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, 1997
[ ] 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, 333-13477 and 333-22809
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
<PAGE>
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, and 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 also invests 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.
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).
2
<PAGE>
Net Assets and Portfolio Investments. As of December 31, 1997, the
Account's net assets totalled $785,818,715. Through December 31, 1997, the
Account had acquired a total of 33 real estate properties, including twelve
office properties, eight industrial properties, five neighborhood shopping
centers, and eight apartment complexes. As of December 31, 1997, these
properties represented 65.06% of the Account's total investment portfolio. As of
that date, the Account held 34.94% of its portfolio investments in marketable
securities, including U.S. government agencies, real estate investment trusts
(REITs), commercial paper, and corporate bonds.
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 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.
Set forth below is general information about each of the Account's
portfolio properties, as of December 31, 1997.
<TABLE>
<CAPTION>
Annual Avg.
Rentable Base Rent
Year Year Area Percent per Leased Market
Property Location Built Purchased (sq. ft.) Leased Sq. Ft.(1) Value(2)
- -------- -------- ----- --------- --------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES
Columbia Centre III Rosemont, IL 1989 1997 238,941 99% $25.12 $ 38,580,850
371 Hoes Lane Piscataway, NJ 1986 1997 136,088 100% $15.55 $ 15,499,306
Corporate Center at Sawgrass Sunrise, FL 1997 1997 91,113 94% $13.93 $ 12,956,957
Parkview Plaza(3) Oakbrook, IL 1990 1997 263,912 100% $18.84 $ 51,614,733
Fairgate at Ballston(3) Arlington, VA 1988 1997 143,564 97% $22.54 $ 27,560,000
Five Centerpointe(3) Lake Oswego, OR 1988 1997 113,910 98% $14.16 $ 16,200,000
Two Newton Place(3) Newton, MA 1987 1997 108,819 100% $18.67 $ 16,900,000
USF&G Building(3) Salt Lake City, UT 1988 1997 66,526 99% $12.20 $ 7,900,000
Northmark Business Center(3) Blue Ash, OH 1985 1997 106,552 92% $10.10 $ 9,873,570
Metro Center Office Park(3) Sacramento, CA 1986 1997 257,989 87% $11.30 $ 21,500,000
Longview Executive Park(3) Hunt Valley, MD 1988 1997 257,944 95% $ 9.90 $ 23,500,000
Southbank Building Phoenix, AZ 1995 1996 122,535 100% $ 9.01 $ 10,700,000
--------- ------------
Subtotal--Office Properties 1,907,893 $252,785,416
INDUSTRIAL PROPERTIES
Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $5.34 $ 12,200,000
Saks Distribution Facility Aberdeen, MD 1997 1997 470,707 100% $5.38 $ 27,700,000
Westinghouse Coral Springs, FL 1997 1997 75,630 100% $7.29 $ 6,100,000
Interstate Acres Urbandale, IA 1981-88 1997 440,000 97% $3.28 $ 13,813,908
Interstate Crossing Eagan, MN 1995 1996 131,380 100% $7.25 $ 6,400,000
Arapahoe Park E. Boulder, CO 1979-82 1996 129,425 100% $9.01 $ 10,000,000
River Road Distribution Center Fridley, MN 1995 1995 100,584 100% $5.97 $ 4,225,000
Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $3.58 $ 4,700,000
--------- ------------
Subtotal--Industrial Properties 1,731,236 $ 85,138,908
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Annual Avg.
Rentable Base Rent
Year Year Area Percent per Leased Market
Property Location Built Purchased (sq. ft.) Leased Sq. Ft.(1) Value(2)
- -------- -------- ----- --------- --------- ------ ---------- --------
RETAIL PROPERTIES
<S> <C> <C> <C> <C> <C> <C> <C>
Rolling Meadows Rolling Meadows, IL 1957(4) 1997 131,070 90% $10.77 $ 13,000,000
River Oaks Woodbridge, VA 1995 1996 90,885 92% $14.04 $ 12,760,835
Lynnwood Collection Raleigh, NC 1988 1996 86,362 100% $ 8.44 $ 7,100,000
Millbrook Collection Raleigh, NC 1988 1996 102,221 95% $ 7.26 $ 7,000,000
Plantation Grove Ocoee, FL 1995 1995 73,655 96% $ 9.96 $ 7,200,000
--------- ------------
Subtotal--Retail Properties 484,193 $ 47,060,835
--------- ------------
Subtotal--Commercial Properties 4,123,322 $384,985,159
RESIDENTIAL PROPERTIES(5)
Lodge at Willow Creek Douglas County, CO 1997 1997 NA 80% NA $ 27,562,882
Lincoln Woods Lafayette Hill, PA 1991 1997 NA 97% NA $ 21,476,050
The Crest of Shadow Mt. El Paso, TX 1992 1997 NA 94% NA $ 9,260,000
Westcreek Westlake Village, CA 1988 1997 NA 99% NA $ 13,700,000
Royal St. George W. Palm Beach, FL 1995 1996 NA 98% NA $ 15,800,000
Monte Vista Littleton, CO 1995 1996 NA 90% NA $ 19,000,000
Brixworth Atlanta, GA 1989 1995 NA 98% NA $ 16,100,000
The Greens at Metrowest Orlando, FL 1990 1995 NA 93% NA $ 13,400,000
------------
Subtotal--Residential Properties NA $136,298,932
--------- ------------
Total--All Properties 4,123,322 $521,284,091
</TABLE>
(1) Based on total rent (excluding tenant payments for real estate taxes and
operating expenses) on leases existing at December 31, 1997.
(2) Market value reflects the value determined in accordance with the procedures
described under "Valuation of Assets," page . The values shown here assume
the Account owns 100% of the properties, including those held jointly.
(3) Purchased in partnership with Pegasus Partners, Inc., a subsidiary of USF&G
Corporation.
(4) Renovated in 1991 and 1995.
(5) For the average unit size and annual average rent per unit for each
residential property, see "Residential Properties" below.
Commercial (Non-Residential) Properties
- ---------------------------------------
In General. The Account holds 25 commercial (non-residential)
properties in its portfolio. None of these properties is subject to a mortgage,
and although the terms vary under each lease, certain expenses, such as real
estate taxes and other operating expenses, are paid or reimbursed by the
tenants.
The Account's office property portfolio currently consists of twelve
suburban office properties located in metropolitan areas throughout the United
States. The office properties together are approximately 96% leased to 127
tenants. The Account has a 90% interest in eight of the office properties, which
are held in a partnership with Pegasus Partners, Inc., a wholly-owned subsidiary
of USF&G Corporation. USF&G Realty Advisors, Inc. provides real estate advisory
services to the partnership and assists in the overall management of those
properties.
The Account's industrial property portfolio currently consists of
eight properties used primarily for warehousing, distribution, or light
manufacturing activities. The Account's industrial properties together are
approximately 99% leased to 37 tenants.
The Account's retail property portfolio currently consists of five
neighborhood shopping centers, each of which is anchored by a supermarket
tenant. These retail properties together are approximately 94% leased to 78
tenants.
4
<PAGE>
Residential Properties
- ----------------------
The Account's residential property portfolio currently consists of
eight first class or luxury multi-family garden apartment complexes. None of the
properties in the portfolio is subject to a mortgage. The complexes generally
contain one- to three-bedroom apartment units, with a range of amenities, such
as patios or balconies, washers and dryers, and central air conditioning. Many
of these apartment communities have use of on-site fitness facilities, including
some with swimming pools. Rents on each of the properties tend to be comparable
with competitive communities and are not subject to rent regulation. The Account
is responsible for the expenses of operating the properties.
Set forth below is more detailed information regarding the
complexes.
<TABLE>
<CAPTION>
Average Avg. Rent
Number Unit Size Per Unit/ Percent
Property Location of Units (Square Feet) Per Month Leased
<S> <C> <C> <C> <C> <C>
Lodge at Willow Creek Douglas County, CO 316 1001 $1,088 80%
Lincoln Woods Lafayette Hill, PA 216 773 $1,057 97%
The Crest of Shadow Mt. El Paso, TX 232 837 $ 607 94%
Westcreek Westlake Village, CA 126 948 $1,086 99%
Royal St. George West Palm Beach, FL 224 870 $ 811 98%
Monte Vista Littleton, CO 219 888 $ 954 90%
Brixworth Atlanta, GA 271 718 $ 794 98%
The Greens at Metrowest Orlando, FL 200 920 $ 781 93%
</TABLE>
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 value of the Account's then
current net assets. For the period from January 1, 1997 to December 31, 1997,
the high and low accumulation unit values for the Account were $122.30 and
$111.06, respectively.
5
<PAGE>
(b) Approximate Number of Holders. The number of contractowners at
February 28, 1998 was 45,829.
(c) Dividends. Not applicable.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be considered in conjunction
with the Account's consolidated financial statements and notes provided on page
11 in this report.
<TABLE>
<CAPTION>
July 3, 1995
Year Ended Year Ended (commencement of
December 31, December 31, operations) to
1997 1996 December 31, 1995
------------ ------------ -----------------
<S> <C> <C> <C>
Investment income:
Real estate income, net:
Rental income........................................... $ 44,342,342 $ 10,951,183 $ 165,762
------------ ------------ ------------
Real estate property level
expenses and taxes:
Operating expenses.................................... 9,024,240 2,116,334 29,173
Real estate taxes..................................... 4,472,311 1,254,163 14,659
------------ ------------ ------------
Total real estate property
level expenses and taxes 13,496,551 3,370,497 43,832
------------ ------------ ------------
Real estate income, net 30,845,791 7,580,686 121,930
Dividends and interest.................................... 16,486,279 6,027,486 2,828,900
------------ ------------ ------------
Total investment income $ 47,332,070 $ 13,608,172 $ 2,950,830
============ ============ ============
Net realized and unrealized
gain on investments......................................... $ 18,147,053 $ 3,330,539 $ 35,603
============ ============ ============
Net increase in net assets
resulting from operations................................... $ 60,071,400 $ 15,782,915 $ 2,676,000
============ ============ ============
Net increase in net assets
resulting from participant
transactions................................................ $356,052,262 $233,653,793 $117,582,345
============ ============ ============
Net increase in net assets................................... $416,123,662 $249,436,708 $120,258,345
============ ============ ============
December 31, December 31, December 31,
1997 1996 1995
---- ---- ----
Total assets................................................. $815,760,825 $426,372,007 $143,177,421
Total liabilities and minority interest...................... ============ ============ ============
$ 29,942,110 $ 56,676,954 $ 22,919,076
Total net assets............................................. ============ ============ ============
$785,818,715 $369,695,053 $120,258,345
Accumulation units outstanding............................... ============ ============ ============
$ 6,313,015 $ 3,295,786 $ 1,172,498
Accumulation unit value...................................... ============ ============ ============
$122.30 $111.11 $102.57
======= ======= =======
</TABLE>
6
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Account began operating on July 3, 1995 and interests in the
Account were first offered to participants on October 2, 1995.
Through December 31, 1997, the Account had acquired a total of 33 real
estate properties, including twelve office properties, eight industrial
properties, five neighborhood shopping centers, and eight apartment complexes.
As of December 31, 1997, these properties represented 65.06% of the Account's
total investment portfolio.
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, 1997, the Account also held investments in U.S.
government agencies, representing 14.06% of the portfolio, real estate
investment trusts (REITs), representing 13.64% of the portfolio, commercial
paper, representing 5.99% of the portfolio, and corporate bonds, representing
1.25% of the portfolio.
The Account owns a 90% interest in a partnership which owns eight
office buildings throughout the U.S. The Account's consolidated financial
statements and all of the Account's financial data discussed in this report
reflect 100% of the value of the partnership's assets. The 10% interest of the
other partner in the partnership is reflected as a minority interest in the
Account's consolidated financial statements.
Results of Operations-Year Ended December 31, 1997 Compared to Year Ended
- -------------------------------------------------------------------------
December 31, 1996
- -----------------
The Account's total net return was 10.07% for the year ended December
31, 1997 and 8.33% for 1996. The Account's net investment income, after
deduction of all expenses, was $43,805,525 for the year ended December 31, 1997
and $12,452,376 for the year ended December 31, 1996, a 252% increase. This
increase was the result of a growing base of net assets and a greater
concentration of real estate holdings from December 31, 1996 to December 31,
1997. Net assets increased 113% during that period. In addition, the Account had
net realized and unrealized gains on investments of $18,147,053 and $3,330,539
for the years ended December 31, 1997 and 1996, respectively. This increase was
primarily the result of the increase in unrealized appreciation of $10,234,316
of the Account's properties and $6,836,012 of the Account's marketable
securities. These increases reflect the increased values assigned to many of the
properties as a result of periodic revaluations resulting from either internal
or independent appraisals, and the increase in value of REITs and other
marketable securities during the year.
7
<PAGE>
The Account's real estate holdings generated approximately 65% and 56%
of the Account's total investment income (before deducting Account level
expenses) during the years ended December 31, 1997 and 1996, respectively. The
remaining portion of the Account's total investment income was generated by
investments in marketable securities.
Gross real estate rental income was $44,342,342 for the year ended
December 31, 1997 and $10,951,183 for 1996. By the end of 1996, the Account
owned 13 properties, whereas by the end of 1997, the Account owned 33
properties. This increase in the number of properties owned by the Account was a
major factor in the higher real estate income for 1997. Interest income on the
Account's short- and intermediate-term investments for the years ended December
31, 1997 and 1996 totalled $12,079,600 and $5,570,907, respectively. This
increase in interest income was due primarily to the Account's increased
short-term investment holdings. Dividend income on the Account's investments in
REITs totalled $4,406,679 and $456,579, respectively, for the same periods.
Shares of REITs represented 13.64% of the Account's investments as of December
31, 1997 and 4.95% as of December 31, 1996. This higher percentage and the
general growth in the Account's assets accounted for the higher dividend income
for 1997.
Total property level expenses for the year ended December 31, 1997
were $13,496,551, of which $4,472,311 was attributable to real estate taxes and
$9,024,240 represented operating expenses. 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 was attributable to operating
expenses. The increase in property level expenses during 1997 reflected the
increased number of properties in the Account.
The Account also incurred expenses for the years ended December 31,
1997 and 1996 of $1,647,689 and $642,042, respectively, for investment advisory
services, $1,368,501 and $437,894, respectively, for administrative and
distribution services and $510,355 and $75,860, respectively, for mortality and
expense risk charges and liquidity guarantee charges. Such expenses increased as
a result of the larger net asset base of the Account in 1997.
Results of Operations-Year Ended December 31, 1996 Compared to Period Ended
- ---------------------------------------------------------------------------
December 31, 1995
- -----------------
In comparing the Account's 1996 operating results with those of 1995,
it is significant that as of December 31, 1995, the Account had been operational
for only six months and owned only five properties. In fact, the Account's first
real estate purchase was not made until November 22, 1995. In contrast, by
December 31, 1996, the Account had been operating for over a year and owned
thirteen properties. As a result of these and other factors, 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.
8
<PAGE>
The Account's net investment income, after deducting all expenses,
increased 372% from December 31, 1995 to December 31, 1996. This increase was a
result of a full year of operations coupled with a growing base of net assets.
Net assets increased 207% during that period. 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. The Account's real
estate 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
for 100% of the net change 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 higher real estate income for 1996 was due to the increase in
the number of properties owned by the Account, coupled with the fact that the
Account's first real estate purchase was not made until late 1995.
Both property level and account level expenses increased in 1996. The
increased expenses resulted from the increased number of properties in the
Account, the Account's larger net asset base during 1996, and the fact that the
1995 amounts represent a six month period while 1996 represents a full year of
activity.
Liquidity and Capital Resources
- -------------------------------
Since September 16, 1996, TIAA has been redeeming the accumulation
units related to its $100 million seed money investment in the Account, in
accordance with a five-year repayment schedule approved by the New York
Insurance Department (NYID). As of December 31, 1997, the Account had redeemed
389,136 accumulation units at prevailing daily unit values, amounting to
$45,209,324 in total redemption payments to TIAA. TIAA retained 610,864
accumulation units at December 31, 1997 with a total value of $74,706,529. The
Account, with NYID approval, recently modified the seed money redemption
schedule by increasing the Account's monthly redemption payments to TIAA to 25%
of the Account's prior months' net asset growth (with no less than 16,666.67 and
no more than 100,000 units to be redeemed per month). Under this schedule, at
the current level of asset growth, TIAA expects to complete the redemption of
its seed money investment sometime in 1998, but, in any event, no later than in
the year 2000.
9
<PAGE>
For the years ended December 31, 1997 and 1996, the Account earned
$43,805,525 and $12,452,376, respectively, in net investment income. During 1997
and 1996, the Account received $52,344,830 and $9,665,306, respectively, in
premiums and $351,174,584 and $232,509,882, respectively, in net participant
transfers from other TIAA and CREF accounts. Real estate properties costing
$377,086,027 and $86,731,333 were purchased during 1997 and 1996, respectively.
At December 31, 1997 1996, the Account's liquid assets (i.e., its cash, REITs,
short- and intermediate-term investments, and government securities) had a value
of $280,409,640 and $240,109,263, respectively. It is anticipated that much of
the Account's liquid assets as of December 31, 1997, 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 available to meet expense needs and redemption requests (e.g., cash
withdrawals or transfers).
If the Account's liquid assets and its cash flow from operating
activities and participant transactions are not sufficient to meet its cash
needs, including redemption requests, TIAA's general account will purchase
liquidity units in accordance with TIAA's liquidity guarantee to the Account.
Capital expenditures totalling approximately $2,171,583 were made
during 1997. These expenditures were primarily for ongoing tenant improvements
and leasing commissions at the commercial properties, in addition to other
building improvements, and were generally related to renewing existing tenants
or re-leasing space to new tenants in the ordinary course of business. The
Account expects to increase this level of expenditures as the portfolio of
office and industrial properties grows and new tenants are attracted to lease
space in the buildings. 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.
Year 2000 Issues
- ----------------
Many computer software systems in use today cannot recognize the year
2000 and may revert to 1900 or some other date because of the way in which dates
were encoded and calculated. The Account could be adversely affected if its
computer systems or those of its external service providers do not properly
process and calculate date-related information and data on and after January 1,
2000. We have been actively working on necessary changes to our computer systems
to prepare for the Year 2000 and have also obtained reasonable assurances from
our service providers that they are taking comparable steps with respect to
their computer systems. However, the steps we are taking do not guarantee
complete success or eliminate the possibility that interaction with outside
computer systems may have an adverse impact on the Account.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
Not applicable.
10
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
Page
----
Report of Management Responsibility......................................... 12
Report of Independent Auditors.............................................. 13
Audited Consolidated Financial Statements:
Consolidated Statements of Assets and Liabilities........................ 14
Consolidated Statements of Operations.................................... 15
Consolidated Statements of Changes in Net Assets......................... 16
Consolidated Statements of Cash Flows.................................... 17
Notes to Consolidated Financial Statements............................... 18
Consolidated Statement of Investments.................................... 23
Schedule III - Real Estate Owned............................................ 26
11
<PAGE>
[TIAA LOGO]
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT RESPONSIBILITY
To the Participants of the
TIAA Real Estate Account:
The accompanying 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 financial statements for 1997 have been audited by the
independent auditing firm of Ernst & Young 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
Ernst & Young LLP and internal auditing personnel to review matters relating to
financial reporting, internal controls and auditing.
/s/ John H. Biggs
----------------------------------
Chairman, President and
Chief Executive Officer
/s/ Richard L. Gibbs
----------------------------------
Executive Vice President and
Principal Accounting Officer
12
<PAGE>
ERNST & YOUNG LLP 1211 Avenue of the Americas Phone: 212 773-4900
New York, New York 10036 Fax: 212 773-4501
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 statement of assets and
liabilities, including the statement of investments, of the TIAA Real Estate
Account ("Account") of Teachers Insurance and Annuity Association of America
("TIAA") as of December 31, 1997, and the related consolidated statements of
operations, changes in net assets and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the Index at Item
8. These consolidated financial statements and schedule are the responsibility
of TIAA's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audit. The
consolidated financial statements and schedule for 1995 and 1996 were audited by
other auditors whose report dated February 6, 1997 expressed an unqualified
opinion on those consolidated financial statements and schedule.
We conducted our audit 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,
1997, 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Account
as of December 31, 1997, the results of its operations, the changes in its net
assets and its cash flows for the year then ended, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Ernst & Young
New York, New York
February 6, 1998
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
13
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
December 31, December 31,
1997 1996
------------ ------------
ASSETS
Investments, at value:
Real estate properties
(cost: $510,096,015 and $130,849,444) ........ $521,284,091 $131,803,204
Marketable securities
(cost: $270,910,952 and $233,872,445) ........ 280,002,042 236,127,523
Cash ........................................... 407,598 3,981,740
Receivable from securities transactions ........ -- 47,480,000
Other .......................................... 14,067,094 6,979,540
------------ ------------
TOTAL ASSETS 815,760,825 426,372,007
------------ ------------
LIABILITIES
Payable for securities transactions ............ 10,463 51,354,619
Accrued real estate property level
expenses and taxes ........................... 10,343,593 5,007,363
Security deposits held ......................... 1,305,958 314,972
------------ ------------
TOTAL LIABILITIES 11,660,014 56,676,954
------------ ------------
MINORITY INTEREST .............................. 18,282,096 --
------------ ------------
NET ASSETS
Accumulation Fund .............................. 772,059,676 366,197,755
Annuity Fund ................................... 13,759,039 3,497,298
------------ ------------
TOTAL NET ASSETS $785,818,715 $369,695,053
============ ============
NUMBER OF ACCUMULATION UNITS
OUTSTANDING--Notes 6 and 7 ................... 6,313,015 3,295,786
========= =========
NET ASSET VALUE,
PER ACCUMULATION UNIT--Note 6 ................ $122.30 $111.11
======= =======
See notes to consolidated financial statements.
14
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
For the Years Ended July 3, 1995
December 31, (Commencement
-------------------------- of Operations) to
1997 1996 December 31, 1995
----------- ----------- -----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Real estate income, net:
Rental income ................................................................ $44,342,342 $10,951,183 $ 165,762
Real estate property level expenses and taxes:
Operating expenses .......................................................... 9,024,240 2,116,334 29,173
Real estate taxes ........................................................... 4,472,311 1,254,163 14,659
----------- ----------- ----------
Total real estate property level expenses and taxes 13,496,551 3,370,497 43,832
----------- ----------- ----------
Real estate income, net 30,845,791 7,580,686 121,930
Interest ...................................................................... 12,079,600 5,570,907 2,820,229
Dividends ..................................................................... 4,406,679 456,579 8,671
----------- ----------- ----------
TOTAL INCOME 47,332,070 13,608,172 2,950,830
----------- ----------- ----------
Expenses -- Note 3:
Investment advisory charges .................................................. 1,647,689 642,042 227,531
Administrative and distribution charges ...................................... 1,368,501 437,894 66,320
Mortality and expense risk charges ........................................... 400,925 70,535 8,291
Liquidity guarantee charges .................................................. 109,430 5,325 8,291
----------- ----------- ----------
TOTAL EXPENSES 3,526,545 1,155,796 310,433
----------- ----------- ----------
INVESTMENT INCOME, NET 43,805,525 12,452,376 2,640,397
----------- ----------- ----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on marketable securities .................................... 1,076,725 141,439 15,865
Net change in unrealized appreciation on: ----------- ----------- ----------
Real estate properties ....................................................... 10,234,316 953,760 --
Marketable securities ........................................................ 6,836,012 2,235,340 19,738
----------- ----------- ----------
Net change in unrealized appreciation on investments 17,070,328 3,189,100 19,738
----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 18,147,053 3,330,539 35,603
----------- ----------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE MINORITY INTEREST 61,952,578 15,782,915 2,676,000
Minority interest in net increase in net assets
resulting from operations .................................................... (1,881,178) -- --
----------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $60,071,400 $15,782,915 $2,676,000
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
For the Years Ended July 3, 1995
December 31, (Commencement
--------------------------- of Operations) to
1997 1996 December 31, 1995
----------- ----------- -----------------
<S> <C> <C> <C>
FROM OPERATIONS
Investment income, net ........................................................ $ 43,805,525 $12,452,376 $2,640,397
Net realized gain on marketable securities .................................... 1,076,725 141,439 15,865
Net change in unrealized appreciation on investments .......................... 17,070,328 3,189,100 19,738
Minority interest in net increase in net assets
resulting from operations ................................................... (1,881,178) -- --
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 60,071,400 15,782,915 2,676,000
------------ ------------ ------------
Premiums ...................................................................... 52,344,830 9,665,306 500,421
TIAA seed money withdrawn -- Note 1 ........................................... (37,915,190) (7,294,134) 100,000,000
Net transfers from TIAA ....................................................... 43,681,385 19,203,309 2,901,675
Net transfers from CREF Accounts .............................................. 307,493,199 213,306,573 14,204,597
Annuity and other periodic payments ........................................... (1,499,054) (336,103) (718)
Withdrawals ................................................................... (7,696,711) (864,480) (23,630)
Death benefits ................................................................ (356,197) (26,678) --
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
PARTICIPANT TRANSACTIONS 356,052,262 233,653,793 117,582,345
------------ ------------ ------------
NET INCREASE IN NET ASSETS 416,123,662 249,436,708 120,258,345
NET ASSETS
Beginning of period ........................................................... 369,695,053 120,258,345 --
------------ ------------ ------------
End of period ................................................................. $785,818,715 $369,695,053 $120,258,345
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
For the Years Ended July 3, 1995
December 31, (Commencement
-------------------------- of Operations) to
1997 1996 December 31, 1995
----------- ----------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ........................... $ 60,071,400 $ 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 ....................................................... (433,355,406) (249,948,493) (117,982,234)
Decrease (increase) in receivable from securities transactions ................ 47,480,000 (24,330,000) (23,150,000)
Increase in other assets ...................................................... (7,087,554) (5,331,140) (1,648,400)
Increase (decrease) in payable for securities transactions .................... (51,344,156) 28,566,584 22,788,035
Increase in other liabilities ................................................. 6,327,216 5,191,294 131,041
Increase in minority interest ................................................. 18,282,096 -- --
------------ ------------ ------------
NET CASH USED IN
OPERATING ACTIVITIES (359,626,404) (230,068,840) (117,185,558)
------------ ------------ ------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums ....................................................................... 52,344,830 9,665,306 500,421
TIAA seed money withdrawn -- Note 1 ............................................ (37,915,190) (7,294,134) 100,000,000
Net transfers from TIAA ........................................................ 43,681,385 19,203,309 2,901,675
Net transfers from CREF Accounts ............................................... 307,493,199 213,306,573 14,204,597
Annuity and other periodic payments ............................................ (1,499,054) (336,103) (718)
Withdrawals .................................................................... (7,696,711) (864,480) (23,630)
Death benefits ................................................................. (356,197) (26,678) --
------------ ------------ ------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 356,052,262 233,653,793 117,582,345
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (3,574,142) 3,584,953 396,787
CASH
Beginning of period ............................................................ 3,981,740 396,787 --
------------ ------------ ------------
End of period .................................................................. $ 407,598 $ 3,981,740 $ 396,787
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
17
<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. Light Street Partners, L.P. ("Light Street"), a partnership in
which the Account holds a 90% interest, began operations in March 1997 and holds
eight office buildings throughout the United States. Teachers REA II, Inc., a
wholly-owned subsidiary of the Account, began operations in October 1998 and
holds one property in Pennsylvania.
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 on October 2, and November 1, 1995, respectively. In August
1996, the Account's net assets first reached $200 million and, as required under
a five year repayment schedule approved by the New York State Insurance
Department ("NYID"), TIAA began to redeem its seed money Accumulation Units in
monthly installments of 16,667 Units beginning in September 1996. Since the
Account's assets have been growing rapidly, TIAA in October 1997, with NYID
approval, modified the seed money redemption schedule by increasing the monthly
redemption of Units to a level equal to the value of 25% of the Account's net
asset growth for the prior month, with no fewer than 16,667 Units and no more
than 100,000 Units to be redeemed each month. These withdrawals are made at
prevailing daily net asset values and are reflected in the accompanying
consolidated financial statements. At December 31, 1997, TIAA retained 610,864
Accumulation Units, with a total value of $74,706,529.
The investment objective of the Account is a favorable long-term rate of return
primarily through rental income and capital appreciation from real estate
investments owned by the Account. The Account also invests in publicly-traded
securities and other instruments to maintain adequate liquidity for operating
expenses, capital expenditures and to make benefit payments.
TIAA employees, under the direction of TIAA's Board of Trustees and its
Investment Committee, manage the investment of the Account's assets pursuant to
investment management procedures adopted by TIAA for the Account. TIAA's
investment management decisions for the Account are also subject to review by
the Account's independent fiduciary, Institutional Property Consultants, Inc.
TIAA also provides all portfolio accounting and related services for the
Account. TIAA-CREF Individual & Institutional Services, Inc. ("Services"), a
subsidiary of TIAA, which is registered with the Commission as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc.,
provides administrative and distribution services pursuant to a Distribution and
Administrative Services Agreement with the Account.
Note 2--Significant Accounting Policies
The preparation of financial statements may require management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, income,
expenses and related disclosures. Actual results may differ from those
estimates. The following is a summary of the significant accounting policies
followed by the Account, which are in conformity with generally accepted
accounting principles.
18
<PAGE>
Note 2--Significant Accounting Policies - (Concluded)
Basis of Presentation: The accompanying consolidated financial statements
include the Account, Teachers REA, Inc. and Teachers REA II, Inc., its
wholly-owned subsidiaries, and Light Street, in which the Account holds a 90%
interest. The 10% minority interest in Light Street is reflected separately in
the accompanying financial statements. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Valuation of Real Estate Properties: Investments in real estate properties are
stated at fair value, as determined in accordance with procedures approved by
the Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole; accordingly, the Account does not
record depreciation. Fair value for real estate properties is defined as the
most probable price for which a property will sell in a competitive market under
all conditions requisite to a fair sale. Determination of fair value involves
subjective judgement because the actual market value of real estate can be
determined only by negotiation between the parties in a sales transaction. Real
estate properties owned by the Account are initially valued at their respective
purchase prices (including acquisition costs). Subsequently, independent
appraisers value each real estate property at least once a year. The independent
fiduciary must approve all independent appraisers used by the Account. The
independent fiduciary can also require additional appraisals if it believes that
a property's value has changed materially or otherwise to assure that the
Account is valued correctly. TIAA's appraisal staff performs a valuation review
of each real estate property on a quarterly basis and updates the property value
if it believes that the value of the property has changed since the previous
valuation review or appraisal. The independent fiduciary reviews and approves
any such valuation adjustments which exceed certain prescribed limits. TIAA
continues to use the revised value to calculate the Account's net asset value
until the next valuation review or appraisal.
Valuation of Marketable Securities: Equity securities listed or traded on any
United States national securities exchange are valued at the last sales price as
of the close of the principal securities exchange on which such securities are
traded or, if there is no sale, at the mean of the last bid and asked prices on
such exchange. Short-term money market instruments are stated at market value.
Portfolio securities for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole.
Accounting for Investments: Real estate transactions are accounted for as of the
date on which the purchase or sale transactions for the real estate properties
close (settlement date). Rent from real estate properties consists of all
amounts earned under tenant operating leases, including base rent, recoveries of
real estate taxes and other expenses and charges for miscellaneous services
provided to tenants. Rental income is recognized in accordance with the billing
terms of the lease agreements. The Account bears the direct expenses of the real
estate properties owned. These expenses include, but are not limited to, fees to
local property management companies, property taxes, utilities, maintenance,
repairs, insurance and other operating and administrative costs. An estimate of
the net operating income earned from each real estate property is accrued by the
Account on a daily basis and such estimates are adjusted as soon as actual
operating results are determined. Realized gains and losses on real estate
transactions are accounted for under the specific identification method.
Securities transactions are accounted for as of the date the securities are
purchased or sold (trade date). Interest income is recorded as earned and, for
short-term money market instruments, includes accrual of discount and
amortization of premium. Dividend income is recorded on the ex-dividend date.
Realized gains and losses on securities transactions are accounted for on the
average cost basis.
Federal Income Taxes: Based on provisions of the Internal Revenue Code, no
federal income taxes are attributable to the net investment experience of the
Account.
Reclassifications: Certain 1996 and 1995 amounts in the consolidated financial
statements have been reclassified to conform to the 1997 presentation.
19
<PAGE>
Note 3--Management Agreements
Under established management agreements, various services necessary for the
operation of the Account are provided, at cost, by TIAA and Services. TIAA
provides investment management services for the Account while distribution and
administrative services are provided by Services in accordance with a
Distribution and Administrative Services Agreement between the Account and
Services. An affiliate of the minority partner in Light Street provides certain
management services for the properties owned by Light Street and the charges for
such services, totaling $507,829 for 1997, are included in investment advisory
charges in the accompanying consolidated statement of operations. TIAA also
provides a liquidity guarantee to the Account, for a fee, to ensure that
sufficient funds are available to meet participant transfer and cash withdrawal
requests in the event that the Account's cash flows and liquid investments are
insufficient to fund such requests. TIAA also receives a fee for assuming
certain mortality and expense risks.
Fee payments are made from the Account on a daily basis to TIAA and Services
according to formulas established each year with the objective of keeping the
fees as close as possible to the Account's actual expenses. Any differences
between actual expenses and daily charges are adjusted quarterly.
Note 4--Real Estate Properties
Had the Account's real estate properties which were purchased during the year
ended December 31, 1997 been acquired at the beginning of the period (January 1,
1997), rental income and real estate property level expenses and taxes for the
year ended December 31, 1997 would have increased by approximately $21,909,000
and $7,808,000 respectively. In addition, interest income for the year ended
December 31, 1997 would have decreased by approximately $9,321,000. Accordingly,
the total proforma effect on the Account's net investment income for the year
ended December 31, 1997 would have been an increase of approximately $4,780,000,
if the real estate properties acquired during the year ended December 31, 1997
had been acquired at the beginning of the period.
Note 5--Leases
The Account's real estate properties are leased to tenants under operating lease
agreements which expire on various dates through 2021. Aggregate minimum annual
rentals for the properties owned, excluding short-term residential leases, are
as follows:
Years Ending
December 31,
------------
1998 $43,936,000
1999 40,923,000
2000 38,197,000
2001 31,847,000
2002 27,746,000
Thereafter 99,572,000
------------
Total $282,221,000
============
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
20
<PAGE>
Note 6--Condensed Consolidated Financial Information
Selected condensed consolidated financial information for an Accumulation Unit
of the Account is presented below.
July 3, 1995
For the Years Ended (Commencement
December 31, of Operations)
-------------------- to December 31,
1997 1996 1995(1)
-------- -------- ---------------
Per Accumulation Unit Data:
Rental income ........................ $ 7.288 $ 6.012 $ 0.159
Real estate property
level expenses and taxes ............ 2.218 1.850 0.042
-------- -------- --------
Real estate income, net 5.070 4.162 0.117
Dividends and interest ............... 2.709 3.309 2.716
-------- -------- --------
Total income 7.779 7.471 2.833
Expense charges (2) .................. 0.580 0.635 0.298
-------- -------- --------
Investment income, net 7.199 6.836 2.535
Net realized and unrealized
gain on investments ................. 3.987 1.709 0.031
-------- -------- --------
Net increase in
Accumulation Unit Value ............. 11.186 8.545 2.566
Accumulation Unit Value:
Beginning of period ................. 111.111 102.566 100.000
-------- -------- --------
End of period ....................... $122.297 $111.111 $102.566
======== ======== ========
Total return .......................... 10.07% 8.33% 2.57%
Ratios to Average Net Assets:
Expenses (2) ......................... 0.58% 0.61% 0.30%
Investment income, net ............... 7.25% 6.57% 2.51%
Portfolio turnover rate:
Real estate properties ............... 0% 0% 0%
Securities ........................... 7.67% 15.04% 0%
Thousands of Accumulation Units
outstanding at end of period ......... 6,313 3,296 1,172
(1) The percentages shown for this period are not annualized.
(2) Expense charges per Accumulation Unit and the Ratio of Expenses to Average
Net Assets include the portion of expenses related to the 10% minority
interest in Light Street and exclude real estate property level expenses and
taxes. If the real estate property level expenses and taxes were included,
the expense charge per Accumulation Unit for the year ended December 31,
1997 would be $2.798 ($2.485 for the year ended December 31, 1996 and $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, 1997 would be
2.82% (2.39% for the year ended December 31, 1996 and 0.34% for the period
July 3, 1995 through December 31, 1995).
21
<PAGE>
Note 7--Accumulation Units
Changes in the number of Accumulation Units outstanding were as follows:
July 3, 1995
(Commencement)
For the Years Ended of Operations)
December 31, to
-------------------- December 31,
1997 1996 1995
--------- --------- --------------
Accumulation Units:
Credited for premiums .................. 448,822 89,841 1,004,905
Credited for transfers, net
disbursements and amounts
applied to the Annuity Fund .......... 2,568,407 2,033,447 167,593
Outstanding:
Beginning of period ................. 3,295,786 1,172,498 --
End of period ....................... 6,313,015 3,295,786 1,172,498
========= ========= =========
22
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
December 31, 1997
REAL ESTATE PROPERTIES--65.06%
Location Description Value
-------- ----------- -----
Arizona:
Phoenix Office building ....................... $10,700,000
California:
Sacramento Office building ....................... 21,500,000(2)
San Diego Industrial building ................... 12,200,000
Westlake Village Apartments ............................ 13,700,000
Colorado:
Boulder Industrial building ................... 10,000,000
Douglas County Apartments ............................ 27,562,882
Littleton Apartments ............................ 19,000,000
Florida:
Coral Springs Industrial building ................... 6,100,000
Ocoee Shopping center ....................... 7,200,000
Orlando Apartments ............................ 13,400,000
Sunrise Office building ....................... 12,956,957
West Palm Beach Apartments ............................ 15,800,000
Georgia:
Atlanta Apartments ............................ 16,100,000
Illinois:
Oakbrook Terrace Office building ....................... 51,614,733(2)
Rolling Meadows Shopping center ....................... 13,000,000
Rosemont Office building ....................... 38,580,850
Iowa:
Urbandale Industrial building ................... 13,813,908
Maryland:
Aberdeen Industrial building ................... 27,700,000
Hunt Valley Office building ....................... 23,500,000(2)
Massachusetts:
Newton Office building ....................... 16,900,000(2)
Minnesota:
Eagan Industrial building ................... 6,400,000
Fridley Industrial building ................... 4,225,000
New Jersey:
Piscataway Office building ....................... 15,499,306
North Carolina:
Raleigh Shopping center ....................... 7,000,000
Raleigh Shopping center ....................... 7,100,000
Ohio:
Blue Ash Office building ....................... 9,873,570(2)
Oregon:
Lake Oswego Office building ....................... 16,200,000(2)
Pennsylvania:
Lafayette Hill Apartments ............................ 21,476,050
Texas:
El Paso(1) Industrial building ................... 4,700,000
El Paso Apartments ............................ 9,260,000
Utah:
Salt Lake City Office building ....................... 7,900,000(2)
Virginia:
Arlington Office building ....................... 27,560,000(2)
Woodbridge Shopping center ....................... 12,760,835
-----------
TOTAL REAL ESTATE PROPERTIES (Cost $510,096,015) ........ 521,284,091
-----------
(1) Leasehold interest only
(2) The full fair value of this property is reflected; however, the Account only
has a 90% interest in the property. The minority partner in Light Street has the
remaining 10% interest in the property.
23
<PAGE>
MARKETABLE SECURITIES--34.94%
Shares Issuer Value
------ ------ -----
REAL ESTATE INVESTMENT TRUSTS--13.64%
95,000 Avalon Properties, Inc. ............................... $2,939,063
30,000 Avalon Properties, Inc. Pfd Series A .................. 784,687
139,600 Bradley Real Estate, Inc. ............................. 2,931,600
160,000 Brandywine Realty Trust ............................... 4,020,000
80,000 Camden Property Trust ................................. 2,480,000
200,000 Carramerica Realty Corporation, Pfd Series B .......... 5,025,000
120,000 CBL & Associates Properties, Inc. ..................... 2,962,500
95,000 Colonial Properties Trust ............................. 2,861,875
75,000 Entertainment Properties Trust ........................ 1,453,125
50,000 Equity Office Properties Trust ........................ 1,578,125
200,000 Equity Office Properties Trust Pfd Series A ........... 5,350,000
100,000 Equity Residential Properties Trust, Pfd Series G ..... 2,562,500
50,000 Equity Residential Property Trust ..................... 2,528,125
50,000 Excel Realty Trust, Inc. Pfd Series A ................. 1,517,187
25,000 Federal Realty Investment Trust Pfd. .................. 626,563
100,000 First Industrial Realty Trust, Pfd Series C ........... 2,696,875
100,000 Gables Residential Trust, Pfd Series A ................ 2,506,250
160,000 Health and Retirement Property Trust .................. 3,200,000
80,000 Hospitality Properties Trust .......................... 2,630,000
165,000 Innkeepers USA Trust .................................. 2,557,500
35,000 Mack-Cali Realty Corporation .......................... 1,435,000
165,001 Patriot American Hospitality Inc. ..................... 4,754,091
130,000 Public Storage, Inc. .................................. 3,818,750
130,000 Regency Realty Corporation ............................ 3,599,375
67,500 Security Capital Atlantic, Inc. ....................... 1,425,937
200,000 Security Capital Atlantic, Inc., Pfd Series A ......... 5,018,750
19,900 Security Capital Industrial Trust, Pfd. ............... 518,644
4,800 Security Capital Wts. 9/98 ............................ 25,200
100,000 Simon Debartolo Group, Inc. ........................... 3,268,750
100,000 Spieker Properties, Inc. .............................. 4,287,500
105,000 Starwood Lodging Trust ................................ 6,076,875
85,000 Storage USA, Inc. ..................................... 3,394,687
100,000 Taubman Centers, Inc. ................................. 1,300,000
35,000 Taubman Centers, Inc Series A Pfd. .................... 859,688
75,000 Tower Realty Trust, Incorporated ...................... 1,846,875
26,000 Trinet Corporate Realty Trust, Inc., Pfd Series B ..... 679,250
98,100 Trinet Corporate Realty Trust, Inc. ................... 3,795,244
100,000 United Dominion Realty Trust, Pfd Series B ............ 2,650,000
50,000 Vornado Realty Trust, Pfd Series A .................... 3,300,000
125,000 Weeks Corp. ........................................... 4,000,000
-----------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $100,139,030)........ 109,265,591
-----------
CORPORATE BONDS-- 1.25%
Principal Issuer, Coupon and Maturity Date
--------- --------------------------------
$4,000,000 Associates Corporation of North America
5.25% 09/01/98 ........................................ 3,979,560
3,000,000 International Paper
6.87% 06/17/99 ........................................ 3,041,520
3,000,000 Pepsico, Inc.
7.625% 11/01/98 ....................................... 3,037,350
-----------
TOTAL CORPORATE BONDS (Cost $10,066,710) ......................... 10,058,430
-----------
24
<PAGE>
GOVERNMENT AGENCIES--14.06%
Principal Issuer, Coupon and Maturity Date
--------- --------------------------------
$ 2,000,000 Federal National Mortgage Association
5.35% 01/16/98 ..................................... $ 1,994,916
2,000,000 Federal National Mortgage Association
5.35% 02/17/98 ..................................... 1,985,280
2,000,000 Federal National Mortgage Association
5.36% 03/17/98 ..................................... 1,976,524
14,775,000 Federal National Mortgage Association
5.56% 03/25/98 ..................................... 14,583,319
10,000,000 Federal National Mortgage Association
5.61% 01/05/98 ..................................... 9,992,111
11,939,000 Federal National Mortgage Association
5.67% 01/12/98 ..................................... 11,916,197
40,000,000 Federal Home Loan Mortgage
5.71% 01/09/98 ..................................... 39,942,700
30,410,000 Federal National Mortgage Association
5.74% 01/30/98 ..................................... 30,265,045
-----------
TOTAL GOVERNMENT AGENCIES (Amortized cost $112,675,553) ....... 112,656,092
-----------
COMMERCIAL PAPER--5.99%
10,000,000 General Electric Capital Corp.
5.70% 02/10/98 ..................................... 9,933,717
16,000,000 McCormick & Co, Inc
6.65% 01/02/98 ..................................... 15,995,050
22,100,000 SBC Communications Inc
6.60% 01/02/98 ..................................... 22,093,162
-----------
TOTAL COMMERCIAL PAPER (Amortized cost $48,029,659) ............ 48,021,929
------------
TOTAL MARKETABLE SECURITIES (Cost $270,910,952)................... 280,002,042
------------
TOTAL INVESTMENTS--100.00% (Cost $781,006,967).................... $801,286,133
============
See notes to consolidated financial statements.
25
<PAGE>
TIAA REAL ESTATE ACCOUNT
Schedule III - Real Estate Owned
December 31, 1997
<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) 1997 Completed Acquired
----------- ------- -------- ----------- ---- --------- --------
<S> <C> <C> <C> <C> <C> <C>
River Road Distribution Center $-0- $ 4,166,787 $ 58,213 $ 4,225,000 1995 11/22/95
Industrial Building
Fridley, Minnesota
The Greens At Metrowest -0- 12,490,895 909,105 13,400,000 1990 12/15/95
Apartments
Orlando, Florida
Butterfield Industrial Park -0- 4,431,166 268,834 4,700,000 1981 12/22/95
Industrial Building
El Paso, Texas (1)
Brixworth Apartments -0- 15,574,647 525,353 16,100,000 1989 12/28/95
Atlanta, Georgia
Plantation Grove Shopping Center -0- 7,326,170 (126,170) 7,200,000 1995 12/28/95
Shopping Center
Ocoee, Florida
Southbank Business Park -0- 10,069,898 630,102 10,700,000 1995 02/27/96
Office Building
Phoenix, Arizona
Millbrook Collection -0- 6,774,711 225,289 7,000,000 1988 03/29/96
Shopping Center
Raleigh, North Carolina
Lynnwood Collection -0- 6,708,120 391,880 7,100,000 1988 03/29/96
Shopping Center
Raleigh, North Carolina
26
<PAGE>
<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) 1997 Completed Acquired
----------- ------- -------- ----------- ---- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Monte Vista Apartments -0- 17,664,247 1,335,753 19,000,000 1995 06/21/96
Apartments
Littleton, Colorado
River Oaks Shopping Center -0- 13,036,153 (275,318) 12,760,835 1995 07/12/96
Shopping Center
Woodbridge, Virginia
Arapahoe Park East -0- 9,920,680 79,320 10,000,000 1982 10/31/96
Industrial Building
Boulder, Colorado
Royal St. George Apartments -0- 16,072,275 (272,275) 15,800,000 1995 12/20/96
Apartments
West Palm Beach, Florida
Interstate Crossing -0- 6,485,249 (85,249) 6,400,000 1995 12/31/96
Industrial Building
Eagan, Minnesota
West Creek Apartments -0- 13,488,279 211,721 13,700,000 1988 1/2/97
Apartments
Westlake Village, California
Interstate Acres -0- 13,610,294 203,614 13,813,908 1988 1/24/97
Industrial Building
Urbandale, Iowa
The Crest of Shadow Mountain -0- 9,192,389 67,611 9,260,000 1992 1/31/97
Apartments
El Paso, Texas
Westinghouse Facility -0- 6,089,473 10,527 6,100,000 1997 2/5/97
Industrial Building
Coral Springs, Florida
27
<PAGE>
<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) 1997 Completed Acquired
----------- ------- -------- ----------- ---- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Rolling Meadows -0- 12,930,463 69,537 13,000,000 1957 5/28/97
Shopping Center
Rolling Meadows, Illinois
Saks Distribution Center -0- 26,908,401 791,599 27,700,000 1997 5/15/97
Industrial Building
Aberdeen, Maryland
Eastgate Distribution Center -0- 11,941,992 258,008 12,200,000 1996 5/29/97
Industrial Building
San Diego, California
Five Centerpointe -0- 15,429,105 770,895 16,200,000 1988 4/21/97
Office Building
Lake Oswego, Oregon
Longview Executive Park -0- 23,249,805 250,195 23,500,000 1988 4/21/97
Office Building
Longview, Maryland
Metro Center Office Park -0- 21,085,210 414,790 21,500,000 1986 4/21/97
Office Building
Sacramento, California
Northmark Business Center III -0- 8,591,636 1,281,934 9,873,570 1985 4/21/97
Office Building
Blue Ash, Ohio
USF&G Building -0- 6,195,142 1,704,858 7,900,000 1988 4/21/97
Office Building
Salt Lake City, Utah
28
<PAGE>
<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) 1997 Completed Acquired
----------- ------- -------- ----------- ---- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Two Newton Place -0- 16,368,169 531,831 16,900,000 1987 4/21/97
Office Building
Newton, Massachusetts
Fairgate at Ballston -0- 26,790,792 769,208 27,560,000 1988 4/21/97
Office Building
Arlington, Virginia
Parkview Plaza -0- 49,139,012 2,475,721 51,614,733 1990 4/29/97
Office Building
Oakbrook Terrace, Illinois
Lincoln Woods Apartments -0- 21,476,050 -0- 21,476,050 1991 10/20/97
Lafayette Hill, Pennsylvania
Corporate Center at Sawgrass -0- 12,956,957 -0- 12,956,957 1997 12/2/97
Office Building
Sunrise, Florida
371 Hoes Lane -0- 15,499,306 -0- 15,499,306 1986 12/15/97
Office Building
Piscataway, New Jersey
Columbia Centre III -0- 38,580,850 -0- 38,580,850 1989 12/23/97
Office Building
Rosemont, Illinois
The Lodge at Willow Creek -0- 27,562,882 -0- 27,562,882 1997 12/24/97
Apartments
Douglas County, Colorado
---- ------------ ----------- ------------
$-0- $507,807,205 $13,476,886 $521,284,091
==== ============ =========== ============
</TABLE>
(1) Leasehold interest only
29
<PAGE>
Reconciliation of investment property owned:
Balance at beginning of period $131,803,204
Acquisitions 377,086,207
Capital improvements and carrying costs 12,394,680
(including unrealized gains and losses)
------------
Balance at end of period $521,284,091
============
30
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
As reported in a Form 8-K current report filed by the Account on May
23, 1997, on May 21, 1997, Ernst & Young LLP was engaged by TIAA as the
Registrant's principal accountant to replace Deloitte & Touche LLP. The decision
to change accountants and engage Ernst & Young resulted from a process initiated
by the TIAA Board of Trustees pursuant to its policy to periodically consider
rotation of its external audit firm for itself and its separate accounts.
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, 65.
President Emeritus, Pomona College. Formerly, President, Pomona College and
American Secretary, Rhodes Scholarship Trust.
Marcus Alexis, 66.
Board of Trustees Professor of Economics and Professor of Management and
Strategy, J.L. Kellogg Graduate School of Management, Northwestern University.
Willard T. Carleton, 63.
Karl L. Eller Professor of Finance, College of Business and Public
Administration, University of Arizona.
Robert C. Clark, 54.
Dean and Royall Professor of Law, Harvard Law School, Harvard University.
Estelle A. Fishbein, 63.
Vice President and General Counsel of The Johns Hopkins University.
Frederick R. Ford, 61.
Executive Vice President and Treasurer, Purdue University.
Martin J. Gruber, 60.
Nomura Professor of Finance, New York University Stern School of Business.
Formerly, Chairman, Department of Finance, New York University Stern School of
Business.
Ruth Simms Hamilton, 60.
Professor, Department of Sociology, and Director, African Diaspora Research
Project, Michigan State University.
31
<PAGE>
Dorothy Ann Kelly, O.S.U., 68.
Chancellor, College of New Rochelle. Formerly, President, College of New
Rochelle.
Robert M. O'Neil, 63.
Professor of Law, University of Virginia and Director, The Thomas Jefferson
Center for the Protection of Free Expression.
Leonard S. Simon, 61.
Vice Chairman, Charter One Financial Inc. Formerly, Chairman, President and
Chief Executive Officer, RCSB Financial, Inc., until September 1997, and
Chairman and Chief Executive Officer, The Rochester Community Savings Bank,
until September 1995.
Ronald L. Thompson, 48.
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, 62.
Chairman, Chief Executive, and Director, Mormac Marine Group, Inc.; Vice
Chairman and Director, The Interlake Steamship Company; Chairman and Director,
Moran Transportation Company and Meridian Aggregates, L.P.; Vice Chairman, Lakes
Shipping Company.
William H. Waltrip, 60.
Chairman, 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.
Rosalie J. Wolf, 56.
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 -- Merchant Banking, Bankers Trust Company,
from 1989 to 1993.
Officer-Trustees
- ----------------
John H. Biggs, 61.
Chairman, President and Chief Executive Officer, TIAA and CREF.
Martin L. Leibowitz, 61.
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.
32
<PAGE>
Other Officers
- --------------
Richard J. Adamski, 55.
Vice President and Treasurer, TIAA and CREF.
Richard L. Gibbs, 50.
Executive Vice President, Finance and Planning, TIAA and CREF.
Albert J. Wilson, 65.
Vice President and Chief Counsel, Corporate Secretary, TIAA and CREF.
ITEM 11. EXECUTIVE COMPENSATION.
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
As of December 31, 1997, TIAA held 610,864 accumulation units with a value
of $74,706,529, representing 9.5% of the Account's total net assets.
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 1,000,000 accumulation units, at
$100 per unit. Since September 16, 1996, TIAA had been redeeming these
accumulation units, in accordance with a five-year repayment schedule approved
by the New York Insurance Department (NYID). The seed money redemption schedule
has recently been modified to provide for faster repayment of the remaining seed
money accumulation units. As of December 31, 1997, the Account had redeemed
389,136 accumulation units at prevailing daily unit values, amounting to
$45,209,324 in total redemption payments to TIAA. TIAA retained 610,864 units at
December 31, 1997 with a total value of $74,706,529.
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, 1997, the Account paid TIAA $109,430 for this liquidity
guarantee through a daily deduction from the net assets of the Account.
33
<PAGE>
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, 1997, the Account paid TIAA $1,139,860 for
investment management services and $400,925 for mortality and expense risks. For
the same period, the Account paid Services $1,368,501 for its administrative and
distribution services.
34
<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, 1997
(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 6, 1998 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 Form
10-Q Quarterly Report for the period ended September 30, 1997, filed November
13, 1997 (File No. 33-92990).
*** - Previously filed and incorporated herein by reference to Pre-Effective
Amendment No. 1 to the Account's Registration Statement on Form S-1 filed April
29, 1997 (File No. 333-22809).
35
<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 18, 1998
-----------------------------
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, President 3-18-98
- ------------------------- and Chief Executive Officer
John H. Biggs (Principal Executive Officer)
and Trustee
/s/ Martin L. Leibowitz Vice Chairman and Chief Investment 3-18-98
- ------------------------- Officer and Trustee
Martin L. Leibowitz
/s/ Richard L. Gibbs Executive Vice President 3-18-98
- ------------------------- (Principal Financial
Richard L. Gibbs and Accounting Officer)
36
<PAGE>
Signature of Trustee Date Signature of Trustee Date
- -------------------- ---- -------------------- ----
/s/ David Alexander 3-18-98 /s/ Dorothy Ann Kelly 3-18-98
- ---------------------------- -------------------------
David Alexander Dorothy Ann Kelly, O.S.U.
/s/ Marcus Alexis 3-18-98 /s/Robert M. O'Neil 3-18-98
- ---------------------------- -------------------------
Marcus Alexis Robert M. O'Neil
/s/ Willard T. Carleton 3-18-98 /s/ Leonard S. Simon 3-18-98
- ---------------------------- -------------------------
Willard T. Carleton Leonard S. Simon
/s/ Robert C. Clark 3-18-98
- ---------------------------- -------------------------
Robert C. Clark Ronald L. Thompson
/s/ Estelle A. Fishbein 3-18-98
- ---------------------------- -------------------------
Estelle A. Fishbein Paul R. Tregurtha
/s/ Frederick R. Ford 3-18-98 /s/ William H. Waltrip 3-18-98
- ---------------------------- -------------------------
Frederick R. Ford William H. Waltrip
/s/ Martin J. Gruber 3-18-98 /s/ Rosalie J. Wolf 3-18-98
- ---------------------------- -------------------------
Martin J. Gruber Rosalie J. Wolf
/s/ Ruth Simms Hamilton 3-18-98
- ----------------------------
Ruth Simms Hamilton
37
<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.
38
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
27 Financial Data Schedule of the Account's Financial Statements for the
period ended December 31, 1997
<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-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 781,006,967
<INVESTMENTS-AT-VALUE> 801,286,133
<RECEIVABLES> 0
<ASSETS-OTHER> 14,067,094
<OTHER-ITEMS-ASSETS> 407,598
<TOTAL-ASSETS> 815,760,825
<PAYABLE-FOR-SECURITIES> 10,463
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,931,647
<TOTAL-LIABILITIES> 29,942,110
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 6,313,015
<SHARES-COMMON-PRIOR> 3,295,786
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 785,818,715
<DIVIDEND-INCOME> 4,406,679
<INTEREST-INCOME> 12,079,600
<OTHER-INCOME> 28,964,613
<EXPENSES-NET> (3,526,545)
<NET-INVESTMENT-INCOME> 41,924,347
<REALIZED-GAINS-CURRENT> 1,076,725
<APPREC-INCREASE-CURRENT> 17,070,328
<NET-CHANGE-FROM-OPS> 60,071,400
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,017,229
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 416,123,662
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,647,689
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,526,545
<AVERAGE-NET-ASSETS> 604,133,990
<PER-SHARE-NAV-BEGIN> 111.111
<PER-SHARE-NII> 7.199
<PER-SHARE-GAIN-APPREC> 3.987
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 122.297
<EXPENSE-RATIO> .580
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
