent regulation. The Account is responsible for
the expenses of operating the property.
The Crest at Shadow Mountain Apartments is located approximately seven
miles west of the El Paso central business district. The El Paso metropolitan
area, with a current population of almost seven hundred thousand persons has
experienced population growth over the past five years that is more than twice
the national rate. This growth is expected to continue.
Westcreek Apartments - Westlake Village, California
On January 2, 1997, the Account purchased the fee interest in Westcreek
Apartments, a luxury garden apartment complex located in Westlake Village,
California, for a purchase price of approximately $13.0 million. The property is
not subject to a mortgage.
Westcreek Apartments was built in 1988 and is located on approximately
10.4 acres of land. The complex contains 126 one-and two-bedroom units in 11
two-story buildings, with each unit containing such amenities as a microwave
oven, fireplace, washer and dryer and nine foot ceilings. Building exteriors are
stucco with tile roofs. There are 128 covered parking spaces plus 76 uncovered
parking spaces. Residents have use of an on-site clubhouse with a fully equipped
weight room and a swimming pool. The complex is currently 94% occupied with
monthly rents averaging $1,090 per unit. Rents are comparable with competitive
complexes and are not subject to rent regulation. The Account is responsible for
the expenses of operating the property.
Westlake Village is located approximately 38 miles northwest of
downtown Los Angeles in Ventura County. Ventura County has enjoyed above-average
population growth during the last five years and this growth is expected to
continue into the foreseeable future.
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Royal St. George Apartments - West Palm Beach, Florida
On December 20, 1996, the Account purchased the fee interest in the
Royal St. George Apartments, a first class garden apartment complex located in
West Palm Beach, Florida, for a purchase price of approximately $15.9 million.
The property is not subject to a mortgage.
Royal St. George Apartments was built in 1995 and is located on 10.4
acres of land. The complex contains 224 one-, two- and three-bedroom units in 8
two- and three-story buildings, with each unit containing such amenities as a
washer and dryer, patio or solarium, and a security system. Upper level units
contain vaulted ceilings. Building exteriors are stucco with tile roofs. There
are 388 parking spaces plus 64 detached garages. Residents have use of an
on-site clubhouse, a fully equipped exercise center, swimming pool and two
lighted tennis courts. The complex is currently 94% occupied with monthly rents
averaging $834 per unit. Rents are comparable with competitive complexes and are
not subject to rent regulation. The Account is responsible for the expenses of
operating the property.
Royal St. George Apartments is located three miles south of the West
Palm Beach central business district. The West Palm Beach metropolitan area,
with a current population of almost one million persons, has experienced
population growth over the past five years that is more than twice the national
rate. This growth is expected to continue.
Monte Vista Apartments -- Littleton, Colorado
On June 21, 1996, the Account purchased the fee interest in Monte Vista
Apartments, a luxury garden apartment complex located in Littleton, Colorado,
for a purchase price of approximately $17.6 million. The property is not subject
to a mortgage.
Monte Vista Apartments was built in 1995, and is located on
approximately 15.1 acres of land. The complex consists of 219 one- and
two-bedroom units in 22 two-story buildings, with units containing such
amenities as 9 foot ceilings, a gas fireplace and an attached garage. Building
exteriors are brick and siding. There are 221 uncovered parking spaces in
addition to the garages. Residents have use of an on-site clubhouse, a fully
equipped exercise center and swimming pool. The complex is currently 90%
occupied with monthly rents averaging $923.00 per unit. Rents are comparable
with competitive complexes in the locality and are not subject to rent
regulation. The Account is responsible for the expenses of operating the
property.
Littleton is located 10 miles southwest of downtown Denver. Denver, the
capital of Colorado, is the largest city in the seven-state Rocky Mountain
region. The population of the Denver
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metropolitan area, which includes Littleton, has grown steadily during the past
ten years and is expected to continue to expand into the near future.
Brixworth Apartments -- Atlanta, Georgia
On December 28, 1995, the Account purchased the fee interest in
Brixworth Apartments, a first class garden apartment complex located in Atlanta,
Georgia, for a purchase price of approximately $15.6 million. The property is
not subject to a mortgage.
Brixworth Apartments was built in 1989 and is located on approximately
10.8 acres of land. The complex contains 271 one-and two- bedroom apartment
units in 11 three story buildings, with each unit containing such amenities as a
washer and dryer and a patio or balcony. Building exteriors are brick and wood.
There are 420 parking spaces in the complex. Residents have use of an on-site
clubhouse, which includes a fitness center and swimming pool. Brixworth
Apartments is currently 88% occupied. Average monthly rents are $785 per unit.
Rents are comparable with competitive communities and are not subject to rent
regulation. The Account is responsible for the expenses of operating the
property.
Brixworth Apartments is located in northeast Atlanta in DeKalb County,
near several shopping facilities and employment centers. Atlanta has experienced
positive population and employment growth over the last 15 years and serves as
the financial and administrative center for the southeastern United States.
The Greens at Metrowest Apartments -- Orlando, Florida
On December 15, 1995, the Account purchased the fee interest in The
Greens at Metrowest, a luxury garden apartment complex located in Orlando,
Florida, for a purchase price of approximately $12.5 million. The property is
not subject to a mortgage.
The Greens at Metrowest Apartments was built in 1990, and is located on
approximately 16.7 acres of land. The complex consists of 200 one- and
two-bedroom units in 27 two story buildings, with each unit containing such
amenities as a washer and dryer, a screened porch, and, in many of the units, a
fireplace and vaulted ceilings. Building exteriors are stucco with concrete
tiled roofs. There are 402 parking spaces in the complex. Residents have use of
an on-site clubhouse, which includes an exercise facility and swimming pool. The
complex is currently 92% occupied, with monthly rents averaging $815 per unit.
Rents are comparable with competitive complexes and are
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not subject to rent regulation. The Account is responsible for the expenses
of operating the property.
The complex is located in the 1,800 acre master planned development of
Metrowest which contains an 18 hole golf course. Its proximity to several major
highways gives residents easy access to Orlando's major employment centers.
Orlando has experienced strong population and employment growth during the last
decade. While tourism and entertainment account for 40% of local jobs, the
region's economy is diversifying by attracting "high-tech" industries and is
growing in importance as a warehouse and distribution location.
OFFICE BUILDINGS
Southbank Business Park - Phoenix, Arizona
On February 27, 1996, the Account purchased the fee interest in a
122,535 square foot office/service building in Phoenix, Arizona, for a purchase
price of approximately $10.05 million. The property is not subject to a
mortgage.
The building, completed in 1995, is located on approximately 9.9 acres
of land with 645 parking spaces. It is currently 100% leased by four tenants in
the service industry, with rents averaging $9.01 per square foot. None of the
leases expire until the year 2000 and 2001, when leases on 65% of the space
expire; those leases together represent total annual rent payments of
approximately $727,300. Although the terms vary under each lease, most of the
expenses for operating the property are either borne or reimbursed by the
tenants.
The building is located within the Southbank Business Park adjacent to
the Phoenix Airport and is easily accessible from all areas of metropolitan
Phoenix area. Phoenix has experienced positive population and employment growth
over the last 15 years. Over 29% of its employment base is comprised of
employees in the service industry.
NEIGHBORHOOD SHOPPING CENTERS
River Oaks Shopping Center - Woodbridge, Virginia
On July 12, 1996, the Account purchased, through a wholly-owned
subsidiary, the fee interest in River Oaks Shopping Center, a 90,885 square foot
neighborhood shopping center located in Woodbridge, Virginia, for a purchase
price of approximately $13.0 million. The property is not subject to a mortgage.
The center, built in 1995, is located on approximately 10.42 acres of
land with space for 402 cars. It is currently 94% occupied and is anchored by a
64,885 square foot Giant
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supermarket, a regional supermarket chain. Rents, including a rent guarantee
from the seller for the 6% of vacant space, average $14.19 per square foot.
Although the terms vary under each lease, most of the expenses for operating the
property are either borne or reimbursed by the tenants. Over the next five
years, leases on 19% of the center's space expire; those leases together
represent total annual rent payments of $352,695 in the year of their
expiration. The Giant lease expires in the year 2021.
The center is located 25 miles south of Washington, D.C. in Prince
William County. The Washington, D.C. metropolitan area has grown significantly
since 1980, with a current population of approximately 4.5 million people.
Woodbridge has been developing as a bedroom community for workers commuting to
Washington, D.C. and to neighboring Fairfax County.
The Lynnwood Collection -- Raleigh, North Carolina
On March 29, 1996, the Account purchased the fee interest in The
Lynnwood Collection, an 86,362 square foot neighborhood shopping center located
in Raleigh, North Carolina, for a purchase price of approximately $6.5 million.
The property is not subject to a mortgage.
The center, which was built in 1988, is located on approximately 10.3
acres of land and has space for 426 cars. It is currently 100% occupied, and is
anchored by a 52,337 square foot Kroger supermarket, a national supermarket
chain. Rents average $8.26 per square foot. Although the terms vary under each
lease, most of the expenses for operating the property are either borne or
reimbursed by the tenants. Over the next five years, leases on 39% of the
center's space expire; those leases together represent total annual rent
payments of $426,810 in the year of their expiration. The Kroger lease expires
in the year 2015.
The center is located in north Raleigh, the city's primary growth
corridor. Raleigh is the capital of North Carolina and has experienced strong
population growth. As part of what is referred to as the "Research Triangle," it
has attracted major business and industries and has a large pool of highly
educated workers.
The Millbrook Collection -- Raleigh, North Carolina
On March 29, 1996, the Account purchased the fee interest in The
Millbrook Collection, a 102,221 square foot neighborhood shopping center located
in Raleigh, North Carolina, for a purchase price of approximately $6.7 million.
The property is not subject to a mortgage.
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The center, which was built in 1988, is located on approximately 11.9
acres of land with space for 670 cars. The center is currently 83% occupied and
is anchored by a 52,337 square foot Kroger supermarket. Rents average $7.55 per
square foot. Although the terms vary under each lease, most of the expenses for
operating the property are either borne or reimbursed by the tenants. Over the
next five years, leases on 29% of the center's space expire; those leases
together represent total annual rent payments of $327,066 in the year of their
expiration. The Kroger lease expires in the year 2015.
The center is located within the city limits of Raleigh, North Carolina
in a well-established neighborhood. The Raleigh area is discussed in the
description of the Lynnwood Collection set forth above.
Plantation Grove Shopping Center -- Ocoee, Florida
On December 28, 1995, the Account purchased the fee interest in
Plantation Grove Shopping Center, a 73,655 square foot neighborhood shopping
center located near Orlando, Florida, for a purchase price of approximately $7.3
million. The property is not subject to a mortgage.
The center, built in 1995, is located on approximately 10.2 acres of
land with space for 401 cars. It is currently 95% occupied and is anchored by a
47,955 square foot Publix supermarket, a regional supermarket chain. Rents
average $9.86 per square foot. Although the terms vary under each lease, most of
the expenses for operating the property are either borne or reimbursed by the
tenants. Over the next five years, leases on 30% of the center's space expire;
those leases together represent total annual rent payments of $335,600 in the
year of their expiration. The Publix lease expires in the year 2015.
The Orlando, Florida area is discussed in the description of The Greens
at Metrowest Apartments set forth above.
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INDUSTRIAL PROPERTIES
Interstate Acres - Urbandale, Iowa
On January 24, 1997, the Account purchased the fee interest in four
warehouse distribution buildings located in Urbandale, Iowa, for a purchase
price of approximately $13,565,000. Rents on the buildings, which together have
440,000 square feet of rentable space, average $3.19 per square foot. Operating
expenses for the properties are borne or reimbursed by the tenants. The
buildings are not subject to a mortgage.
The buildings, built between 1981 and 1988, are located on
approximately 29.6 acres of land with space for 388 cars. The buildings are
presently 97% leased to 15 tenants under leases which expire over the eight year
period from 1998-2005.
Urbandale lies approximately 10 miles northwest of downtown Des Moines.
All buildings are located within the Interstate Acres Industrial Park which is
approximately 1/2 mile east of a full interchange with Interstates 35 and 80.
The population of the Des Moines metropolitan area, which includes Urbandale,
has grown steadily during the past five years and is expected to continue to
expand consistent with the national average into the near future.
Westinghouse Facility - Coral Springs, Florida
On February 5, 1997, the Account purchased the fee interest in a
single-story industrial building located in Coral Springs, Florida for a
purchase price of approximately $6,069,000. The improvements which have been
recently completed for the Westinghouse Corporation have 75,630 square foot.
Westinghouse Corporation occupies 100% of the building area under a ten year
lease. The initial rent is $7.29 per square foot for the first five years of the
lease term increasing to $8.02 per square foot for the second five years.
Operating expenses for the property are borne or reimbursed by the tenant.
The subject property is located in northwest Broward County within the
municipality of Coral Springs and is in Corporate Park of Coral Springs, a 600
acre master-planned commercial industrial park. Corporate Park has enjoyed
significant success and development in recent years primarily due to the
completion of the Sawgrass Expressway, which provides a link to I-95, I-75 and
I-595.
Arapahoe Park East - Boulder, Colorado
On October 31, 1996, the Account purchased the fee interest in five
research and development buildings located in Boulder,
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Colorado, for a purchase price of approximately $9.9 million. Rents on the
buildings, which together have 129,425 square feet of rentable space, average
$8.83 per square foot. The buildings are not subject to a mortgage.
The buildings, built between 1979 and 1982, are located on
approximately 6.46 acres of land with space for 332 cars. Ball Aerospace Corp.,
a leading aerospace and telecommunications equipment manufacturer, leases 100%
of the five buildings under leases which expire over the three year period from
1998 to 2000.
Boulder is located 25 miles northwest of Denver, the largest city in
the seven-state Rocky Mountain region and the capital of Colorado. The
population of the Denver metropolitan area, which includes Boulder, has grown
steadily during the past ten years and is expected to continue to expand into
the near future. Boulder's economy has been strengthened in recent years by the
establishment of several high tech firms in the area, which have attracted a
highly-educated and skilled labor force.
Interstate Crossing - Eagan, Minnesota
On December 31, 1996, the Account purchased the fee interest in two
industrial buildings located in Eagan, Minnesota, for a purchase price of
approximately $6.4 million. Rents on the buildings, which together have 131,380
square feet of rentable space, average $5.10 per square foot. Operating expenses
for the properties are borne or reimbursed by the tenants. The buildings are not
subject to a mortgage.
The buildings, built in 1995, are located on approximately 10.6 acres
of land with 288 parking spaces. The buildings are presently 100% leased to 10
tenants, with the majority of leases expiring in 2000 and 2001.
The subject property is located 10 miles southeast of downtown
Minneapolis and 7 miles south of downtown St. Paul. The twin cities of
Minneapolis -- St. Paul currently have a population of 2.7 million people and
enjoy a strong and diverse economy.
Other Warehouse Properties
On November 22, 1995, the Account purchased the fee interest in a
warehouse property located near Minneapolis, Minnesota for a purchase price of
approximately $4.1 million. Rents on the property average $3.77 per square foot.
On December 22, 1995, the Account purchased leasehold interests (i.e., interests
in the leases on the underlying land and ownership of the buildings and other
improvements on the land) in two warehouse properties located in El Paso, Texas
for an aggregate purchase price of approximately $4.4 million dollars. Rents on
the properties
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average $2.71 per square foot, after payment of the ground rent. Although the
terms vary under each lease, most of the expenses for operating each of the
properties are either borne or reimbursed by the tenants. None of the properties
are subject to a mortgage.
Set forth below are further details relating to each facility:
Lease
Building Year Current Major Expira-
Property Size Built Occupancy Tenants tion Date
(sq. ft.)
Fridley,
Minnesota
River Road 100,456 1995 100% Packaging 2005
Distribution Center Materials,
Inc.
El Paso, Texas
Butterfield warehouse 80,000 1980 100% Rockwell 2000
Zane Gray warehouse 103,510 1981 100% D.J. Inc. 2003
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ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED
STOCKHOLDER MATTERS.
(a) Market Information. There is no established public trading market
for participating interests in the TIAA Real Estate Account. Accumulation units
in the Account are sold to eligible participants at the Account's current
accumulation unit value, which is based on the Account's then current net asset
value. For the period from January 1, 1996 to December 31, 1996, the high and
low accumulation unit values for the Account were $111.11 and $102.57,
respectively.
(b) Approximate Number of Holders. The number of contractowners at
February 28, 1997 was 19,202.
(c) Dividends. Not applicable.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be considered in
conjunction with the consolidated financial statements and notes thereto for the
Account provided herein.
<TABLE>
<CAPTION>
July 3, 1995
Year Ended (commencement of
December 31, operations) to
1996 December 31, 1995
------------ -----------------
<S> <C> <C>
Investment income:
Real estate income, net:
Rental income ................................... $ 10,951,183 $ 165,762
------------ ------------
Real estate property level expenses and taxes:
Operating expenses ............................ 2,116,334 29,173
Real estate taxes ............................. 1,254,163 14,659
------------ ------------
Total real estate property
level expenses and taxes 3,370,497 43,832
------------ ------------
Real estate income, net 7,580,686 121,930
Dividends and interest ............................ 6,027,486 2,828,900
------------- ------------
Total investment income $ 13,608,172 $ 2,950,830
============ ============
Net realized and unrealized
gain on investments ................................. $ 3,330,539 $ 35,603
============ ============
Net increase in net assets
resulting from operations ........................... $ 15,782,915 $ 2,676,000
============ ============
Net increase in net assets
resulting from participant
transactions ........................................ $233,653,793 $117,582,345
============ ============
Net increase in net assets ........................... $249,436,708 $120,258,345
============ ============
December 31, December 31,
1996 1995
------------ ------------
Total assets ......................................... $426,372,007 $143,177,421
============ ============
Total liabilities .................................... $ 56,676,954 $ 22,919,076
============ ============
Total net assets ..................................... $369,695,053 $120,258,345
============ ============
Accumulation units outstanding ....................... 3,295,786 1,172,498
========= =========
Accumulation unit value .............................. $ 111.11 $102.57
========= =========
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The TIAA Real Estate Account (the "Account") began operations on July
3, 1995 and interests in the Account began being offered to participants on
October 2, 1995.
Through December 31, 1996, the Account had acquired a total of thirteen
real estate properties, including four industrial properties, four neighborhood
shopping centers, one office property and four apartment complexes. As of
December 31, 1996, these properties represented 35.82% of the Account's total
investment portfolio. 64% of the net transfers into the Account during 1996 were
received during the fourth quarter and 43% of the Account's total premiums
during 1996 were received during the same time frame. Such a high volume of
premiums and transfers into the Account so late in the year negatively impacted
the level of real estate properties held as a percentage of total investments at
December 31, 1996.
The Account purchased three additional properties in January 1997 and
one property in February 1997. 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.
As of December 31, 1996, the Account also held investments in sixteen
real estate investment trusts (REITs), representing 4.95% of the portfolio,
commercial paper and corporate bonds, representing 5.12% of the portfolio and
short-term obligations of U.S. government agencies, representing 54.11% of the
portfolio.
Results of Operations
- ---------------------
Year Ended December 31, 1996 Compared to Period Ended December 31, 1995
- -----------------------------------------------------------------------
The Account's total net return was 8.33% for the year ended December
31, 1996 and 2.57% for the six month period ended December 31, 1995. The
Account's performance in 1995 was lower for two reasons, first the Account was
operational for less than a full year in 1995 and its real estate investments
were made late in the period.
The Account's net investment income, after deduction of all expenses,
was $12,452,376 for the year ended December 31, 1996 and $2,640,397 for the six
month period ended December 31, 1995, a 372% increase. This increase was the
result of a full year of operations coupled with a growing base of net assets
from
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December 31, 1995 to December 31, 1996. Total assets increased 198% during that
period. In addition, the Account had net realized and unrealized gains (gross
unrealized gains less gross unrealized losses) on investments of $3,330,539 and
$35,603 for the year ended December 31, 1996 and six month period ended December
31, 1995, respectively. Net unrealized gains on real estate properties occurred
for the first time during 1996 and accounted for 30% of the net change in
unrealized appreciation for that period. Such gains and losses resulted from the
periodic revaluations of the Account's properties. The gains were based, in
part, on the fact that our experience operating the properties provided us with
better estimates of future income and expenses, and, in part, on increasing
prices for certain property types held by the Account. The losses were based, in
part, on slower re-leasing of space at certain properties owned by the Account.
Net unrealized gains on marketable securities accounted for 70% of the
net change in unrealized appreciation for the year ended December 31, 1996 and
100% during the six month period ended December 31, 1995. The net unrealized
gains during both periods resulted primarily from price appreciation of the
shares of REIT stock owned by the Account.
The Account's real estate holdings generated approximately 56% and 4%
of the Account's total investment income (before deducting Account expenses)
during the year ended December 31, 1996 and the six month period ended December
31, 1995, respectively. The remaining 44% and 96%, respectively, of the
Account's total investment income was generated by marketable securities
investments. The Account's first real estate purchase was made on November 22,
1995, which explains the low percentage of real estate income in 1995. As the
Account approaches its goal of being approximately 70% to 80% invested in real
estate, future investment income is expected to be affected to a greater degree
by its real estate holdings. While the future performance of the Account's
investments cannot be predicted, assuming little change in current economic
conditions, this anticipated increase in real estate holdings is expected to
have a positive impact on the Account's total return.
Gross real estate rental income was $10,951,183 for the year ended
December 31, 1996 and $165,762 for the six month period ended December 31, 1995.
As of December 31, 1995, the Account owned five properties, and, as of December
31, 1996, the Account owned thirteen properties. This increase in the number of
properties owned by the Account was a major factor in the higher real estate
income for 1996. Interest income on the Account's short and intermediate- term
investments for the year ended December 31, 1996 and the six month period ended
December 31, 1995 totaled $5,570,907 and $2,820,229, respectively. This increase
results from the threefold increase in the size of the
16
<PAGE>
Account during 1996 coupled with a full year of investing activity. Dividend
income on the Account's investments in REITs totaled $456,579 and $8,671,
respectively, for the same periods. Shares of REITs totaled 4.95% of the Account
investments as of year end 1996 and 0.37% as of year end 1995. This increased
percentage and the longer investing period accounted for the increased dividend
income for 1996.
Total property level expenses for the year ended December 31, 1996 were
$3,370,497, of which $1,254,163 was attributable to real estate taxes and
$2,116,334 represented operating expenses. Total property level expenses for the
six month period ended December 31, 1995 were $43,832 of which $14,659 was
attributable to real estate taxes and $29,173 was attributable to operating
expenses. Property level expenses increased in 1996 as a result of the increased
number of properties in the Account during 1996 and due to the fact that the
1995 amounts represent a six month period while 1996 represents a full year of
activity.
The Account also incurred expenses for the year ended December 31, 1996
and six month period ended December 31, 1995 of $642,042 and $227,531,
respectively, for investment advisory services provided by TIAA, $437,894 and
$66,320, respectively, for administrative and distribution services provided by
TIAA-CREF Individual and Institutional Services, Inc. and $75,860 and $16,582,
respectively, for the mortality and expense risks assumed and the liquidity
guarantee provided by TIAA. Such expenses increased in 1996 as a result of the
larger net asset base in the Account during 1996 and because the 1995 expenses
were incurred for a six month period while the 1996 expenses represents a full
year of activity.
Liquidity and Capital Resources
- -------------------------------
On September 16, 1996, in accordance with a five-year repayment
schedule approved by the New York Insurance Department, TIAA began to redeem its
seed money accumulation units related to its initial $100 million seed money
investment. TIAA will continue to redeem a pro rata portion of the accumulation
units it holds over a 60 month period (16,666.667 units per month). As of
December 31, 1996, the Account had redeemed 66,667 accumulation units at
prevailing daily unit values, amounting to $7,294,134 in total redemption
payments to TIAA, leaving it holding 933,333 units at year end 1996 with a value
of $103,703,507.
For the year and six month period ended December 31, 1996 and 1995, the
Account earned $12,452,376 and $2,640,397, respectively, in net investment
income and received $242,175,188 and $17,606,693, respectively, for the same
periods in premiums and net participant transfers from other TIAA and CREF
accounts. Real estate properties costing $86,731,333 and $43,989,665 were
17
<PAGE>
purchased during 1996 and 1995, respectively. At December 31, 1996 and 1995, the
Account's liquid assets (i.e., its cash, REITs, short- and intermediate-term
investments, and government securities) had a value of $240,109,263 and
$74,389,356, respectively. It is anticipated that much of these liquid assets,
exclusive of the REITs, will be used by the Account to purchase additional
suitable real estate properties. The remaining liquid assets, exclusive of the
REITs, will continue to be primarily invested in marketable securities to meet
expense needs and redemption requests (e.g., cash withdrawals or transfers).
If the Account's liquid assets and its cash flow from operating
activities and participant transactions are not sufficient to meet its cash
needs, including redemption requests, TIAA's general account will purchase
liquidity units in accordance with TIAA's liquidity guarantee to the Account.
No major capital expenditures were made during 1996 for any of the
properties purchased through December 31, 1996. There is a small portion of the
leased space in the industrial and office properties and the neighborhood
shopping centers due to expire during 1997. The Account does not expect to incur
any extraordinary construction costs or leasing commissions in order to re-lease
that space. For the apartment complexes, the Account expects to incur only
routine recurring costs, e.g., painting and carpet cleaning and minor
replacements to re-lease apartments that become vacant.
Effects of Inflation
- --------------------
In recent years, inflation has been modest. To the extent that
inflation may increase property operating expenses in the future, it is
anticipated such increases will 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.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
Page
----
Report of Management Responsibility .................................... 20
Report of Independent Auditors ......................................... 21
Audited Consolidated Financial Statements:
Consolidated Statements of Assets and Liabilities ................... 22
Consolidated Statements of Operations ............................... 23
Consolidated Statements of Changes in Net Assets .................... 24
Consolidated Statements of Cash Flows ............................... 25
Notes to Consolidated Financial Statements .......................... 26
Consolidated Statement of Investments ............................... 32
Schedule III - Real Estate Owned ....................................... 34
19
<PAGE>
REPORT OF MANAGEMENT RESPONSIBILITY
To the Participants of the
TIAA Real Estate Account:
The accompanying consolidated financial statements of the TIAA Real Estate
Account ("Account") of Teachers Insurance and Annuity Association of America
("TIAA") are the responsibility of TIAA's management. They have been prepared in
accordance with generally accepted accounting principles and have been presented
fairly and objectively in accordance with such principles.
TIAA has established and maintains a strong system of internal controls designed
to provide reasonable assurance that assets are properly safeguarded and
transactions are properly executed in accordance with management's
authorization, and to carry out the ongoing responsibilities of management for
reliable financial statements. In addition, TIAA's internal audit personnel
provide a continuing review of the internal controls and operations of TIAA,
including its separate account operations. The internal Auditor regularly
reports to the Audit Committee of the TIAA Board of Trustees.
The accompanying consolidated financial statements have been audited by the
independent auditing firm of Deloitte & Touche LLP. The independent auditors'
report, which appears on the following page, expresses an independent opinion on
the fairness of presentation of these financial statements.
The Audit Committee of the TIAA Board of Trustees, consisting of trustees who
are not officers of TIAA, meets regularly with management, representatives of
Deloitte & Touche LLP and internal auditing personnel to review matters relating
to financial reporting, internal controls and auditing.
/s/ John H. Biggs
----------------------------------
Chairman and
Chief Executive Officer
/s/ Thomas W. Jones
----------------------------------
Vice Chairman, President and
Chief Operating Officer
/s/ Richard L. Gibbs
----------------------------------
Executive Vice President and
Principal Accounting Officer
20
<PAGE>
(Letterhead)
Deloitte & Touche LLP Two World Financial Center
New York, New York 10281-1414
Telephone (212) 436-2000
Facsmilie (212) 436-5000
REPORT OF INDEPENDENT AUDITORS
To the Participants of the TIAA Real Estate Account and the
Board of Trustees of Teachers Insurance and Annuity Association of America:
We have audited the accompanying consolidated statements of assets and
liabilities of the TIAA Real Estate Account and its Subsidiary ("Account") of
Teachers Insurance and Annuity Association of America ("TIAA") as of December
31, 1996 and 1995, the consolidated statement of investments as of December 31,
1996, and the related consolidated statements of operations, changes in net
assets and cash flows for the year ended December 31, 1996 and for the period
July 3, 1995 (commencement of operations) to December 31, 1995. Our audits also
included the financial statement schedule Schedule III, Real Estate Owned. These
consolidated financial statements and financial statement schedule are the
responsibility of TIAA's management. Our responsibility is to express an opinion
on these consolidated financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 and 1995, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly in all
material respects, the financial position of the Account as of December 31, 1996
and 1995, the results of its operations, the changes in its net assets and its
cash flows for the above-stated periods, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Investments in real estate properties are stated at fair value at December 31,
1996 and 1995, as discussed in Note 2 to the consolidated financial statements.
Determination of fair value involves subjective judgment because the actual
market value of real estate can be determined only by negotiation between the
parties in a sales transaction.
/s/ Deloitte & Touche LLP
February 6, 1997
- ---------------
Deloitte & Touche
Tohmatsu
International
21
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------- --------------
<S> <C> <C>
ASSETS
Investments, at value:
Real estate properties
(Cost: $130,849,444 and $43,989,665) ................ $131,803,204 $ 43,989,665
Marketable securities
(Amortized cost: $233,872,445 and $73,972,831) ...... 236,127,523 73,992,569
Cash .................................................. 3,981,740 396,787
Receivable from securities transactions ............... 47,480,000 23,150,000
Other ................................................. 6,979,540 1,648,400
------------ ------------
TOTAL ASSETS 426,372,007 143,177,421
------------ ------------
LIABILITIES
Payable for securities transactions ................... 51,354,619 22,788,035
Other ................................................. 5,322,335 131,041
------------ ------------
TOTAL LIABILITIES 56,676,954 22,919,076
------------ ------------
NET ASSETS
Accumulation Fund ..................................... 366,197,755 120,258,345
Annuity Fund .......................................... 3,497,298 -
------------ ------------
TOTAL NET ASSETS $369,695,053 $120,258,345
============ ============
NUMBER OF ACCUMULATION UNITS
OUTSTANDING--Notes 6 and 7 ............................ 3,295,786 1,172,498
========= =========
NET ASSET VALUE,
PER ACCUMULATION UNIT--Note 6 ........................ $111.11 $102.57
======= =======
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period
For the July 3, 1995
Year (Commencement
Ended of Operations) to
December 31, December 31,
1996 1995
------------ ---------------
<S> <C> <C>
INVESTMENT INCOME
Real estate income, net:
Rental income............................................... $10,951,183 $ 165,762
----------- ----------
Real estate property level expenses and taxes:
Operating expenses........................................ 2,116,334 29,173
Real estate taxes......................................... 1,254,163 14,659
----------- ----------
Total real estate property level expenses and taxes 3,370,497 43,832
----------- ----------
Real estate income, net 7,580,686 121,930
Interest..................................................... 5,570,907 2,820,229
Dividends.................................................... 456,579 8,671
----------- ----------
TOTAL INCOME 13,608,172 2,950,830
----------- ----------
Expenses--Note 3:
Investment advisory........................................... 642,042 227,531
Administrative and distribution............................... 437,894 66,320
Mortality and expense risk charges............................ 70,535 8,291
Liquidity guarantee charges................................... 5,325 8,291
------------ ----------
TOTAL EXPENSES 1,155,796 310,433
------------ ----------
INVESTMENT INCOME, NET 12,452,376 2,640,397
------------ ----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on marketable securities................... 141,439 15,865
----------- ----------
Net change in unrealized appreciation on:
Real estate properties..................................... 953,760 -
Marketable securities...................................... 2,235,340 19,738
----------- ----------
Net change in unrealized appreciation 3,189,100 19,738
------------ ----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 3,330,539 35,603
------------ ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $15,782,915 $2,676,000
============ ==========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the period
For the July 3, 1995
Year (Commencement
Ended of Operations) to
December 31, December 31,
1996 1995
--------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Investment income, net.......................................... $ 12,452,376 $ 2,640,397
Net realized gain on marketable securities...................... 141,439 15,865
Net change in unrealized appreciation on investments............ 3,189,100 19,738
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 15,782,915 2,676,000
------------ ------------
FROM PARTICIPANT TRANSACTIONS
Premiums......................................................... 9,665,306 500,421
TIAA seed money contributed (withdrawn) -- Note 1................ (7,294,134) 100,000,000
Disbursements and transfers:
Net transfers from TIAA......................................... 19,203,309 2,901,675
Net transfers from CREF Accounts................................ 213,306,573 14,204,597
Annuity and other periodic payments............................. (336,103) (718)
Withdrawals..................................................... (864,480) (23,630)
Death benefits.................................................. (26,678) -
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 233,653,793 117,582,345
------------ ------------
NET INCREASE IN NET ASSETS 249,436,708 120,258,345
NET ASSETS
Beginning of period.............................................. 120,258,345 -
------------ ------------
End of period.................................................... $369,695,053 $120,258,345
============ ============
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
For the July 3, 1995
Year (Commencement
Ended of Operations) to
December 31, December 31,
1996 1995
---------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations........... $ 15,782,915 $ 2,676,000
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
Increase in investments...................................... (249,948,493) (117,982,234)
Increase in receivable from securities transactions.......... (24,330,000) (23,150,000)
Increase in other assets..................................... (5,331,140) (1,648,400)
Increase in payable for securities transactions.............. 28,566,584 22,788,035
Increase in other liabilities................................ 5,191,294 131,041
------------- -------------
NET CASH USED IN
OPERATING ACTIVITIES (230,068,840) (117,185,558)
------------- -------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums........................................................ 9,665,306 500,421
TIAA seed money contributed (withdrawn) -- Note 1.............. (7,294,134) 100,000,000
Disbursements and transfers:
Net transfers from TIAA........................................ 19,203,309 2,901,675
Net transfers from CREF Accounts............................... 213,306,573 14,204,597
Annuity and other periodic payments............................ (336,103) (718)
Withdrawals.................................................... (864,480) (23,630)
Death benefits................................................. (26,678) -
------------- -------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 233,653,793 117,582,345
------------- -------------
NET INCREASE IN CASH 3,584,953 396,787
CASH
Beginning of period............................................. 396,787 -
------------- -------------
End of period................................................... $ 3,981,740 $ 396,787
============= =============
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, Inc., a wholly-owned subsidiary
of the Account, began operations in July 1996 and holds one property in
Virginia.
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 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 starting 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, TIAA began to redeem its seed money Accumulation Units in
monthly installments beginning in September, 1996. These withdrawals, amounting
to $7,294,134 in 1996, are made at prevailing daily net asset values and are
reflected in the accompanying consolidated financial statements. At December 31,
1996, TIAA retained 933,333 Accumulation Units, with a total value of
$103,703,507.
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 and capital expenditures and to make benefit payments.
TIAA employees, under the direction of TIAA's Board of Trustees and its Mortgage
Committee (which effective January 24, 1997 merged with the Finance Committee to
become the 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 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
26
<PAGE>
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 following is a summary of the significant accounting policies followed by
the Account, which are in conformity with generally accepted accounting
principles.
Basis of Presentation: The accompanying consolidated financial statements
include the Account and its wholly-owned subsidiary, Teachers REA, Inc. 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 Mortgage Committee (the Investment Committee effective January 24, 1997) 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
27
<PAGE>
are valued at fair value as determined in good faith under the direction of the
Mortgage Committee (the Investment Committee effective January 24, 1997) 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
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 securities 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.
Reclassifications: Certain 1995 amounts in the statement of operations have been
reclassified to conform to the 1996 presentation.
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 sufficient funds are available to meet
participant transfer and cash withdrawal requests in the event that the
Account's cash flows and liquid investments
28
<PAGE>
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 properties which were purchased during 1996 been
acquired at the beginning of the year (January 1, 1996), rental income and real
estate property level expenses and taxes for the year ended December 31, 1996
would have increased by approximately $5,395,000 and $2,109,000, respectively.
In addition, interest income for the year ended December 31, 1996 would have
decreased by approximately $2,517,000. Accordingly, the total pro forma effect
on the Account's net investment income for the year ended December 31, 1996
would have been an increase of approximately $769,000, if the real estate
properties acquired during 1996 had been acquired at the beginning of the year.
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,
------------
1997 $ 7,489,000
1998 7,129,000
1999 6,615,000
2000 6,197,000
2001 4,167,000
Thereafter 29,237,000
-----------
Total $60,834,000
===========
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
29
<PAGE>
Note 6--Condensed Consolidated Financial Information
Selected condensed consolidated financial information for an Accumulation Unit
of the Account is presented below.
<TABLE>
<CAPTION>
For the Period
July 3, 1995
For the (Commencement
Year Ended of Operations) to
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Per Accumulation Unit Data:
Rental income ............................................. $ 6.012 $ 0.159
Real estate property
level expenses and taxes ................................ 1.850 0.042
-------- --------
Real estate income, net 4.162 0.117
Dividends and interest .................................... 3.309 2.716
-------- --------
Total income 7.471 2.833
Expense charges (1) ....................................... 0.635 0.298
-------- --------
Investment income, net 6.836 2.535
Net realized and unrealized
gain on investments ..................................... 1.709 0.031
-------- --------
Net increase in
Accumulation Unit Value ................................... 8.545 2.566
Accumulation Unit Value:
Beginning of period ....................................... 102.566 100.000
-------- --------
End of period ............................................. $111.111 $102.566
======== ========
Total return ................................................ 8.33% 2.57%
Ratios to Average Net Assets:
Expenses (1) .............................................. 0.61% 0.30%
Investment income, net .................................... 6.57% 2.51%
Portfolio turnover rate:
Real estate properties .................................. 0% 0%
Securities .............................................. 15.04% 0%
Thousands of Accumulation Units
outstanding at end of period .............................. 3,296 1,172
</TABLE>
(1)Expense charges per Accumulation Unit and the Ratio of Expenses to Average
Net Assets exclude real estate property level operating expenses and taxes.
If included, the expense charge per Accumulation Unit for the year ended
December 31, 1996 would be $2.485 ($0.340 for the period July 3, 1995 through
December 31, 1995) and the Ratio of Expenses to Average Net Assets for the
year ended December 31, 1996 would be 2.39% (0.34% for the period July 3,
1995 through December 31, 1995).
30
<PAGE>
Note 7--Accumulation Units
Changes in the number of Accumulation Units outstanding were as follows:
For the Period
July 3, 1995
For the (Commencement
Year Ended of Operations) to
December 31, 1996 December 31, 1995
----------------- -----------------
Accumulation Units:
Credited for premiums and
TIAA seed money investment ............. 89,841 1,004,905
Credited for transfers, net of
disbursements and amounts
applied to the Annuity Fund ............ 2,033,447 167,593
Outstanding:
Beginning of period .................... 1,172,498 --
--------- ---------
End of period .......................... 3,295,786 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 December 31, 1996,
the Account had outstanding commitments to purchase five real estate properties
(subject to various closing conditions) totaling approximately $68.8 million. Of
that amount, three purchases of real estate property totalling approximately
$36.3 million were closed in January 1997.
31
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
DECEMBER 31, 1996
REAL ESTATE PROPERTIES--35.82%
Location Description Value
-------- ----------- -----
Arizona:
Phoenix Office building.................... $ 10,500,000
Colorado:
Boulder Industrial building................ 9,920,680
Littleton Apartments......................... 17,750,000
Florida:
Ocoee Shopping center.................... 7,400,000
Orlando Apartments......................... 12,800,000
West Palm Beach Apartments......................... 16,072,275
Georgia:
Atlanta Apartments......................... 16,000,000
Minnesota:
Eagan Industrial building................ 6,485,249
Fridley Industrial building................ 4,175,000
North Carolina:
Raleigh Shopping center.................... 6,400,000
Raleigh Shopping center.................... 6,600,000
Texas:
El Paso(1) Industrial building................ 4,600,000
Virginia:
Woodbridge Shopping center.................... 13,100,000
-----------
TOTAL REAL ESTATE PROPERTIES
(Cost $130,849,444)...................................... 131,803,204
-----------
(1) Leasehold interest only
MARKETABLE SECURITIES--64.18%
Shares Issuer
------ ------
REAL ESTATE INVESTMENT TRUSTS--4.95%
45,000 Associated Estates Realty Corporation..... 1,068,750
45,000 Avalon Properties,Inc..................... 1,293,750
80,000 BrandyWine Realty Trust................... 1,560,000
29,000 Cali Realty Corporation................... 895,375
45,000 Camden Property Trust..................... 1,288,125
55,000 CBL & Associates Properties, Inc.......... 1,423,125
40,000 Colonial Properties Trust Co. ............ 1,215,000
4,434 Homestead Village, Inc. .................. 79,812
2,975 Homestead Village, Inc. - Wts............. 24,172
40,000 Hospitality Properties Trust.............. 1,160,000
85,000 Innkeepers USA Trust. .................... 1,179,375
45,000 Security Capital Atlantic, Inc............ 1,102,500
19,900 Security Capital Industrial Trust......... 507,450
15,000 Starwood Lodging.......................... 826,875
40,000 Storage USA, Inc.......................... 1,505,000
40,000 Trinet Corporate Realty Trust, Inc........ 1,420,000
50,000 Weeks Corporation......................... 1,662,500
----------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Cost $15,886,587)........................................ 18,211,809
----------
See notes to consolidated financial statements.
32
<PAGE>
Principal Issuer, Coupon and Maturity Date Value
- --------- -------------------------------- -----
COMMERCIAL PAPER--4.05%
$15,000,000 Morgan Stanley Group
5.37% 02/14/97.............................. $ 14,887,875
------------
TOTAL COMMERCIAL PAPER
(Amortized cost $14,901,550)............................. 14,887,875
------------
CORPORATE BONDS--1.07%
4,000,000 Associates Corporation of North America
5.25% 09/01/98.............................. 3,941,560
------------
TOTAL CORPORATE BONDS
(Amortized cost $3,950,280).............................. 3,941,560
------------
GOVERNMENT AGENCIES--54.11%
2,000,000 Federal Home Loan Bank
5.22% 01/16/97.............................. 1,995,200
2,000,000 Federal Home Loan Bank
5.20% 02/04/97.............................. 1,989,500
18,500,000 Federal Home Loan Mortgage Corporation
5.40% 01/02/97.............................. 18,494,369
2,100,000 Federal Home Loan Mortgage Corporation
5.45% 01/10/97.............................. 2,096,850
10,120,000 Federal Home Loan Mortgage Corporation
5.45% 01/21/97.............................. 10,088,122
30,000,000 Federal Home Loan Mortgage Corporation
5.27% 01/30/97.............................. 29,865,000
8,000,000 Federal Home Loan Mortgage Corporation
5.22% 02/06/97.............................. 7,955,600
26,000,000 Federal Home Loan Mortgage Corporation
5.25% 02/13/97.............................. 25,828,400
23,200,000 Federal Home Loan Mortgage Corporation
5.26% 02/28/97.............................. 22,997,341
11,000,000 Federal National Mortgage Association
5.26% 01/09/97.............................. 10,985,150
17,000,000 Federal National Mortgage Association
5.33% 02/03/97.............................. 16,913,300
9,500,000 Federal National Mortgage Association
5.33% 02/04/97.............................. 9,450,125
10,000,000 Federal National Mortgage Association
5.22% 02/10/97.............................. 9,938,500
10,000,000 Federal National Mortgage Association
5.33% 02/10/97.............................. 9,938,500
2,000,000 Federal National Mortgage Association
5.20% 03/04/97.............................. 1,981,380
15,700,000 Federal National Mortgage Association
5.23% 03/13/97.............................. 15,532,952
2,000,000 Federal National Mortgage Association
5.19% 04/03/97.............................. 1,972,513
1,100,000 United States Treasury Bill
5.56% 08/21/97.............................. 1,063,477
------------
TOTAL GOVERNMENT AGENCIES
(Amortized cost $199,134,028)............................ 199,086,279
------------
TOTAL MARKETABLE SECURITIES
(Amortized cost $233,872,445)..................................... 236,127,523
------------
TOTAL INVESTMENTS--100.00%
(Cost $364,721,889)............................................... $367,930,727
============
See notes to consolidated financial statements.
33
<PAGE>
TIAA REAL ESTATE ACCOUNT
Schedule III - Real Estate Owned
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Acquisition
Initial Cost (Including Value at Year
Encum- to Acquire Unrealized Gains December 31, Construction Date
Description brances Property and Losses) 1996 Completed Acquired
- -------------------------------- ------- ------------ ----------------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
River Road Distribution Center $-0- $ 4,166,787 $ 8,213 $ 4,175,000 1995 11/22/95
Industrial Building
Fridley, Minnesota
The Greens At Metrowest -0- 12,490,895 309,105 12,800,000 1990 12/15/95
Apartments
Orlando, Florida
Butterfield Industrial Park -0- 4,431,166 168,834 4,600,000 1980 12/22/95
Industrial Building
El Paso, Texas (1)
Brixworth Apartments -0- 15,574,647 425,353 16,000,000 1989 12/28/95
Apartments
Atlanta, Georgia
Plantation Grove Shopping Center -0- 7,326,170 73,830 7,400,000 1995 12/28/95
Shopping Center
Ocoee, Florida
Southbank Business Park -0- 10,069,898 430,102 10,500,000 1995 02/27/96
Office Building
Phoenix, Arizona
Millbrook Collection -0- 6,774,711 (374,711) 6,400,000 1988 03/29/96
Shopping Center
Raleigh, North Carolina
Lynnwood Collection -0- 6,708,120 (108,120) 6,600,000 1988 03/29/96
Shopping Center
Raleigh, North Carolina
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Acquisition
Initial Cost (Including Value at Year
Encum- to Acquire Unrealized Gains December 31, Construction Date
Description brances Property and Losses) 1996 Completed Acquired
- --------------------------- ------- ------------ ----------------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Monte Vista Apartments -0- 17,664,247 85,753 17,750,000 1995 06/21/96
Apartments
Littleton, Colorado
River Oaks Shopping Center -0- 13,036,153 63,847 13,100,000 1995 07/12/96
Shopping Center
Woodbridge, Virginia
Arapahoe Park East -0- 9,920,680 -0- 9,920,680 1979 10/31/96
Industrial Building
Boulder, Colorado
Royal St. George Apartments -0- 16,072,275 -0- 16,072,275 1995 12/20/96
Apartments
West Palm Beach, Florida
Interstate Crossing -0- 6,485,249 -0- 6,485,249 1995 12/31/96
Industrial Building
Eagan, Minnesota
----- ------------ ---------- ------------
$ -0- $130,720,998 $1,082,206 $131,803,204
===== ============ ========== ============
(1) Leasehold interest only
</TABLE>
Reconciliation of investment property owned:
Balance at beginning of period $ 43,989,665
Acquisitions 86,731,333
Capital improvements and carrying costs 1,082,206
(including unrealized gains and losses)
------------
Balance at end of period $131,803,204
============
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
36
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Account has no officers or directors. The Trustees and principal
executive officers of TIAA, and their principal occupations during the last five
years, are as follows:
Trustees
- --------
David Alexander, 64.
American Secretary, Rhodes Scholarship Trust, and Trustees' Professor, Pomona
College. Formerly, President, Pomona College, until 1991.
Marcus Alexis, 65.
Board of Trustees, Professor of Economics and Professor of Management and
Strategy, Northwestern University.
Willard T. Carleton, 62.
Karl L. Eller Professor of Finance, College of Business and Public
Administration, University of Arizona.
Robert C. Clark, 53.
Dean and Royall Professor of Law, Harvard Law School, Harvard University.
Flora Mancuso Edwards, 52.
Of Counsel to the law firm of Dublirer, Haydon, Straci & Victor, since 1996.
Professor of English as a Second Language, Middlesex County College, since
October 1995. Formerly, President, Middlesex County College until October 1995.
Estelle A. Fishbein, 62.
General Counsel of The Johns Hopkins University since 1975. Elected Vice
President and General Counsel of the University, April 1991.
Frederick R. Ford, 61.
Executive Vice President and Treasurer, Purdue University.
Martin J. Gruber, 59.
Chairman of the Department of Finance and Nomura Professor of Finance, New York
University Stern School of Business.
Ruth Simms Hamilton, 59.
Professor, Department of Sociology and Urban Affairs Programs, and Director,
African Diaspora Research Project, Michigan State University.
37
<PAGE>
Dorothy Ann Kelly, O.S.U., 67.
President, College of New Rochelle.
Robert M. O'Neil, 62.
Professor of Law, University of Virginia and Director, The Thomas Jefferson
Center for the Protection of Free Expression.
Leonard S. Simon, 60.
Chairman, President and Chief Executive Officer, RCSB Financial, Inc., since
September 1995. Formerly, Chairman and Chief Executive Officer, The Rochester
Community Savings Bank, from 1984 until September 1995.
Ronald L. Thompson, 47.
Chairman of the Board and Chief Executive Officer, Midwest Stamping Co.
Formerly, Chairman of the Board and President, The GR Group, until 1993.
Paul R. Tregurtha, 61.
Chairman, Chief Executive, and Director, Mormac Marine Group, Inc.; Vice
Chairman and Director, The Interlake Steamship Company; Chairman and Director,
Moran Transportation Company; and Chairman, MAC Acquisitions, Inc.
Charles J. Urstadt, 68.
Chairman and Chief Executive Officer, HRE Properties (a real estate investment
trust) and Trustee Emeritus, Pace University.
William H. Waltrip, 59.
Chairman and Chief Executive Officer, Bausch & Lomb Inc., since January 1996.
Chairman and Chief Executive Officer, Technology Solutions Company, since 1993.
Formerly, Chairman and Chief Executive Officer, Biggers Brothers, Inc., and Vice
Chairman, Unifax, from 1991 until 1993.
Rosalie J. Wolf, 55.
Treasurer and Chief Investment Officer, The Rockefeller Foundation since 1994.
Formerly, Executive Vice President, Sithe Energies, Inc. from January 1994 to
June 1994, and Managing Director, Bankers Trust Company, from 1989 to 1993.
Officer-Trustees
- ----------------
John H. Biggs, 60.
Chairman and Chief Executive Officer, TIAA and CREF, since 1993. Formerly,
President and Chief Operating Officer, TIAA and CREF.
38
<PAGE>
Thomas W. Jones, 47.
Vice Chairman, TIAA and CREF, since 1995. President and Chief Operating Officer,
TIAA and CREF, since 1993. Formerly, Executive Vice President, Finance and
Planning, TIAA and CREF.
Martin L. Leibowitz, 60.
Vice Chairman and Chief Investment Officer, TIAA and CREF, since November 1995.
Executive Vice President, TIAA and CREF, from June 1995 to November 1995.
Formerly, Managing Director -- Director of Research and member of the Executive
Committee, Salomon Brothers, Inc.
Other Officers
- --------------
Richard L. Gibbs, 49.
Executive Vice President, TIAA and CREF, since 1993, and Vice President,
TIAA-CREF Investment Management, Inc. ("Investment Management") and TIAA-CREF
Individual & Institutional Services, Inc. ("Services"), since 1992; Executive
Vice President, Teachers Advisors, ("Advisors") since 1995. Formerly, Vice
President, Finance, TIAA and CREF.
Albert J. Wilson, 64.
Vice President and Chief Counsel, Corporate Secretary, TIAA and CREF, since
1991.
Richard J. Adamski, 54.
Vice President and Treasurer, TIAA and CREF, since March 1991; Vice President
and Treasurer, Investment Management and Services, since 1992; Vice President
and Treasurer, Teachers Personal Investors Services, Inc. and Advisors, since
1994.
ITEM 11. EXECUTIVE COMPENSATION.
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
On July 3, 1995, the Account issued 1,000,000 accumulation units to TIAA,
at $100 per unit, in consideration of TIAA's $100 million seed money investment.
TIAA began to redeem these units pursuant to a fixed repayment schedule on
September 16, 1996. As of December 31, 1996, TIAA held 933,333 accumulation
units with a value of $103,703,507, representing 28% of the Account's total net
assets.
39
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TIAA's general account plays a significant role in operating the Real
Estate Account, including providing seed money, a liquidity guarantee, and
investment management and other services.
Seed Money. On July 3, 1995, TIAA supplied the Account's initial $100
million seed money investment in exchange for one million accumulation units, at
$100 per unit. On September 16, 1996, in accordance with a five-year repayment
schedule approved by the New York State Insurance Department, TIAA began to
redeem the accumulation units related to its seed money investment. TIAA is
redeeming a pro rata portion of the accumulation units monthly over a 60-month
period (16,666.667 units per month). TIAA's accumulation units are being
redeemed at net asset value at the time of redemption.
Liquidity Guarantee. If the Account's cash flow is insufficient to fund
redemption requests, TIAA's general account has agreed to fund them by
purchasing accumulation units. TIAA thereby guarantees that a participant can
redeem accumulation units at their then current daily net asset value. For the
year ended December 31, 1996, the Account paid TIAA $5,325 for this liquidity
guarantee through a daily deduction from the net assets of the Account.
Investment Management and Administrative Services/Certain Risks Borne by
TIAA. Deductions are made each valuation day from the net assets of the Account
for various services required to manage investments, administer the Account and
distribute the contracts, and to cover mortality and expense risks borne by
TIAA. These services are performed at cost by TIAA and Services.
For the year ended December 31, 1996, the Account paid TIAA $642,042 for
investment management services and $70,535 for mortality and expense risks. For
the same period, the Account paid Services $437,894 for its administrative and
distribution services.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Item 8 for required financial statements.
(a) 2. Financial Statement Schedules. See Item 8 for required financial
statement schedules.
(a) 3. Exhibits.
(1) Distribution and Administrative Services Agreement by and between TIAA
and TIAA-CREF Individual & Institutional Services, Inc. (as amended)*
(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 Contract
Endorsements*
(B) Forms of Income-Paying Contracts*
(10) (A) Independent Fiduciary Agreement by and among TIAA, the Registrant,
and Institutional Property Consultants, Inc. (as amended)**
(B) Custodial Services Agreement by and between TIAA and Morgan
Guaranty Trust Company of New York with respect to the Real
Estate Account*
(27) Financial Data Schedule of the Account's Financial Statements for the
year ended December 31, 1996
(b) Reports on 8-K. No reports on Form 8-K have been filed during the last
quarter of the period covered by this report. The Account filed a report on Form
8-K on January 15, 1997 under Item 5 of the form with respect to the acquisition
of properties for its portfolio.
- -------------------------------
* - Previously filed and incorporated herein by reference to Post-Effective
Amendment No. 2 to the Account's previous 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
previous Registration Statement on Form S-1 filed October 4, 1996 (File No.
333-13477).
41
<PAGE>
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.
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
March 14, 1997
------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons, trustees and officers of
Teachers Insurance and Annuity Association of America, in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/s/ John H. Biggs Chairman of the Board March 14, 1997
- ----------------------- and Chief Executive
John H. Biggs Officer (Principal
Executive Officer)
and Trustee
/s/ Thomas W. Jones Vice Chairman, March 14, 1997
- ---------------------- President and Chief
Thomas W. Jones Operating Officer
(Principal Financial
Officer) and Trustee
/s/ Martin L. Leibowitz Vice Chairman, March 14, 1997
- ----------------------- and Chief Investment
Martin L. Leibowitz Officer and Trustee
/s/ Richard L. Gibbs Executive Vice March 14, 1997
- ----------------------- President
Richard L. Gibbs (Principal Accounting
Officer)
<PAGE>
Signature of Trustee Date Signature of Trustee Date
- -------------------- ---- -------------------- ----
/s/ David Alexander 3/14/97
- ----------------------- ------------------------
David Alexander Dorothy Ann Kelly, O.S.U.
/s/ Marcus Alexis 3/14/97 /s/ Robert M. O'Neil 3/14/97
- ----------------------- ------------------------
Marcus Alexis Robert M. O'Neil
/s/ Willard T. Carleton 3/14/97 /s/ Leonard S. Simon 3/14/97
- ----------------------- ------------------------
Willard T. Carleton Leonard S. Simon
/s/ Robert C. Clark 3/14/97 /s/ Ronald L. Thompson 3/14/97
- ----------------------- ------------------------
Robert C. Clark Ronald L. Thompson
- ----------------------- ------------------------
Flora Mancuso Edwards Paul R. Tregurtha
/s/ Charles J. Urstadt 3/14/97
- ----------------------- ------------------------
Estelle A. Fishbein Charles J. Urstadt
/s/ Frederick R. Ford 3/14/97 /s/ William H. Waltrip 3/14/97
- ----------------------- ------------------------
Frederick R. Ford William H. Waltrip
/s/ Martin J. Gruber 3/14/97 /s/ Rosalie J. Wolf 3/14/97
- ----------------------- ------------------------
Martin J. Gruber Rosalie J. Wolf
/s/ Ruth Simms Hamilton 3/14/97
- -----------------------
Ruth Simms Hamilton
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
Because the Registrant has no voting securities, nor its own management or
board of directors, no annual report or proxy materials will be sent to
contractowners holding interests in the Account.
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
3B Bylaws of TIAA (as amended)
27 Financial Data Schedule of the Account's Financial Statements for
the period ended December 31, 1996
BYLAWS
OF
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
As Amended November 13, 1996
ARTICLE ONE
Stockholders
Section 1. Annual Meeting. The annual meeting of stockholders for the
election of trustees and for the transaction of such other business as may
properly come before the meeting shall be held in the month of November each
year at the office of the Association in the City of New York on a day and at an
hour specified by notice mailed at least thirty days in advance. The notice
shall be in writing and shall be signed by the chairman, or the president, or a
vice president, or the secretary.
Special meetings of the stockholders may be held at the said office of
the Association whenever called by the chairman, or by the president, or by
order of the board of trustees, or by the holders of at least one-third of the
outstanding shares of stock of the Association, or may be held subject to the
provisions of the emergency bylaws of the Association.
Section 2. Notice. It shall be the duty of the secretary not less than
ten nor more than forty days prior to the date of each meeting of the
stockholders to cause a notice of the meeting to be mailed to each stockholder.
Section 3. Voting. At all meetings of stockholders each stockholder
shall be entitled to one vote upon each share of stock owned by him of record on
the books of the Association ten days before the meeting. Stockholders may vote
in person or by proxy appointed in writing.
Section 4. Quorum. The presence in person or by proxy of the
holders of a majority of the shares in the Association shall be
necessary to constitute a quorum at any meeting of stockholders.
Section 5. Telephonic Participation. At all meetings of stockholders or
any committee thereof, stockholders may participate by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
<PAGE>
ARTICLE TWO
Trustees
Section 1. General Management. The general management of the property,
business and affairs of the Association shall be vested in the board of trustees
provided by the charter. A trustee need not be a stockholder. At least one-third
of such trustees must not be officers or employees of the Association or any
entity controlling, controlled by, or under common control with the Association
and who are not beneficial owners of a controlling interest in the voting stock
of the Association or any such entity.
Section 2. Quorum. One-third of the trustees shall constitute a quorum
at all meetings of the board. If less than a quorum shall be present at any
meeting, a majority of those present may adjourn the meeting from time to time
until a quorum shall attend. In case of a vacancy among the trustees of any
class through death, resignation or other cause, a successor to hold office for
the unexpired portion of the term may be elected at any meeting of the board at
which a quorum shall be present. Such successors shall not take office nor
exercise the duties thereof until ten days after written notice of their
election shall have been filed in the office of the Superintendent of Insurance
of the State of New York.
Section 3. Annual Meeting. There shall be a meeting of the board of
trustees in the month of November each year on a day and at an hour specified in
a notice mailed at least ten days and not more than twenty days in advance. This
shall be known as the annual meeting of the board of trustees. At this meeting
the board shall elect officers, appoint committees and transact such other
business as shall properly come before the meeting.
Section 4. Other Meetings. Stated meetings of the board of trustees
shall be held on such dates as the board by standing resolution may fix. No
notice of such stated meetings need be given. Special meetings of the board may
be called by order of the chairman, the president, or the executive committee by
notice mailed at least one week prior to the date of such meeting, and any
business may be transacted at the meeting.
Section 5. Telephonic Participation. At all meetings of the board of
trustees or any committee thereof, trustees may participate by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
Section 6. Action Without a Meeting. Where time is of the essence, but
not in lieu of a regularly scheduled meeting of the board of trustees or
committee thereof, any action required or permitted to be taken by the board, or
any committee thereof, may
<PAGE>
be taken without a meeting if all members of the board or the committee consent
in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the members of the board or
committee shall be filed with the minutes of the proceedings of the board or
committee.
Section 7. Trustees' Compensation and Expenses. A trustee may be paid
an annual stipend and fees and such other compensation or emolument in any
amount first authorized by the board in accordance with Section 1 of Article
Five hereof, including, but not limited to, a deferred compensation benefit, for
meetings of the board that he/she attends and for services that he/she renders
on or for committees or subcommittees of the board; and each trustee shall be
reimbursed for transportation and other expenses incurred by him/her in serving
the Association.
Section 8. Chairman. The chairman, and in his absence the
president, shall preside at all meetings of the board.
ARTICLE THREE
Officers
Section 1. Election. At each annual meeting the board of trustees shall
elect the executive officers of the corporation including a chairman, a
president, one or more vice presidents, and such other executive officers as
they may determine. Each such executive officer shall hold office until the
close of the next annual meeting of the board or, if earlier, until his
retirement, death, resignation or removal. The board may appoint other officers
and agents, assign titles to them and determine their duties; such officers and
agents shall hold office during the pleasure of the board of trustees. It may
appoint persons to act temporarily in place of any officers of the Association
who may be absent, incapacitated, or for any other reason unable to act or may
delegate such authority to the chief executive officer.
Section 2. Removal of Officers. Any officer elected by the board of
trustees may be removed by the affirmative votes of a majority of all the
trustees holding office. Any other officer may be removed by the affirmative
votes of a majority of all members of the executive committee holding office.
Section 3. Removal of Other Employees. All other agents and employees
shall hold their positions at the pleasure of the executive committee or of such
executive officer as the executive committee may clothe with the powers of
engaging and dismissing.
Section 4. Qualifications. The chairman and the president shall be
members of the board of trustees, but none of the other officers need be a
trustee. One person may hold more than one office, except that no person shall
be both president and
<PAGE>
secretary.
Section 5. Chief Executive Officer. The board of trustees shall
designate either the chairman or the president as chief executive officer.
Subject to the control of the board of trustees and the provisions of these
bylaws, the chief executive officer shall be charged with the management of the
affairs of the Association, and shall perform such duties as are not
specifically delegated to other officers of the Association. He shall be ex
officio a member of all standing committees except the nominating and personnel
committee, audit committee and the committee on reimbursement agreements with
CREF. He shall report from time to time to the board of trustees on the affairs
of the Association.
Section 6. Chairman. The chairman, when present, shall preside at all
meetings of the stockholders and of the board. He shall be ex officio chairman
of the executive committee. He may appoint trustee committees, except those
appointed by the board of trustees, and may appoint members to fill vacancies on
trustee committees appointed by the board when such occur between meetings of
the trustees. If the chairman is not the chief executive officer, he shall, in
addition to the foregoing, perform such functions as are delegated to him by the
chief executive officer.
Section 7. President. The president, in the event of the absence or
disability of the chairman, shall perform the duties of the chairman. If the
president is not the chief executive officer, he shall assist the chief
executive officer in his duties and shall perform such functions as are
delegated to him by the chief executive officer.
Section 8. Absence or Disability of Chief Executive Officer. In the
absence or disability of the chief executive officer, the president, if he is
not the chief executive officer, or the chairman, if he is not the chief
executive officer, or if neither is available, a vice president so designated by
the executive committee or chief executive officer shall perform the duties of
the chief executive officer, unless the board of trustees otherwise provides and
subject to the provisions of the emergency bylaws of the Association.
Section 9. Secretary. The secretary shall give all required notices of
meetings of the board of trustees, and shall attend and act as secretary at all
meetings of the board and of the executive committee and keep the records
thereof. He shall keep the seal of the corporation, and shall perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him by the board of trustees, the executive committee, or the
chief executive officer.
Section 10. Other Officers. The chief executive officer shall determine
the duties of the executive officers other than
<PAGE>
the chairman, president, and secretary and of all officers other than executive
officers, and he may assign titles to and determine the duties of non-officers.
ARTICLE FOUR
Committees
Section 1. Appointment. At each annual meeting of the board of
trustees, the board shall appoint an executive committee, an investment
committee, a nominating and personnel committee, an audit committee, a committee
on reimbursement agreements with CREF, a committee on products and services, and
a committee on corporate governance and social responsibility, each member of
which shall hold office until the close of the next annual meeting of the board
and until a successor shall be appointed or until the member shall cease to be a
trustee except that for the audit committee, the board may specify a different
period of membership. The board of trustees, the executive committee, or the
chairman may appoint such other trustee committees and subcommittees as may from
time to time be found necessary or convenient for the proper conduct of the
business of the Association, and designate their duties.
Section 2. Executive Committee. The executive committee shall consist
of at least seven trustees including the chairman and the president. Three
members shall constitute a quorum, among whom only one salaried officer may be
counted for that purpose. The executive committee shall meet in regular meeting
as it may from time to time determine, and in special meeting whenever called by
the chairman, and shall be vested with full powers of the board of trustees
during intervals between the meetings of the board in all cases in which
specific instructions shall not have been given by the board of trustees and, in
particular, said committee:
(a) shall have general supervision of the contracts issued by the
Association, and of all matters relating to the selection of risks, the
determination of premium rates, and of any other questions of detail in the
conduct of the business which may be referred to the executive committee by
resolutions of the board of trustees.
(b) Shall have supervision of the rules and methods for recording the
vouchers, accounts, receipts and disbursements of the Association.
(c) Shall, in the event of an acute emergency, as defined by Article
Seven-A--Insurance, of the New York State Defense Emergency Act, (Section 9177,
Unconsolidated Laws of New York) and any amendments thereof, be responsible for
the emergency management of the Association as provided in the emergency bylaws
of the Association.
<PAGE>
Section 3. Investment Committee. The investment committee shall consist
of the chief executive officer, three other trustees, and such additional
trustees, if any, as the board of trustees or the executive committee may
appoint. Three members shall constitute a quorum, among whom only one salaried
officer of the Association may be counted for that purpose.
(a) Subject to review by the board of trustees the investment committee
shall determine the investment policies of the Association.
(b) The investment committee shall supervise the investment of the
funds of the Association. No loan or investment other than policy loans shall be
made or disposed of without authorization or approval by the investment
committee.
Section 4. Nominating and Personnel Committee. The nominating and
personnel committee shall consist of five trustees who are not officers or
salaried employees of the Association and whose terms do not expire in the year
following their appointment. Three members shall constitute a quorum. In the
year following their appointment the committee shall nominate executive officers
and the standing committees for the annual meeting of the board of trustees,
shall designate the principal officers of the Association, shall recommend to
the board of trustees the annual compensation of the principal officers and of
any salaried employee if the level of compensation to be paid to such employee
is equal to, or greater than, the compensation received or to be received by any
principal officer, nominate trustees to fill interim vacancies and, if requested
by the TIAA Board of Overseers, shall recommend the names of persons for
election as trustees at the annual meeting of the stockholders. In addition, the
committee shall approve the titles and base salaries of all appointed officers
and the base salaries of executive officers, other than those designated as
principal officers or those officers to be paid on an equal or greater level of
compensation with principal officers, and shall recommend the provisions of any
incentive salary compensation program(s) and determine the amounts of any
incentive salary payments for those officers included in any incentive salary
plan.
Section 5. Audit committee. The audit committee shall consist of five
trustees who are not officers or salaried employees of the Association. Two
members shall constitute a quorum. The committee shall itself, or through public
accountants or otherwise, make such audits and examinations of the records and
affairs of the Association as it may deem necessary.
Section 6. Committee on Reimbursement Agreements. The committee on
reimbursement agreements shall consist of three trustees who are not officers or
employees of the Association. The committee shall review the reimbursement
agreements among TIAA, CREF, TIAA-CREF Individual & Institutional Services,
Inc.,
<PAGE>
and TIAA-CREF Investment Management, Inc., and make recommendations regarding
them to the board of trustees.
Section 7. Committee on Products and Services. The members of the
committee on products and services shall consist of at least seven trustees. A
quorum shall consist of a majority of the members and not less than a quorum
shall meet jointly with the CREF committee on products and services to review
and oversee the design, development, improvement, and marketing of new and
existing products and services. In addition, the committee shall review the
specifications for and oversee the implementation stages of new technology-based
services and computer programs at participating institutions.
Section 8. Committee on corporate Governance and Social Responsibility.
The committee on corporate governance and social responsibility shall consist of
not less than five trustees and such additional trustees as the board of
trustees may appoint. No such trustee shall be an officer or salaried employee
of TIAA.
A committee quorum shall consist of a majority of the members. The
committee is responsible for addressing all corporate social responsibility and
corporate governance issues including the voting of TIAA shares and the
initiation of appropriate shareholder resolutions. In addition, the committee
will develop and recommend specific corporate policy in these areas for
consideration by the TIAA board of trustees.
Section 9. Reports. Within a reasonable time after their meetings, all
such committees and subcommittees shall report heir transactions to each
trustee.
ARTICLE FIVE
Salaries, Compensation and Pensions to Trustees, Officers and
Employees
Section 1. Salaries and Pensions. The Association shall not pay any
salary, compensation or emolument in any amount to any officer, deemed by a
committee or committees of the board to be a principal officer pursuant to
subsection (b) of Section 1202 of the Insurance Law of the State of New York, or
to any salaried employee of the Association if the level of compensation to be
paid to such employee is equal to, or greater than, the compensation received by
any of its principal officers, or to any trustee thereof, unless such payment be
first authorized by a vote of the board of trustees of the Association. The
Association shall not make any agreement with any of its officers or salaried
employees whereby it agrees that for any services rendered or to be rendered he
shall receive any salary, compensation or emolument that will extend beyond a
period of thirty-six months from the date of such agreement, except as
specifically permitted by the Insurance Law of the State of New York. No
principal officer or employee of the class described in the first sentence
<PAGE>
of this section, who is paid a salary for his services shall receive any other
compensation, bonus or emolument from the Association, directly or indirectly,
except in accordance with a plan recommended by a committee of the board
pursuant to subsection (b) of Section 1202 of the Insurance Law of the State of
New York and approved by the board of trustees. The Association shall not grant
any pension to any officer or trustee, or to any member of his family after his
death, except that the Association may pursuant to the terms of a retirement
plan and other appropriate staff benefit plans adopted by the board provide for
any person who is or has been a salaried officer or employee, a pension payable
at the time of retirement by reason of age or disability and also life
insurance, health insurance and disability benefits.
Section 2. Prohibitions. No trustee or officer of the Association shall
receive, in addition to fixed salary or compensation, any money or valuable
thing, either directly or indirectly, or through any substantial interest in any
other corporation or business unit, for negotiating, procuring, recommending or
aiding in any purchase or sale of property, or loan, made by the Association or
any affiliate or subsidiary thereof, nor be pecuniarily interested either as
principal, coprincipal, agent or beneficiary, either directly or indirectly, or
through any substantial interest in any other corporation or business unit, in
any such purchase, sale or loan; provided that nothing herein contained shall
prevent the Association from making a loan upon a policy held therein by the
borrower not in excess of the net reserve value thereof.
ARTICLE SIX
Indemnification of Trustees, Officers and Employees
The Association shall indemnify, in the manner and to the full extent
permitted by law, each person made or threatened to be made a party to any
action, suit or proceeding, whether or not by or in the right of the
Association, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that he or his testator or intestate is or was
a trustee, officer or employee of the Association or, while a trustee, officer
or employee of the Association, served any other corporation or organization of
any type or kind, domestic or foreign, in any capacity at the request of the
Association. To the full extent permitted by law such indemnification shall
include judgments, fines, amounts paid in settlement, and expenses, including
attorneys' fees. No payment of indemnification, advance or allowance under the
foregoing provisions shall be made unless a notice shall have been filed with
the Superintendent of Insurance of the State of New York not less than thirty
days prior to such payment specifying the persons to be paid, the amounts to be
paid, the manner in which payment is authorized and the nature and status, at
the time of such notice, of the litigation or threatened litigation.
<PAGE>
ARTICLE SEVEN
Execution of Instruments
The board of trustees or the executive committee shall designate who is
authorized to execute certificates of stock, proxies, powers of attorney, deeds,
leases, releases of mortgages, satisfaction pieces, checks, drafts, contracts
for insurance or annuity and instruments relating thereto, and all other
contracts and instruments in writing necessary for the Association in the
management of its affairs, and to attach the Association's seal thereto; and may
further authorize the extent to which such execution may be done by facsimile
signature.
ARTICLE EIGHT
Disbursements
No disbursements of $100 or more shall be made unless the same be
evidenced by a voucher signed by or on behalf of the person, firm or corporation
receiving the money and correctly describing the consideration for the payment,
and if the same be for services and disbursements, setting forth the services
rendered and an itemized statement of the disbursements made, and if it be in
connection with any matter pending before any legislative or public body, or
before any department or officer of any government, correctly describing in
addition the nature of the matter and of the interest of such corporation
therein, or if such voucher cannot be obtained, by an affidavit stating the
reasons therefor and setting forth the particulars above mentioned.
ARTICLE NINE
Corporate Seal
The seal of the Association shall be circular in form and shall contain
the words "Teachers Insurance and Annuity Association of America, New York,
Corporate Seal, 1918," which seal shall be kept in the custody of the secretary
of the Association and be affixed to all instruments requiring such corporate
seal.
ARTICLE TEN
Amendment
Article One of these bylaws can be amended or repealed only by the
affirmative vote of the holders of a majority of the outstanding shares of the
capital stock of the Association, such vote being cast at a meeting held upon
notice stating that such meeting is to vote upon a proposed amendment or repeal
of such bylaw.
<PAGE>
Any other bylaw may be amended or repealed at any meeting of the board
of trustees provided notice of the proposed amendment or repeal shall have been
mailed to each trustee at least one week and not more than two weeks prior to
the date of such meeting.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000946155
<NAME> TIAA REAL ESTATE ACCOUNT
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 364,721,889
<INVESTMENTS-AT-VALUE> 367,930,727
<RECEIVABLES> 47,480,000
<ASSETS-OTHER> 6,979,540
<OTHER-ITEMS-ASSETS> 3,981,740
<TOTAL-ASSETS> 426,372,007
<PAYABLE-FOR-SECURITIES> 51,354,619
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,322,335
<TOTAL-LIABILITIES> 56,676,954
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 3,295,786
<SHARES-COMMON-PRIOR> 1,172,498
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<OVERDISTRIBUTION-NII> 0
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<NET-ASSETS> 369,695,053
<DIVIDEND-INCOME> 456,579
<INTEREST-INCOME> 5,570,907
<OTHER-INCOME> 7,580,686
<EXPENSES-NET> (1,155,796)
<NET-INVESTMENT-INCOME> 12,452,376
<REALIZED-GAINS-CURRENT> 141,439
<APPREC-INCREASE-CURRENT> 3,189,100
<NET-CHANGE-FROM-OPS> 15,782,915
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,123,288
<NUMBER-OF-SHARES-REDEEMED> 0
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<NET-CHANGE-IN-ASSETS> 249,436,708
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 102.566
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