<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _____________________
Commission File Numbers 33-92990, 333-13477 and 333-22809
TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of
incorporation or organization)
NOT APPLICABLE
(IRS Employer Identification No.)
C/O TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
730 THIRD AVENUE
NEW YORK, NEW YORK
(address of principal executive offices)
10017-3206
(Zip code)
(212) 490-9000
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
OF THE TIAA REAL ESTATE ACCOUNT
JUNE 30, 2000
PAGE
Consolidated Statements of Assets and Liabilities ............... 3
Consolidated Statements of Operations ........................... 4
Consolidated Statements of Changes in Net Assets ................ 5
Consolidated Statements of Cash Flows ........................... 6
Notes to Consolidated Financial Statements ...................... 7
Consolidated Statement of Investments ........................... 12
2
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, at value:
Real estate properties
(cost: $1,453,426,637 and $1,253,650,281) ............................... $1,520,466,006 $1,312,503,554
Marketable securities
(cost: $487,896,367 and $395,662,203) ................................... 477,974,745 374,278,801
Cash ........................................................................ 289,647 617,599
Other ....................................................................... 28,771,633 32,057,761
-------------- --------------
TOTAL ASSETS 2,027,502,031 1,719,457,715
-------------- --------------
LIABILITIES
Payable for securities transactions ......................................... 467,990 -
Accrued real estate property level expenses and taxes ....................... 19,399,135 18,425,328
Security deposits held ...................................................... 6,010,776 5,549,959
-------------- --------------
TOTAL LIABILITIES 25,877,901 23,975,287
-------------- --------------
NET ASSETS
Accumulation Fund ........................................................... 1,938,140,262 1,642,327,173
Annuity Fund ................................................................ 63,483,868 53,155,255
-------------- --------------
TOTAL NET ASSETS $2,001,624,130 $1,695,482,428
============== ==============
NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 6 and 7 ....................... 12,925,942 11,487,360
============== ==============
NET ASSET VALUE, PER ACCUMULATION UNIT--Note 6 ................................ $149.94 $142.97
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Real estate income, net:
Rental income .................................................. $45,451,394 $27,997,860 $87,272,461 $54,196,751
----------- ----------- ----------- -----------
Real estate property level expenses and taxes:
Operating expenses .......................................... 9,200,527 5,965,445 18,171,607 11,546,070
Real estate taxes ........................................... 5,670,503 3,205,340 10,562,743 5,878,391
----------- ----------- ----------- -----------
Total real estate property level expenses and taxes 14,871,030 9,170,785 28,734,350 17,424,461
----------- ----------- ----------- -----------
Real estate income, net 30,580,364 18,827,075 58,538,111 36,772,290
Interest ........................................................ 6,377,999 5,409,410 11,618,938 9,773,575
Dividends ....................................................... 1,793,216 1,908,101 3,425,046 3,952,403
----------- ----------- ----------- -----------
TOTAL INCOME 38,751,579 26,144,586 73,582,095 50,498,268
----------- ----------- ----------- -----------
Expenses--Note 3:
Investment advisory charges .................................... 1,069,798 1,377,170 2,608,480 2,422,056
Administrative and distribution charges ........................ 1,031,627 947,042 2,075,123 1,752,132
Mortality and expense risk charges ............................. 332,914 248,570 638,503 466,953
Liquidity guarantee charges .................................... 172,176 196,373 340,065 288,893
----------- ----------- ----------- -----------
TOTAL EXPENSES 2,606,515 2,769,155 5,662,171 4,930,034
----------- ----------- ----------- -----------
INVESTMENT INCOME, NET 36,145,064 23,375,431 67,919,924 45,568,234
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Real estate properties ......................................... - - - 6,205,560
Marketable securities .......................................... 58,263 213,035 (89,185) (386,108)
----------- ----------- ----------- -----------
Net realized gain (loss) on investments 58,263 213,035 (89,185) 5,819,452
----------- ----------- ----------- -----------
Net change in unrealized appreciation (depreciation) on:
Real estate properties ......................................... 5,692,221 2,496,507 8,186,096 (2,386,333)
Marketable securities .......................................... 8,352,115 7,041,473 11,461,780 4,254,526
----------- ----------- ----------- -----------
Net change in unrealized appreciation on investments 14,044,336 9,537,980 19,647,876 1,868,193
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 14,102,599 9,751,015 19,558,691 7,687,645
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE MINORITY INTEREST 50,247,663 33,126,446 87,478,615 53,255,879
Minority interest in net increase in net assets
resulting from operations ...................................... - 1,767,772 - 1,364,619
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $50,247,663 $34,894,218 $87,478,615 $54,620,498
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
FROM OPERATIONS
Investment income, net ................................ $ 36,145,064 $ 23,375,431 $ 67,919,924 $ 45,568,234
Net realized gain (loss) on investments ............... 58,263 213,035 (89,185) 5,819,452
Net change in unrealized appreciation (depreciation) on
investments .......................................... 14,044,336 9,537,980 19,647,876 1,868,193
Minority interest in net increase in net assets
resulting from operations ............................ - 1,767,772 - 1,364,619
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 50,247,663 34,894,218 87,478,615 54,620,498
------------- ------------- ------------- -------------
FROM PARTICIPANT TRANSACTIONS
Premiums .............................................. 38,063,819 32,014,869 81,441,060 61,559,407
Net transfers from TIAA ............................... 9,525,128 9,747,102 18,895,485 18,735,361
Net transfers from CREF Accounts ...................... 91,246,205 83,827,214 146,492,837 171,726,279
Annuity and other periodic payments ................... (1,804,084) (982,998) (3,772,596) (2,060,852)
Withdrawals and death benefits ........................ (10,390,316) (6,354,533) (24,393,699) (14,149,552
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 126,640,752 118,251,654 218,663,087 235,810,643
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS 176,888,415 153,145,872 306,141,702 290,431,141
NET ASSETS
Beginning of period ................................... 1,824,735,715 1,333,652,156 1,695,482,428 1,196,366,887
------------- ------------- ------------- -------------
End of period ......................................... $2,001,624,130 $1,486,798,028 $2,001,624,130 $1,486,798,028
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------------- -----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ........ $ 50,247,663 $ 34,894,218 $ 87,478,615 $ 54,620,498
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
Increase in investments ..................................... (176,198,105) (135,811,424) (311,658,396) (269,826,761)
Decrease (increase) in other assets ......................... (4,788,559) (5,840,720) 3,286,128 (7,575,804)
Increase in payable for securities transactions ............. 467,990 4,201,737 467,990 4,258,977
Increase in accrued real estate property level expenses
and taxes ................................................ 2,519,963 999,595 973,807 2,017,910
Increase in security deposits held .......................... 334,823 180,345 460,817 35,786
Decrease in minority interest ............................... - (16,933,387) - (19,913,592)
------------ ------------ ------------ ------------
NET CASH USED IN
OPERATING ACTIVITIES (127,416,225) (118,309,636) (218,991,039) (236,382,986)
------------ ------------ ------------ ------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums .................................................... 38,063,819 32,014,869 81,441,060 61,559,407
Net transfers from TIAA ..................................... 9,525,128 9,747,102 18,895,485 18,735,361
Net transfers from CREF Accounts ............................ 91,246,205 83,827,214 146,492,837 171,726,279
Annuity and other periodic payments ......................... (1,804,084) (982,998) (3,772,596) (2,060,852)
Withdrawals and death benefits .............................. (10,390,316) (6,354,533) (24,393,699) (14,149,552)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 126,640,752 118,251,654 218,663,087 235,810,643
------------ ------------ ------------ ------------
NET DECREASE IN CASH (775,473) (57,982) (327,952) (572,343)
CASH
Beginning of period ......................................... 1,065,120 57,982 617,599 572,343
------------ ------------ ------------ ------------
End of period ............................................... $ 289,647 $ - $ 289,647 $ -
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--ORGANIZATION
The TIAA Real Estate Account ("Account") is a segregated investment account of
Teachers Insurance and Annuity Association of America ("TIAA") and was
established by resolution of TIAA's Board of Trustees on February 22, 1995,
under the insurance laws of the State of New York, for the purpose of funding
variable annuity contracts issued by TIAA. The Account commenced operations on
July 3, 1995. Teachers REA, LLC, a wholly owned subsidiary of the Account, began
operations in July 1996 and holds two properties in Virginia. Light Street
Partners, L.P. ("Light Street"), a wholly-owned subsidiary of the Account, began
operations in March 1997 and holds seven office buildings throughout the United
States. Prior to April 30, 1999, when the Account purchased the remaining 10%
interest, the Account had a 90% interest in Light Street. Teachers REA II, LLC,
a wholly owned subsidiary of the Account, began operations in October 1997 and
holds one property in Pennsylvania. Teachers REA III, LLC, a wholly owned
subsidiary of the Account, began operations in July 1998 and holds one property
in Florida.
The 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, The Townsend Group. 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
consistently followed by the Account, which are in conformity with accounting
principles generally accepted in the United States.
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the Account and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
7
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 sale price as
of the close of the principal securities exchange on which such securities are
traded or, if there is no sale, at the mean of the last bid and asked prices on
such exchange. Short-term money market instruments are stated at market value.
Portfolio securities for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole.
ACCOUNTING FOR INVESTMENTS: Real estate transactions are accounted for as of the
date on which the purchase or sale transactions for the real estate properties
close (settlement date). Rent from real estate properties consists of all
amounts earned under tenant operating leases, including base rent, recoveries of
real estate taxes and other expenses and charges for miscellaneous services
provided to tenants. Rental income is recognized in accordance with the billing
terms of the lease agreements. The Account bears the direct expenses of the real
estate properties owned. These expenses include, but are not limited to, fees to
local property management companies, property taxes, utilities, maintenance,
repairs, insurance and other operating and administrative costs. An estimate of
the net operating income earned from each real estate property is accrued by the
Account on a daily basis and such estimates are adjusted as soon as actual
operating results are determined. Realized gains and losses on real estate
transactions are accounted for under the specific identification method.
Securities transactions are accounted for as of the date the securities are
purchased or sold (trade date). Interest income is recorded as earned and, for
short-term money market instruments, includes accrual of discount and
amortization of premium. Dividend income is recorded on the ex-dividend date.
Realized gains and losses on securities transactions are accounted for on the
average cost basis.
FEDERAL INCOME TAXES: Based on provisions of the Internal Revenue Code, the
Account is taxed as a segregated asset account of TIAA. The Account should incur
no material federal income tax attributable to the net investment experience of
the Account.
8
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3--MANAGEMENT AGREEMENTS
Under established management agreements, various services necessary for the
operation of the Account are provided, at cost, by TIAA and Services. TIAA
provides investment management services for the Account while distribution and
administrative services are provided by Services in accordance with a
Distribution and Administrative Services Agreement between the Account and
Services. Prior to April 30, 1999, an affiliate of the former minority partner
in Light Street provided certain management services for the properties owned by
Light Street. The charges for such services, for the six months ended June 30,
1999 amounted to $345,928 for investment advisory expenses and $104,673 for
administrative expenses which are recorded accordingly in the accompanying
consolidated statements of operations. TIAA also provides a liquidity guarantee
to the Account, for a fee, to ensure that sufficient funds are available to meet
participant transfer and cash withdrawal requests in the event that the
Account's cash flows and liquid investments are insufficient to fund such
requests. TIAA also receives a fee for assuming certain mortality and expense
risks.
Fee payments are made from the Account on a daily basis to TIAA and Services
according to formulas established each year with the objective of keeping the
fees as close as possible to the Account's actual expenses. Any differences
between actual expenses and daily charges are adjusted quarterly.
NOTE 4--REAL ESTATE PROPERTIES
Had the Account's real estate property which was purchased during the six months
ended June 30, 2000 been acquired at the beginning of the period (January 1,
2000), rental income and real estate property level expenses and taxes for the
six months ended June 30, 2000 would have increased by approximately $8,610,000
and $2,366,000, respectively. In addition, interest income for the six months
ended June 30, 2000 would have decreased by approximately $3,879,000.
Accordingly, the total proforma effect on the Account's net investment income
for the six months ended June 30, 2000 would have been an increase of
approximately $2,365,000, if the real estate property acquired during the six
months ended June 30, 2000 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:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000 $113,042,519
2001 111,326,419
2002 99,989,092
2003 88,965,373
2004 72,600,150
Thereafter 224,596,028
------------
Total $710,519,581
============
</TABLE>
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
9
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6--CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Selected condensed consolidated financial information for an Accumulation Unit
of the Account is presented below.
<TABLE>
<CAPTION>
FOR THE JULY 3, 1995
SIX MONTH FOR THE YEARS ENDED (COMMENCEMENT)
ENDED DECEMBER 31, OF OPERATIONS) TO
JUNE 30, ------------------------------------------------- DECEMBER 31,
2000 (1) 1999 1998 1997 1996 1995 (1)
----------- ---- ---- ---- ---- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Per Accumulation Unit Data:
Rental income................................. $ 6.964 $ 12.168 $ 10.425 $ 7.288 $ 6.012 $ 0.159
Real estate property level
expenses and taxes.......................... 2.293 3.975 3.403 2.218 1.850 0.042
------- ------- ------- ------- ------- -------
Real estate income, net 4.671 8.193 7.022 5.070 4.162 0.117
Dividends and interest........................ 1.201 2.292 3.082 2.709 3.309 2.716
------- ------- ------- ------- ------- -------
Total income 5.872 10.485 10.104 7.779 7.471 2.833
Expense charges (2)........................... 0.452 0.853 0.808 0.580 0.635 0.298
------- ------- ------- ------- ------- -------
Investment income, net 5.420 9.632 9.296 7.199 6.836 2.535
Net realized and unrealized
gain on investments......................... 1.554 1.164 0.579 3.987 1.709 0.031
------- ------- ------- ------- ------- -------
Net increase in
Accumulation Unit Value..................... 6.974 10.796 9.875 11.186 8.545 2.566
Accumulation Unit Value:
Beginning of period......................... 142.968 132.172 122.297 111.111 102.566 100.000
------- ------- ------- ------- ------- -------
End of period............................... $149.942 $142.968 $132.172 $122.297 $111.111 $102.566
======= ======= ======= ======= ======= =======
Total return................................... 4.88% 8.17% 8.07% 10.07% 8.33% 2.57%
Ratios to Average Net Assets:
Expenses (2)................................ 0.31% 0.63% 0.64% 0.58% 0.61% 0.30%
Investment income, net...................... 3.71% 7.13% 7.34% 7.25% 6.57% 2.51%
Portfolio turnover rate:
Real estate properties...................... 0% 4.46% 0% 0% 0% 0%
Marketable securities....................... 9.12% 27.68% 24.54% 7.67% 15.04% 0%
Thousands of Accumulation Units
outstanding at end of period................ 12,926 11,487 8,834 6,313 3,296 1,172
</TABLE>
(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 six months ended
June 30, 2000 would be $2.745 ($4.828, $4.211, $2.798 and $2.485 for the
years ended December 31, 1999, 1998, 1997 and 1996 respectively, and $0.340
for the period July 3, 1995 through December 31, 1995) and the Ratio of
Expenses to Average Net Assets for the six months ended June 30, 2000 would
be 1.88% (3.58%, 3.32%, 2.82% and 2.39% for the years ended December 31,
1999, 1998, 1997 and 1996 respectively, and 0.34% for the period July 3,
1995 through December 31, 1995).
10
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7--ACCUMULATION UNITS
Changes in the number of Accumulation Units outstanding were as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
(Unaudited)
<S> <C> <C>
Accumulation Units:
Credited for premiums ......................... 556,966 918,728
Credited for transfers, net disbursements and
amounts applied to the Annuity Fund ......... 881,616 1,734,721
Outstanding:
Beginning of year ........................... 11,487,360 8,833,911
---------- ----------
End of period ............................... 12,925,942 11,487,360
========== ==========
</TABLE>
NOTE 8--COMMITMENTS
During the normal course of business, the Account enters into discussions and
agreements to purchase or sell real estate properties. As of June 30, 2000, the
Account has four outstanding contracts to purchase three office properties and
one industrial building, in the total amount of approximately $171.1 million.
During July and August of 2000, the Account purchased two real estate
properties for approximately $152.7 million and sold a 50% interest in one of
those properties for approximately $24.7 million.
11
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (UNAUDITED)
JUNE 30, 2000
<TABLE>
<CAPTION>
REAL ESTATE PROPERTIES--76.08%
LOCATION / DESCRIPTION VALUE
---------------------- -----
<S> <C>
ARIZONA:
Biltmore Commerce Center - Office building.......................................................... $ 38,579,352
Southbank Building - Office building................................................................ 13,200,000
CALIFORNIA:
88 Kearny Street - Office building ................................................................. 75,691,700
Eastgate Distribution Center - Industrial building.................................................. 13,450,000
Larkspur Courts - Apartments........................................................................ 57,800,000
Northpoint Commerce Center - Industrial building.................................................... 35,509,646
Ontario Industrial Properties - Industrial building................................................. 63,000,000
Westcreek - Apartments ........................................................................... 16,500,000
COLORADO:
Arapahoe Park East - Industrial building............................................................ 11,850,000
The Lodge at Willow Creek - Apartments.............................................................. 30,500,000
Monte Vista - Apartments............................................................................ 21,000,000
FLORIDA:
Golfview - Apartments............................................................................... 27,510,000
The Greens at Metrowest - Apartments................................................................ 14,100,000
Plantation Grove - Shopping center.................................................................. 7,350,000
Royal St. George - Apartments....................................................................... 16,500,000
Sawgrass Portfolio - Office building................................................................ 39,200,000
Westinghouse Facility - Industrial building......................................................... 6,200,000
GEORGIA:
Satellite Distribution Center - Industrial building................................................. 19,431,200
ILLINOIS:
Columbia Center III - Office building............................................................... 42,300,000
Glenpointe Business Park - Industrial building...................................................... 16,100,000
Parkview Plaza - Office building.................................................................... 52,522,300
Rockrun Business Park - Industrial building......................................................... 9,350,000
Rolling Meadows - Shopping center................................................................... 11,912,780
Woodcreek Business Park - Industrial building....................................................... 7,000,000
IOWA:
Interstate Acres - Industrial building.............................................................. 13,707,958
KENTUCKY:
IDI Kentucky Portfolio - Industrial building........................................................ 25,500,000
MARYLAND:
FedEx Distribution Facility - Industrial building................................................... 7,700,000
Longview Executive Park - Office building........................................................... 28,000,000
Saks Distribution Center - Industrial building...................................................... 30,850,000
MASSACHUSETTS:
Two Newton Center - Office building................................................................. 20,600,000
MICHIGAN:
Indian Creek - Apartments........................................................................... 17,100,000
MINNESOTA:
Interstate Crossing - Industrial building........................................................... 6,400,000
River Road Distribution Center - Industrial building................................................ 4,300,000
NEVADA:
UPS Distribution Facility - Industrial building..................................................... 11,000,000
12
<PAGE>
<CAPTION>
LOCATION / DESCRIPTION VALUE
---------------------- -----
<S> <C>
NEW JERSEY:
371 Hoes Lane - Office building..................................................................... $ 16,800,000
10 Waterview Boulevard - Office building............................................................ 31,200,000
Konica Photo Imaging Headquarters - Industrial building............................................. 17,100,000
NEW YORK:
780 Third Avenue - Office building.................................................................. 163,700,000
The Colorado - Apartments........................................................................... 56,547,138
NORTH CAROLINA:
Lynnwood Collection - Shopping center............................................................... 7,900,000
Millbrook Collection - Shopping center.............................................................. 7,300,000
OHIO:
Bent Tree - Apartments.............................................................................. 14,700,000
Columbus Portfolio - Office building................................................................ 34,227,717
Northmark Business Center - Office building......................................................... 13,100,000
OREGON:
Five Centerpointe - Office building................................................................. 18,200,000
PENNSYLVANIA:
Lincoln Woods - Apartments.......................................................................... 23,000,000
TEXAS:
Butterfield Industrial Park - Industrial building................................................... 4,850,000 (1)
The Crest at Shadow Mountain - Apartments........................................................... 10,000,000
The Legends at Chase Oaks - Apartments.............................................................. 26,700,000
UTAH:
USF&G Building - Office building.................................................................... 8,705,925
VIRGINIA:
Fairgate at Ballston - Office building.............................................................. 30,918,145
Monument Place - Office building.................................................................... 36,200,000
River Oaks - Shopping center........................................................................ 11,900,000
WASHINGTON:
The Bay Court at Harbour Pointe - Apartments........................................................ 34,983,105
WASHINGTON DC:
1801 K Street N W - Office building................................................................. 140,719,040
--------------
TOTAL REAL ESTATE PROPERTIES (Cost $1,453,426,637)................................................ 1,520,466,006
-------------
</TABLE>
(1) Leasehold interest only.
<TABLE>
<CAPTION>
MARKETABLE SECURITIES--23.92%
REAL ESTATE INVESTMENT TRUSTS--4.55%
SHARES ISSUER VALUE
------ ------ -----
<S> <C> <C>
89,900 AMB Property Corporation Series A ............................................ 1,899,137
100,000 Archstone Communities Trust .................................................. 2,106,250
19,200 Avalon Bay Communities, Inc. Pfd Series F..................................... 447,000
41,800 Boston Properties, Inc........................................................ 1,614,525
102,400 Bradley Real Estate, Inc...................................................... 2,182,400
130,400 Brandywine Realty Trust....................................................... 2,493,900
200,000 Carramerica Realty, Pfd Series B.............................................. 4,156,250
58,000 Centerpoint Properties Corp................................................... 2,363,500
108,100 Corporate Office Properties Trust, Inc........................................ 993,169
6,100 Cousins Properties, Inc....................................................... 234,850
90,000 Developers Diversified Realty Corp............................................ 1,783,125
221,300 Duke-Weeks Realty Corp........................................................ 4,951,587
270,913 Equity Office Properties Trust................................................ 7,467,040
150,000 Equity Office Properties Trust Pfd Series A................................... 3,712,500
121,700 Equity Residential Properties Trust........................................... 5,598,200
100,000 Equity Residential, Pfd Series G.............................................. 2,250,000
100,000 Equity Residential Properties, Pfd Series L................................... 1,950,000
13
<PAGE>
SHARES ISSUER VALUE
------ ------ -----
<S> <C> <C>
25,000 Federal Realty Investment Trust Pfd........................................... $ 487,500
100,000 First Industrial Realty Trust, Inc. Pfd....................................... 2,081,250
98,300 Gables Residential Trust, Pfd Series A........................................ 1,929,137
74,900 Hospitality Properties Trust.................................................. 1,689,931
174,455 Istar Financial, Inc.......................................................... 3,652,652
26,000 Istar Financial, Pfd Series C................................................. 451,750
149,800 Macerich Company.............................................................. 3,304,963
50,000 Manufactured Home Communities, Inc............................................ 1,196,875
10,000 Prentiss Properties Trust..................................................... 240,000
25,000 Prologis Trust................................................................ 532,812
19,900 Prologis Trust-Pfd Series A................................................... 463,919
147,700 Public Storage, Inc........................................................... 3,461,719
93,600 Rouse Company................................................................. 2,316,600
280,900 Simon Property Group, Inc..................................................... 6,232,469
55,000 Spieker Properties, Inc....................................................... 2,530,000
140,000 Starwood Hotels & Resorts Worldwide........................................... 4,558,750
35,500 Storage USA, Inc.............................................................. 1,047,250
50,000 Sun Communities, Inc.......................................................... 1,671,875
100,400 Taubman Centers, Inc.......................................................... 1,104,400
35,000 Taubman Centers, Inc Pfd Series A............................................. 656,250
62,800 United Dominion Realty Trust, Inc............................................. 1,310,950
112,100 Urban Shopping Centers, Inc................................................... 3,776,369
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $100,624,677)................................ 90,900,854
--------------
</TABLE>
<TABLE>
<CAPTION>
CORPORATE BONDS-- 0.50%
PRINCIPAL ISSUER, COUPON AND MATURITY DATE VALUE
--------- -------------------------------- -----
<S> <C> <C>
$ 5,000,000 Avco Financial Services, Inc
5.75% 01/23/01............................................................... 4,958,500
5,000,000 Ford Motor Credit Co
5.75% 01/25/01............................................................... 4,956,100
--------------
TOTAL CORPORATE BONDS (Cost $10,034,650)................................................ 9,914,600
--------------
</TABLE>
<TABLE>
<CAPTION>
COMMERCIAL PAPER--18.87%
PRINCIPAL ISSUER, COUPON AND MATURITY DATE VALUE
--------- -------------------------------- -----
<S> <C> <C>
11,000,000 Abbot Laboratories
6.58% 07/10/00............................................................... 10,979,650
1,085,000 American Telephone & Telegraph Co
6.56% 07/11/00............................................................... 1,082,792
20,850,000 Citigroup
6.75% 07/07/00............................................................... 20,822,634
14,335,000 Coca-Cola Enterprises, Inc
6.52% 07/05/00............................................................... 14,321,561
25,000,000 Corporate Asset Funding Corp, Inc
6.62% 08/03/00............................................................... 24,844,875
20,000,000 Daimler Chrysler North America Holding
6.53% 07/11/00............................................................... 19,959,300
17,229,000 Delaware Funding Corporation
6.62% 07/18/00............................................................... 17,172,317
14,000,000 Eastman Kodak Co.
6.60% 08/15/00............................................................... 13,882,470
7,975,000 Equilon Enterprises LLC
6.65% 07/07/00............................................................... 7,964,533
26,330,000 Ford Motor Credit Corp
6.54% 07/11/00............................................................... 26,276,418
14
<PAGE>
<CAPTION>
PRINCIPAL ISSUER, COUPON AND MATURITY DATE VALUE
--------- -------------------------------- -----
<S> <C> <C>
$15,000,000 Goldman Sachs Group, LP
6.55% 07/11/00............................................................... $ 14,969,475
355,000 Hershey Foods Corp
6.52% 07/06/00............................................................... 354,601
5,000,000 May Department Stores Co
6.95% 07/03/00............................................................... 4,997,187
22,800,000 McDonalds Corp
6.68% 07/06/00............................................................... 22,774,350
5,300,000 Nordstrom, Inc
6.60% 07/07/00............................................................... 5,293,044
30,800,000 Park Avenue Receivables Corp
6.53% 07/06/00............................................................... 30,765,350
28,425,000 Pharmacia Corp
6.75% 07/05/00............................................................... 28,398,351
15,000,000 Preferred Receivables Funding Corp
6.61% 07/12/00............................................................... 14,966,700
18,474,000 Province of Ontario
5.91% 07/07/00............................................................... 18,449,753
26,622,000 Receivables Capital Corp
6.56% 07/12/00............................................................... 26,562,899
20,000,000 Salomon Smith Barney Holdings, Inc.
6.50% 07/06/00............................................................... 19,977,500
24,235,000 Schering Corp.
6.53% 07/28/00............................................................... 24,110,970
3,000,000 Sherwin - Williams Co.
6.55% 07/11/00............................................................... 2,993,895
5,000,000 Sherwin - Williams Co
6.55% 07/12/00............................................................... 4,988,900
250,000 Vermont American Corp
6.50% 07/05/00............................................................... 249,766
--------------
TOTAL COMMERCIAL PAPER (Amortized cost $377,237,040).................................... 377,159,291
--------------
TOTAL MARKETABLE SECURITIES (Cost $487,896,367)............................................. 477,974,745
--------------
TOTAL INVESTMENTS--100.00% (Cost $1,941,323,004)............................................ $1,998,440,751
==============
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
At June 30, 2000, the TIAA Real Estate Account owned 55 real estate
properties, including 18 office properties, 18 industrial properties, 14
apartment complexes and 5 neighborhood shopping centers, representing 76.1% of
the Account's total investment portfolio. The Account also held investments in
commercial paper, representing 18.9% of the portfolio, real estate investment
trusts (REITs), representing 4.5% of the portfolio, and corporate bonds,
representing 0.5% of the portfolio.
The Account purchased one office property and two industrial properties
during the second quarter of 2000. Since the end of the quarter, the Account
purchased one industrial property and one office property. Shortly following the
office property purchase, the Account sold a 50% joint venture interest in the
property. 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 continues to exist for the most desirable
properties.
RESULTS OF OPERATIONS
---------------------
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1999
The Account's total net return was 4.88% for the six months ended June 30,
2000 and 4.12% for the same period in 1999. The Account's net investment income,
after deduction of all expenses, was $ 67,919,924 for the six months ended June
30, 2000 and $45,568,234 for the six months ended June 30, 1999, a 49% increase.
This increase was the result of a 35% increase in net assets and a 70% increase
in the Account's real estate holdings from June 30, 1999 to June 30, 2000.
The Account had net realized and unrealized gains on investments of
$19,558,691 for the six month period ended June 30, 2000 compared with
$7,687,645 for the same period in 1999. This difference was due, for the most
part, to the fact that the Account's real estate holdings appreciated more
during the first six months of 2000 than in the same period of 1999. Also, the
Account's marketable securities (primarily its REIT holdings) increased in value
more in the first six months of 2000 than in the first six months of 1999.
The Account's real estate holdings generated approximately 80% and 73% of
the Account's total investment income (before deducting Account level expenses)
during the six months ended June 30, 2000 and June 30, 1999, respectively. The
remaining portion of the Account's total investment income was generated by
investments in marketable securities.
Gross real estate rental income was $87,272,461 for the six months ended
June 30, 2000 and $54,196,751 for the same period in 1999. This increase was
primarily due to the increase in the number of properties owned by the Account -
from 48 properties as of June 30,
16
<PAGE>
1999 to 55 properties as of June 30, 2000. Interest income on the Account's
short-and intermediate- term investments for the six months ended June 30,
2000 and June 30, 1999 totaled $11,618,938 and $9,773,575, respectively. This
increase was due primarily to the growth in the Account's assets. Dividend
income on the Account's investments in REITs totaled $3,425,046 and
$3,952,403, respectively, for the same periods. Shares of REITs totaled 4.5%
of the Account investments as of June 30, 2000 and 7.4% as of June 30, 1999.
Total property level expenses for the six months ended June 30, 2000 were
$28,734,350 of which $10,562,743 was attributable to real estate taxes and
$18,171,607 represented operating expenses. Total property level expenses for
the six months ended June 30, 1999 were $17,424,461 of which $5,878,391 was
attributable to real estate taxes and $11,546,070 was attributable to operating
expenses. The increase in property level expenses during the first six months of
2000 reflected the increased number of properties in the Account.
The Account also incurred expenses for the six months ended June 30, 2000
and 1999 of $2,608,480 and $2,422,056, respectively, for investment advisory
services, $2,075,123 and $1,752,132, respectively, for administrative and
distribution services, and $978,568 and $755,846, respectively, for the
mortality and expense risk charges and the liquidity guarantee charges. Such
expenses increased as a result of the larger net asset base in the Account.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1999
The Account's total net return was 2.67% for the three months ended June
30, 2000 and 2.51% for the same period in 1999. The Account's net investment
income, after deduction of all expenses, was $36,145,064 for the three months
ended June 30, 2000 and $23,375,431 for the three months ended June 30, 1999, a
55% increase. This increase was the result of a 35% increase in net assets and a
70% increase in the Account's real estate holdings from June 30, 1999 to June
30, 2000.
The Account had net realized and unrealized gains on investments of
$14,102,599 and $9,751,015 for the three months ended June 30, 2000 and June 30,
1999, respectively. This increase was primarily the result of the net increase
in unrealized appreciation of the Account's real estate properties. The Account
posted net unrealized gains on its real estate investments of $5,692,221 and
$2,496,507 in the three months ended June 30, 2000 and June 30, 1999,
respectively. It also posted net unrealized gains on its marketable securities
of $8,352,115 during the second quarter of 2000, as compared with net unrealized
gains of $7,041,473 during the same period in 1999.
The Account's real estate holdings generated approximately 79% and 72% of
the Account's total investment income (before deducting Account level expenses)
during the three months ended June 30, 2000 and June 30, 1999, respectively. The
remaining portion of the Account's total investment income was generated by
investments in marketable securities.
17
<PAGE>
Gross real estate rental income was $45,451,394 for the three months ended
June 30, 2000 and $27,997,860 for the same period in 1999. The higher real
estate income for the three months ended June 30, 2000 was due primarily to
the increase in the number of properties owned by the Account. Interest
income on the Account's short- and intermediate-term investments for the
three months ended June 30, 2000 and June 30, 1999 totaled $6,377,999 and
$5,409,410, respectively. This increase was due primarily to the growth in
the Account's assets. Dividend income on the Account's investments in REITs
totaled $1,793,216 and $1,908,101, respectively, for the same periods, due to
the decrease in the size of the Account's REIT holdings.
Total property level expenses for the three months ended June 30, 2000 were
$14,871,030 of which $5,670,503 was attributable to real estate taxes and
$9,200,527 represented operating expenses. Total property level expenses for the
three months ended June 30, 1999 were $9,170,785, of which $3,205,340 was
attributable to real estate taxes and $5,965,445 was attributable to operating
expenses. The increase in property level expenses during the three month period
ended June 30, 2000 reflected the increased number of properties in the Account.
The Account also incurred expenses for the three months ended June 30, 2000
and 1999 of $1,069,798 and $1,377,170 respectively, for investment advisory
services, $1,031,627 and $947,042, respectively, for administrative and
distribution services and $505,090 and $444,943, respectively, for the mortality
and expense risks assumed and the liquidity guarantee. Most of these expenses
increased as a result of the larger net asset base of the Account for the three
months ended June 30, 2000 over the three months ended June 30, 1999. However,
the investment advisory services expenses went down due in large part to the
reduction in estimated investment advisory charges that went into effect on May
1, 2000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
For the six months ended June 30, 2000 and 1999, the Account received
$81,441,060 and $61,559,407, respectively, in premiums and $165,388,322 and
$190,461,640, respectively, in net participant transfers from other TIAA and
CREF accounts. Transfer activity into the Account was stronger in the first six
months of 1999 than in the same period in 2000. At the same time, the Account
continued to receive a growing stream of premiums from participants in 2000.
At June 30, 2000 and June 30, 1999, the Account's liquid assets (i.e., its
REITs, short- and intermediate-term investments, government securities and cash)
had a value of $478,264,392 and $585,568,454, respectively. The REIT holdings at
June 30, 2000 and June 30, 1999 were $90,900,854 and $110,132,043, respectively.
The Account plans to use much of the its liquid assets to purchase additional
suitable real estate properties. The remaining liquid assets will continue to be
available to meet expense needs and redemption requests (e.g., cash withdrawals
or transfers).
If the Account's liquid assets and its cash flow from operating activities
and participant transactions are not sufficient to meet its cash needs,
including redemption requests, TIAA's general account will purchase liquidity
units in accordance with TIAA's liquidity guarantee to the Account.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material current or pending legal proceedings that the
Account is a party to, or to which the Account's assets are subject.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
(3) (A) Charter of TIAA (as amended)*
(B) Bylaws of TIAA (as amended) **
(4) (A) Forms of RA, GRA, GSRA, SRA, and IRA Real Estate Account
Endorsements* and Keogh Contract***
(B) Forms of Income-Paying Contracts *
(10) (A) Independent Fiduciary Agreement by and among TIAA, the
Registrant, and The Townsend Group***
(B) Custodial Services Agreement by and between TIAA and Morgan
Guaranty Trust Company of New York with respect to the Real
Estate Account *
(C) Distribution and Administrative Services Agreement by and
between TIAA and TIAA-CREF Individual & Institutional Services,
Inc. (as amended) (filed previously as Exhibit (1)) *
(27) Financial Data Schedule of the Account's Financial Statements for
the three months ended June 30, 2000
--------------------
* - Previously filed and incorporated herein by reference to Post-Effective
Amendment No. 2
19
<PAGE>
to the Account's Registration Statement on Form S-1 filed April 30, 1996 (File
No. 33-92990).
** - Previously filed and incorporated herein by reference to the Account's Form
10-Q Quarterly Report for the period ended September 30, 1997 filed November 13,
1997 (File No. 33-92990).
*** - Previously filed and incorporated herein by reference to Post-Effective
Amendment No. 6 to the Account's Registration Statement on Form S-1 filed April
26, 2000 (File No. 333-22809).
(b) REPORTS ON 8-K. The Account filed a report on Form 8-K on June 5, 2000
under Item 5 of the form with respect to the acquisition of a property for its
portfolio.
20
<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.
DATE: August 11, 2000
TIAA REAL ESTATE ACCOUNT
By: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Lisa Snow
----------------------
Lisa Snow
Vice President and Chief Counsel,
Corporate and Insurance Law
DATE: August 11, 2000
By: /s/ Richard L. Gibbs
----------------------
Richard L. Gibbs
Executive Vice President
(Principal Accounting Officer)
21
