-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UXUu99tj0r9Kqx6TRJjinP2G3me6XTR7LKdiRR9XImyOZsiguMSIXvZgOIEh4aGy sBixTAKSqSY49H+WxB7bVA== 0000950146-00-000278.txt : 20000316 0000950146-00-000278.hdr.sgml : 20000316 ACCESSION NUMBER: 0000950146-00-000278 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIAA REAL ESTATE ACCOUNT CENTRAL INDEX KEY: 0000946155 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-92990 FILM NUMBER: 569634 BUSINESS ADDRESS: STREET 1: 730 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2124909000 MAIL ADDRESS: STREET 1: 730 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 10-K405 1 FORM 10-K405 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, 1999 |_| 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 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 Objective. The Real Estate Account seeks favorable long term returns primarily through rental income and appreciation of real estate investments owned by the Account. The Account also will invest in publicly-traded securities and other investments that are easily converted to cash to make redemptions, purchase or improve properties or cover other expenses. Investment Strategy. The Account seeks to invest between 70 percent to 95 percent of its assets directly in real estate or real estate-related investments. The Account's principal strategy is to purchase 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 (REITs). 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 primarily own or manage real estate), and collateralized mortgage obligations (CMOs). The Account will invest the remaining portion of its assets in government and corporate debt securities, money market instruments and other cash equivalents, and, at times, 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. This could happen if the Account receives a large inflow of money in a short period of time, there is a lack of attractive real estate investments available on the market, or the Account anticipates a need to have more cash available. The amount the Account invests in real estate and real estate-related investments at a given time will vary depending on market conditions and real estate prospects, among other factors. Through December 31, 1999, the Account had 82.5 percent of its net assets invested in real estate and real estate-related investments (including REITs). Net Assets and Portfolio Investments. As of December 31, 1999, the Account's net assets totalled $1,695,482,428. Through December 31, 1999, the Account had a total of 54 real estate 2 properties, including 18 office properties, 17 industrial properties, 14 apartment complexes, and 5 neighborhood shopping centers. As of December 31, 1999, these properties represented 77.8% of the Account's total investment portfolio. As of that date, the Account also held investments in commercial paper, representing 16.3% of the portfolio, real estate investment trusts (REITs), representing 4.7 % of the portfolio, U.S. government agencies, representing 0.6% of the portfolio, and corporate bonds, representing 0.6% of the portfolio. Personnel and Management. The Real Estate Account does not directly employ any persons nor does the Account have its own management or board of directors. Rather, TIAA employees, under the direction and control of TIAA's Board of Trustees and 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 subsidiary of TIAA, provide all portfolio accounting, custodial, distribution, administrative and related services for the Account at cost. ITEM 2. PROPERTIES. In the table below you will find general information about each of the Account's portfolio properties as of December 31, 1999.
Annual Avg. Rentable Base Rent Year Year Area Percent per Leased Market Property Location Built Purchased (sq. ft.) Leased Sq. Ft.(1) Value(2) - -------- -------- ----- --------- --------- -------- --------------- -------- OFFICE PROPERTIES 780 Third Avenue New York, NY 1984 1999 487,501 90% $ 40.44 $162,500,000 88 Kearney Street San Francisco, CA 1986 1999 228,464 95% $ 28.37 $ 72,400,000 Parkview Plaza(3) Oakbrook, IL 1990 1997 266,020 99% $ 19.44 $ 52,436,321 Columbia Centre III Rosemont, IL 1989 1997 238,696 99% $ 23.20 $ 42,100,000 Biltmore Commerce Center Phoenix, AZ 1985 1999 262,875 98% $ 15.91 $ 38,500,000 One Monument Place Fairfax, VA 1990 1999 217,990 99% $ 19.30 $ 36,100,000 Columbus Office Portfolio $ 33,701,672 Metro South Building Dublin, OH 1997 1999 90,726 91% $ 11.47 -- BISYS Fund Services Building Eaton, OH 1995 1999 155,964 100% $ 11.29 -- Vision Service Plan Building Eaton, OH 1997 1999 50,000 100% $ 11.88 -- 10 Waterview Boulevard Parsippany, NJ 1984 1999 209,553 92% $ 23.75 $ 31,200,000 Fairgate at Ballston(3) Arlington, VA 1988 1997 143,457 94% $ 27.63 $ 30,800,000 Longview Executive Park(3) Hunt Valley, MD 1988 1997 258,999 100% $ 10.77 $ 28,400,000 Sawgrass Portfolio Sunrise, FL 1998 1999 159,647 100% $ 14.05 $ 25,000,000 Two Newton Place(3) Newton, MA 1987 1997 108,819 100% $ 24.03 $ 20,300,000 Five Centerpointe(3) Lake Oswego, OR 1988 1997 113,910 98% $ 20.99 $ 18,000,948 371 Hoes Lane Piscataway, NJ 1986 1997 139,670 100% $ 17.02 $ 16,800,000 Corporate Center at Sawgrass Sunrise, FL 1997 1997 91,119 100% $ 15.01 $ 14,200,000 Southbank Building Phoenix, AZ 1995 1996 122,535 100% $ 9.36 $ 13,000,000 Northmark Business Center(3) Blue Ash, OH 1985 1997 108,341 100% $ 12.09 $ 13,000,000 USF&G Building(3) Salt Lake City, UT 1988 1997 67,081 87% $ 16.99 $ 8,722,167 --------- ------------ Subtotal--Office Properties 3,521,367 $657,161,108
3 INDUSTRIAL PROPERTIES IDI California Portfolio $ 36,500,000 Timberland Building Ontario, CA 1998 1998 414,435 100% $ 3.52 -- Park Mira Loma West Mira Loma, CA 1998 1998 557,500 100% $ 3.18 -- Saks Distribution Facility Aberdeen, MD 1997 1997 470,707 100% $ 4.98 $ 30,325,000 Park West Int'l Industrial Pk $ 25,400,000 Building C Hebron, KY 1998 1998 520,000 100% $ 2.85 -- Buidling D Hebron, KY 1998 1998 184,800 100% $ 3.26 -- Ontario Portfolio $ 24,650,000 5200 Airport Drive Ontario, CA 1997 1998 404,500 100% $ 3.48 -- 1200 S. Etiwanda Ave Ontario, CA 1998 1998 223,170 100% $ 3.16 -- Konica Photo Imaging Mahwah, NJ 1999 1999 168,000 100% NA $ 17,051,474 Headquarters Glen Pointe Business Park $ 16,100,000 Building V Chicago, IL 1997 1998 117,600 100% $ 5.89 -- Building VII Chicago, IL 1997 1998 92,543 100% $ 7.24 -- Interstate Acres Urbandale, IA 1981-88 1997 440,000 97% $ 3.12 $ 14,100,000 Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $ 5.51 $ 13,300,000 Arapahoe Park E Boulder, CO 1979-82 1996 129,425 100% $ 9.22 $ 11,850,000 UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $ 3.54 $ 11,000,000 Rockrun Business Park Chicago, IL 1998 1998 258,000 100% $ 2.92 $ 9,350,000 FedEx Distribution Facility Crofton, MD 1998 1998 111,191 100% $ 6.39 $ 7,800,000 Woodcreek Business Park Chicago, IL 1995 1998 149,907 100% $ 4.11 $ 6,976,343 Westinghouse Coral Springs, FL 1997 1997 75,630 100% $ 5.47 $ 6,200,000 Interstate Crossing Eagan, MN 1995 1996 131,380 100% $ 5.05 $ 6,400,000 Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $ 2.89 $ 4,850,000 River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $ 3.44 $ 4,300,000 --------- ------------ Subtotal--Industrial Properties 5,188,754 $246,152,817 RETAIL PROPERTIES Rolling Meadows Rolling Meadows, IL 1957(4) 1997 130,910 91% $ 10.19 $ 12,110,000 River Oaks Woodbridge, VA 1995 1996 90,885 91% $ 14.41 $ 12,100,000 Lynnwood Collection Raleigh, NC 1988 1996 86,362 98% $ 8.66 $ 7,700,000 Millbrook Collection Raleigh, NC 1988 1996 102,221 93% $ 7.99 $ 7,100,000 Plantation Grove Ocoee, FL 1995 1995 73,655 100% $ 10.40 $ 7,350,000 --------- ------------ Subtotal--Retail Properties 484,033 $ 46,360,000 --------- ------------ Subtotal--Commercial Properties 9,194,154 $949,673,925 RESIDENTIAL PROPERTIES(5) The Colorado New York, NY 1987 1999 NA 98% NA $ 56,547,289 Larkspur Courts Apartments Larkspur, CA 1991 1999 NA 99% NA $ 55,300,000 Bay Court at Harbour Pointe Mulkiteo, WA 1991 1998 NA 96% NA $ 34,800,000 Lodge at Willow Creek Douglas County, CO 1997 1997 NA 93% NA $ 30,000,000 The Legends at Chase Oaks Plano, TX 1997 1998 NA 96% NA $ 27,800,000 Golfview Apartments Lake Mary, FL 1998 1998 NA 92% NA $ 27,510,000 Lincoln Woods Lafayette Hill, PA 1991 1997 NA 99% NA $ 22,952,310 Monte Vista Littleton, CO 1995 1996 NA 94% NA $ 20,500,000 Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 95% NA $ 17,108,785 Royal St. George W. Palm Beach, FL 1995 1996 NA 95% NA $ 16,500,000 Westcreek Westlake Village, CA 1988 1997 NA 98% NA $ 15,511,245 Bent Tree Apartments Columbus, OH 1987 1998 NA 99% NA $ 14,500,000 The Greens at Metrowest Orlando, FL 1990 1995 NA 92% NA $ 14,100,000
4 The Crest at Shadow Mt El Paso, TX 1992 1997 NA 95% NA $ 9,700,000 -------------- Subtotal--Residential Properties NA $ 362,829,629 --------- -------------- Total--All Properties 9,194,154 $1,312,503,554
(1) Based on total rent (excluding tenant payments for real estate taxes and operating expenses) on leases existing at December 31, 1999. For those properties purchased in 1999, the number was derived by annualizing the rents charged by the Account since acquiring the property. (2) Market value reflects the value determined in accordance with the procedures described in the Account's prospectus. (3) Purchased through Light Street Partners, L.P. (now 100% owned by the Account). (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. At December 31, 1999, the Account held 40 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. At December 31, 1999, the Account's office property portfolio consisted of 18 office properties located in metropolitan areas throughout the United States. The office properties together are approximately 96 percent leased with 360 leases. At December 31, 1999, the Account's industrial property portfolio consisted of 17 properties used primarily for warehousing, distribution, or light manufacturing activities. The Account's industrial properties together are 98.5 percent leased with 66 leases. At December 31, 1999, the Account's retail property portfolio consisted of 5 neighborhood shopping centers, each of which is anchored by a supermarket tenant. These retail properties together are approximately 93.4 percent leased with 78 leases. Residential Properties The Account's residential property portfolio currently consists of 13 first class or luxury multi-family garden apartment complexes and one high rise apartment building. 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. In the table below you will find more detailed information regarding the apartment complexes in the Account's portfolio as of December 31, 1999. 5
================================================================================================================================= Average Avg. Rent Number Unit Size Per Unit/ Percent Property Location of Units (Square Per Month Leased Feet) - --------------------------------------------------------------------------------------------------------------------------------- The Colorado New York, NY 256 631 $1,338 98% Larkspur Courts Apartments Larkspur, CA 248 1001 $1,935 99% Bay Court at Harbour Pointe Mulkiteo, WA 420 970 $ 765 96% The Legends at Chase Oaks Plano, TX 346 972 $ 904 93% Lodge at Willow Creek Douglas County, CO 316 1001 $1,035 96% Golfview Apartments Lake Mary, FLA 276 1089 $ 950 92% Lincoln Woods Lafayette Hill, PA 216 773 $1,083 99% Monte Vista Littleton, CO 219 888 $ 902 94% Indian Creek Apartments Farmington Hills, MI 196 1139 $ 984 99% Royal St. George West Palm Beach, FL 224 870 $ 849 95% Westcreek Westlake Village, CA 126 948 $1,194 98% Bent Tree Apartments Columbus, OH 256 928 $ 605 99% The Greens at Metrowest Orlando, FL 200 920 $ 799 92% The Crest at Shadow Mt. El Paso, TX 232 837 $ 649 95% =================================================================================================================================
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, 1999 to December 31, 1999, the high and low accumulation unit values for the Account were $142.9682 and $132.3652, respectively. (b) Approximate Number of Holders. The number of contractowners at February 29, 2000 was 149,246. (c) Dividends. Not applicable. 6 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 in this report.
July 3, 1995 Year Ended Year Ended Year Ended Year Ended (commencement of December 31, December 31, December 31, December 31, operations) to 1999 1998 1997 1996 December 31,1995 ---- ---- ---- ---- ---------------- Investment income: Real estate income, net: Rental income ..................... $ 132,316,878 $ 81,009,203 $ 44,342,342 $ 10,951,183 $ 165,762 -------------- -------------- -------------- -------------- -------------- Real estate property level expenses and taxes: Operating expenses .............. 27,334,060 17,339,706 9,024,240 2,116,334 29,173 Real estate taxes ............... 15,892,736 9,103,637 4,472,311 1,254,163 14,659 -------------- -------------- -------------- -------------- -------------- Total real estate property level expenses and taxes ..... 43,226,796 26,443,343 13,496,551 3,370,497 43,832 -------------- -------------- -------------- -------------- -------------- Real estate income, net ...... 89,090,082 54,565,860 30,845,791 7,580,686 121,930 Dividends and interest .............. 24,932,733 23,943,728 16,486,279 6,027,486 2,828,900 -------------- -------------- -------------- -------------- -------------- Total investment income ......... $ 114,022,815 $ 78,509,588 $ 47,332,070 $ 13,608,172 $ 2,950,830 ============== ============== ============== ============== ============== Net realized and unrealized gain on investments ................... $ 9,834,743 $ 7,864,659 $ 18,147,053 $ 3,330,539 $ 35,603 ============== ============== ============== ============== ============== Net increase in net assets resulting from operations ............. $ 115,943,767 $ 76,611,662 $ 60,071,400 $ 15,782,915 $ 2,676,000 ============== ============== ============== ============== ============== Net increase in net assets resulting from participant transactions .......................... $ 383,171,774 $ 333,936,510 $ 356,052,262 $ 233,653,793 $ 117,582,345 ============== ============== ============== ============== ============== Net increase in net assets ............. $ 499,115,541 $ 410,548,172 $ 416,123,662 $ 249,436,708 $ 120,258,345 ============== ============== ============== ============== ============== December 31, December 31, December 31, December 31, December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Total assets ........................... $1,719,457,715 $1,229,603,431 $ 815,760,825 $ 426,372,007 $ 143,177,421 ============== ============== ============== ============== ============== Total liabilities and minority interest ............................... $ 23,975,287 $ 33,236,544 $ 29,942,110 $ 56,676,954 $ 22,919,076 ============== ============== ============== ============== ============== Total net assets ....................... $1,695,482,428 $1,196,366,887 $ 785,818,715 $ 369,695,053 $ 120,258,345 ============== ============== ============== ============== ============== Accumulation units outstanding ......... 11,487,360 8,833,911 6,313,015 3,295,786 1,172,498 ========== ========= ========= ========= ========= Accumulation unit value ................ $142.97 $132.17 $122.30 $111.11 $102.57 ======= ======= ======= ======= =======
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF ACCOUNT'S FINANCIAL CONDITION AND OPERATING RESULTS The Real Estate Account continues to grow and passed the $1.6 billion mark in net assets during 1999. Through December 31, 1999, the Account had a total of 54 real estate properties, including 18 office properties, 17 industrial properties, 5 neighborhood shopping enters and 14 apartment complexes. At December 31, 1999, these properties represented 77.8% of the Account's total investment portfolio. This is in contrast to the end of 1998, when real estate represented 67.7% of the Account's total investment portfolio. In 1999, the Account purchased ten properties (seven office properties, one industrial property and two apartment properties), sold two properties (one office property and one apartment property), and purchased the remaining 10% interest in a partnership owning a portfolio of office buildings, in which the Account already owned the controlling 90% interest. Because the Account is now at a size where it can absorb larger properties, this year the Account began to pursue and make larger property purchases, including a $161 million purchase of an office building. The Account continues to pursue suitable properties, and is currently in various stages of negotiations with a number of prospective sellers. While attractive acquisition prospects are available in the current market, there is significant competition for the most desirable properties. As of December 31, 1999, the Account also held investments in commercial paper, representing 16.3% of the portfolio, real estate investment trusts (REITs), representing 4.7% of the portfolio, U.S. government agencies, representing 0.6% of the portfolio, and corporate bonds, representing 0.6% of the portfolio. Results of Operations Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 The Account's total net return was 8.17% for the year ended December 31, 1999 and 8.07% for 1998. The Account's net investment income, after deducting all expenses, was $104,744,405 for the year ended December 31, 1999 and $72,234,994 for 1998, a 45% increase. This increase was the result of a 42% increase in net assets and an increase in the Account's real estate holdings from December 31, 1998 to December 31, 1999. The Account had net realized and unrealized gains on investments of $9,834,743 and $7,864,659 for the year ended December 31, 1999 and December 31, 1998, respectively. The gains on the Account's real estate properties of $23,232,711 and $33,221,281 for 1999 and 1998, respectively, were offset by net realized and unrealized losses on the Account's marketable securities of $13,397,968 and $25,356,622 for 1999 and 1998 respectively. The Account's real estate holdings generated approximately 78% of the Account's total investment income (before deducting Account level expenses) during 1999 compared with 70% during 1998. The remaining portion of the Account's total investment income was generated by investments in marketable securities. Gross real estate rental income was $132,316,878 for the year ended December 31, 1999 and $81,009,203 for the same period in 1998. This increase was primarily due to the increase in the number of properties owned by the Account - -- from 46 properties at the end of 1998 to 54 8 properties at the end of 1999. Interest and dividend income on the Account's marketable securities investments increased from $23,943,728 for 1998 to $24,932,733 in 1999. Total property level expenses for the year ended December 31, 1999 were $43,226,796, of which $27,334,060 represented operating expenses and $15,892,736 was attributable to real estate taxes. Total property level expenses for the year ended December 31, 1998 were $26,443,343 of which $17,339,706 was attributable to operating expenses and $9,103,637 was attributable to real estate taxes. The increase in property level expenses during 1999 reflected the increased number of properties in the Account. The Account also incurred expenses for the years ended December 31, 1999 and 1998 of $4,246,911 and $2,999,113, respectively, for investment advisory services, $3,442,282 and $2,498,376, respectively, for administrative and distribution services, and $1,589,217 and $777,105, 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 for 1999 over 1998. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 The Account's total net return was 8.07% for the year ended December 31, 1998 and 10.07% for 1997. This decline was primarily due to the decline in value of the Account's REIT holdings. The Account's net investment income, after deduction of all expenses, was $72,234,994 for the year ended December 31, 1998 and $43,805,525 for the year ended December 31, 1997, a 65% increase. This increase was the result of a 52% increase in net assets and also an increase in the Account's real estate holdings from December 31, 1997 to December 31, 1998. The Account had net realized and unrealized gains on investments of $7,864,659 and $18,147,053 for the year ended December 31, 1998 and December 31, 1997, respectively. This decrease was primarily the result of the decline in price of the Account's REITs and other marketable securities, as well as the losses incurred from the sale of certain of those investments. These realized and unrealized losses on marketable securities diminished the increase in unrealized appreciation on the Account's real estate properties, which was $33,221,281 in 1998 compared with $10,234,316 in 1997. That increase was the result of the increased values assigned to many of the properties after periodic revaluations from internal or independent appraisals. The Account's real estate holdings generated approximately 70% of the Account's total investment income (before deducting Account level expenses) during 1998 and 65% during 1997. The remaining portion of the Account's total investment income was generated by investments in marketable securities. Gross real estate rental income was $81,009,203 for the year ended December 31, 1998 and $44,342,342 for the same period in 1997. This increase was primarily due to the increase in the number of properties owned by the Account - -- from 33 properties at the end of 1997 to 46 properties at the end of 1998. Interest and dividend income on the Account's marketable securities investments increased from $16,486,279 for 1997 to $23,943,728 for 1998. This increase was due to the fact that the actual amount of money the Account had invested in marketable securities went up as the Account's net asset base grew. 9 Total property level expenses for the year ended December 31, 1998 were $26,443,343 of which $17,339,706 was attributable to operating expenses and $9,103,637 was attributable to real estate taxes. Total property level expenses for the year ended December 31, 1997 were $13,496,551, of which $9,024,240 represented operating expenses and $4,472,311 was attributable to real estate taxes. The increase in property level expenses during 1998 reflected the increased number of properties in the Account. The Account also incurred expenses for the year ended December 31, 1998 and 1997 of $2,999,113 and $1,647,689, respectively, for investment advisory services, $2,498,376 and $1,368,501, respectively, for administrative and distribution services, and $777,105 and $510,355, 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 for 1998 over 1997. Liquidity and Capital Resources The Account earned $104,744,405 in 1999 and $72,234,994 in net investment income in 1998. During 1999, the Account received $126,200,561 in premiums and $293,354,604 in net participant transfers from other TIAA and CREF accounts, while in 1998 the Account received $91,248,578 in premiums and $337,568,064 in net participant transfers from other TIAA and CREF accounts. Real estate properties costing $511,878,000 and $259,746,550 were purchased during 1999 and 1998, respectively. In 1999, the Account also received $45,927,000 in proceeds from the sale of two properties. By year end 1999, the Account's liquid assets (i.e., its cash, REITs, short- and intermediate-term investments, and government securities) had a value of $374,896,400, while at the end of 1998 those assets were valued at $391,605,900. We anticipate that much of the Account's liquid assets as of December 31, 1999, 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. The Account spent approximately $4,343,000 in 1999 for capital (long-term) expenses, including ongoing tenant improvements and leasing commissions at the commercial properties relating to the renewal of existing tenants or re-leasing of space to new tenants during the normal course of business. For the apartment complexes, in addition to the routine recurring costs, e.g., painting and carpet cleaning and minor replacements to re-lease apartments that become vacant, the Account will be expending capital to renovate the lobby and upgrade the elevators of The Colorado in New York City and the kitchens in the Larkspur apartments. 10 Effects of Inflation In recent years, inflation has been modest. To the extent that inflation may increase property operating expenses in the future, we anticipate that increases will generally be billed to tenants either through contractual lease provisions in office, industrial, and retail properties or through rent increases in apartment complexes. However, depending on how long any vacant space in a property remains unleased, the Account may not be able to recover the full amount of such increases in operating expenses. Year 2000 In past reports, the Account discussed the nature and progress of TIAA's plans to become ready for the Year 2000. In late 1999, TIAA completed its remediation and testing of systems. As a result of those planning and implementation efforts, TIAA and the Account have made a successful transition into the Year 2000, with its systems and those of its properties currently functioning normally in the Year 2000 environment. 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS TIAA REAL ESTATE ACCOUNT - -------------------------------------------------------------------------------- Page ---- Report of Management Responsibility...............................13 Report of Independent Auditors....................................14 Audited Consolidated Financial Statements: Consolidated Statements of Assets and Liabilities..............15 Consolidated Statements of Operations..........................16 Consolidated Statements of Changes in Net Assets...............17 Consolidated Statements of Cash Flows..........................18 Notes to Consolidated Financial Statements.....................19 Consolidated Statement of Investments..........................25 Schedule III - Real Estate Owned..................................29 All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information is included in the financial statements and notes thereto. 12 [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 accounting principles generally accepted in the United States 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 accompanying financial statements 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 audit 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 13 [Ernst & Young Letterhead] REPORT OF INDEPENDENT AUDITORS To the Participants of the TIAA Real Estate Account and the Board of Trustees of Teachers Insurance and Annuity Association of America: We have audited the accompanying consolidated statements of assets and liabilities, including the statement of investments as of December 31, 1999, of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity Association of America ("TIAA") as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 1999. We have also audited the financial statement schedule listed on the Index as item 8. These consolidated financial statements and the financial statement schedule are the responsibility of TIAA's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Account at December 31, 1999 and 1998, and the consolidated results of their operations and the changes in their net assets and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. New York, New York February 4, 2000 14 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
December 31, December 31, 1999 1998 -------------- -------------- ASSETS Investments, at value: Real estate properties (cost: $1,253,650,281 and $775,801,883) ....................... $1,312,503,554 $ 820,211,240 Marketable securities (cost: $395,662,203 and $402,041,089) ......................... 374,278,801 391,033,557 Cash .............................................................. 617,599 572,343 Other ............................................................. 32,057,761 17,786,291 -------------- -------------- TOTAL ASSETS 1,719,457,715 1,229,603,431 -------------- -------------- LIABILITIES Accrued real estate property level expenses and taxes ............. 18,425,328 11,432,529 Security deposits held ............................................ 5,549,959 1,890,423 -------------- -------------- TOTAL LIABILITIES 23,975,287 13,322,952 -------------- -------------- MINORITY INTEREST .................................................. -- 19,913,592 -------------- -------------- NET ASSETS Accumulation Fund ................................................. 1,642,327,173 1,167,591,317 Annuity Fund ...................................................... 53,155,255 28,775,570 -------------- -------------- TOTAL NET ASSETS $1,695,482,428 $1,196,366,887 ============== ============== NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 6 and 7 ............ 11,487,360 8,833,911 ========== ========= NET ASSET VALUE, PER ACCUMULATION UNIT--Note 6 .................... $142.97 $132.17 ======= =======
See notes to consolidated financial statements. 15 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, ----------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- INVESTMENT INCOME Real estate income, net: Rental income ................................................. $ 132,316,878 $ 81,009,203 $ 44,342,342 ------------- ------------- ------------- Real estate property level expenses and taxes: Operating expenses .......................................... 27,334,060 17,339,706 9,024,240 Real estate taxes ........................................... 15,892,736 9,103,637 4,472,311 ------------- ------------- ------------- Total real estate property level expenses and taxes 43,226,796 26,443,343 13,496,551 ------------- ------------- ------------- Real estate income, net 89,090,082 54,565,860 30,845,791 Interest ........................................................ 17,117,917 15,588,829 12,079,600 Dividends ....................................................... 7,814,816 8,354,899 4,406,679 ------------- ------------- ------------- TOTAL INCOME 114,022,815 78,509,588 47,332,070 ------------- ------------- ------------- Expenses -- Note 3: Investment advisory charges ................................... 4,246,911 2,999,113 1,647,689 Administrative and distribution charges ....................... 3,442,282 2,498,376 1,368,501 Mortality and expense risk charges ............................ 1,027,707 675,450 400,925 Liquidity guarantee charges ................................... 561,510 101,655 109,430 ------------- ------------- ------------- TOTAL EXPENSES 9,278,410 6,274,594 3,526,545 ------------- ------------- ------------- INVESTMENT INCOME, NET 104,744,405 72,234,994 43,805,525 ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Real estate properties ........................................ 8,788,795 -- -- Marketable securities ......................................... (3,022,098) (5,258,000) 1,076,725 ------------- ------------- ------------- Net realized gain (loss) on investments 5,766,697 (5,258,000) 1,076,725 ------------- ------------- ------------- Net change in unrealized appreciation (depreciation) on: Real estate properties ........................................ 14,443,916 33,221,281 10,234,316 Marketable securities ......................................... (10,375,870) (20,098,622) 6,836,012 ------------- ------------- ------------- Net change in unrealized appreciation on investments 4,068,046 13,122,659 17,070,328 ------------- ------------- ------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 9,834,743 7,864,659 18,147,053 ------------- ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS BEFORE MINORITY INTEREST 114,579,148 80,099,653 61,952,578 Minority interest in net increase in net assets resulting from operations ..................................... 1,364,619 (3,487,991) (1,881,178) ------------- ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 115,943,767 $ 76,611,662 $ 60,071,400 ============= ============= =============
See notes to consolidated financial statements. 16 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, ----------------------------------------------------- 1999 1998 1997 --------------- --------------- --------------- FROM OPERATIONS Investment income, net ...................................... $ 104,744,405 $ 72,234,994 $ 43,805,525 Net realized gain (loss) on marketable securities ........... 5,766,697 (5,258,000) 1,076,725 Net change in unrealized appreciation on investments ........ 4,068,046 13,122,659 17,070,328 Minority interest in net increase in net assets resulting from operations ................................. 1,364,619 (3,487,991) (1,881,178) --------------- --------------- --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 115,943,767 76,611,662 60,071,400 --------------- --------------- --------------- FROM PARTICIPANT TRANSACTIONS Premiums .................................................... 126,200,561 91,248,578 52,344,830 TIAA seed money withdrawn -- Note 1 ......................... -- (76,666,109) (37,915,190) Net participant transfers from TIAA ......................... 24,155,178 26,568,616 43,681,385 Net participant transfers from CREF Accounts ................ 269,199,426 310,999,448 307,493,199 Annuity and other periodic payments ......................... (6,330,436) (3,209,761) (1,499,054) Withdrawals and death benefits .............................. (30,052,955) (15,004,262) (8,052,908) --------------- --------------- --------------- NET INCREASE IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS 383,171,774 333,936,510 356,052,262 --------------- --------------- --------------- NET INCREASE IN NET ASSETS 499,115,541 410,548,172 416,123,662 NET ASSETS Beginning of year ........................................... 1,196,366,887 785,818,715 369,695,053 --------------- --------------- --------------- End of year ................................................. $ 1,695,482,428 $ 1,196,366,887 $ 785,818,715 =============== =============== ===============
See notes to consolidated financial statements. 17 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ----------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net increase in net assets resulting from operations .......... $ 115,943,767 $ 76,611,662 $ 60,071,400 Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: Increase in investments ..................................... (475,537,558) (409,958,664) (433,355,406) Decrease in receivable from securities transactions ......... -- -- 47,480,000 Increase in other assets .................................... (14,271,470) (3,719,197) (7,087,554) Decrease in payable for securities transactions ............. -- (10,463) (51,344,156) Increase in accrued real estate property level expenses and taxes ................................................. 6,992,799 1,088,936 5,021,258 Increase in security deposits held .......................... 3,659,536 584,465 1,305,958 Increase (decrease) in minority interest .................... (19,913,592) 1,631,496 18,282,096 ------------- ------------- ------------- NET CASH USED IN OPERATING ACTIVITIES (383,126,518) (333,771,765) (359,626,404) ------------- ------------- ------------- CASH FLOWS FROM PARTICIPANT TRANSACTIONS Premiums ...................................................... 126,200,561 91,248,578 52,344,830 TIAA seed money withdrawn -- Note 1 ........................... -- (76,666,109) (37,915,190) Net participant transfers from TIAA ........................... 24,155,178 26,568,616 43,681,385 Net participant transfers from CREF Accounts .................. 269,199,426 310,999,448 307,493,199 Annuity and other periodic payments ........................... (6,330,436) (3,209,761) (1,499,054) Withdrawals and death benefits ................................ (30,052,955) (15,004,262) (8,052,908) ------------- ------------- ------------- NET CASH PROVIDED BY PARTICIPANT TRANSACTIONS 383,171,774 333,936,510 356,052,262 ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH 45,256 164,745 (3,574,142) CASH Beginning of year ............................................. 572,343 407,598 3,981,740 ------------- ------------- ------------- End of year ................................................... $ 617,599 $ 572,343 $ 407,598 ============= ============= =============
See notes to consolidated financial statements. 18 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, 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 partnership in which the Account holds a 100% interest, began operations in March 1997 and holds seven office buildings throughout the United States. Prior to April 30, 1999, when the Account purchased the remaining 10% interest, the Account had a 90% interest in Light Street. Teachers REA II, LLC, a wholly-owned subsidiary of the Account, began operations in October 1997 and holds one property in Pennsylvania. Teachers REA III, LLC, a wholly-owned subsidiary of the Account, began operations in July 1998 and holds one property in Florida. The Account commenced operations on July 3, 1995 with a $100,000,000 seed money investment by TIAA. TIAA purchased 1,000,000 Accumulation Units in the Account and such Units shared in the prorata investment experience of the Account and were 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 were 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 were made at prevailing daily net asset values and are reflected in the accompanying consolidated financial statements. By the end of 1998, all of TIAA's Accumulation Units had been withdrawn. The investment objective of the Account is a favorable long-term rate of return primarily through rental income and capital appreciation from real estate investments owned by the Account. The Account also invests in publicly-traded securities and other instruments to maintain adequate liquidity for operating expenses, capital expenditures and to make benefit payments. TIAA employees, under the direction of TIAA's Board of Trustees and its Investment Committee, manage the investment of the Account's assets pursuant to investment management procedures adopted by TIAA for the Account. TIAA's investment management decisions for the Account are also subject to review by the Account's independent fiduciary, Institutional Property Consultants, Inc. TIAA also provides all portfolio accounting and related services for the Account. TIAA-CREF Individual & Institutional Services, Inc. ("Services"), a subsidiary of TIAA, which is registered with the Commission as a broker-dealer and is a member of the National Association of Securities Dealers, Inc., provides administrative and distribution services pursuant to a Distribution and Administrative Services Agreement with the Account. 19 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, Teachers REA, LLC, Teachers REA II, LLC, Teachers REA III, LLC, Inc and Light Street. All significant intercompany accounts and transactions have been eliminated in consolidation. Valuation of Real Estate Properties: Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Investment Committee of the Board of Trustees and in accordance with the responsibilities of the Board as a whole; accordingly, the Account does not record depreciation. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves subjective judgement because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. Real estate properties owned by the Account are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. The independent fiduciary must approve all independent appraisers used by the Account. The independent fiduciary can also require additional appraisals if it believes that a property's value has changed materially or otherwise to assure that the Account is valued correctly. TIAA's appraisal staff performs a valuation review of each real estate property on a quarterly basis and updates the property value if it believes that the value of the property has changed since the previous valuation review or appraisal. The independent fiduciary reviews and approves any such valuation adjustments which exceed certain prescribed limits. TIAA continues to use the revised value to calculate the Account's net asset value until the next valuation review or appraisal. Valuation of Marketable Securities: Equity securities listed or traded on any United States national securities exchange are valued at the last 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 20 Note 2--Significant Accounting Policies - (Concluded) 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. 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 year ended December 31, 1999 amounted to $345,928 ($855,810 in 1998 and 507,829 in 1997) for investment advisory expenses and $104,673 ($102,953 in 1998 and $0 in 1997) 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 properties which were purchased during the year ended December 31, 1999 been acquired at the beginning of the period (January 1, 1999), rental income and real estate property level expenses and taxes for the year ended December 31, 1999 would have increased by approximately $30,886,000 and $11,806,000 respectively. In addition, interest income for the year ended December 31, 1999 would have decreased by approximately $15,431,000. Accordingly, the total proforma effect on the Account's net investment income for the year ended December 31, 1999 would have been an increase of approximately $3,649,000, if the real estate properties acquired during the year ended December 31, 1999 had been acquired at the beginning of the period. 21 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, ------------ 2000 $ 91,384,000 2001 81,019,000 2002 70,055,000 2003 59,368,000 2004 50,531,000 Thereafter 139,129,000 ------------- Total $ 491,486,000 ============= Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts. 22 Note 6--Condensed Consolidated Financial Information Selected condensed consolidated financial information for an Accumulation Unit of the Account is presented below.
For the Years Ended July 3, 1995 December 31, (Commencement ----------------------------------------------------- of Operations) to 1999 1998 1997 1996 December 31, 1995 (1) -------- ----------- ----------- ----------- --------------------- Per Accumulation Unit Data: Rental income .......................... $ 12.168 $ 10.425 $ 7.288 $ 6.012 $ 0.159 Real estate property level expenses and taxes ............. 3.975 3.403 2.218 1.850 0.042 -------- ----------- ----------- ----------- ----------- Real estate income, net 8.193 7.022 5.070 4.162 0.117 Dividends and interest ................. 2.292 3.082 2.709 3.309 2.716 -------- ----------- ----------- ----------- ----------- Total income 10.485 10.104 7.779 7.471 2.833 Expense charges (2) .................... 0.853 0.808 0.580 0.635 0.298 -------- ----------- ----------- ----------- ----------- Investment income, net 9.632 9.296 7.199 6.836 2.535 Net realized and unrealized gain on investments .................. 1.164 .579 3.987 1.709 0.031 -------- ----------- ----------- ----------- ----------- Net increase in Accumulation Unit Value .............. 10.796 9.875 11.186 8.545 2.566 Accumulation Unit Value: Beginning of period .................. 132.172 122.297 111.111 102.566 100.000 -------- ----------- ----------- ----------- ----------- End of period ........................ $142.968 $ 132.172 $ 122.297 $ 111.111 $ 102.566 ======== =========== =========== =========== =========== Total return ............................ 8.17% 8.07% 10.07% 8.33% 2.57% Ratios to Average Net Assets: Expenses (2) ......................... 0.63% 0.64% 0.58% 0.61% 0.30% Investment income, net ............... 7.13% 7.34% 7.25% 6.57% 2.51% Portfolio turnover rate: Real estate properties ............... 4.46% 0% 0% 0% 0% Securities ........................... 27.68% 24.54% 7.67% 15.04% 0% Thousands of Accumulation Units outstanding at end of period ......... 11,487 8,834 6,313 3,296 1,172
(1) The percentages shown for this period are not annualized. (2) Expense charges per Accumulation Unit and the Ratio of Expenses to Average Net Assets include the portion of expenses related to the 10% minority interest in Light Street and exclude real estate property level expenses and taxes. If the real estate property level expenses and taxes were included, the expense charge per Accumulation Unit for the year ended December 31, 1999 would be $4.828 ($4.211, $2.798 and $2.485 for the years ended December 31, 1998, 1997 and 1996 respectively, and $0.340 for the period July 3, 1995 through December 31, 1995) and the Ratio of Expenses to Average Net Assets for the year ended December 31, 1999 would be 3.58% (3.32%, 2.82% and 2.39% for the years ended December 31, 1998, 1997 and 1996 respectively, and 0.34% for the period July 3, 1995 through December 31, 1995). 23 Note 7--Accumulation Units Changes in the number of Accumulation Units outstanding were as follows:
For the Years Ended December 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- Accumulation Units: Credited for premiums Credited for transfers, net disbursements and .. 918,728 511,462 448,822 amounts applied to the Annuity Fund .......... 1,734,721 2,009,434 2,568,407 Outstanding: Beginning of year ............................ 8,833,911 6,313,015 3,295,786 ---------- ---------- ---------- End of year .................................. 11,487,360 8,833,911 6,313,015 ========== ========== ==========
24 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENT OF INVESTMENTS December 31, 1999 REAL ESTATE PROPERTIES--77.81% Location / Description Value - ---------------------- ----- Arizona: Biltmore Commerce Center - Office building ................. $38,500,000 Southbank Building - Office building ....................... 13,000,000 California: 88 Kearny Street - Office building ......................... 72,400,000 Eastgate Distribution Center - Industrial building ......... 13,300,000 IDI California Portfolio - Industrial building ............. 36,500,000 Larkspur Courts - Apartments ............................... 55,300,000 Ontario Industrial Properties - Industrial building ........ 24,650,000 Westcreek - Apartments ..................................... 15,511,245 Colorado: Arapahoe Park East - Industrial building ................... 11,850,000 The Lodge at Willow Creek - Apartments ..................... 30,000,000 Monte Vista - Apartments ................................... 20,500,000 Florida: Corporate Center at Sawgrass - Office building ............. 14,200,000 Golfview - Apartments ...................................... 27,510,000 The Greens at Metrowest - Apartments ....................... 14,100,000 Plantation Grove - Shopping center ......................... 7,350,000 Royal St. George - Apartments .............................. 16,500,000 Sawgrass Portfolio - Office building ....................... 25,000,000 Westinghouse Facility - Industrial building ................ 6,200,000 Illinois: Columbia Center III - Office building ...................... 42,100,000 Glenpointe Business Park - Industrial building ............. 16,100,000 Parkview Plaza - Office building ........................... 52,436,321 Rockrun Business Park - Industrial building ................ 9,350,000 Rolling Meadows - Shopping center .......................... 12,110,000 Woodcreek Business Park - Industrial building .............. 6,976,343 Iowa: Interstate Acres - Industrial building ..................... 14,100,000 Kentucky: IDI Kentucky Portfolio - Industrial building ............... 25,400,000 Maryland: FedEx Distribution Facility - Industrial building .......... 7,800,000 Longview Executive Park - Office building .................. 28,400,000 Saks Distribution Center - Industrial building ............. 30,325,000 Massachusetts: Two Newton Center - Office building ........................ 20,300,000 Michigan: Indian Creek - Apartments .................................. 17,108,785 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 New Jersey: 371 Hoes Lane - Office building ............................ 16,800,000 10 Waterview Boulevard - Office building ................... 31,200,000 Konica Photo Imaging Headquarters - Industrial building .... 17,051,474 25 New York: 780 Third Avenue - Office building ................... $ 162,500,000 The Colorado - Apartments ............................ 56,547,289 North Carolina: Lynnwood Collection - Shopping center ................ 7,700,000 Millbrook Collection - Shopping center ............... 7,100,000 Ohio: Bent Tree - Apartments ............................... 14,500,000 Columbus Portfolio - Office building ................. 33,701,672 Northmark Business Center - Office building .......... 13,000,000 Oregon: Five Centerpointe - Office building .................. 18,000,948 Pennsylvania: Lincoln Woods - Apartments ........................... 22,952,310 Texas: Butterfield Industrial Park - Industrial building .... 4,850,000(1) The Crest at Shadow Mountain - Apartments ............ 9,700,000 The Legends at Chase Oaks - Apartments ............... 27,800,000 Utah: USF&G Building - Office building ..................... 8,722,167 Virginia: Fairgate at Ballston - Office building ............... 30,800,000 Monument Place - Office building ..................... 36,100,000 River Oaks - Shopping center 12,100,000 Washington: The Bay Court at Harbour Pointe - Apartments ......... 34,800,000 -------------- TOTAL REAL ESTATE PROPERTIES (Cost $1,253,650,281) ... 1,312,503,554 -------------- (1) Leasehold interest only. MARKETABLE SECURITIES--22.19% REAL ESTATE INVESTMENT TRUSTS--4.70% Shares Issuer Value - ------ ------ ----- 89,900 AMB Property Corporation Series A................. 1,781,144 19,200 Avalon Bay Communities, Inc. Pfd Series F......... 386,400 46,800 Boston Properties, Inc............................ 1,456,650 102,400 Bradley Real Estate, Inc.......................... 1,785,600 130,400 Brandywine Realty Trust........................... 2,135,300 200,000 Carramerica Realty Corporation, Pfd Series B...... 3,225,000 58,000 Centerpoint Properties Corp....................... 2,080,750 42,500 Colonial Properties Trust......................... 985,469 158,400 Cornerstone Properties, Inc....................... 2,316,600 113,100 Corporate Office Properties Trust, Inc............ 862,387 90,000 Developers Diversified Realty Corp................ 1,541,250 221,300 Duke-Weeks Realty Corp............................ 4,315,350 214,100 Equity Office Properties Trust.................... 5,272,212 200,000 Equity Office Properties Trust Pfd Series A....... 4,200,000 121,700 Equity Residential Properties Trust............... 5,195,069 100,000 Equity Residential, Pfd Series G.................. 1,975,000 100,000 Equity Residential Properties, Pfd Series L....... 1,887,500 25,000 Federal Realty Investment Trust Pfd............... 432,812 100,000 First Industrial Realty Trust, Inc. Pfd........... 1,912,500 98,300 Gables Residential Trust, Pfd Series A............ 1,800,119 74,900 Hospitality Properties Trust...................... 1,427,781 26 Shares Issuer Value - ------ ------ ----- 149,800 Macerich Company.................................. $ 3,117,713 25,159 New Plan Excel Realty Trust....................... 397,827 25,000 Prologis Trust.................................... 481,250 19,900 Prologis Trust-Pfd Series A....................... 398,000 127,700 Public Storage, Inc............................... 2,897,193 93,600 Rouse Company..................................... 1,989,000 280,900 Simon Property Group, Inc......................... 6,443,144 84,750 Spieker Properties, Inc........................... 3,088,078 174,455 Starwood Financial Trust.......................... 2,954,832 26,000 Starwood Financial, Inc Series C Pfd.............. 373,750 140,000 Starwood Hotels & Resorts Worldwide............... 3,290,000 35,500 Storage USA, Inc.................................. 1,073,875 100,400 Taubman Centers, Inc.............................. 1,079,300 35,000 Taubman Centers, Inc Pfd Series A................. 529,375 62,800 United Dominion Realty Trust, Inc................. 1,122,550 112,100 Urban Shopping Centers, Inc....................... 3,040,712 ----------- TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $100,498,293)....... 79,251,492 ----------- CORPORATE BONDS-- 0.59% Principal Issuer, Coupon and Maturity Date Value - --------- -------------------------------- ----- $ 5,000,000 Avco Financial Services, Inc. 5.75% 01/23/01.............................. 4,936,150 5,000,000 Ford Motor Credit Co. 5.75% 01/25/01.............................. 4,944,350 -------------- TOTAL CORPORATE BONDS (Cost $10,034,650)........................ 9,880,500 -------------- GOVERNMENT AGENCIES--.63% Principal Issuer, Coupon and Maturity Date Value - --------- -------------------------------- ----- 10,640,000 Federal Home Loan Mortgage Corporation 5.59% 01/11/00.............................. 10,623,907 -------------- TOTAL GOVERNMENT AGENCIES (Amortized cost $10,623,478)........... 10,623,907 -------------- COMMERCIAL PAPER--16.27% Principal Issuer, Coupon and Maturity Date Value - --------- -------------------------------- ----- 15,000,000 Asset Securitization Cooperative Corp 5.90% 01/31/00.............................. 14,927,667 10,000,000 Corporate Asset Funding Corp, Inc. 5.92% 02/01/00.............................. 9,950,222 14,000,000 Deutsche Bank 5.80% 03/31/00.............................. 13,991,218 17,725,000 Dupont (E.I.) De Nemours & Co. 5.76% 01/26/00.............................. 17,653,056 7,140,000 Equilon Enterprises LLC 6.25% 01/11/00.............................. 7,127,848 13,850,000 Equilon Enterprises LLC 6.55% 01/13/00.............................. 13,822,142 3,375,000 Equilon Enterprises LLC 5.87% 02/03/00.............................. 3,357,150 6,175,000 General Electric Capital Corp. 6.02% 01/24/00.............................. 6,151,864 20,000,000 Goldman Sachs Group, LP 6.07% 02/07/00.............................. 19,881,778 13,100,000 J.P. Morgan & Co. 6.15% 01/10/00.............................. 13,079,732 27 Principal Issuer, Coupon and Maturity Date Value - --------- -------------------------------- ----- 12,675,000 Lucent Technologies Inc. 5.72% 02/15/00.............................. $ 12,583,980 12,150,000 McGraw Hill, Inc. 5.25% 01/28/00.............................. 12,096,891 15,275,000 Merck, Inc. 5.72% 02/03/00.............................. 15,194,212 10,000,000 Morgan Stanley Dean Witter 6.00% 01/07/00.............................. 9,992,514 15,000,000 National Fuel Gas Co. 6.20% 02/23/00.............................. 14,870,625 1,350,000 National Fuel Gas Co. 5.87% 03/01/00.............................. 1,336,584 20,000,000 National Rural Utilities Coop Finance 5.78% 02/14/00.............................. 19,860,000 15,000,000 National Rural Utilities Coop Finance 5.92% 03/07/00.............................. 14,841,991 10,000,000 Park Avenue Receivables Corp. 6.06% 01/27/00.............................. 9,957,850 17,006,000 Pfizer, Inc. 5.76% 02/29/00.............................. 16,846,710 14,000,000 Receivables Capital Corp. 6.40% 01/14/00.............................. 13,969,675 13,070,000 Salomon Smith Barney Holdings, Inc. 6.00% 01/20/00.............................. 13,029,193 -------------- TOTAL COMMERCIAL PAPER (Amortized cost $274,505,782)......... 274,522,902 -------------- TOTAL MARKETABLE SECURITIES (Cost $395,662,203)................. 374,278,801 -------------- TOTAL INVESTMENTS--100.00% (Cost $1,649,312,484)................ $1,686,782,355 ============== See notes to consolidated financial statements. 28 TIAA REAL ESTATE ACCOUNT Schedule III - Real Estate Owned December 31, 1999
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) 1999 Completed Acquired - ------------------------------ ------- ------------ ----------------- ------------ ------------ -------- River Road Distribution Center $-0- $ 4,166,787 $ 133,213 $ 4,300,000 1995 11/22/1995 Industrial Building Fridley, Minnesota The Greens At Metrowest -0- 12,490,895 1,609,105 14,100,000 1990 12/15/1995 Apartments Orlando, Florida Butterfield Industrial Park -0- 4,431,166 418,834 4,850,000 1981 12/22/1995 Industrial Building El Paso, Texas(1) Plantation Grove Shopping Center -0- 7,326,170 23,830 7,350,000 1995 12/28/1995 Shopping Center Ocoee, Florida Southbank Business Park -0- 10,069,898 2,930,102 13,000,000 1995 02/27/96 Office Building Phoenix, Arizona Millbrook Collection -0- 6,774,711 325,289 7,100,000 1988 03/29/96 Shopping Center Raleigh, North Carolina Lynnwood Collection -0- 6,708,120 991,880 7,700,000 1988 03/29/96 Shopping Center Raleigh, North Carolina
29
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) 1999 Completed Acquired - ------------------------------ ------- ------------ ----------------- ------------ ------------ -------- Monte Vista Apartments $-0- 17,664,247 2,835,753 20,500,000 1995 06/21/96 Apartments Littleton, Colorado River Oaks Shopping Center -0- 13,036,153 (936,153) 12,100,000 1995 07/12/96 Shopping Center Woodbridge, Virginia Arapahoe Park East -0- 9,920,680 1,929,320 11,850,000 1982 10/31/1996 Industrial Building Boulder, Colorado Royal St. George Apartments -0- 16,072,275 427,725 16,500,000 1995 12/20/1996 Apartments West Palm Beach, Florida Interstate Crossing -0- 6,485,249 (85,249) 6,400,000 1995 12/31/1996 Industrial Building Eagan, Minnesota West Creek Apartments -0- 13,488,279 2,022,966 15,511,245 1988 01/02/97 Apartments Westlake Village, California Interstate Acres -0- 13,610,294 489,706 14,100,000 1988 01/24/97 Industrial Building Urbandale, Iowa The Crest at Shadow Mountain -0- 9,192,389 507,611 9,700,000 1992 01/31/97 Apartments El Paso, Texas
30
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) 1999 Completed Acquired - ------------------------------ ------- ------------ ----------------- ------------ ------------ -------- Westinghouse Facility $-0- 6,089,473 110,527 6,200,000 1997 02/05/97 Industrial Building Coral Springs, Florida Rolling Meadows -0- 12,930,463 (820,463) 12,110,000 1957 05/28/97 Shopping Center Rolling Meadows, Illinois Saks Distribution Center -0- 26,908,401 3,416,599 30,325,000 1997 05/15/97 Industrial Building Aberdeen, Maryland Eastgate Distribution Center -0- 11,941,992 1,358,008 13,300,000 1996 05/29/97 Industrial Building San Diego, California Five Centerpointe -0- 15,429,103 2,571,845 18,000,948 1988 04/21/97 Office Building Lake Oswego, Oregon Longview Executive Park -0- 23,249,805 5,150,195 28,400,000 1988 04/21/97 Office Building Longview, Maryland Northmark Business Center III -0- 8,591,636 4,408,364 13,000,000 1985 04/21/97 Office Building Blue Ash, Ohio USF&G Building -0- 6,195,142 2,527,025 8,722,167 1988 04/21/97 Office Building Salt Lake City, Utah
31
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) 1999 Completed Acquired - ------------------------------ ------- ------------ ----------------- ------------ ------------ -------- Two Newton Place $-0- $16,368,169 $ 3,931,831 $20,300,000 1987 04/21/97 Office Building Newton, Massachusetts Fairgate at Ballston -0- 26,790,792 4,009,208 30,800,000 1988 04/21/97 Office Building Arlington, Virginia Parkview Plaza -0- 49,139,012 3,297,309 52,436,321 1990 04/29/97 Office Building Oakbrook Terrace, Illinois Lincoln Woods Apartments -0- 21,476,050 1,476,260 22,952,310 1991 10/20/1997 Apartments Lafayette Hill, Pennsylvania Corporate Center at Sawgrass -0- 12,956,957 1,243,043 14,200,000 1997 12/02/97 Office Building Sunrise, Florida 371 Hoes Lane -0- 15,499,306 1,300,694 16,800,000 1986 12/15/1997 Office Building Piscataway, New Jersey Columbia Centre III -0- 38,580,850 3,519,150 42,100,000 1989 12/23/1997 Office Building Rosemont, Illinois The Lodge at Willow Creek -0- 27,562,882 2,437,118 30,000,000 1997 12/24/1997 Apartments Douglas County, Colorado
32
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) 1999 Completed Acquired - ------------------------------ ------- ------------ ----------------- ------------ ------------ -------- The Legends at Chase Oaks $-0- $29,701,668 ($1,901,668) $27,800,000 1997 03/31/98 Apartments Plano, Texas Glen Pointe Business Park -0- 15,279,508 820,492 16,100,000 1997 06/30/98 Industrial Building Glendale Heights, Illinois Wood Creek Business Park -0- 7,222,421 (246,078) 6,976,343 1995 06/30/98 Industrial Building Boilingbrook, Illinois Rock Run Business Park -0- 9,325,421 24,579 9,350,000 1998 06/30/98 Industrial Building Joliet, Illinois Golfview Apartments -0- 28,066,591 (556,591) 27,510,000 1998 07/31/98 Apartments Lake Mary, Florida Indian Creek Apartments -0- 17,003,388 105,397 17,108,785 1988 10/08/98 Apartments Farmington Hills, Michigan Bent Tree Apartments -0- 14,412,235 87,765 14,500,000 1987 10/22/98 Apartments Columbus, Ohio UPS Distribution Center -0- 10,989,393 10,607 11,000,000 1998 11/13/98 Industrial Building Fernly, Nevada
33
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) 1999 Completed Acquired - ------------------------------ ------- ------------ ----------------- ------------ ------------ -------- Ontario Industrial Properties $-0- $24,433,584 $ 216,416 $24,650,000 1997 12/17/98 Industrial Building Ontario, California IDI California Portfolio -0- 35,668,791 831,209 36,500,000 1998 12/17/98 Industrial Building Ontario, California IDI Kentucky Portfolio -0- 24,651,154 748,846 25,400,000 1998 12/17/98 Industrial Building Hebron, Kentucky Fedex Distribution Center -0- 7,828,025 (28,025) 7,800,000 1998 12/18/98 Industrial Building Crofton, Maryland The Bay Court at Harbor Pointe -0- 35,164,373 (364,373) 34,800,000 1991 12/18/98 Apartments Mukilteo, Washington Biltmore Commerce Center -0- 37,323,057 1,176,943 38,500,000 1985 02/23/99 Office Building Phoenix, Arizona The Colorado -0- 52,687,840 3,859,449 56,547,289 1987 04/14/99 Apartments New York, New York Sawgrass Portfolio -0- 24,916,713 83,287 25,000,000 1998 05/11/99 Office Building Sunrise, Florida
34
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) 1999 Completed Acquired - ------------------------------ ------- ------------ ----------------- ------------ ------------ -------- 780 Third Avenue $-0- $ 161,511,019 $ 988,981 $ 162,500,000 1984 07/08/99 Office Building New York, New York Monument Place -0- 34,597,698 1,502,302 36,100,000 1990 07/15/99 Office Building Fairfax, Virginia 88 Kearny Street -0- 65,995,171 6,404,829 72,400,000 1986 07/22/99 Office Building San Francisco, California 10 Waterview Boulevard -0- 31,063,636 136,364 31,200,000 1984 07/27/99 Office Building Parsippany, New Jersey Larkspur Courts -0- 53,038,988 2,261,012 55,300,000 1991 08/17/99 Apartments Larkspur, California Columbus Portfolio -0- 33,701,672 0 33,701,672 1997 11/30/99 Office Building Columbus, Ohio Konica Photo Imaging Headquarters -0- 17,051,474 0 17,051,474 1999 12/21/99 Industrial Building Mahwah, New Jersey ---- -------------- ------------ -------------- $-0- $1,242,781,166 $ 69,722,388 $1,312,503,554 ==== ============== ============ ==============
(1) Leasehold interest only 35 Reconciliation of investment property owned: Balance at beginning of period $ 820,211,242 Acquisitions 511,887,268 Dispositions (Initial cost 36,659,857 costs capitalized 12,398,881) (49,058,738) Capital improvements and carrying costs (including unrealized gains and losses) 29,463,782 -------------- Balance at end of period $1,312,503,554 ============== 36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 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, 67. President Emeritus, Pomona College. Formerly, Trustees' Professor, Pomona College and American Secretary, Rhodes Scholarship Trust. Marcus Alexis, 68. Board of Trustees Professor of Economics and Professor of Management and Strategy, J.L. Kellogg Graduate School of Management, Northwestern University. Willard T. Carleton, 65. Donald R. Diamond Professor of Finance, College of Business and Public Administration, University of Arizona. Robert C. Clark, 56. Dean and Royall Professor of Law, Harvard Law School, Harvard University. Estelle A. Fishbein, 65. Vice President and General Counsel, The Johns Hopkins University. Frederick R. Ford, 63. Executive Vice President and Treasurer Emeritus, Purdue University. Formerly, Executive Vice President and Treasurer, Purdue University. Martin J. Gruber, 62. Nomura Professor of Finance, New York University Stern School of Business. Formerly, Chairman, Department of Finance, New York University Stern School of Business. 37 Ruth Simms Hamilton, 62. Professor, Department of Sociology, and Director, African Diaspora Research Project, Michigan State University. Robert M. O'Neil, 65. Professor of Law, University of Virginia and Director, The Thomas Jefferson Center for the Protection of Free Expression. Leonard S. Simon, 63. Vice Chairman, Charter One Financial Inc. Formerly, Chairman, President and Chief Executive Officer, RCSB Financial, Inc. and Chairman and Chief Executive Officer, The Rochester Community Savings Bank. Ronald L. Thompson, 50. Chairman and Chief Executive Officer, Midwest Stamping Co. Paul R. Tregurtha, 64. Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran Transportation Company, Inc.; Chairman, Meridian Aggregates, L.P.; Vice Chairman, The Interlake Steamship Company and Lakes Shipping Company. William H. Waltrip, 62. Chairman, Technology Solutions Company. Formerly, Chairman and Chief Executive Officer, Bausch & Lomb Inc., and Chairman and Chief Executive Officer, Biggers Brothers, Inc. Rosalie J. Wolf, 58. Treasurer and Chief Investment Officer, The Rockefeller Foundation. Formerly, Executive Vice President, Sithe Energies, Inc., and Managing Director -- Merchant Banking, Bankers Trust Company. Officer-Trustees John H. Biggs, 63. Chairman, President and Chief Executive Officer, TIAA and CREF. Martin L. Leibowitz, 63. 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. 38 Other Officers Richard J. Adamski, 57. Vice President and Treasurer, TIAA and CREF. Richard L. Gibbs, 52. Executive Vice President, Finance and Planning, TIAA and CREF. E. Laverne Jones, 50 Vice President and Corporate Secretary, TIAA and CREF. ITEM 11. EXECUTIVE COMPENSATION. Not applicable. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Not applicable. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. TIAA's general account plays a significant role in operating the Real Estate Account, including providing a liquidity guarantee, and investment management and other services. 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, 1999, the Account paid TIAA $561,510 for this liquidity guarantee through a daily deduction from the net assets of the Account. Investment Management and Administrative Services/Certain Risks Borne by TIAA. Deductions are made each valuation day from the net assets of the Account for various services required to manage investments, administer the Account and distribute the contracts, and to cover mortality and expense risks borne by TIAA. These services are performed at cost by TIAA and Services. For the year ended December 31, 1999, the Account paid TIAA $4,246,911 for investment management services and $1,027,707 for mortality and expense risks. For the same period, the Account paid Services $3,442,282 for its administrative and distribution services. 39 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, 1999 (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. - ---------- * - 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). 40 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 13, 2000 ------------------------------------ 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 3/13/00 - --------------------------- and Chief Executive Officer John H. Biggs (Principal Executive Officer) and Trustee /s/ Martin L. Leibowitz Vice Chairman and Chief Investment 3/13/00 - --------------------------- Officer and Trustee Martin L. Leibowitz /s/ Richard L. Gibbs Executive Vice President 3/13/00 - --------------------------- (Principal Financial Richard L. Gibbs and Accounting Officer) 41 Signature of Trustee Date Signature of Trustee Date - -------------------- ---- -------------------- ---- /s/ Marcus Alexis 3/13/00 /s/Robert M. O'Neil 3/13/00 - ------------------------- ---------------------- Marcus Alexis Robert M. O'Neil /s/ Willard T. Carleton 3/13/00 /s/ Leonard S. Simon 3/13/00 - ------------------------- ---------------------- Willard T. Carleton Leonard S. Simon /s/ Robert C. Clark 3/13/00 /s/ Ronald L. Thompson 3/13/00 - ------------------------- ---------------------- Robert C. Clark Ronald L. Thompson /s/ Estelle A. Fishbein 3/13/00 /s/ Paul R. Tregurtha 3/13/00 - ------------------------- ---------------------- Estelle A. Fishbein Paul R. Tregurtha /s/ Frederick R. Ford 3/13/00 /s/ William H. Waltrip 3/13/00 - ------------------------- ---------------------- Frederick R. Ford William H. Waltrip /s/ Martin J. Gruber 3/13/00 /s/ Rosalie J. Wolf 3/13/00 - ------------------------- ---------------------- Martin J. Gruber Rosalie J. Wolf /s/ Ruth Simms Hamilton 3/13/00 - ------------------------- ---------------------- Ruth Simms Hamilton David Alexander 42 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. 43 EXHIBIT INDEX Exhibit Number Description of Exhibit - ------ ---------------------- 27 Financial Data Schedule of the Account's Financial Statements for the period ended December 31, 1999 EX-27 2 FDS
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000946155 TIAA REAL ESTATE ACCOUNT 1 YEAR DEC-31-1999 DEC-31-1999 1,649,312,484 1,686,782,355 0 32,057,761 617,599 1,719,457,715 0 0 23,975,287 23,975,287 0 0 11,487,360 8,833,911 0 0 0 0 0 1,695,482,428 7,814,816 17,117,917 90,454,701 (9,278,410) 106,109,024 5,766,697 4,068,046 115,943,767 0 0 0 0 2,653,449 0 0 499,115,541 0 0 0 0 4,246,911 0 9,278,410 1,468,464,499 132.172 9.632 1.164 0 0 0 142.968 .630
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