-----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, QyucWgJ0FGSMasAPtChnrjc8rPRrXx8N0Z/mFiHyG5ernZj4P0AWPh/f8WkaTLcn BgNf3k8jRgDaO6PzqY/qHA== 0000950146-97-000399.txt : 19970319 0000950146-97-000399.hdr.sgml : 19970319 ACCESSION NUMBER: 0000950146-97-000399 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970318 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIAA REAL ESTATE ACCOUNT CENTRAL INDEX KEY: 0000946155 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 033-92990 FILM NUMBER: 97558749 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-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission file numbers 33-92990 and 333-13477 TIAA REAL ESTATE ACCOUNT (Exact name of registrant as specified in its charter) New York Not Applicable (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) c/o Teachers Insurance and Annuity Association of America 730 Third Avenue New York, New York 10017-3206 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (212) 490-9000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: [X] -- Not Applicable Aggregate market value of voting stock held by non-affiliates: Not Applicable Documents Incorporated by Reference: None PART I ITEM 1. BUSINESS. General. The TIAA Real Estate Account (the "Real Estate Account" or the "Account") was established on February 22, 1995, as a separate investment account of Teachers Insurance and Annuity Association of America ("TIAA"), a nonprofit New York insurance company, by resolution of TIAA's Board of Trustees. The Account, which invests mainly in real estate and real estate-related investments, is a variable annuity investment option offered through individual, group and tax-deferred annuity contracts available to employees of educational and research institutions. The Account commenced operations on July 3, 1995, when TIAA contributed $100 million of seed money to the Account. Participating interests in the Account were first offered to eligible participants on October 2, 1995. Investment Practices. The investment objective of the Account is a favorable rate of return over the long term, primarily through rental income and capital appreciation from real estate investments owned by the Account. The Account will also invest in publicly-traded securities and other instruments to maintain liquidity needed for capital expenditures and expenses and to make distributions. The Account's target is to invest between 70% and 80% of its assets directly in real estate or in real estate-related investments. We expect the majority of the Account's real estate investments to be direct ownership interests in income-producing real estate, such as office, industrial, retail, and multi-family residential properties. The Account can also invest in other real estate or real estate-related investments, through joint ventures, real estate partnerships or real estate investment trusts. To a limited extent, the Account can also invest in conventional mortgage loans, participating mortgage loans, common or preferred stock of companies whose operations involve real estate (i.e., that own or manage real estate primarily), and collateralized mortgage obligations. Between 20% and 30% of the Account's assets are targeted to be invested in government and corporate debt securities, short-term money market instruments or cash equivalents, and, to some extent, common or preferred stock of companies that don't primarily own or manage real estate. In some circumstances, the Account can increase the portion of its assets invested in debt securities or money market instruments for a period of time. This could happen because of a rapid influx of participants' funds, lack of suitable real estate investments, or a need for more liquidity. 2 In order not to be considered an "investment company" under the Investment Company Act of 1940 (the "1940 Act"), the Account will limit its holdings of investment securities (as defined under the 1940 Act) to less than 40% of its total assets (not including U.S. Government securities and cash items). Net Assets and Portfolio Investments. As of December 31, 1996, the Account's net assets totaled $369,695,053. Through December 31, 1996, the Account had acquired a total of thirteen real estate properties, including four industrial properties, four neighborhood shopping centers, four apartment complexes and one office building, for an aggregate purchase price of approximately $131 million. Since that date, the Account has purchased two apartment complexes for a purchase price of approximately $22 million, and two industrial properties for a purchase price of approximately of $20 million. Most of the remainder of the Account's assets have been invested in short-term instruments or are being held as cash. The Account is continuing to seek suitable real estate-related investments for its portfolio. Personnel and Management. The Real Estate Account does not directly employ any persons nor does the Account have its own management or board of directors. Rather, TIAA employees, under the direction and control of TIAA's Board of Trustees and Mortgage Committee (which effective January 24, 1997, merged with the Finance Committee to become the Investment Committee), manage the investment of the Account's assets pursuant to investment management procedures adopted by TIAA for the Account. TIAA and TIAA-CREF Individual & Institutional Services, Inc. ("Services"), a non-profit subsidiary of TIAA, provide all portfolio accounting, custodial, and related services for the Account at cost. ITEM 2. PROPERTIES. The properties the Account has purchased since it commenced operations are described below. MULTI-FAMILY RESIDENTIAL COMPLEXES The Crest At Shadow Mountain Apartments - El Paso, Texas On January 31, 1997, the Account purchased the fee interest (i.e., ownership of underlying land and all buildings and other improvements on the land) in The Crest at Shadow Mountain Apartments, a first class garden apartment complex located in El Paso, Texas, for a purchase price of approximately $9,150,000. The property is not subject to a mortgage. 3 The Crest at Shadow Mountain Apartments was built in 1992 and is located on 9.5 acres of land. The complex contains 232 one, two and three bedroom units in 17 two-story apartment buildings. Buildings are of wood frame construction with stucco and brick exteriors and pitched composition shingle roofs. The project includes a community clubhouse/leasing office with a fitness center, outdoor pool, sports court and sand volleyball court. Apartment units offer fully equipped kitchens, cable, walk-in closets, ceiling fans, thermo-pane windows and are wired for contract security systems. There are 332 parking spaces plus 91 covered carports. The complex is currently 92% occupied with monthly rents averaging $590 per unit. Rents are comparable with competitive complexes and are not subject to rent regulation. The Account is responsible for the expenses of operating the property. The Crest at Shadow Mountain Apartments is located approximately seven miles west of the El Paso central business district. The El Paso metropolitan area, with a current population of almost seven hundred thousand persons has experienced population growth over the past five years that is more than twice the national rate. This growth is expected to continue. Westcreek Apartments - Westlake Village, California On January 2, 1997, the Account purchased the fee interest in Westcreek Apartments, a luxury garden apartment complex located in Westlake Village, California, for a purchase price of approximately $13.0 million. The property is not subject to a mortgage. Westcreek Apartments was built in 1988 and is located on approximately 10.4 acres of land. The complex contains 126 one-and two-bedroom units in 11 two-story buildings, with each unit containing such amenities as a microwave oven, fireplace, washer and dryer and nine foot ceilings. Building exteriors are stucco with tile roofs. There are 128 covered parking spaces plus 76 uncovered parking spaces. Residents have use of an on-site clubhouse with a fully equipped weight room and a swimming pool. The complex is currently 94% occupied with monthly rents averaging $1,090 per unit. Rents are comparable with competitive complexes and are not subject to rent regulation. The Account is responsible for the expenses of operating the property. Westlake Village is located approximately 38 miles northwest of downtown Los Angeles in Ventura County. Ventura County has enjoyed above-average population growth during the last five years and this growth is expected to continue into the foreseeable future. 4 Royal St. George Apartments - West Palm Beach, Florida On December 20, 1996, the Account purchased the fee interest in the Royal St. George Apartments, a first class garden apartment complex located in West Palm Beach, Florida, for a purchase price of approximately $15.9 million. The property is not subject to a mortgage. Royal St. George Apartments was built in 1995 and is located on 10.4 acres of land. The complex contains 224 one-, two- and three-bedroom units in 8 two- and three-story buildings, with each unit containing such amenities as a washer and dryer, patio or solarium, and a security system. Upper level units contain vaulted ceilings. Building exteriors are stucco with tile roofs. There are 388 parking spaces plus 64 detached garages. Residents have use of an on-site clubhouse, a fully equipped exercise center, swimming pool and two lighted tennis courts. The complex is currently 94% occupied with monthly rents averaging $834 per unit. Rents are comparable with competitive complexes and are not subject to rent regulation. The Account is responsible for the expenses of operating the property. Royal St. George Apartments is located three miles south of the West Palm Beach central business district. The West Palm Beach metropolitan area, with a current population of almost one million persons, has experienced population growth over the past five years that is more than twice the national rate. This growth is expected to continue. Monte Vista Apartments -- Littleton, Colorado On June 21, 1996, the Account purchased the fee interest in Monte Vista Apartments, a luxury garden apartment complex located in Littleton, Colorado, for a purchase price of approximately $17.6 million. The property is not subject to a mortgage. Monte Vista Apartments was built in 1995, and is located on approximately 15.1 acres of land. The complex consists of 219 one- and two-bedroom units in 22 two-story buildings, with units containing such amenities as 9 foot ceilings, a gas fireplace and an attached garage. Building exteriors are brick and siding. There are 221 uncovered parking spaces in addition to the garages. Residents have use of an on-site clubhouse, a fully equipped exercise center and swimming pool. The complex is currently 90% occupied with monthly rents averaging $923.00 per unit. Rents are comparable with competitive complexes in the locality and are not subject to rent regulation. The Account is responsible for the expenses of operating the property. Littleton is located 10 miles southwest of downtown Denver. Denver, the capital of Colorado, is the largest city in the seven-state Rocky Mountain region. The population of the Denver 5 metropolitan area, which includes Littleton, has grown steadily during the past ten years and is expected to continue to expand into the near future. Brixworth Apartments -- Atlanta, Georgia On December 28, 1995, the Account purchased the fee interest in Brixworth Apartments, a first class garden apartment complex located in Atlanta, Georgia, for a purchase price of approximately $15.6 million. The property is not subject to a mortgage. Brixworth Apartments was built in 1989 and is located on approximately 10.8 acres of land. The complex contains 271 one-and two- bedroom apartment units in 11 three story buildings, with each unit containing such amenities as a washer and dryer and a patio or balcony. Building exteriors are brick and wood. There are 420 parking spaces in the complex. Residents have use of an on-site clubhouse, which includes a fitness center and swimming pool. Brixworth Apartments is currently 88% occupied. Average monthly rents are $785 per unit. Rents are comparable with competitive communities and are not subject to rent regulation. The Account is responsible for the expenses of operating the property. Brixworth Apartments is located in northeast Atlanta in DeKalb County, near several shopping facilities and employment centers. Atlanta has experienced positive population and employment growth over the last 15 years and serves as the financial and administrative center for the southeastern United States. The Greens at Metrowest Apartments -- Orlando, Florida On December 15, 1995, the Account purchased the fee interest in The Greens at Metrowest, a luxury garden apartment complex located in Orlando, Florida, for a purchase price of approximately $12.5 million. The property is not subject to a mortgage. The Greens at Metrowest Apartments was built in 1990, and is located on approximately 16.7 acres of land. The complex consists of 200 one- and two-bedroom units in 27 two story buildings, with each unit containing such amenities as a washer and dryer, a screened porch, and, in many of the units, a fireplace and vaulted ceilings. Building exteriors are stucco with concrete tiled roofs. There are 402 parking spaces in the complex. Residents have use of an on-site clubhouse, which includes an exercise facility and swimming pool. The complex is currently 92% occupied, with monthly rents averaging $815 per unit. Rents are comparable with competitive complexes and are 6 not subject to rent regulation. The Account is responsible for the expenses of operating the property. The complex is located in the 1,800 acre master planned development of Metrowest which contains an 18 hole golf course. Its proximity to several major highways gives residents easy access to Orlando's major employment centers. Orlando has experienced strong population and employment growth during the last decade. While tourism and entertainment account for 40% of local jobs, the region's economy is diversifying by attracting "high-tech" industries and is growing in importance as a warehouse and distribution location. OFFICE BUILDINGS Southbank Business Park - Phoenix, Arizona On February 27, 1996, the Account purchased the fee interest in a 122,535 square foot office/service building in Phoenix, Arizona, for a purchase price of approximately $10.05 million. The property is not subject to a mortgage. The building, completed in 1995, is located on approximately 9.9 acres of land with 645 parking spaces. It is currently 100% leased by four tenants in the service industry, with rents averaging $9.01 per square foot. None of the leases expire until the year 2000 and 2001, when leases on 65% of the space expire; those leases together represent total annual rent payments of approximately $727,300. Although the terms vary under each lease, most of the expenses for operating the property are either borne or reimbursed by the tenants. The building is located within the Southbank Business Park adjacent to the Phoenix Airport and is easily accessible from all areas of metropolitan Phoenix area. Phoenix has experienced positive population and employment growth over the last 15 years. Over 29% of its employment base is comprised of employees in the service industry. NEIGHBORHOOD SHOPPING CENTERS River Oaks Shopping Center - Woodbridge, Virginia On July 12, 1996, the Account purchased, through a wholly-owned subsidiary, the fee interest in River Oaks Shopping Center, a 90,885 square foot neighborhood shopping center located in Woodbridge, Virginia, for a purchase price of approximately $13.0 million. The property is not subject to a mortgage. The center, built in 1995, is located on approximately 10.42 acres of land with space for 402 cars. It is currently 94% occupied and is anchored by a 64,885 square foot Giant 7 supermarket, a regional supermarket chain. Rents, including a rent guarantee from the seller for the 6% of vacant space, average $14.19 per square foot. Although the terms vary under each lease, most of the expenses for operating the property are either borne or reimbursed by the tenants. Over the next five years, leases on 19% of the center's space expire; those leases together represent total annual rent payments of $352,695 in the year of their expiration. The Giant lease expires in the year 2021. The center is located 25 miles south of Washington, D.C. in Prince William County. The Washington, D.C. metropolitan area has grown significantly since 1980, with a current population of approximately 4.5 million people. Woodbridge has been developing as a bedroom community for workers commuting to Washington, D.C. and to neighboring Fairfax County. The Lynnwood Collection -- Raleigh, North Carolina On March 29, 1996, the Account purchased the fee interest in The Lynnwood Collection, an 86,362 square foot neighborhood shopping center located in Raleigh, North Carolina, for a purchase price of approximately $6.5 million. The property is not subject to a mortgage. The center, which was built in 1988, is located on approximately 10.3 acres of land and has space for 426 cars. It is currently 100% occupied, and is anchored by a 52,337 square foot Kroger supermarket, a national supermarket chain. Rents average $8.26 per square foot. Although the terms vary under each lease, most of the expenses for operating the property are either borne or reimbursed by the tenants. Over the next five years, leases on 39% of the center's space expire; those leases together represent total annual rent payments of $426,810 in the year of their expiration. The Kroger lease expires in the year 2015. The center is located in north Raleigh, the city's primary growth corridor. Raleigh is the capital of North Carolina and has experienced strong population growth. As part of what is referred to as the "Research Triangle," it has attracted major business and industries and has a large pool of highly educated workers. The Millbrook Collection -- Raleigh, North Carolina On March 29, 1996, the Account purchased the fee interest in The Millbrook Collection, a 102,221 square foot neighborhood shopping center located in Raleigh, North Carolina, for a purchase price of approximately $6.7 million. The property is not subject to a mortgage. 8 The center, which was built in 1988, is located on approximately 11.9 acres of land with space for 670 cars. The center is currently 83% occupied and is anchored by a 52,337 square foot Kroger supermarket. Rents average $7.55 per square foot. Although the terms vary under each lease, most of the expenses for operating the property are either borne or reimbursed by the tenants. Over the next five years, leases on 29% of the center's space expire; those leases together represent total annual rent payments of $327,066 in the year of their expiration. The Kroger lease expires in the year 2015. The center is located within the city limits of Raleigh, North Carolina in a well-established neighborhood. The Raleigh area is discussed in the description of the Lynnwood Collection set forth above. Plantation Grove Shopping Center -- Ocoee, Florida On December 28, 1995, the Account purchased the fee interest in Plantation Grove Shopping Center, a 73,655 square foot neighborhood shopping center located near Orlando, Florida, for a purchase price of approximately $7.3 million. The property is not subject to a mortgage. The center, built in 1995, is located on approximately 10.2 acres of land with space for 401 cars. It is currently 95% occupied and is anchored by a 47,955 square foot Publix supermarket, a regional supermarket chain. Rents average $9.86 per square foot. Although the terms vary under each lease, most of the expenses for operating the property are either borne or reimbursed by the tenants. Over the next five years, leases on 30% of the center's space expire; those leases together represent total annual rent payments of $335,600 in the year of their expiration. The Publix lease expires in the year 2015. The Orlando, Florida area is discussed in the description of The Greens at Metrowest Apartments set forth above. 9 INDUSTRIAL PROPERTIES Interstate Acres - Urbandale, Iowa On January 24, 1997, the Account purchased the fee interest in four warehouse distribution buildings located in Urbandale, Iowa, for a purchase price of approximately $13,565,000. Rents on the buildings, which together have 440,000 square feet of rentable space, average $3.19 per square foot. Operating expenses for the properties are borne or reimbursed by the tenants. The buildings are not subject to a mortgage. The buildings, built between 1981 and 1988, are located on approximately 29.6 acres of land with space for 388 cars. The buildings are presently 97% leased to 15 tenants under leases which expire over the eight year period from 1998-2005. Urbandale lies approximately 10 miles northwest of downtown Des Moines. All buildings are located within the Interstate Acres Industrial Park which is approximately 1/2 mile east of a full interchange with Interstates 35 and 80. The population of the Des Moines metropolitan area, which includes Urbandale, has grown steadily during the past five years and is expected to continue to expand consistent with the national average into the near future. Westinghouse Facility - Coral Springs, Florida On February 5, 1997, the Account purchased the fee interest in a single-story industrial building located in Coral Springs, Florida for a purchase price of approximately $6,069,000. The improvements which have been recently completed for the Westinghouse Corporation have 75,630 square foot. Westinghouse Corporation occupies 100% of the building area under a ten year lease. The initial rent is $7.29 per square foot for the first five years of the lease term increasing to $8.02 per square foot for the second five years. Operating expenses for the property are borne or reimbursed by the tenant. The subject property is located in northwest Broward County within the municipality of Coral Springs and is in Corporate Park of Coral Springs, a 600 acre master-planned commercial industrial park. Corporate Park has enjoyed significant success and development in recent years primarily due to the completion of the Sawgrass Expressway, which provides a link to I-95, I-75 and I-595. Arapahoe Park East - Boulder, Colorado On October 31, 1996, the Account purchased the fee interest in five research and development buildings located in Boulder, 10 Colorado, for a purchase price of approximately $9.9 million. Rents on the buildings, which together have 129,425 square feet of rentable space, average $8.83 per square foot. The buildings are not subject to a mortgage. The buildings, built between 1979 and 1982, are located on approximately 6.46 acres of land with space for 332 cars. Ball Aerospace Corp., a leading aerospace and telecommunications equipment manufacturer, leases 100% of the five buildings under leases which expire over the three year period from 1998 to 2000. Boulder is located 25 miles northwest of Denver, the largest city in the seven-state Rocky Mountain region and the capital of Colorado. The population of the Denver metropolitan area, which includes Boulder, has grown steadily during the past ten years and is expected to continue to expand into the near future. Boulder's economy has been strengthened in recent years by the establishment of several high tech firms in the area, which have attracted a highly-educated and skilled labor force. Interstate Crossing - Eagan, Minnesota On December 31, 1996, the Account purchased the fee interest in two industrial buildings located in Eagan, Minnesota, for a purchase price of approximately $6.4 million. Rents on the buildings, which together have 131,380 square feet of rentable space, average $5.10 per square foot. Operating expenses for the properties are borne or reimbursed by the tenants. The buildings are not subject to a mortgage. The buildings, built in 1995, are located on approximately 10.6 acres of land with 288 parking spaces. The buildings are presently 100% leased to 10 tenants, with the majority of leases expiring in 2000 and 2001. The subject property is located 10 miles southeast of downtown Minneapolis and 7 miles south of downtown St. Paul. The twin cities of Minneapolis -- St. Paul currently have a population of 2.7 million people and enjoy a strong and diverse economy. Other Warehouse Properties On November 22, 1995, the Account purchased the fee interest in a warehouse property located near Minneapolis, Minnesota for a purchase price of approximately $4.1 million. Rents on the property average $3.77 per square foot. On December 22, 1995, the Account purchased leasehold interests (i.e., interests in the leases on the underlying land and ownership of the buildings and other improvements on the land) in two warehouse properties located in El Paso, Texas for an aggregate purchase price of approximately $4.4 million dollars. Rents on the properties 11 average $2.71 per square foot, after payment of the ground rent. Although the terms vary under each lease, most of the expenses for operating each of the properties are either borne or reimbursed by the tenants. None of the properties are subject to a mortgage. Set forth below are further details relating to each facility: Lease Building Year Current Major Expira- Property Size Built Occupancy Tenants tion Date (sq. ft.) Fridley, Minnesota River Road 100,456 1995 100% Packaging 2005 Distribution Center Materials, Inc. El Paso, Texas Butterfield warehouse 80,000 1980 100% Rockwell 2000 Zane Gray warehouse 103,510 1981 100% D.J. Inc. 2003 12 ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS. (a) Market Information. There is no established public trading market for participating interests in the TIAA Real Estate Account. Accumulation units in the Account are sold to eligible participants at the Account's current accumulation unit value, which is based on the Account's then current net asset value. For the period from January 1, 1996 to December 31, 1996, the high and low accumulation unit values for the Account were $111.11 and $102.57, respectively. (b) Approximate Number of Holders. The number of contractowners at February 28, 1997 was 19,202. (c) Dividends. Not applicable. 13 ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data should be considered in conjunction with the consolidated financial statements and notes thereto for the Account provided herein.
July 3, 1995 Year Ended (commencement of December 31, operations) to 1996 December 31, 1995 ------------ ----------------- Investment income: Real estate income, net: Rental income ................................... $ 10,951,183 $ 165,762 ------------ ------------ Real estate property level expenses and taxes: Operating expenses ............................ 2,116,334 29,173 Real estate taxes ............................. 1,254,163 14,659 ------------ ------------ Total real estate property level expenses and taxes 3,370,497 43,832 ------------ ------------ Real estate income, net 7,580,686 121,930 Dividends and interest ............................ 6,027,486 2,828,900 ------------- ------------ Total investment income $ 13,608,172 $ 2,950,830 ============ ============ Net realized and unrealized gain on investments ................................. $ 3,330,539 $ 35,603 ============ ============ Net increase in net assets resulting from operations ........................... $ 15,782,915 $ 2,676,000 ============ ============ Net increase in net assets resulting from participant transactions ........................................ $233,653,793 $117,582,345 ============ ============ Net increase in net assets ........................... $249,436,708 $120,258,345 ============ ============ December 31, December 31, 1996 1995 ------------ ------------ Total assets ......................................... $426,372,007 $143,177,421 ============ ============ Total liabilities .................................... $ 56,676,954 $ 22,919,076 ============ ============ Total net assets ..................................... $369,695,053 $120,258,345 ============ ============ Accumulation units outstanding ....................... 3,295,786 1,172,498 ========= ========= Accumulation unit value .............................. $ 111.11 $102.57 ========= =========
14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The TIAA Real Estate Account (the "Account") began operations on July 3, 1995 and interests in the Account began being offered to participants on October 2, 1995. Through December 31, 1996, the Account had acquired a total of thirteen real estate properties, including four industrial properties, four neighborhood shopping centers, one office property and four apartment complexes. As of December 31, 1996, these properties represented 35.82% of the Account's total investment portfolio. 64% of the net transfers into the Account during 1996 were received during the fourth quarter and 43% of the Account's total premiums during 1996 were received during the same time frame. Such a high volume of premiums and transfers into the Account so late in the year negatively impacted the level of real estate properties held as a percentage of total investments at December 31, 1996. The Account purchased three additional properties in January 1997 and one property in February 1997. The Account continues to pursue suitable property acquisitions, and is currently in various stages of negotiations with a number of prospective sellers. While attractive acquisition prospects are available in the current market, significant competition exists for the most desirable properties. As of December 31, 1996, the Account also held investments in sixteen real estate investment trusts (REITs), representing 4.95% of the portfolio, commercial paper and corporate bonds, representing 5.12% of the portfolio and short-term obligations of U.S. government agencies, representing 54.11% of the portfolio. Results of Operations - --------------------- Year Ended December 31, 1996 Compared to Period Ended December 31, 1995 - ----------------------------------------------------------------------- The Account's total net return was 8.33% for the year ended December 31, 1996 and 2.57% for the six month period ended December 31, 1995. The Account's performance in 1995 was lower for two reasons, first the Account was operational for less than a full year in 1995 and its real estate investments were made late in the period. The Account's net investment income, after deduction of all expenses, was $12,452,376 for the year ended December 31, 1996 and $2,640,397 for the six month period ended December 31, 1995, a 372% increase. This increase was the result of a full year of operations coupled with a growing base of net assets from 15 December 31, 1995 to December 31, 1996. Total assets increased 198% during that period. In addition, the Account had net realized and unrealized gains (gross unrealized gains less gross unrealized losses) on investments of $3,330,539 and $35,603 for the year ended December 31, 1996 and six month period ended December 31, 1995, respectively. Net unrealized gains on real estate properties occurred for the first time during 1996 and accounted for 30% of the net change in unrealized appreciation for that period. Such gains and losses resulted from the periodic revaluations of the Account's properties. The gains were based, in part, on the fact that our experience operating the properties provided us with better estimates of future income and expenses, and, in part, on increasing prices for certain property types held by the Account. The losses were based, in part, on slower re-leasing of space at certain properties owned by the Account. Net unrealized gains on marketable securities accounted for 70% of the net change in unrealized appreciation for the year ended December 31, 1996 and 100% during the six month period ended December 31, 1995. The net unrealized gains during both periods resulted primarily from price appreciation of the shares of REIT stock owned by the Account. The Account's real estate holdings generated approximately 56% and 4% of the Account's total investment income (before deducting Account expenses) during the year ended December 31, 1996 and the six month period ended December 31, 1995, respectively. The remaining 44% and 96%, respectively, of the Account's total investment income was generated by marketable securities investments. The Account's first real estate purchase was made on November 22, 1995, which explains the low percentage of real estate income in 1995. As the Account approaches its goal of being approximately 70% to 80% invested in real estate, future investment income is expected to be affected to a greater degree by its real estate holdings. While the future performance of the Account's investments cannot be predicted, assuming little change in current economic conditions, this anticipated increase in real estate holdings is expected to have a positive impact on the Account's total return. Gross real estate rental income was $10,951,183 for the year ended December 31, 1996 and $165,762 for the six month period ended December 31, 1995. As of December 31, 1995, the Account owned five properties, and, as of December 31, 1996, the Account owned thirteen properties. This increase in the number of properties owned by the Account was a major factor in the higher real estate income for 1996. Interest income on the Account's short and intermediate- term investments for the year ended December 31, 1996 and the six month period ended December 31, 1995 totaled $5,570,907 and $2,820,229, respectively. This increase results from the threefold increase in the size of the 16 Account during 1996 coupled with a full year of investing activity. Dividend income on the Account's investments in REITs totaled $456,579 and $8,671, respectively, for the same periods. Shares of REITs totaled 4.95% of the Account investments as of year end 1996 and 0.37% as of year end 1995. This increased percentage and the longer investing period accounted for the increased dividend income for 1996. Total property level expenses for the year ended December 31, 1996 were $3,370,497, of which $1,254,163 was attributable to real estate taxes and $2,116,334 represented operating expenses. Total property level expenses for the six month period ended December 31, 1995 were $43,832 of which $14,659 was attributable to real estate taxes and $29,173 was attributable to operating expenses. Property level expenses increased in 1996 as a result of the increased number of properties in the Account during 1996 and due to the fact that the 1995 amounts represent a six month period while 1996 represents a full year of activity. The Account also incurred expenses for the year ended December 31, 1996 and six month period ended December 31, 1995 of $642,042 and $227,531, respectively, for investment advisory services provided by TIAA, $437,894 and $66,320, respectively, for administrative and distribution services provided by TIAA-CREF Individual and Institutional Services, Inc. and $75,860 and $16,582, respectively, for the mortality and expense risks assumed and the liquidity guarantee provided by TIAA. Such expenses increased in 1996 as a result of the larger net asset base in the Account during 1996 and because the 1995 expenses were incurred for a six month period while the 1996 expenses represents a full year of activity. Liquidity and Capital Resources - ------------------------------- On September 16, 1996, in accordance with a five-year repayment schedule approved by the New York Insurance Department, TIAA began to redeem its seed money accumulation units related to its initial $100 million seed money investment. TIAA will continue to redeem a pro rata portion of the accumulation units it holds over a 60 month period (16,666.667 units per month). As of December 31, 1996, the Account had redeemed 66,667 accumulation units at prevailing daily unit values, amounting to $7,294,134 in total redemption payments to TIAA, leaving it holding 933,333 units at year end 1996 with a value of $103,703,507. For the year and six month period ended December 31, 1996 and 1995, the Account earned $12,452,376 and $2,640,397, respectively, in net investment income and received $242,175,188 and $17,606,693, respectively, for the same periods in premiums and net participant transfers from other TIAA and CREF accounts. Real estate properties costing $86,731,333 and $43,989,665 were 17 purchased during 1996 and 1995, respectively. At December 31, 1996 and 1995, the Account's liquid assets (i.e., its cash, REITs, short- and intermediate-term investments, and government securities) had a value of $240,109,263 and $74,389,356, respectively. It is anticipated that much of these liquid assets, exclusive of the REITs, will be used by the Account to purchase additional suitable real estate properties. The remaining liquid assets, exclusive of the REITs, will continue to be primarily invested in marketable securities to meet expense needs and redemption requests (e.g., cash withdrawals or transfers). If the Account's liquid assets and its cash flow from operating activities and participant transactions are not sufficient to meet its cash needs, including redemption requests, TIAA's general account will purchase liquidity units in accordance with TIAA's liquidity guarantee to the Account. No major capital expenditures were made during 1996 for any of the properties purchased through December 31, 1996. There is a small portion of the leased space in the industrial and office properties and the neighborhood shopping centers due to expire during 1997. The Account does not expect to incur any extraordinary construction costs or leasing commissions in order to re-lease that space. For the apartment complexes, the Account expects to incur only routine recurring costs, e.g., painting and carpet cleaning and minor replacements to re-lease apartments that become vacant. Effects of Inflation - -------------------- In recent years, inflation has been modest. To the extent that inflation may increase property operating expenses in the future, it is anticipated such increases will generally be billed to tenants either through contractual lease provisions in office, industrial, and retail properties or through rent increases in apartment complexes. However, to the extent there is unrented space in a property, the Account may not be able to recover the full amount of such increases in operating expenses. 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS TIAA REAL ESTATE ACCOUNT Page ---- Report of Management Responsibility .................................... 20 Report of Independent Auditors ......................................... 21 Audited Consolidated Financial Statements: Consolidated Statements of Assets and Liabilities ................... 22 Consolidated Statements of Operations ............................... 23 Consolidated Statements of Changes in Net Assets .................... 24 Consolidated Statements of Cash Flows ............................... 25 Notes to Consolidated Financial Statements .......................... 26 Consolidated Statement of Investments ............................... 32 Schedule III - Real Estate Owned ....................................... 34 19 REPORT OF MANAGEMENT RESPONSIBILITY To the Participants of the TIAA Real Estate Account: The accompanying consolidated financial statements of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity Association of America ("TIAA") are the responsibility of TIAA's management. They have been prepared in accordance with generally accepted accounting principles and have been presented fairly and objectively in accordance with such principles. TIAA has established and maintains a strong system of internal controls designed to provide reasonable assurance that assets are properly safeguarded and transactions are properly executed in accordance with management's authorization, and to carry out the ongoing responsibilities of management for reliable financial statements. In addition, TIAA's internal audit personnel provide a continuing review of the internal controls and operations of TIAA, including its separate account operations. The internal Auditor regularly reports to the Audit Committee of the TIAA Board of Trustees. The accompanying consolidated financial statements have been audited by the independent auditing firm of Deloitte & Touche LLP. The independent auditors' report, which appears on the following page, expresses an independent opinion on the fairness of presentation of these financial statements. The Audit Committee of the TIAA Board of Trustees, consisting of trustees who are not officers of TIAA, meets regularly with management, representatives of Deloitte & Touche LLP and internal auditing personnel to review matters relating to financial reporting, internal controls and auditing. /s/ John H. Biggs ---------------------------------- Chairman and Chief Executive Officer /s/ Thomas W. Jones ---------------------------------- Vice Chairman, President and Chief Operating Officer /s/ Richard L. Gibbs ---------------------------------- Executive Vice President and Principal Accounting Officer 20 (Letterhead) Deloitte & Touche LLP Two World Financial Center New York, New York 10281-1414 Telephone (212) 436-2000 Facsmilie (212) 436-5000 REPORT OF INDEPENDENT AUDITORS To the Participants of the TIAA Real Estate Account and the Board of Trustees of Teachers Insurance and Annuity Association of America: We have audited the accompanying consolidated statements of assets and liabilities of the TIAA Real Estate Account and its Subsidiary ("Account") of Teachers Insurance and Annuity Association of America ("TIAA") as of December 31, 1996 and 1995, the consolidated statement of investments as of December 31, 1996, and the related consolidated statements of operations, changes in net assets and cash flows for the year ended December 31, 1996 and for the period July 3, 1995 (commencement of operations) to December 31, 1995. Our audits also included the financial statement schedule Schedule III, Real Estate Owned. These consolidated financial statements and financial statement schedule are the responsibility of TIAA's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 1996 and 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly in all material respects, the financial position of the Account as of December 31, 1996 and 1995, the results of its operations, the changes in its net assets and its cash flows for the above-stated periods, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Investments in real estate properties are stated at fair value at December 31, 1996 and 1995, as discussed in Note 2 to the consolidated financial statements. Determination of fair value involves subjective judgment because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. /s/ Deloitte & Touche LLP February 6, 1997 - --------------- Deloitte & Touche Tohmatsu International 21 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
December 31, December 31, 1996 1995 ------------- -------------- ASSETS Investments, at value: Real estate properties (Cost: $130,849,444 and $43,989,665) ................ $131,803,204 $ 43,989,665 Marketable securities (Amortized cost: $233,872,445 and $73,972,831) ...... 236,127,523 73,992,569 Cash .................................................. 3,981,740 396,787 Receivable from securities transactions ............... 47,480,000 23,150,000 Other ................................................. 6,979,540 1,648,400 ------------ ------------ TOTAL ASSETS 426,372,007 143,177,421 ------------ ------------ LIABILITIES Payable for securities transactions ................... 51,354,619 22,788,035 Other ................................................. 5,322,335 131,041 ------------ ------------ TOTAL LIABILITIES 56,676,954 22,919,076 ------------ ------------ NET ASSETS Accumulation Fund ..................................... 366,197,755 120,258,345 Annuity Fund .......................................... 3,497,298 - ------------ ------------ TOTAL NET ASSETS $369,695,053 $120,258,345 ============ ============ NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 6 and 7 ............................ 3,295,786 1,172,498 ========= ========= NET ASSET VALUE, PER ACCUMULATION UNIT--Note 6 ........................ $111.11 $102.57 ======= =======
See notes to consolidated financial statements. 22 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF OPERATIONS
For the period For the July 3, 1995 Year (Commencement Ended of Operations) to December 31, December 31, 1996 1995 ------------ --------------- INVESTMENT INCOME Real estate income, net: Rental income............................................... $10,951,183 $ 165,762 ----------- ---------- Real estate property level expenses and taxes: Operating expenses........................................ 2,116,334 29,173 Real estate taxes......................................... 1,254,163 14,659 ----------- ---------- Total real estate property level expenses and taxes 3,370,497 43,832 ----------- ---------- Real estate income, net 7,580,686 121,930 Interest..................................................... 5,570,907 2,820,229 Dividends.................................................... 456,579 8,671 ----------- ---------- TOTAL INCOME 13,608,172 2,950,830 ----------- ---------- Expenses--Note 3: Investment advisory........................................... 642,042 227,531 Administrative and distribution............................... 437,894 66,320 Mortality and expense risk charges............................ 70,535 8,291 Liquidity guarantee charges................................... 5,325 8,291 ------------ ---------- TOTAL EXPENSES 1,155,796 310,433 ------------ ---------- INVESTMENT INCOME, NET 12,452,376 2,640,397 ------------ ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain on marketable securities................... 141,439 15,865 ----------- ---------- Net change in unrealized appreciation on: Real estate properties..................................... 953,760 - Marketable securities...................................... 2,235,340 19,738 ----------- ---------- Net change in unrealized appreciation 3,189,100 19,738 ------------ ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 3,330,539 35,603 ------------ ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $15,782,915 $2,676,000 ============ ==========
See notes to consolidated financial statements. 23 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
For the period For the July 3, 1995 Year (Commencement Ended of Operations) to December 31, December 31, 1996 1995 --------------- ----------------- FROM OPERATIONS Investment income, net.......................................... $ 12,452,376 $ 2,640,397 Net realized gain on marketable securities...................... 141,439 15,865 Net change in unrealized appreciation on investments............ 3,189,100 19,738 ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 15,782,915 2,676,000 ------------ ------------ FROM PARTICIPANT TRANSACTIONS Premiums......................................................... 9,665,306 500,421 TIAA seed money contributed (withdrawn) -- Note 1................ (7,294,134) 100,000,000 Disbursements and transfers: Net transfers from TIAA......................................... 19,203,309 2,901,675 Net transfers from CREF Accounts................................ 213,306,573 14,204,597 Annuity and other periodic payments............................. (336,103) (718) Withdrawals..................................................... (864,480) (23,630) Death benefits.................................................. (26,678) - ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS 233,653,793 117,582,345 ------------ ------------ NET INCREASE IN NET ASSETS 249,436,708 120,258,345 NET ASSETS Beginning of period.............................................. 120,258,345 - ------------ ------------ End of period.................................................... $369,695,053 $120,258,345 ============ ============
See notes to consolidated financial statements. 24 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period For the July 3, 1995 Year (Commencement Ended of Operations) to December 31, December 31, 1996 1995 ---------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net increase in net assets resulting from operations........... $ 15,782,915 $ 2,676,000 Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: Increase in investments...................................... (249,948,493) (117,982,234) Increase in receivable from securities transactions.......... (24,330,000) (23,150,000) Increase in other assets..................................... (5,331,140) (1,648,400) Increase in payable for securities transactions.............. 28,566,584 22,788,035 Increase in other liabilities................................ 5,191,294 131,041 ------------- ------------- NET CASH USED IN OPERATING ACTIVITIES (230,068,840) (117,185,558) ------------- ------------- CASH FLOWS FROM PARTICIPANT TRANSACTIONS Premiums........................................................ 9,665,306 500,421 TIAA seed money contributed (withdrawn) -- Note 1.............. (7,294,134) 100,000,000 Disbursements and transfers: Net transfers from TIAA........................................ 19,203,309 2,901,675 Net transfers from CREF Accounts............................... 213,306,573 14,204,597 Annuity and other periodic payments............................ (336,103) (718) Withdrawals.................................................... (864,480) (23,630) Death benefits................................................. (26,678) - ------------- ------------- NET CASH PROVIDED BY PARTICIPANT TRANSACTIONS 233,653,793 117,582,345 ------------- ------------- NET INCREASE IN CASH 3,584,953 396,787 CASH Beginning of period............................................. 396,787 - ------------- ------------- End of period................................................... $ 3,981,740 $ 396,787 ============= =============
See notes to consolidated financial statements. 25 TIAA REAL ESTATE ACCOUNT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1--Organization The TIAA Real Estate Account ("Account") is a segregated investment account of Teachers Insurance and Annuity Association of America ("TIAA") and was established by resolution of TIAA's Board of Trustees on February 22, 1995 under the insurance laws of the State of New York for the purpose of funding variable annuity contracts issued by TIAA. Teachers REA, Inc., a wholly-owned subsidiary of the Account, began operations in July 1996 and holds one property in Virginia. The Account commenced operations on July 3, 1995 with a $100,000,000 seed money investment by TIAA. TIAA purchased 1,000,000 Accumulation Units in the Account and such Units share in the prorata investment experience of the Account and are subject to the same valuation procedures and expense deductions as all other Accumulation Units of the Account. The initial registration statement of the Account filed by TIAA with the Securities and Exchange Commission ("Commission") under the Securities Act of 1933 became effective on October 2, 1995. The Account began to offer Accumulation Units and Annuity Units to participants other than TIAA starting October 2, and November 1, 1995, respectively. In August, 1996 the Account's net assets first reached $200 million and, as required under a five year repayment schedule approved by the New York State Insurance Department, TIAA began to redeem its seed money Accumulation Units in monthly installments beginning in September, 1996. These withdrawals, amounting to $7,294,134 in 1996, are made at prevailing daily net asset values and are reflected in the accompanying consolidated financial statements. At December 31, 1996, TIAA retained 933,333 Accumulation Units, with a total value of $103,703,507. The investment objective of the Account is a favorable long-term rate of return primarily through rental income and capital appreciation from real estate investments owned by the Account. The Account also invests in publicly-traded securities and other instruments to maintain adequate liquidity for operating expenses and capital expenditures and to make benefit payments. TIAA employees, under the direction of TIAA's Board of Trustees and its Mortgage Committee (which effective January 24, 1997 merged with the Finance Committee to become the Investment Committee), manage the investment of the Account's assets pursuant to investment management procedures adopted by TIAA for the Account. TIAA's investment management decisions for the Account are subject to review by the Account's independent fiduciary, Institutional Property Consultants, Inc. TIAA also provides all portfolio accounting and related services for the Account. TIAA-CREF Individual & Institutional Services, Inc. ("Services"), a 26 subsidiary of TIAA which is registered with the Commission as a broker-dealer and is a member of the National Association of Securities Dealers, Inc., provides administrative and distribution services pursuant to a Distribution and Administrative Services Agreement with the Account. Note 2--Significant Accounting Policies The following is a summary of the significant accounting policies followed by the Account, which are in conformity with generally accepted accounting principles. Basis of Presentation: The accompanying consolidated financial statements include the Account and its wholly-owned subsidiary, Teachers REA, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. Valuation of Real Estate Properties: Investments in real estate properties are stated at fair value, as determined in accordance with procedures approved by the Mortgage Committee (the Investment Committee effective January 24, 1997) of the Board of Trustees and in accordance with the responsibilities of the Board as a whole; accordingly, the Account does not record depreciation. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves subjective judgement because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. Real estate properties owned by the Account are initially valued at their respective purchase prices (including acquisition costs). Subsequently, independent appraisers value each real estate property at least once a year. The independent fiduciary must approve all independent appraisers that the Account uses. The independent fiduciary can also require additional appraisals if it believes that a property's value has changed materially or otherwise to assure that the Account is valued correctly. TIAA performs a valuation review of each real estate property on a quarterly basis and updates the property value if it believes that the value of the property has changed since the previous valuation review or appraisal. The independent fiduciary reviews and approves any such valuation adjustments which exceed certain prescribed limits. TIAA continues to use the revised value to calculate the Account's net asset value until the next valuation review or appraisal. Valuation of Marketable Securities: Equity securities listed or traded on any United States national securities exchange are valued at the last sales price as of the close of the principal securities exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices. Short-term money market instruments are stated at market value. Portfolio securities for which market quotations are not readily available 27 are valued at fair value as determined in good faith under the direction of the Mortgage Committee (the Investment Committee effective January 24, 1997) of the Board of Trustees and in accordance with the responsibilities of the Board as a whole. Accounting for Investments: Real estate transactions are accounted for as of the date on which the purchase or sale transactions for the real estate properties close (settlement date). Rent from real estate properties consists of all amounts earned under tenant operating leases, including base rent, recoveries of real estate taxes and other expenses and charges for miscellaneous services provided to tenants. Rental income is recognized in accordance with the billing terms of the lease agreements. The Account bears the direct expenses of the real estate properties owned. These expenses include, but are not limited to, fees paid to local property management companies, property taxes, utilities, maintenance, repairs, insurance and other operating and administrative costs. An estimate of the net operating income earned from each real estate property is accrued by the Account on a daily basis and such estimates are adjusted as soon as actual operating results are determined. Realized gains and losses on real estate transactions are accounted for under the specific identification method. Securities transactions are accounted for as of the date the securities are purchased or sold (trade date). Interest income is recorded as earned and, for short-term money market instruments, includes accrual of discount and amortization of premium. Dividend income is recorded on the ex-dividend date. Realized gains and losses on securities transactions are accounted for on the average cost basis. Federal Income Taxes: Based on provisions of the Internal Revenue Code, no federal income taxes are attributable to the net investment experience of the Account. Reclassifications: Certain 1995 amounts in the statement of operations have been reclassified to conform to the 1996 presentation. Note 3--Management Agreements All services necessary for the operation of the Account are provided, at cost, by TIAA and Services. TIAA provides investment management services for the Account, while distribution and administrative services are provided by Services in accordance with a Distribution and Administrative Services Agreement between the Account and Services. TIAA also provides a liquidity guarantee to the Account, for a fee, to ensure that sufficient funds are available to meet participant transfer and cash withdrawal requests in the event that the Account's cash flows and liquid investments 28 are insufficient to fund such requests. TIAA also receives a fee for assuming certain mortality and expense risks. Fee payments are made from the Account on a daily basis to TIAA and Services according to formulas established each year with the objective of keeping the fees as close as possible to the Account's actual expenses. Any differences between actual expenses and daily charges are adjusted quarterly. Note 4--Real Estate Properties Had the Account's real estate properties which were purchased during 1996 been acquired at the beginning of the year (January 1, 1996), rental income and real estate property level expenses and taxes for the year ended December 31, 1996 would have increased by approximately $5,395,000 and $2,109,000, respectively. In addition, interest income for the year ended December 31, 1996 would have decreased by approximately $2,517,000. Accordingly, the total pro forma effect on the Account's net investment income for the year ended December 31, 1996 would have been an increase of approximately $769,000, if the real estate properties acquired during 1996 had been acquired at the beginning of the year. Note 5--Leases The Account's real estate properties are leased to tenants under operating lease agreements which expire on various dates through 2021. Aggregate minimum annual rentals for the properties owned, excluding short-term residential leases, are as follows: Years Ending December 31, ------------ 1997 $ 7,489,000 1998 7,129,000 1999 6,615,000 2000 6,197,000 2001 4,167,000 Thereafter 29,237,000 ----------- Total $60,834,000 =========== Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts. 29 Note 6--Condensed Consolidated Financial Information Selected condensed consolidated financial information for an Accumulation Unit of the Account is presented below.
For the Period July 3, 1995 For the (Commencement Year Ended of Operations) to December 31, 1996 December 31, 1995 ----------------- ----------------- Per Accumulation Unit Data: Rental income ............................................. $ 6.012 $ 0.159 Real estate property level expenses and taxes ................................ 1.850 0.042 -------- -------- Real estate income, net 4.162 0.117 Dividends and interest .................................... 3.309 2.716 -------- -------- Total income 7.471 2.833 Expense charges (1) ....................................... 0.635 0.298 -------- -------- Investment income, net 6.836 2.535 Net realized and unrealized gain on investments ..................................... 1.709 0.031 -------- -------- Net increase in Accumulation Unit Value ................................... 8.545 2.566 Accumulation Unit Value: Beginning of period ....................................... 102.566 100.000 -------- -------- End of period ............................................. $111.111 $102.566 ======== ======== Total return ................................................ 8.33% 2.57% Ratios to Average Net Assets: Expenses (1) .............................................. 0.61% 0.30% Investment income, net .................................... 6.57% 2.51% Portfolio turnover rate: Real estate properties .................................. 0% 0% Securities .............................................. 15.04% 0% Thousands of Accumulation Units outstanding at end of period .............................. 3,296 1,172
(1)Expense charges per Accumulation Unit and the Ratio of Expenses to Average Net Assets exclude real estate property level operating expenses and taxes. If included, the expense charge per Accumulation Unit for the year ended December 31, 1996 would be $2.485 ($0.340 for the period July 3, 1995 through December 31, 1995) and the Ratio of Expenses to Average Net Assets for the year ended December 31, 1996 would be 2.39% (0.34% for the period July 3, 1995 through December 31, 1995). 30 Note 7--Accumulation Units Changes in the number of Accumulation Units outstanding were as follows: For the Period July 3, 1995 For the (Commencement Year Ended of Operations) to December 31, 1996 December 31, 1995 ----------------- ----------------- Accumulation Units: Credited for premiums and TIAA seed money investment ............. 89,841 1,004,905 Credited for transfers, net of disbursements and amounts applied to the Annuity Fund ............ 2,033,447 167,593 Outstanding: Beginning of period .................... 1,172,498 -- --------- --------- End of period .......................... 3,295,786 1,172,498 ========= ========= Note 8--Commitments During the normal course of business, the Account enters into discussions and agreements to purchase or sell real estate properties. As of December 31, 1996, the Account had outstanding commitments to purchase five real estate properties (subject to various closing conditions) totaling approximately $68.8 million. Of that amount, three purchases of real estate property totalling approximately $36.3 million were closed in January 1997. 31 TIAA REAL ESTATE ACCOUNT CONSOLIDATED STATEMENT OF INVESTMENTS DECEMBER 31, 1996 REAL ESTATE PROPERTIES--35.82% Location Description Value -------- ----------- ----- Arizona: Phoenix Office building.................... $ 10,500,000 Colorado: Boulder Industrial building................ 9,920,680 Littleton Apartments......................... 17,750,000 Florida: Ocoee Shopping center.................... 7,400,000 Orlando Apartments......................... 12,800,000 West Palm Beach Apartments......................... 16,072,275 Georgia: Atlanta Apartments......................... 16,000,000 Minnesota: Eagan Industrial building................ 6,485,249 Fridley Industrial building................ 4,175,000 North Carolina: Raleigh Shopping center.................... 6,400,000 Raleigh Shopping center.................... 6,600,000 Texas: El Paso(1) Industrial building................ 4,600,000 Virginia: Woodbridge Shopping center.................... 13,100,000 ----------- TOTAL REAL ESTATE PROPERTIES (Cost $130,849,444)...................................... 131,803,204 ----------- (1) Leasehold interest only MARKETABLE SECURITIES--64.18% Shares Issuer ------ ------ REAL ESTATE INVESTMENT TRUSTS--4.95% 45,000 Associated Estates Realty Corporation..... 1,068,750 45,000 Avalon Properties,Inc..................... 1,293,750 80,000 BrandyWine Realty Trust................... 1,560,000 29,000 Cali Realty Corporation................... 895,375 45,000 Camden Property Trust..................... 1,288,125 55,000 CBL & Associates Properties, Inc.......... 1,423,125 40,000 Colonial Properties Trust Co. ............ 1,215,000 4,434 Homestead Village, Inc. .................. 79,812 2,975 Homestead Village, Inc. - Wts............. 24,172 40,000 Hospitality Properties Trust.............. 1,160,000 85,000 Innkeepers USA Trust. .................... 1,179,375 45,000 Security Capital Atlantic, Inc............ 1,102,500 19,900 Security Capital Industrial Trust......... 507,450 15,000 Starwood Lodging.......................... 826,875 40,000 Storage USA, Inc.......................... 1,505,000 40,000 Trinet Corporate Realty Trust, Inc........ 1,420,000 50,000 Weeks Corporation......................... 1,662,500 ---------- TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $15,886,587)........................................ 18,211,809 ---------- See notes to consolidated financial statements. 32 Principal Issuer, Coupon and Maturity Date Value - --------- -------------------------------- ----- COMMERCIAL PAPER--4.05% $15,000,000 Morgan Stanley Group 5.37% 02/14/97.............................. $ 14,887,875 ------------ TOTAL COMMERCIAL PAPER (Amortized cost $14,901,550)............................. 14,887,875 ------------ CORPORATE BONDS--1.07% 4,000,000 Associates Corporation of North America 5.25% 09/01/98.............................. 3,941,560 ------------ TOTAL CORPORATE BONDS (Amortized cost $3,950,280).............................. 3,941,560 ------------ GOVERNMENT AGENCIES--54.11% 2,000,000 Federal Home Loan Bank 5.22% 01/16/97.............................. 1,995,200 2,000,000 Federal Home Loan Bank 5.20% 02/04/97.............................. 1,989,500 18,500,000 Federal Home Loan Mortgage Corporation 5.40% 01/02/97.............................. 18,494,369 2,100,000 Federal Home Loan Mortgage Corporation 5.45% 01/10/97.............................. 2,096,850 10,120,000 Federal Home Loan Mortgage Corporation 5.45% 01/21/97.............................. 10,088,122 30,000,000 Federal Home Loan Mortgage Corporation 5.27% 01/30/97.............................. 29,865,000 8,000,000 Federal Home Loan Mortgage Corporation 5.22% 02/06/97.............................. 7,955,600 26,000,000 Federal Home Loan Mortgage Corporation 5.25% 02/13/97.............................. 25,828,400 23,200,000 Federal Home Loan Mortgage Corporation 5.26% 02/28/97.............................. 22,997,341 11,000,000 Federal National Mortgage Association 5.26% 01/09/97.............................. 10,985,150 17,000,000 Federal National Mortgage Association 5.33% 02/03/97.............................. 16,913,300 9,500,000 Federal National Mortgage Association 5.33% 02/04/97.............................. 9,450,125 10,000,000 Federal National Mortgage Association 5.22% 02/10/97.............................. 9,938,500 10,000,000 Federal National Mortgage Association 5.33% 02/10/97.............................. 9,938,500 2,000,000 Federal National Mortgage Association 5.20% 03/04/97.............................. 1,981,380 15,700,000 Federal National Mortgage Association 5.23% 03/13/97.............................. 15,532,952 2,000,000 Federal National Mortgage Association 5.19% 04/03/97.............................. 1,972,513 1,100,000 United States Treasury Bill 5.56% 08/21/97.............................. 1,063,477 ------------ TOTAL GOVERNMENT AGENCIES (Amortized cost $199,134,028)............................ 199,086,279 ------------ TOTAL MARKETABLE SECURITIES (Amortized cost $233,872,445)..................................... 236,127,523 ------------ TOTAL INVESTMENTS--100.00% (Cost $364,721,889)............................................... $367,930,727 ============ See notes to consolidated financial statements. 33 TIAA REAL ESTATE ACCOUNT Schedule III - Real Estate Owned December 31, 1996
Costs Capitalized Subsequent to Acquisition Initial Cost (Including Value at Year Encum- to Acquire Unrealized Gains December 31, Construction Date Description brances Property and Losses) 1996 Completed Acquired - -------------------------------- ------- ------------ ----------------- ----------- ------------ -------- River Road Distribution Center $-0- $ 4,166,787 $ 8,213 $ 4,175,000 1995 11/22/95 Industrial Building Fridley, Minnesota The Greens At Metrowest -0- 12,490,895 309,105 12,800,000 1990 12/15/95 Apartments Orlando, Florida Butterfield Industrial Park -0- 4,431,166 168,834 4,600,000 1980 12/22/95 Industrial Building El Paso, Texas (1) Brixworth Apartments -0- 15,574,647 425,353 16,000,000 1989 12/28/95 Apartments Atlanta, Georgia Plantation Grove Shopping Center -0- 7,326,170 73,830 7,400,000 1995 12/28/95 Shopping Center Ocoee, Florida Southbank Business Park -0- 10,069,898 430,102 10,500,000 1995 02/27/96 Office Building Phoenix, Arizona Millbrook Collection -0- 6,774,711 (374,711) 6,400,000 1988 03/29/96 Shopping Center Raleigh, North Carolina Lynnwood Collection -0- 6,708,120 (108,120) 6,600,000 1988 03/29/96 Shopping Center Raleigh, North Carolina
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) 1996 Completed Acquired - --------------------------- ------- ------------ ----------------- ----------- ------------ -------- Monte Vista Apartments -0- 17,664,247 85,753 17,750,000 1995 06/21/96 Apartments Littleton, Colorado River Oaks Shopping Center -0- 13,036,153 63,847 13,100,000 1995 07/12/96 Shopping Center Woodbridge, Virginia Arapahoe Park East -0- 9,920,680 -0- 9,920,680 1979 10/31/96 Industrial Building Boulder, Colorado Royal St. George Apartments -0- 16,072,275 -0- 16,072,275 1995 12/20/96 Apartments West Palm Beach, Florida Interstate Crossing -0- 6,485,249 -0- 6,485,249 1995 12/31/96 Industrial Building Eagan, Minnesota ----- ------------ ---------- ------------ $ -0- $130,720,998 $1,082,206 $131,803,204 ===== ============ ========== ============ (1) Leasehold interest only
Reconciliation of investment property owned: Balance at beginning of period $ 43,989,665 Acquisitions 86,731,333 Capital improvements and carrying costs 1,082,206 (including unrealized gains and losses) ------------ Balance at end of period $131,803,204 ============ 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 36 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Account has no officers or directors. The Trustees and principal executive officers of TIAA, and their principal occupations during the last five years, are as follows: Trustees - -------- David Alexander, 64. American Secretary, Rhodes Scholarship Trust, and Trustees' Professor, Pomona College. Formerly, President, Pomona College, until 1991. Marcus Alexis, 65. Board of Trustees, Professor of Economics and Professor of Management and Strategy, Northwestern University. Willard T. Carleton, 62. Karl L. Eller Professor of Finance, College of Business and Public Administration, University of Arizona. Robert C. Clark, 53. Dean and Royall Professor of Law, Harvard Law School, Harvard University. Flora Mancuso Edwards, 52. Of Counsel to the law firm of Dublirer, Haydon, Straci & Victor, since 1996. Professor of English as a Second Language, Middlesex County College, since October 1995. Formerly, President, Middlesex County College until October 1995. Estelle A. Fishbein, 62. General Counsel of The Johns Hopkins University since 1975. Elected Vice President and General Counsel of the University, April 1991. Frederick R. Ford, 61. Executive Vice President and Treasurer, Purdue University. Martin J. Gruber, 59. Chairman of the Department of Finance and Nomura Professor of Finance, New York University Stern School of Business. Ruth Simms Hamilton, 59. Professor, Department of Sociology and Urban Affairs Programs, and Director, African Diaspora Research Project, Michigan State University. 37 Dorothy Ann Kelly, O.S.U., 67. President, College of New Rochelle. Robert M. O'Neil, 62. Professor of Law, University of Virginia and Director, The Thomas Jefferson Center for the Protection of Free Expression. Leonard S. Simon, 60. Chairman, President and Chief Executive Officer, RCSB Financial, Inc., since September 1995. Formerly, Chairman and Chief Executive Officer, The Rochester Community Savings Bank, from 1984 until September 1995. Ronald L. Thompson, 47. Chairman of the Board and Chief Executive Officer, Midwest Stamping Co. Formerly, Chairman of the Board and President, The GR Group, until 1993. Paul R. Tregurtha, 61. Chairman, Chief Executive, and Director, Mormac Marine Group, Inc.; Vice Chairman and Director, The Interlake Steamship Company; Chairman and Director, Moran Transportation Company; and Chairman, MAC Acquisitions, Inc. Charles J. Urstadt, 68. Chairman and Chief Executive Officer, HRE Properties (a real estate investment trust) and Trustee Emeritus, Pace University. William H. Waltrip, 59. Chairman and Chief Executive Officer, Bausch & Lomb Inc., since January 1996. Chairman and Chief Executive Officer, Technology Solutions Company, since 1993. Formerly, Chairman and Chief Executive Officer, Biggers Brothers, Inc., and Vice Chairman, Unifax, from 1991 until 1993. Rosalie J. Wolf, 55. Treasurer and Chief Investment Officer, The Rockefeller Foundation since 1994. Formerly, Executive Vice President, Sithe Energies, Inc. from January 1994 to June 1994, and Managing Director, Bankers Trust Company, from 1989 to 1993. Officer-Trustees - ---------------- John H. Biggs, 60. Chairman and Chief Executive Officer, TIAA and CREF, since 1993. Formerly, President and Chief Operating Officer, TIAA and CREF. 38 Thomas W. Jones, 47. Vice Chairman, TIAA and CREF, since 1995. President and Chief Operating Officer, TIAA and CREF, since 1993. Formerly, Executive Vice President, Finance and Planning, TIAA and CREF. Martin L. Leibowitz, 60. Vice Chairman and Chief Investment Officer, TIAA and CREF, since November 1995. Executive Vice President, TIAA and CREF, from June 1995 to November 1995. Formerly, Managing Director -- Director of Research and member of the Executive Committee, Salomon Brothers, Inc. Other Officers - -------------- Richard L. Gibbs, 49. Executive Vice President, TIAA and CREF, since 1993, and Vice President, TIAA-CREF Investment Management, Inc. ("Investment Management") and TIAA-CREF Individual & Institutional Services, Inc. ("Services"), since 1992; Executive Vice President, Teachers Advisors, ("Advisors") since 1995. Formerly, Vice President, Finance, TIAA and CREF. Albert J. Wilson, 64. Vice President and Chief Counsel, Corporate Secretary, TIAA and CREF, since 1991. Richard J. Adamski, 54. Vice President and Treasurer, TIAA and CREF, since March 1991; Vice President and Treasurer, Investment Management and Services, since 1992; Vice President and Treasurer, Teachers Personal Investors Services, Inc. and Advisors, since 1994. ITEM 11. EXECUTIVE COMPENSATION. Not applicable. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. On July 3, 1995, the Account issued 1,000,000 accumulation units to TIAA, at $100 per unit, in consideration of TIAA's $100 million seed money investment. TIAA began to redeem these units pursuant to a fixed repayment schedule on September 16, 1996. As of December 31, 1996, TIAA held 933,333 accumulation units with a value of $103,703,507, representing 28% of the Account's total net assets. 39 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. TIAA's general account plays a significant role in operating the Real Estate Account, including providing seed money, a liquidity guarantee, and investment management and other services. Seed Money. On July 3, 1995, TIAA supplied the Account's initial $100 million seed money investment in exchange for one million accumulation units, at $100 per unit. On September 16, 1996, in accordance with a five-year repayment schedule approved by the New York State Insurance Department, TIAA began to redeem the accumulation units related to its seed money investment. TIAA is redeeming a pro rata portion of the accumulation units monthly over a 60-month period (16,666.667 units per month). TIAA's accumulation units are being redeemed at net asset value at the time of redemption. Liquidity Guarantee. If the Account's cash flow is insufficient to fund redemption requests, TIAA's general account has agreed to fund them by purchasing accumulation units. TIAA thereby guarantees that a participant can redeem accumulation units at their then current daily net asset value. For the year ended December 31, 1996, the Account paid TIAA $5,325 for this liquidity guarantee through a daily deduction from the net assets of the Account. Investment Management and Administrative Services/Certain Risks Borne by TIAA. Deductions are made each valuation day from the net assets of the Account for various services required to manage investments, administer the Account and distribute the contracts, and to cover mortality and expense risks borne by TIAA. These services are performed at cost by TIAA and Services. For the year ended December 31, 1996, the Account paid TIAA $642,042 for investment management services and $70,535 for mortality and expense risks. For the same period, the Account paid Services $437,894 for its administrative and distribution services. 40 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. See Item 8 for required financial statements. (a) 2. Financial Statement Schedules. See Item 8 for required financial statement schedules. (a) 3. Exhibits. (1) Distribution and Administrative Services Agreement by and between TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as amended)* (3) (A) Charter of TIAA (as amended)* (B) Bylaws of TIAA (as amended) (4) (A) Forms of RA, GRA, GSRA, SRA, and IRA Real Estate Account Contract Endorsements* (B) Forms of Income-Paying Contracts* (10) (A) Independent Fiduciary Agreement by and among TIAA, the Registrant, and Institutional Property Consultants, Inc. (as amended)** (B) Custodial Services Agreement by and between TIAA and Morgan Guaranty Trust Company of New York with respect to the Real Estate Account* (27) Financial Data Schedule of the Account's Financial Statements for the year ended December 31, 1996 (b) Reports on 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this report. The Account filed a report on Form 8-K on January 15, 1997 under Item 5 of the form with respect to the acquisition of properties for its portfolio. - ------------------------------- * - Previously filed and incorporated herein by reference to Post-Effective Amendment No. 2 to the Account's previous Registration Statement on Form S-1 filed April 30, 1996 (File No. 33-92990). ** - Previously filed and incorporated herein by reference to the Account's previous Registration Statement on Form S-1 filed October 4, 1996 (File No. 333-13477). 41 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TIAA REAL ESTATE ACCOUNT By: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: /s/ Peter C. Clapman ------------------------------ Peter C. Clapman Senior Vice President and Chief Counsel, Investments March 14, 1997 ------------------------------ Date Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons, trustees and officers of Teachers Insurance and Annuity Association of America, in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ John H. Biggs Chairman of the Board March 14, 1997 - ----------------------- and Chief Executive John H. Biggs Officer (Principal Executive Officer) and Trustee /s/ Thomas W. Jones Vice Chairman, March 14, 1997 - ---------------------- President and Chief Thomas W. Jones Operating Officer (Principal Financial Officer) and Trustee /s/ Martin L. Leibowitz Vice Chairman, March 14, 1997 - ----------------------- and Chief Investment Martin L. Leibowitz Officer and Trustee /s/ Richard L. Gibbs Executive Vice March 14, 1997 - ----------------------- President Richard L. Gibbs (Principal Accounting Officer) Signature of Trustee Date Signature of Trustee Date - -------------------- ---- -------------------- ---- /s/ David Alexander 3/14/97 - ----------------------- ------------------------ David Alexander Dorothy Ann Kelly, O.S.U. /s/ Marcus Alexis 3/14/97 /s/ Robert M. O'Neil 3/14/97 - ----------------------- ------------------------ Marcus Alexis Robert M. O'Neil /s/ Willard T. Carleton 3/14/97 /s/ Leonard S. Simon 3/14/97 - ----------------------- ------------------------ Willard T. Carleton Leonard S. Simon /s/ Robert C. Clark 3/14/97 /s/ Ronald L. Thompson 3/14/97 - ----------------------- ------------------------ Robert C. Clark Ronald L. Thompson - ----------------------- ------------------------ Flora Mancuso Edwards Paul R. Tregurtha /s/ Charles J. Urstadt 3/14/97 - ----------------------- ------------------------ Estelle A. Fishbein Charles J. Urstadt /s/ Frederick R. Ford 3/14/97 /s/ William H. Waltrip 3/14/97 - ----------------------- ------------------------ Frederick R. Ford William H. Waltrip /s/ Martin J. Gruber 3/14/97 /s/ Rosalie J. Wolf 3/14/97 - ----------------------- ------------------------ Martin J. Gruber Rosalie J. Wolf /s/ Ruth Simms Hamilton 3/14/97 - ----------------------- Ruth Simms Hamilton 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. EXHIBIT INDEX Exhibit Number Description of Exhibit - ------- ---------------------- 3B Bylaws of TIAA (as amended) 27 Financial Data Schedule of the Account's Financial Statements for the period ended December 31, 1996 EX-3.(II) 2 BY-LAWS BYLAWS OF TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA As Amended November 13, 1996 ARTICLE ONE Stockholders Section 1. Annual Meeting. The annual meeting of stockholders for the election of trustees and for the transaction of such other business as may properly come before the meeting shall be held in the month of November each year at the office of the Association in the City of New York on a day and at an hour specified by notice mailed at least thirty days in advance. The notice shall be in writing and shall be signed by the chairman, or the president, or a vice president, or the secretary. Special meetings of the stockholders may be held at the said office of the Association whenever called by the chairman, or by the president, or by order of the board of trustees, or by the holders of at least one-third of the outstanding shares of stock of the Association, or may be held subject to the provisions of the emergency bylaws of the Association. Section 2. Notice. It shall be the duty of the secretary not less than ten nor more than forty days prior to the date of each meeting of the stockholders to cause a notice of the meeting to be mailed to each stockholder. Section 3. Voting. At all meetings of stockholders each stockholder shall be entitled to one vote upon each share of stock owned by him of record on the books of the Association ten days before the meeting. Stockholders may vote in person or by proxy appointed in writing. Section 4. Quorum. The presence in person or by proxy of the holders of a majority of the shares in the Association shall be necessary to constitute a quorum at any meeting of stockholders. Section 5. Telephonic Participation. At all meetings of stockholders or any committee thereof, stockholders may participate by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. ARTICLE TWO Trustees Section 1. General Management. The general management of the property, business and affairs of the Association shall be vested in the board of trustees provided by the charter. A trustee need not be a stockholder. At least one-third of such trustees must not be officers or employees of the Association or any entity controlling, controlled by, or under common control with the Association and who are not beneficial owners of a controlling interest in the voting stock of the Association or any such entity. Section 2. Quorum. One-third of the trustees shall constitute a quorum at all meetings of the board. If less than a quorum shall be present at any meeting, a majority of those present may adjourn the meeting from time to time until a quorum shall attend. In case of a vacancy among the trustees of any class through death, resignation or other cause, a successor to hold office for the unexpired portion of the term may be elected at any meeting of the board at which a quorum shall be present. Such successors shall not take office nor exercise the duties thereof until ten days after written notice of their election shall have been filed in the office of the Superintendent of Insurance of the State of New York. Section 3. Annual Meeting. There shall be a meeting of the board of trustees in the month of November each year on a day and at an hour specified in a notice mailed at least ten days and not more than twenty days in advance. This shall be known as the annual meeting of the board of trustees. At this meeting the board shall elect officers, appoint committees and transact such other business as shall properly come before the meeting. Section 4. Other Meetings. Stated meetings of the board of trustees shall be held on such dates as the board by standing resolution may fix. No notice of such stated meetings need be given. Special meetings of the board may be called by order of the chairman, the president, or the executive committee by notice mailed at least one week prior to the date of such meeting, and any business may be transacted at the meeting. Section 5. Telephonic Participation. At all meetings of the board of trustees or any committee thereof, trustees may participate by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 6. Action Without a Meeting. Where time is of the essence, but not in lieu of a regularly scheduled meeting of the board of trustees or committee thereof, any action required or permitted to be taken by the board, or any committee thereof, may be taken without a meeting if all members of the board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the board or committee shall be filed with the minutes of the proceedings of the board or committee. Section 7. Trustees' Compensation and Expenses. A trustee may be paid an annual stipend and fees and such other compensation or emolument in any amount first authorized by the board in accordance with Section 1 of Article Five hereof, including, but not limited to, a deferred compensation benefit, for meetings of the board that he/she attends and for services that he/she renders on or for committees or subcommittees of the board; and each trustee shall be reimbursed for transportation and other expenses incurred by him/her in serving the Association. Section 8. Chairman. The chairman, and in his absence the president, shall preside at all meetings of the board. ARTICLE THREE Officers Section 1. Election. At each annual meeting the board of trustees shall elect the executive officers of the corporation including a chairman, a president, one or more vice presidents, and such other executive officers as they may determine. Each such executive officer shall hold office until the close of the next annual meeting of the board or, if earlier, until his retirement, death, resignation or removal. The board may appoint other officers and agents, assign titles to them and determine their duties; such officers and agents shall hold office during the pleasure of the board of trustees. It may appoint persons to act temporarily in place of any officers of the Association who may be absent, incapacitated, or for any other reason unable to act or may delegate such authority to the chief executive officer. Section 2. Removal of Officers. Any officer elected by the board of trustees may be removed by the affirmative votes of a majority of all the trustees holding office. Any other officer may be removed by the affirmative votes of a majority of all members of the executive committee holding office. Section 3. Removal of Other Employees. All other agents and employees shall hold their positions at the pleasure of the executive committee or of such executive officer as the executive committee may clothe with the powers of engaging and dismissing. Section 4. Qualifications. The chairman and the president shall be members of the board of trustees, but none of the other officers need be a trustee. One person may hold more than one office, except that no person shall be both president and secretary. Section 5. Chief Executive Officer. The board of trustees shall designate either the chairman or the president as chief executive officer. Subject to the control of the board of trustees and the provisions of these bylaws, the chief executive officer shall be charged with the management of the affairs of the Association, and shall perform such duties as are not specifically delegated to other officers of the Association. He shall be ex officio a member of all standing committees except the nominating and personnel committee, audit committee and the committee on reimbursement agreements with CREF. He shall report from time to time to the board of trustees on the affairs of the Association. Section 6. Chairman. The chairman, when present, shall preside at all meetings of the stockholders and of the board. He shall be ex officio chairman of the executive committee. He may appoint trustee committees, except those appointed by the board of trustees, and may appoint members to fill vacancies on trustee committees appointed by the board when such occur between meetings of the trustees. If the chairman is not the chief executive officer, he shall, in addition to the foregoing, perform such functions as are delegated to him by the chief executive officer. Section 7. President. The president, in the event of the absence or disability of the chairman, shall perform the duties of the chairman. If the president is not the chief executive officer, he shall assist the chief executive officer in his duties and shall perform such functions as are delegated to him by the chief executive officer. Section 8. Absence or Disability of Chief Executive Officer. In the absence or disability of the chief executive officer, the president, if he is not the chief executive officer, or the chairman, if he is not the chief executive officer, or if neither is available, a vice president so designated by the executive committee or chief executive officer shall perform the duties of the chief executive officer, unless the board of trustees otherwise provides and subject to the provisions of the emergency bylaws of the Association. Section 9. Secretary. The secretary shall give all required notices of meetings of the board of trustees, and shall attend and act as secretary at all meetings of the board and of the executive committee and keep the records thereof. He shall keep the seal of the corporation, and shall perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the board of trustees, the executive committee, or the chief executive officer. Section 10. Other Officers. The chief executive officer shall determine the duties of the executive officers other than the chairman, president, and secretary and of all officers other than executive officers, and he may assign titles to and determine the duties of non-officers. ARTICLE FOUR Committees Section 1. Appointment. At each annual meeting of the board of trustees, the board shall appoint an executive committee, an investment committee, a nominating and personnel committee, an audit committee, a committee on reimbursement agreements with CREF, a committee on products and services, and a committee on corporate governance and social responsibility, each member of which shall hold office until the close of the next annual meeting of the board and until a successor shall be appointed or until the member shall cease to be a trustee except that for the audit committee, the board may specify a different period of membership. The board of trustees, the executive committee, or the chairman may appoint such other trustee committees and subcommittees as may from time to time be found necessary or convenient for the proper conduct of the business of the Association, and designate their duties. Section 2. Executive Committee. The executive committee shall consist of at least seven trustees including the chairman and the president. Three members shall constitute a quorum, among whom only one salaried officer may be counted for that purpose. The executive committee shall meet in regular meeting as it may from time to time determine, and in special meeting whenever called by the chairman, and shall be vested with full powers of the board of trustees during intervals between the meetings of the board in all cases in which specific instructions shall not have been given by the board of trustees and, in particular, said committee: (a) shall have general supervision of the contracts issued by the Association, and of all matters relating to the selection of risks, the determination of premium rates, and of any other questions of detail in the conduct of the business which may be referred to the executive committee by resolutions of the board of trustees. (b) Shall have supervision of the rules and methods for recording the vouchers, accounts, receipts and disbursements of the Association. (c) Shall, in the event of an acute emergency, as defined by Article Seven-A--Insurance, of the New York State Defense Emergency Act, (Section 9177, Unconsolidated Laws of New York) and any amendments thereof, be responsible for the emergency management of the Association as provided in the emergency bylaws of the Association. Section 3. Investment Committee. The investment committee shall consist of the chief executive officer, three other trustees, and such additional trustees, if any, as the board of trustees or the executive committee may appoint. Three members shall constitute a quorum, among whom only one salaried officer of the Association may be counted for that purpose. (a) Subject to review by the board of trustees the investment committee shall determine the investment policies of the Association. (b) The investment committee shall supervise the investment of the funds of the Association. No loan or investment other than policy loans shall be made or disposed of without authorization or approval by the investment committee. Section 4. Nominating and Personnel Committee. The nominating and personnel committee shall consist of five trustees who are not officers or salaried employees of the Association and whose terms do not expire in the year following their appointment. Three members shall constitute a quorum. In the year following their appointment the committee shall nominate executive officers and the standing committees for the annual meeting of the board of trustees, shall designate the principal officers of the Association, shall recommend to the board of trustees the annual compensation of the principal officers and of any salaried employee if the level of compensation to be paid to such employee is equal to, or greater than, the compensation received or to be received by any principal officer, nominate trustees to fill interim vacancies and, if requested by the TIAA Board of Overseers, shall recommend the names of persons for election as trustees at the annual meeting of the stockholders. In addition, the committee shall approve the titles and base salaries of all appointed officers and the base salaries of executive officers, other than those designated as principal officers or those officers to be paid on an equal or greater level of compensation with principal officers, and shall recommend the provisions of any incentive salary compensation program(s) and determine the amounts of any incentive salary payments for those officers included in any incentive salary plan. Section 5. Audit committee. The audit committee shall consist of five trustees who are not officers or salaried employees of the Association. Two members shall constitute a quorum. The committee shall itself, or through public accountants or otherwise, make such audits and examinations of the records and affairs of the Association as it may deem necessary. Section 6. Committee on Reimbursement Agreements. The committee on reimbursement agreements shall consist of three trustees who are not officers or employees of the Association. The committee shall review the reimbursement agreements among TIAA, CREF, TIAA-CREF Individual & Institutional Services, Inc., and TIAA-CREF Investment Management, Inc., and make recommendations regarding them to the board of trustees. Section 7. Committee on Products and Services. The members of the committee on products and services shall consist of at least seven trustees. A quorum shall consist of a majority of the members and not less than a quorum shall meet jointly with the CREF committee on products and services to review and oversee the design, development, improvement, and marketing of new and existing products and services. In addition, the committee shall review the specifications for and oversee the implementation stages of new technology-based services and computer programs at participating institutions. Section 8. Committee on corporate Governance and Social Responsibility. The committee on corporate governance and social responsibility shall consist of not less than five trustees and such additional trustees as the board of trustees may appoint. No such trustee shall be an officer or salaried employee of TIAA. A committee quorum shall consist of a majority of the members. The committee is responsible for addressing all corporate social responsibility and corporate governance issues including the voting of TIAA shares and the initiation of appropriate shareholder resolutions. In addition, the committee will develop and recommend specific corporate policy in these areas for consideration by the TIAA board of trustees. Section 9. Reports. Within a reasonable time after their meetings, all such committees and subcommittees shall report heir transactions to each trustee. ARTICLE FIVE Salaries, Compensation and Pensions to Trustees, Officers and Employees Section 1. Salaries and Pensions. The Association shall not pay any salary, compensation or emolument in any amount to any officer, deemed by a committee or committees of the board to be a principal officer pursuant to subsection (b) of Section 1202 of the Insurance Law of the State of New York, or to any salaried employee of the Association if the level of compensation to be paid to such employee is equal to, or greater than, the compensation received by any of its principal officers, or to any trustee thereof, unless such payment be first authorized by a vote of the board of trustees of the Association. The Association shall not make any agreement with any of its officers or salaried employees whereby it agrees that for any services rendered or to be rendered he shall receive any salary, compensation or emolument that will extend beyond a period of thirty-six months from the date of such agreement, except as specifically permitted by the Insurance Law of the State of New York. No principal officer or employee of the class described in the first sentence of this section, who is paid a salary for his services shall receive any other compensation, bonus or emolument from the Association, directly or indirectly, except in accordance with a plan recommended by a committee of the board pursuant to subsection (b) of Section 1202 of the Insurance Law of the State of New York and approved by the board of trustees. The Association shall not grant any pension to any officer or trustee, or to any member of his family after his death, except that the Association may pursuant to the terms of a retirement plan and other appropriate staff benefit plans adopted by the board provide for any person who is or has been a salaried officer or employee, a pension payable at the time of retirement by reason of age or disability and also life insurance, health insurance and disability benefits. Section 2. Prohibitions. No trustee or officer of the Association shall receive, in addition to fixed salary or compensation, any money or valuable thing, either directly or indirectly, or through any substantial interest in any other corporation or business unit, for negotiating, procuring, recommending or aiding in any purchase or sale of property, or loan, made by the Association or any affiliate or subsidiary thereof, nor be pecuniarily interested either as principal, coprincipal, agent or beneficiary, either directly or indirectly, or through any substantial interest in any other corporation or business unit, in any such purchase, sale or loan; provided that nothing herein contained shall prevent the Association from making a loan upon a policy held therein by the borrower not in excess of the net reserve value thereof. ARTICLE SIX Indemnification of Trustees, Officers and Employees The Association shall indemnify, in the manner and to the full extent permitted by law, each person made or threatened to be made a party to any action, suit or proceeding, whether or not by or in the right of the Association, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that he or his testator or intestate is or was a trustee, officer or employee of the Association or, while a trustee, officer or employee of the Association, served any other corporation or organization of any type or kind, domestic or foreign, in any capacity at the request of the Association. To the full extent permitted by law such indemnification shall include judgments, fines, amounts paid in settlement, and expenses, including attorneys' fees. No payment of indemnification, advance or allowance under the foregoing provisions shall be made unless a notice shall have been filed with the Superintendent of Insurance of the State of New York not less than thirty days prior to such payment specifying the persons to be paid, the amounts to be paid, the manner in which payment is authorized and the nature and status, at the time of such notice, of the litigation or threatened litigation. ARTICLE SEVEN Execution of Instruments The board of trustees or the executive committee shall designate who is authorized to execute certificates of stock, proxies, powers of attorney, deeds, leases, releases of mortgages, satisfaction pieces, checks, drafts, contracts for insurance or annuity and instruments relating thereto, and all other contracts and instruments in writing necessary for the Association in the management of its affairs, and to attach the Association's seal thereto; and may further authorize the extent to which such execution may be done by facsimile signature. ARTICLE EIGHT Disbursements No disbursements of $100 or more shall be made unless the same be evidenced by a voucher signed by or on behalf of the person, firm or corporation receiving the money and correctly describing the consideration for the payment, and if the same be for services and disbursements, setting forth the services rendered and an itemized statement of the disbursements made, and if it be in connection with any matter pending before any legislative or public body, or before any department or officer of any government, correctly describing in addition the nature of the matter and of the interest of such corporation therein, or if such voucher cannot be obtained, by an affidavit stating the reasons therefor and setting forth the particulars above mentioned. ARTICLE NINE Corporate Seal The seal of the Association shall be circular in form and shall contain the words "Teachers Insurance and Annuity Association of America, New York, Corporate Seal, 1918," which seal shall be kept in the custody of the secretary of the Association and be affixed to all instruments requiring such corporate seal. ARTICLE TEN Amendment Article One of these bylaws can be amended or repealed only by the affirmative vote of the holders of a majority of the outstanding shares of the capital stock of the Association, such vote being cast at a meeting held upon notice stating that such meeting is to vote upon a proposed amendment or repeal of such bylaw. Any other bylaw may be amended or repealed at any meeting of the board of trustees provided notice of the proposed amendment or repeal shall have been mailed to each trustee at least one week and not more than two weeks prior to the date of such meeting. EX-27 3
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-31-1996 DEC-31-1996 364,721,889 367,930,727 47,480,000 6,979,540 3,981,740 426,372,007 51,354,619 0 5,322,335 56,676,954 0 0 3,295,786 1,172,498 0 0 0 0 0 369,695,053 456,579 5,570,907 7,580,686 (1,155,796) 12,452,376 141,439 3,189,100 15,782,915 0 0 0 0 2,123,288 0 0 249,436,708 0 0 0 0 642,042 0 1,155,796 189,541,526 102.566 6.836 1.709 0 0 0 111.111 .610 0 0
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