10-Q 1 tiaa-realestate06302019x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to __________
Commission file number: 33-92990; 333-230322

TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction
of incorporation or organization)
NOT APPLICABLE
(I.R.S. Employer 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
(Former name, former address and former fiscal year, if changed since last report)
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 ý  NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES ý  NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer ý (Do not check if a smaller reporting company)
 
Smaller Reporting Company o
 
 
Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o  NO ý




TABLE OF CONTENTS
 
 
 
Page
Part I
Financial Information
 
 
Item 1.
Unaudited Consolidated Financial Statements
 
 
 
3
 
 
4
 
 
5
 
 
6
 
 
7
 
 
28
 
Item 2.
Management's Discussion and Analysis of the Account's Financial Condition and Results of Operations
42
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
60
 
Item 4.
Controls and Procedures
61
Part II
Other Information
 
 
Item 1.
Legal Proceedings
62
 
Item 1A.
Risk Factors
62
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
62
 
Item 3.
Defaults Upon Senior Securities
62
 
Item 4.
Mine Safety Disclosures
62
 
Item 5.
Other Information
62
 
Item 6.
Exhibits
63
Signatures
 
65


2




PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(In millions, except per accumulation unit amounts)
 
June 30,
 
December 31,
 
2019
 
2018
 
(Unaudited)
 
 
 
ASSETS
 
 
 
 
 
Investments, at fair value:
 
 
 
 
 
Real estate properties
(cost: $13,384.4 and $12,687.8)
$
16,471.9

 
 
$
15,531.1

 
       Real estate joint ventures and limited partnerships
(cost: $5,588.7 and $5,207.8)
6,919.2

 
 
6,532.5

 
Marketable securities:
 
 
 
 
 
Real estate-related
(cost: $719.7 and $1,274.7)
847.2

(1) 
 
1,415.1

(1) 
Other
(cost: $4,198.7 and $4,088.9)
4,199.4

 
 
4,088.7

 
Loans receivable
(cost: $1,105.5 and $910.6)
1,105.1

 
 
913.0

 
Total investments
(cost: $24,997.0 and $24,169.8)
29,542.8

 
 
28,480.4

 
Cash and cash equivalents
8.0

 
 
3.8

 
Due from investment manager
6.4

 
 
2.2

 
Other
278.0

(2) 
 
331.8

(2) 
TOTAL ASSETS
29,835.2

 
 
28,818.2

 
LIABILITIES
 
 
 
 
 
   Mortgage loans payable, at fair value
(principal outstanding: $2,788.5 and $2,688.1)
2,774.7

 
 
2,608.0

 
Accrued real estate property expenses
235.0

 
 
222.4

 
Payable for collateral for securities loaned
7.1

 
 
68.8

 
Other
85.8

 
 
76.4

 
TOTAL LIABILITIES
3,102.6

 
 
2,975.6

 
COMMITMENTS AND CONTINGENCIES

 
 

 
NET ASSETS
 
 
 
 
 
Accumulation Fund
26,201.2

 
 
25,320.1

 
Annuity Fund
531.4

 
 
522.5

 
TOTAL NET ASSETS
$
26,732.6

 
 
$
25,842.6

 
NUMBER OF ACCUMULATION UNITS OUTSTANDING
60.9

 
 
60.7

 
NET ASSET VALUE, PER ACCUMULATION UNIT
$
430.186

 
 
$
417.416

 
(1) Includes securities loaned of $6.9 million at June 30, 2019 and $67.4 million at December 31, 2018.
(2) Includes cash collateral for securities loaned of $7.1 million at June 30, 2019 and $68.8 million at December 31, 2018.




See notes to the consolidated financial statements

3


TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
(Unaudited)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
2019
 
2018
 
2019
 
2018
INVESTMENT INCOME
 
 
 
 
 
 
 
Real estate income, net:
 
 
 
 
 
 
 
Rental income
$
278.4

 
$
277.4

 
$
541.0

 
$
549.4

Real estate property level expenses and taxes:
 
 
 
 
 
 
 
Operating expenses
58.1

 
55.9

 
117.3

 
113.2

Real estate taxes
45.4

 
45.0

 
92.0

 
89.9

Interest expense
27.3

 
28.6

 
53.0

 
52.4

Total real estate property level expenses and taxes
130.8

 
129.5

 
262.3

 
255.5

Real estate income, net
147.6

 
147.9

 
278.7

 
293.9

Income from real estate joint ventures and limited partnerships
59.8

 
65.6

 
109.5

 
120.5

Interest
45.1

 
24.4

 
86.2

 
42.5

Dividends
7.2

 
12.3

 
11.6

 
22.0

TOTAL INVESTMENT INCOME
259.7

 
250.2

 
486.0

 
478.9

Expenses:
 
 
 
 
 
 
 
Investment management charges
16.8

 
17.8

 
36.3

 
32.4

Administrative charges
12.2

 
11.9

 
25.5

 
26.7

Distribution charges
8.7

 
7.1

 
16.6

 
14.0

Mortality and expense risk charges
0.4

 
0.3

 
0.7

 
0.6

Liquidity guarantee charges
13.2

 
12.5

 
26.1

 
24.7

TOTAL EXPENSES
51.3

 
49.6

 
105.2

 
98.4

INVESTMENT INCOME, NET
208.4

 
200.6

 
380.8

 
380.5

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
 
 
 
 
 
 
 
Net realized gain (loss) on investments:
 
 
 
 
 
 
 
Real estate properties

 
55.4

 

 
43.6

Real estate joint ventures and limited partnerships
(48.8
)
 

 
(43.7
)
 
0.2

Marketable securities
112.1

 
3.9

 
253.1

 
6.9

Net realized gain on investments
63.3

 
59.3

 
209.4

 
50.7

Net change in unrealized appreciation (depreciation) on:
 
 
 
 
 
 
 
Real estate properties
170.3

 
(47.6
)
 
244.2

 
54.7

Real estate joint ventures and limited partnerships
41.2

 
68.0

 
43.7

 
92.3

Marketable securities
(93.8
)
 
97.7

 
(17.5
)
 
6.9

Loans receivable
(4.0
)
 
(0.1
)
 
(2.8
)
 

Mortgage loans payable
(36.7
)
 
27.5

 
(66.3
)
 
55.2

Net change in unrealized appreciation on
investments and mortgage loans payable
77.0

 
145.5

 
201.3

 
209.1

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
140.3

 
204.8

 
410.7

 
259.8

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$
348.7

 
$
405.4

 
$
791.5

 
$
640.3




See notes to the consolidated financial statements

4


TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(In millions)
(Unaudited)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
2019
 
2018
 
2019
 
2018
FROM OPERATIONS
 
 
 
 
 
 
 
Investment income, net
$
208.4

 
$
200.6

 
$
380.8

 
$
380.5

Net realized gain on investments
63.3

 
59.3

 
209.4

 
50.7

Net change in unrealized appreciation on investments and mortgage loans payable
77.0

 
145.5

 
201.3

 
209.1

NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS
348.7

 
405.4

 
791.5

 
640.3

FROM PARTICIPANT TRANSACTIONS
 
 
 
 
 
 
 
Premiums
671.1

 
603.6

 
1,348.5

 
1,272.7

Annuity payments
(11.9
)
 
(11.2
)
 
(23.4
)
 
(22.4
)
Withdrawals and death benefits
(597.0
)
 
(571.2
)
 
(1,226.6
)
 
(1,532.7
)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM PARTICIPANT TRANSACTIONS
62.2

 
21.2

 
98.5

 
(282.4
)
NET INCREASE IN NET ASSETS
410.9

 
426.6

 
890.0

 
357.9

NET ASSETS
 
 
 
 
 
 
 
Beginning of period
26,321.7

 
24,873.9

 
25,842.6

 
24,942.6

End of period
$
26,732.6

 
$
25,300.5

 
$
26,732.6

 
$
25,300.5




























See notes to the consolidated financial statements

5


TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, Unaudited)
 
For the Six Months Ended June 30,
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net increase in net assets resulting from operations
$
791.5

 
$
640.3

Adjustments to reconcile net changes in net assets resulting from operations to net cash (used in) provided by operating activities:
 
 
 
Net realized gain on investments
(209.4
)
 
(50.7
)
Net change in unrealized appreciation on investments
and mortgage loans payable
(201.3
)
 
(209.1
)
Purchase of real estate properties
(453.6
)
 
(446.9
)
Capital improvements on real estate properties
(124.5
)
 
(85.9
)
Proceeds from sale of real estate properties
3.1

 
374.9

Purchases of long term investments
(599.4
)
 
(309.3
)
Proceeds from long term investments
1,015.3

 
195.5

Purchases and originations of loans receivable
(219.0
)
 
(319.5
)
Proceeds from payoffs of loans receivable
24.1

 

Increase in other investments
(109.8
)
 
(185.5
)
Change in due from investment manager
(4.2
)
 
(12.0
)
Decrease in other assets
55.8

 
33.0

Decrease in other liabilities
(51.3
)
 
(23.5
)
NET CASH USED IN OPERATING ACTIVITIES
(82.7
)
 
(398.7
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Mortgage loan proceeds received

 
712.8

Payments of mortgage loans
(9.6
)
 
(37.6
)
Premiums
1,348.5

 
1,272.7

Annuity payments
(23.4
)
 
(22.4
)
Withdrawals and death benefits
(1,226.6
)
 
(1,532.7
)
NET CASH PROVIDED BY FINANCING ACTIVITIES
88.9

 
392.8

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
6.2

 
(5.9
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
 
 
 Beginning of period cash, cash equivalents and restricted cash
47.3

 
54.0

 Net increase (decrease) in cash, cash equivalents and restricted cash
6.2

 
(5.9
)
 End of period cash, cash equivalents and restricted cash
$
53.5

 
$
48.1

SUPPLEMENTAL DISCLOSURES:
 
 
 
 Cash paid for interest
$
53.4

 
$
49.6

 Mortgage loan assumed as part of real estate acquisition
$
110.0

 
$
33.1

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statements of Assets and Liabilities that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows (in millions):
 
As of June 30,
 
2019
 
2018
Cash and cash equivalents
$
8.0

 
$
5.6

Restricted cash(1)
45.5

 
42.5

TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH
$
53.5

 
$
48.1

(1) Restricted cash is included within other assets in the Consolidated Statements of Assets and Liabilities.


See notes to the consolidated financial statements

6


TIAA REAL ESTATE ACCOUNT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Organization and Significant Accounting Policies
Business: The TIAA Real Estate Account (“Account”) is an insurance separate account of Teachers Insurance and Annuity Association of America (“TIAA”) and was established by resolution of TIAA’s Board of Trustees (the “Board”) on February 22, 1995, under the insurance laws of the State of New York, for the purpose of funding variable annuity contracts issued by TIAA. The Account offers individual and group accumulating annuity contracts (with contributions made on a pre-tax or after-tax basis), as well as individual lifetime and term-certain variable payout annuity contracts (including the payment of death benefits to beneficiaries). Investors are entitled to transfer funds to or from the Account, and make withdrawals from the Account on a daily basis, under certain circumstances. Funds invested in the Account for each category of contract are expressed in terms of units, and unit values will fluctuate depending on the Account’s performance.
The investment objective of the Account is to seek favorable total returns primarily through the rental income and appreciation of a diversified portfolio of directly held, private real estate investments and real estate-related investments while offering investors guaranteed, daily liquidity. The Account holds real estate properties directly and through subsidiaries wholly-owned by TIAA for the sole benefit of the Account. The Account also holds limited interests in real estate joint ventures and limited partnerships, as well as investments in loans receivable with real estate properties as underlying collateral. Additionally, the Account invests in real estate-related and non-real estate-related publicly traded securities, cash and other instruments to maintain adequate liquidity levels for operating expenses, capital expenditures and to fund benefit payments (withdrawals, transfers and related transactions).
The Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which requires the use of estimates made by management. Actual results may vary from those estimates and such differences may be material.
The Consolidated Financial Statements of the Account as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 are unaudited and include all adjustments necessary to present a fair statement of results for the interim periods presented. Results of operations for the interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements have been prepared in accordance with the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the SEC. As a result, these Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Account’s annual report on Form 10-K for the year ended December 31, 2018.
The following is a summary of the significant accounting policies of the Account.
Basis of Presentation: The accompanying Consolidated Financial Statements include the Account and those subsidiaries wholly-owned by TIAA for the sole benefit of the Account. All significant intercompany accounts and transactions between the Account and such subsidiaries have been eliminated.
The Accumulation Unit Value (“AUV”) used for financial reporting purposes may differ from the AUV used for processing transactions. The AUV used for financial reporting purposes includes security and participant transactions effective through the period end date to which this report relates. Total return is computed based on the AUV used for processing transactions.
Determination of Investments at Fair Value: The Account reports all investments at fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services—Investment Companies. Further in accordance with the adoption of the fair value option allowed under ASC 825, Financial Instruments, and at the election of Account management, mortgage loans payable and a line of credit are reported at fair value. The FASB has defined fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants excluding transaction costs.

7


The following is a description of the valuation methodologies used to determine the fair value of the Account’s investments and investment related mortgage loans payable.
Valuation of Real Estate Properties—Investments in real estate properties are stated at fair value, as determined in accordance with policies and procedures reviewed by the Investment Committee of the Board and in accordance with the responsibilities of the Board as a whole. Accordingly, the Account does not record depreciation. Determination of fair value involves significant levels of judgment because the actual fair value of real estate can be determined only by negotiation between the parties in a sales transaction.
The Account’s primary objective when valuing its real estate investments is to produce a valuation that represents a reasonable estimate of the fair value of its investments. Implicit in the Account’s definition of fair value are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
Buyer and seller are typically motivated;
Both parties are well informed or well advised, and acting in what they consider their best interests;
A reasonable time is allowed for exposure in the open market;
Payment is made in terms of cash or in terms of financial arrangements comparable thereto; and
The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Property and investment values are affected by, among other things, the availability of capital, occupancy rates, rental rates, and interest and inflation rates. As a result, determining real estate and investment values involves many assumptions. Key inputs and assumptions include rental income and expense amounts, related rental income and expense growth rates, capital expenditures, discount rates and capitalization rates. Valuation techniques include discounted cash flow analysis, prevailing market capitalization rates or multiples applied to earnings from the property, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties. Amounts ultimately realized from each investment may vary significantly from the fair value presented.
Real estate properties owned by the Account are initially valued based on an independent third party appraisal, as reviewed by TIAA’s internal appraisal staff and as applicable by the Account’s independent fiduciary at the time of the closing of the purchase. Such initial valuation may result in a potential unrealized gain or loss reflecting the difference between an investment’s fair value (i.e., exit price) and its cost basis (which is inclusive of transaction costs).
Subsequently, each property is appraised each quarter by an independent third party appraiser, reviewed by TIAA’s internal appraisal staff and as applicable the Account’s independent fiduciary. In general, the Account obtains appraisals of its real estate properties spread out throughout the quarter, which is intended to result in appraisal adjustments, and thus, adjustments to the valuations of its holdings (to the extent such adjustments are made) that happen regularly throughout each quarter and not on one specific day or month in each period.
Further, management reserves the right to order an appraisal and/or conduct another valuation outside of the normal quarterly process when facts or circumstances at a specific property change. For example, under certain circumstances a valuation adjustment could be made when the account receives a bona fide bid for the sale of a property held within the Account or one of the Account’s joint ventures. Adjustments may be made for events or circumstances indicating an impairment of a tenant’s ability to pay amounts due to the Account under a lease (including due to a bankruptcy filing of that tenant). Alternatively, adjustments may be made to reflect the execution or renewal of a significant lease. Also, adjustments may be made to reflect factors (such as sales values for comparable properties or local employment rate) bearing uniquely on a particular region in which the Account holds properties. TIAA’s internal appraisal staff oversees the entire appraisal process, in conjunction with the Account’s independent fiduciary (the independent fiduciary is more fully described in the following paragraph). Any differences in the conclusions of TIAA’s internal appraisal staff and the independent appraiser will be reviewed by the independent fiduciary, which will make a final determination on the matter (which may include ordering a subsequent independent appraisal).
The Account's independent fiduciary, RERC, LLC, was initially appointed in March 2006 by a special subcommittee of the Investment Committee of the Board to, among other things, oversee the entire appraisal process. In March 2018, RERC, LLC, was re-appointed as the Account's independent fiduciary for a term expiring in February 2021. The

8


independent fiduciary must approve all independent appraisers used by the Account. All appraisals are performed in accordance with Uniform Standards of Professional Appraisal Practices, the real estate appraisal industry standards created by The Appraisal Foundation. Real estate appraisals are estimates of property values based on a professional’s opinion. Appraisals of properties held outside of the U.S. are performed in accordance with industry standards commonly applied in the applicable jurisdiction. These independent appraisers are always expected to be MAI-designated members of the Appraisal Institute (or its European equivalent, Royal Institute of Chartered Surveyors) and state certified appraisers from national or regional firms with relevant property type experience and market knowledge. Under the Account’s current procedures, each independent appraisal firm will be rotated off of a particular property at least every three years, although such appraisal firm may perform appraisals of other Account properties subsequent to such rotation.
Also, the independent fiduciary may require additional appraisals if factors or events have occurred that could materially change a property’s value (including those identified previously) and such change is not reflected in the quarterly valuation review, or otherwise to ensure that the Account is valued appropriately. The independent fiduciary must also approve any valuation change of real estate-related assets where a property’s value changed by more than 6% from the most recent independent annual appraisal, or if the value of the Account would change by more than 4% within any calendar quarter or more than 2% since the prior calendar month. When a real estate property is subject to a mortgage, the property is valued independently of the mortgage and the property and mortgage fair values are reported separately (see Valuation of Mortgage Loans Payable). The independent fiduciary reviews and approves all mortgage valuation adjustments before such adjustments are recorded by the Account. The Account continues to use the revised value for each real estate property and mortgage loan payable to calculate the Account’s daily net asset value until the next valuation review or appraisal.
Valuation of Real Estate Joint Ventures—Real estate joint ventures are stated at the fair value of the Account’s ownership interests of the underlying entities. The Account’s ownership interests are valued based on the fair value of the underlying real estate, any related mortgage loans payable, and other factors, such as ownership percentage, ownership rights, buy/sell agreements, distribution provisions and capital call obligations. The fair value of real estate and mortgage loans payable held by joint ventures is determined in the same manner described above in Valuation of Real Estate Properties. The independent fiduciary reviews and approves all valuation adjustments before such adjustments are recorded by the Account. Upon the disposition of all real estate investments by an investee entity, the Account will continue to state its equity in the remaining net assets of the investee entity during the wind down period, if any, which occurs prior to the dissolution of the investee entity.
Valuation of Real Estate Limited Partnerships—Limited partnership interests are stated at the fair value of the Account’s ownership in the partnership. Management uses net asset value information provided by limited partners as a practical expedient to estimate fair value. The Account receives estimates from limited partners on a quarterly basis, and audited information is provided annually. Upon receipt of the information, management reviews and concludes on whether the net asset values provided are an appropriate representation of the fair value of the Account's interests in the limited partnerships and makes valuation adjustments as necessary. Valuation of limited partnerships is conducted by management under the direction of the Investment Committee of the Board. Such valuation is also conducted in accordance with the responsibilities of the Board as a whole.
Valuation of Marketable Securities—Equity securities listed or traded on any national market or exchange are valued at the last sale price as of the close of the principal securities market or exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such market or exchange, exclusive of transaction costs.
Valuation of Debt Securities—Debt securities with readily available market quotations, other than money market instruments, are generally valued at the most recent bid price or the equivalent quoted yield for such securities (or those of comparable maturity, quality and type). Debt securities for which market quotations or values from independent pricing services are not readily available or are not considered reliable, are valued at fair value as determined by management and the Investment Committee of the Board in accordance with the responsibilities of the Board as a whole.
Short-term investments are valued in the same manner as debt securities, as described above.

9


Money market instruments are valued at amortized cost, which approximates fair value.
Valuation of Loans Receivable (i.e., the Account as a creditor)—Loans receivable are stated at fair value and are initially valued at the face amount of the loan funding. Subsequently, loans receivable are valued at least quarterly by TIAA’s internal valuation department based on market factors, such as market interest rates and spreads for comparable loans, the liquidity for loans of similar characteristics, the performance of the underlying collateral (such as the loan-to-value ratio and the cash flow of the underlying collateral) and the credit quality of the counterparty. The independent fiduciary reviews and approves all loan receivable valuation adjustments before such adjustments are recorded by the Account. The Account continues to use the revised value for each loan receivable to calculate the Account’s daily net asset value until the next valuation review.
Valuation of Mortgage Loans Payable (i.e. the Account as a debtor)—Mortgage or other loans payable are stated at fair value.The estimated fair value of mortgage loans payable is generally based on the amount at which the liability could be transferred in a current transaction, exclusive of transaction costs. Fair values are estimated based on market factors, such as market interest rates and spreads on comparable loans, the liquidity for mortgage loans of similar characteristics, the performance of the underlying collateral (such as the loan-to-value ratio and the cash flow of the underlying collateral), the maturity date of the loan, the return demands of the market, and the credit quality of the Account. Different assumptions or changes in future market conditions could significantly affect estimated fair values. At times, the Account may assume debt in connection with the purchase of real estate (including under the Account's line of credit or additional credit facilities). The independent fiduciary reviews and approves all mortgage valuation adjustments before such adjustments are recorded by the Account.
See Note 5Assets and Liabilities Measured at Fair Value on a Recurring Basis for further discussion and disclosure regarding the determination of the fair value of the Account’s investments.
Accumulation and Annuity Funds: The accumulation fund represents the net assets attributable to participants in the accumulation phase of their investment (“Accumulation Fund”). The annuity fund represents the net assets attributable to the participants currently receiving annuity payments (“Annuity Fund”). The net increase or decrease in net assets from investment operations is apportioned between the funds based upon their relative daily net asset values. Once an Account participant begins receiving lifetime annuity income benefits, payment levels cannot be reduced as a result of the Account’s actual mortality experience. In addition, the contracts pursuant to which the Account is offered are required to stipulate the maximum expense charge for all Account level expenses that can be assessed, which is not to exceed 2.5% of average net assets per year. The Account pays a fee to TIAA to assume mortality and expense risks.
Accounting for Investments: The investments held by the Account are accounted for as follows:
Real Estate Properties—Rent from real estate properties consists of all amounts earned under tenant leases, including base rent, recoveries of real estate taxes and other expenses and charges for miscellaneous services provided to tenants. Rental income is recognized in accordance with the billing terms of the lease agreements. The Account bears the direct expenses of the real estate properties owned. These expenses include, but are not limited to, fees to local property management companies, property taxes, utilities, maintenance, repairs, insurance, and other operating and administrative costs. An estimate of the net operating income earned from each real estate property is accrued by the Account on a daily basis and such estimates are adjusted when actual operating results are determined.
Real Estate Joint Ventures—The Account has ownership interests in various real estate joint ventures (collectively, the “joint ventures”). The Account records its contributions as increases to its investments in the joint ventures, and distributions from the joint ventures are treated as income within income from real estate joint ventures and limited partnerships in the Account’s Consolidated Statements of Operations. Distributions that are identified as returns of capital are recorded as a reduction to the cost basis of the investment, whereas distributions identified as capital gains or losses are recorded as realized gains or losses. Income distributions from the joint ventures are recorded based on the Account’s proportional interest of the income distributed by the joint ventures. Income and losses incurred but not yet distributed or realized from the Account by the joint ventures are recorded as unrealized gains and losses.
Limited Partnerships—The Account has limited ownership interests in various private real estate funds (primarily limited partnerships) and a private real estate investment trust (collectively, the “limited partnerships”). The Account

10


records its contributions as increases to the investments, and distributions from the investments are treated as income within income from real estate joint ventures and limited partnerships in the Account’s Consolidated Statements of Operations. Distributions that are identified as returns of capital are recorded as a reduction to the cost basis of the investment, whereas distributions identified as capital gains or losses are recorded as realized gains or losses. Unrealized gains and losses are recorded based upon the changes in the net asset values of the limited partnerships as determined from the financial statements of the limited partnerships when received by the Account. Prior to the receipt of the financial statements from the limited partnerships, the Account estimates the value of its interest using information provided by the limited partners. Changes in value based on such estimates are recorded by the Account as unrealized
gains and losses.
Marketable Securities—Transactions in marketable securities are accounted for as of the date the securities are purchased or sold (trade date). Interest income is recorded as earned. Dividend income is recorded on the ex-dividend date within dividend income. Dividends that are identified as returns of capital are recorded as a reduction to the cost basis of the investment, whereas dividends identified as capital gains or losses are recorded as realized gains or losses. Realized gains and losses on securities transactions are accounted for on the specific identification method.
Loans Receivable—The Account may originate, purchase or sell loans collateralized by real estate. The cost basis of originated loans is comprised of the principal balance and direct costs incurred that represent a component of loan’s reported fair value. The cost basis of purchased loans consists of the purchase price of the loan and additional direct costs incurred that represent a component of the loan’s reported fair value. Additional costs incurred by the Account to originate or purchase loans that do not represent a component of a loan’s fair value are recorded as expenses in the
period incurred. Nonrefundable origination fees paid by borrowers are recognized as interest income once all activities required to execute the loan are completed. Prepayment fees received from the payoff of loans in advance of their maturity date are recognized as interest income on the date the payoff occurs. Interest income from loans in accrual status is recognized based on the current coupon rate of the loans.
Interest income accruals are suspended when a loan becomes a non-performing loan, defined as a loan more than ninety days in arrears or at any point when management believes the full collection of principal is doubtful. Interest income on non-performing loans is recognized only as cash payments are received. Loans can be rehabilitated to normal accrual status once all past due interest has been collected and management believes the full collection of principal is likely.
Realized and Unrealized Gains and Losses—Realized gains and losses are recorded at the time an investment is sold
or a distribution is received in relation to an investment sale from a joint venture or limited partnership. Real estate and loan receivable transactions are accounted for as of the date on which the purchase or sale transactions close (settlement date). The Account recognizes a realized gain on the sale of an investment to the extent that the contract sales price exceeds the cost-to-date of the investment being sold. A realized loss occurs when the cost-to-date exceeds the sales price. Realized gains and losses from partial sales of non-financial assets are recognized in accordance with ASC 610-20 - Gains and Losses from the Derecognition of Nonfinancial Assets. Realized gains and losses from the sale of financial assets are recognized in accordance with ASC 860 - Transfers and Servicing. Unrealized gains and losses are recorded as the fair values of the Account’s investments are adjusted, and as discussed within the Real Estate Joint Ventures, Limited Partnerships and Loans Receivable sections above.
Unrealized gains and losses are recorded as the fair values of the Account’s investments are adjusted, and as discussed within the Real Estate Joint Ventures and Limited Partnerships sections above.
Net Assets—The Account’s net assets as of the close of each valuation day are valued by taking the sum of:
the value of the Account’s cash, cash equivalents, and short-term and other debt instruments;
the value of the Account’s other securities and other non-real estate assets;
the value of the individual real properties (based on the most recent valuation of that property) and other real estate-related investments owned by the Account;
an estimate of the net operating income accrued by the Account from its properties, other real estate-related investments and non-real estate-related investments (including short-term marketable securities) since the end of the prior valuation day; and

11


actual net operating income earned from the Account’s properties, other real estate-related investments and non-real estate-related investments (but only to the extent any such item of income differs from the estimated income accrued for on such investments),
and then reducing the sum by liabilities held within the Account, including the daily investment management fee, administration and distribution fees, mortality and expense fee, liquidity guarantee fee, and certain other expenses attributable to operating the Account. Daily estimates of net operating income are adjusted to reflect actual net operating income on a monthly basis, at which time such adjustments (if any) are reflected in the Account’s unit value.
After the end of every quarter, the Account reconciles the amount of expenses deducted from the Account (which is established in order to approximate the costs that the Account will incur) with the expenses the Account actually incurred. If there is a difference, the Account adds it to or deducts it from the Account in equal daily installments over the remaining days of the following quarter. Material differences may be repaid in the current calendar quarter. The Account’s at cost deductions are based on projections of Account assets and overall expenses, and the size of any adjusting payments will be directly affected by the difference between management’s projections and the Account’s actual assets or expenses.
Cash and Cash Equivalents: Cash and cash equivalents are balances held by the Account in bank deposit accounts which, at times, exceed federally insured limits. The Account’s management monitors these balances to mitigate the exposure of risk due to concentration and has not experienced any losses from such concentration.
Other Assets and Other Liabilities: Other assets and other liabilities consist of operating assets and liabilities utilized
and held at each individual real estate property investment. Other assets consist of, amongst other items, cash, tenant receivables and prepaid expenses; whereas other liabilities primarily consist of security deposits. Other assets also include cash collateral held for securities on loan.
Federal Income Taxes: Based on provisions of the Internal Revenue Code, Section 817, the Account is taxed as a segregated asset account of TIAA and as such, the Account incurs no material federal income tax attributable to the net investment activity of the Account. The Account’s federal income tax return is generally subject to examination for a period of three years after filed. State and local tax returns may be subject to examination for an additional period of time depending on the jurisdiction. Management has analyzed the Account’s tax positions taken for all open federal income tax years and has concluded that no provision for federal income tax is required in the Account’s Consolidated
Financial Statements.
Restricted Cash: The Account held restricted cash in escrow accounts for security deposits, as required by certain states, as well as property taxes, insurance, and various other property related matters as required by certain creditors related to outstanding mortgage loans payable collateralized by certain real estate investments. These amounts are recorded within other assets on the Consolidated Statements of Assets and Liabilities. See Note 9—Mortgage Loans Payable for additional information regarding the Account’s outstanding mortgage loans payable.
Changes in Net Assets: Premiums include premiums paid by existing accumulation unit holders in the Account and transfers into the Account. Withdrawals and death benefits include withdrawals out of the Account which include transfers out of the Account and required minimum distributions.
Due to/from Investment Manager: Due to/from investment manager represents amounts that are to be paid or received by TIAA on behalf of the Account. Amounts generally are paid or received by the Account within one or two business days and no interest is contractually charged on these amounts.
Securities Lending: The Account may lend securities to qualified borrowers to earn additional income. The Account receives cash collateral against the loaned securities and maintains cash collateral in an amount not less than 100% of the market value of loaned securities during the period of the loan; any additional collateral required due to changes in security values is delivered to the Account the next business day. Cash collateral received by the Account is invested exclusively in an interest-bearing deposit account. The value of the loaned securities and the liability to return the cash collateral received are reflected in the Consolidated Statements of Assets and Liabilities. When loaning securities, the Account retains the benefits of owning the securities, including the economic equivalent of dividends or interest generated by the securities. All income generated by the securities lending program is reflected within interest income on the Consolidated Statements of Operations.

12


As of June 30, 2019, securities lending transactions are for real-estate related equity securities, and the resulting loans are continuous, can be recalled at any time, and have no set maturity. Securities lending income recognized by the Account consists of interest earned on cash collateral and lending fees, net of any rebates to the borrower and compensation to the agent. Such income is reflected within interest income on the Consolidated Statements of Operations.  In lending its securities, the Account bears the market risk with respect to the investment of collateral and the risk that the agent may default on its contractual obligations to the Account. The agent bears the risk that the borrower may default on its obligation to return the loaned securities as the agent is contractually obligated to indemnify the Account if at the time of a default by a borrower some or all of the loan securities have not been returned.
Accounting Pronouncements
Adopted
In February 2016, the FASB issued Accounting Standards Update 2016-02 Leases (Topic 842) (“ASU 2016-02”) which supersedes Topic 840, Leases. This ASU applies to all entities that enter into leases. Lessees are required to report assets and liabilities that arise from leases. Lessor accounting has largely remained unchanged; however, certain refinements were made to conform with revenue recognition guidance in ASU 2014-09, specifically related to the allocation and recognition of contract consideration earned from lease and non-lease revenue components. ASU 2016-02 contains certain practical expedients, which the Account has elected. The Account's exposure to ASU 2016-02 is primarily as a lessor. The Account's exposure to ASU 2016-02 from the perspective of a lessee is limited to ground leases. The Account adopted ASU 2016-02 as of January 1, 2019. New disclosures required by ASC 2016-02 are included in the Notes to the Consolidated Financial Statements, refer to Note 4—Leases.
The Account has elected the transition package of practical expedients permitted within the new standard. This practical expedient permits the Account to carryforward the historical lease classification and not to reassess initial direct costs for any existing leases.
In addition, the Account has elected the practical expedient that allows lessors to avoid separating lease and non-lease components within a contract if certain criteria are met. The lessor’s practical expedient election is limited to circumstances in which (i) the timing and pattern of revenue recognition are the same for the non-lease component and the related lease component and (ii) the combined single lease component would be classified as an operating lease. This practical expedient allows the Account the ability to combine the lease and non-lease components if the underlying asset meets the two criteria above.
In February 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements (“ASU 2019-01”). ASU 2019-01 addresses two lessor implementation issues and clarifies an exemption for lessors and lessees from a certain interim disclosure requirement associated with adopting the new lease accounting standard. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Account adopted ASU 2019-01 as of January 1, 2019 and concluded that the adoption did not have a material impact on the Consolidated Financial Statements.
Upcoming
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurements. ASU 2018-13 modifies the disclosures required for fair value measurements. This guidance is effective for fiscal years beginning after December 15, 2019. Management does not expect the guidance to materially impact the Account's Notes to the Consolidated Financial Statements.
Note 2—Related Party Transactions
Investment management, administrative and distribution services are provided to the Account at cost by TIAA. Services provided at cost are paid by the Account on a daily basis based upon projected expenses to be provided to the Account. Payments are adjusted periodically to ensure daily payments are as close as possible to the Account’s actual expenses incurred. Differences between actual expenses and the amounts paid by the Account are reconciled and adjusted quarterly.
Investment management services for the Account are provided by TIAA officers, under the direction and control of the Board, pursuant to investment management procedures adopted by TIAA for the Account. TIAA’s investment

13


management decisions for the Account are subject to review by the Account’s independent fiduciary. TIAA also provides various portfolio accounting and related services for the Account.
The Account is a party to the Distribution Agreement for the Contracts Funded by the TIAA Real Estate Account (the “Distribution Agreement”), dated January 1, 2008, by and among TIAA, for itself and on behalf of the Account, and TIAA-CREF Individual and Institutional Services, LLC (“Services”), a wholly-owned subsidiary of TIAA and a registered broker-dealer and a member of the Financial Industry Regulatory Authority. Pursuant to the Distribution Agreement, Services performs distribution services for the Account which include, among other things, (i) distributing of annuity contracts issued by TIAA and funded by the Account, (ii) advising existing annuity contract owners in connection with their accumulations and (iii) helping employers implement and manage retirement plans. In addition, TIAA performs administrative functions for the Account, which include, among other things, (i) maintaining accounting records and performing accounting services, (ii) receiving and allocating premiums, (iii) calculating and making annuity payments, (iv) processing withdrawal requests, (v) providing regulatory compliance and reporting services, (vi) maintaining the Account’s records of contract ownership and (vii) otherwise assisting generally in all aspects of the Account’s operations. Both distribution services (pursuant to the Distribution Agreement) and administrative services are provided to the Account by Services and TIAA, as applicable, on an at cost basis. The Distribution Agreement is terminable by either party upon 60 days written notice and terminates automatically upon any assignment thereof.
In addition to providing the services described above, TIAA charges the Account fees to bear certain mortality and expense risks, and risks with providing the liquidity guarantee. These fees are charged as a percentage of the net assets of the Account. Rates for these fees are established annually.
Once an Account participant begins receiving lifetime annuity income benefits, payment levels cannot be reduced as a result of the Account’s actual mortality experience. As such, mortality and expense risk expenses are contractual charges for TIAA’s assumption of this risk.
The liquidity guarantee ensures that sufficient funds are available to meet participant transfer and cash withdrawal requests in the event that the Account’s cash flows and liquid investments are insufficient to fund such requests.
Expenses for the services and fees described above are identified as such in the accompanying Consolidated Statements of Operations and are further identified as "Expenses" in Note 11—Financial Highlights.
Note 3—Concentrations of Risk
Concentrations of risk may arise when a number of properties are located in a similar geographic region such that the economic conditions of that region could impact tenants’ obligations to meet their contractual obligations or cause the values of individual properties to decline. Additionally, concentrations of risk may arise if any one tenant comprises a significant amount of the Account's rent, or if tenants are concentrated in a particular industry.
As of June 30, 2019, the Account had no significant concentrations of tenants as no single tenant had annual contract rent that made up more than 3% of the rental income of the Account. Moreover, the Account's tenants have no notable concentration present in any one industry. There are no significant lease expirations scheduled to occur over the next twelve months.

14


The Account’s wholly-owned real estate investments and investments in joint ventures are located in the United States. The following table represents the diversification of the Account’s portfolio by region and property type as of June 30, 2019 (unaudited):
Diversification by Fair Value(1)
 
 
 
 
 
 
 
 
 
 
 
West
 
East
 
South
 
Midwest
 
Total
Office
14.6
%
 
18.4
%
 
5.2
%
 
%
 
38.2
%
Apartment
9.4
%
 
7.2
%
 
7.2
%
 
0.9
%
 
24.7
%
Retail
7.1
%
 
3.0
%
 
8.0
%
 
0.9
%
 
19.0
%
Industrial
8.4
%
 
1.4
%
 
4.6
%
 
0.5
%
 
14.9
%
Other(2)
0.5
%
 
2.5
%
 
0.2
%
 
%
 
3.2
%
Total
40.0
%
 
32.5
%
 
25.2
%
 
2.3
%
 
100.0
%

(1) 
Wholly-owned properties are represented at fair value and gross of any debt, while joint venture properties are represented at the net equity value.
(2) 
Represents interests in Storage Portfolio investments, a fee interest encumbered by a ground lease real estate investment and land.
Properties in the “West” region are located in: AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY.
Properties in the “East” region are located in: CT, DC, DE, KY, MA, MD, ME, NC, NH, NJ, NY, PA, RI, SC, VA, VT, WV.
Properties in the “South” region are located in: AL, AR, FL, GA, LA, MS, OK, TN, TX.
Properties in the “Midwest” region are located in: IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI.
Note 4—Leases
The Account’s wholly-owned real estate properties are leased to tenants under operating lease agreements which expire on various dates through 2090. Rental income is recognized in accordance with the billing terms of the lease agreements. The leases do not have material variable payments, material residual value guarantees or material restrictive covenants. Certain leases have the option to extend or terminate at the tenant's discretion, with termination options resulting in additional fees due to the Account. Aggregate minimum annual rentals for wholly-owned real estate investments owned by the Account through the non-cancelable lease term, excluding short-term residential leases, as of June 30, 2019 (unaudited) and December 31, 2018 are as follows (millions):
 
Years Ended December 31,
 
As of
 
As of
 
June 30, 2019
 
December 31, 2018
2019
$
295.2

(1) 
$
535.2

2020
568.3

 
497.7

2021
518.6

 
431.5

2022
448.7

 
366.9

2023
384.0

 
307.8

Thereafter
3,125.1

 
2,701.8

Total
$
5,339.9

 
$
4,840.9

(1) Representative of minimum rents owed for the remaining months of the calendar year ending December 31, 2019.
Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts, sales volume or contractual increases as defined in the lease agreement. These contractual contingent rentals are not included in the table above.
The Account has ground leases for which the Account is the lessee. The leases do not contain material residual value guarantees or material restrictive covenants. The fair value of right-of-use assets and leases liabilities related to ground leases are reflected on the balance sheet within other assets and other liabilities, respectively.

15


The fair values and key terms of the right-of-use assets and lease liabilities related to the Account's ground leases are as follows (millions, unaudited):
 
 
June 30, 2019
Assets:
 
 
  Right-of-use assets, at fair value
 
$
26.7

Liabilities:
 
 
  Ground lease liabilities, at fair value
 
$
26.7

Key Terms
 
 
  Weighted-average remaining lease term (years)
 
85.1

  Weighted-average discount rate(1)
 
6.13
%
(1) Discount rates are reflective of the rates utilized during the most recent appraisal of the associated real estate investments.
For the six months ended June 30, 2019, operating lease costs related to ground leases were $0.6 million . These costs include variable lease costs, which are immaterial. Aggregate future minimum annual payments for ground leases held by the Account are as follows (millions, unaudited):
 
Years Ended December 31,
 
As of
 
As of
 
June 30, 2019
 
December 31, 2018
2019(1)
$
0.6

(1) 
$
1.2

2020
1.2

 
1.2

2021
1.2

 
1.2

2022
1.2

 
1.3

2023
1.3

 
1.3

Thereafter
388.1

 
388.0

Total
$
393.6

 
$
394.2

(1) Representative of minimum rents owed for the remaining months of the calendar year ending December 31, 2019.
Note 5—Assets and Liabilities Measured at Fair Value on a Recurring Basis
Valuation Hierarchy: The Account’s fair value measurements are grouped into three levels, as defined by the FASB. The levels are defined as follows:
Level 1 fair value inputs are quoted prices for identical items in active, liquid and visible markets such as stock exchanges.
Level 2 fair value inputs are observable information for similar items in active or inactive markets, and appropriately consider counterparty creditworthiness in the valuations.
Level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation estimate.
An investment’s categorization within the valuation hierarchy described above is based upon the lowest level of input that is significant to the fair value measurement. Limited partnership investments are excluded from the valuation hierarchy, as these investments are fair valued using their net asset value as a practical expedient since market quotations or values from independent pricing services are not readily available. See Note 1 - Organization and Significant Accounting Policies for further discussion regarding the use of a practical expedient for the valuation of limited partnerships.
The Account’s determination of fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon vendor-provided, evaluated prices or internally developed models

16


that primarily use market-based or independently sourced market data, including interest rate yield curves, market spreads, and currency rates. Valuation adjustments will be made to reflect changes in credit quality, counterparty’s creditworthiness, the Account’s creditworthiness, liquidity, and other observable and unobservable inputs that are applied consistently over time.
The methods described above are considered to produce fair values that represent an estimate by management of what an unaffiliated buyer in the marketplace would pay to purchase the asset or would receive to transfer the liability. Since fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, actual realizable values or future fair values may differ from amounts reported. Furthermore, while the Account believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments, while reasonable, could result in different estimates of fair value at the reporting date. As discussed in Note 1Organization and Significant Accounting Policies in more detail, the Account generally obtains independent third party appraisals on a quarterly basis; there may be circumstances in the interim in which the true realizable value of a property is not reflected in the Account’s daily net asset value calculation or in the Account’s periodic Consolidated Financial Statements. This disparity may be more apparent when the commercial and/or residential real estate markets experience an overall and possibly dramatic decline (or increase) in property values in a relatively short period of time between appraisals.
The following tables show the major categories of assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 (unaudited) and December 31, 2018, using unadjusted quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3); and fair value using the practical expedient (millions):
Description
 
Level 1: Quoted Prices in Active Markets for Identical Assets
 
Level 2: Significant Other Observable Inputs
 
Level 3: Significant Unobservable Inputs
 
Fair Value Using Practical Expedient
 
Total at
June 30, 2019
Real estate properties
 
$

 
$

 
$
16,471.9

 
$

 
$
16,471.9

Real estate joint ventures
 

 

 
6,720.3

 

 
6,720.3

Limited partnerships
 

 

 

 
198.9

 
198.9

Marketable securities:
 
 
 
 
 
 
 
 
 
 
Real estate-related
 
847.2

 

 

 

 
847.2

Government agency notes
 

 
2,250.8

 

 

 
2,250.8

United States Treasury securities
 

 
1,948.6

 

 

 
1,948.6

Loans receivable
 

 

 
1,105.1

 

 
1,105.1

Total Investments at
June 30, 2019
 
$
847.2

 
$
4,199.4

 
$
24,297.3

 
$
198.9

 
$
29,542.8

Mortgage loans payable
 
$

 
$

 
$
(2,774.7
)
 
$

 
$
(2,774.7
)


17


Description
 
Level 1: Quoted Prices in Active Markets for Identical Assets
 
Level 2: Significant Other Observable Inputs
 
Level 3: Significant Unobservable Inputs
 
Fair Value Using Practical Expedient
 
Total at December 31, 2018
Real estate properties
 
$

 
$

 
$
15,531.1

 
$

 
$
15,531.1

Real estate joint ventures
 

 

 
6,356.6

 

 
6,356.6

Limited partnerships
 

 

 

 
175.9

 
175.9

Marketable securities:
 
 
 
 
 
 
 
 
 
 
Real estate-related
 
1,415.1

 

 

 

 
1,415.1

Government agency notes
 

 
2,050.7

 

 

 
2,050.7

United States Treasury securities
 

 
2,038.0

 

 

 
2,038.0

Loans receivable
 

 

 
913.0

 

 
913.0

Total Investments at December 31, 2018
 
$
1,415.1

 
$
4,088.7

 
$
22,800.7

 
$
175.9

 
$
28,480.4

Mortgage loans payable
 
$

 
$

 
$
(2,608.0
)
 
$

 
$
(2,608.0
)

The following tables show the reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2019 and 2018 (millions, unaudited):
 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the three months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
Beginning balance April 1, 2019
 
$
15,968.6

 
$
6,420.4

 
$
967.3

 
$
23,356.3

 
$
(2,632.9
)
Total realized and unrealized gains (losses) included in changes in net assets
 
170.3

 
(20.7
)
 
(4.0
)
 
145.6

 
(36.7
)
    Purchases(1)
 
333.0

 
326.8

 
144.6

 
804.4

 
(110.0
)
    Sales
 

 

 

 

 

    Settlements(2)
 

 
(6.2
)
 
(2.8
)
 
(9.0
)
 
4.9

Ending balance June 30, 2019
 
$
16,471.9

 
$
6,720.3

 
$
1,105.1

 
$
24,297.3

 
$
(2,774.7
)
 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the six months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
Beginning balance January 1, 2019
 
$
15,531.1

 
$
6,356.6

 
$
913.0

 
$
22,800.7

 
$
(2,608.0
)
Total realized and unrealized gains (losses) included in changes in net assets
 
244.2

 
(13.6
)
 
(2.8
)
 
227.8

 
(66.3
)
    Purchases(1)
 
699.7

 
383.9

 
219.0

 
1,302.6

 
(110.0
)
    Sales
 
(3.1
)
 

 

 
(3.1
)
 

    Settlements(2)
 

 
(6.6
)
 
(24.1
)
 
(30.7
)
 
9.6

Ending balance June 30, 2019
 
$
16,471.9

 
$
6,720.3

 
$
1,105.1

 
$
24,297.3

 
$
(2,774.7
)



18


 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the three months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Beginning balance April 1, 2018
 
$
15,906.0

 
$
5,805.6

 
$
319.0

 
$
22,030.6

 
$
(2,594.2
)
Total realized and unrealized gains included in changes in net assets
 
7.8

 
67.4

 
(0.1
)
 
75.1

 
27.5

    Purchases(1)
 
360.4

 
69.4

 
299.4

 
729.2

 
(359.9
)
    Sales
 
(231.5
)
 

 

 
(231.5
)
 

    Settlements(2)
 

 
(27.1
)
 

 
(27.1
)
 
35.2

Ending balance June 30, 2018
 
$
16,042.7

 
$
5,915.3

 
$
618.3

 
$
22,576.3

 
$
(2,891.4
)
 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the six months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Beginning balance January 1, 2018
 
$
15,742.7

 
$
5,860.6

 
$
298.8

 
$
21,902.1

 
$
(2,238.3
)
Total realized and unrealized gains (losses) included in changes in net assets
 
98.3

 
91.6

 

 
189.9

 
55.2

    Purchases(1)
 
576.6

 
83.8

 
319.5

 
979.9

 
(745.9
)
    Sales
 
(374.9
)
 

 

 
(374.9
)
 

    Settlements(2)
 

 
(120.7
)
 

 
(120.7
)
 
37.6

Ending balance June 30, 2018
 
$
16,042.7

 
$
5,915.3

 
$
618.3

 
$
22,576.3

 
$
(2,891.4
)
(1) 
Includes purchases, contributions for joint ventures, capital expenditures, lending for loans receivable and assumption of mortgage loans payable.
(2) 
Includes operating income for real estate joint ventures net of distributions, principal payments and payoffs of loans receivable, and principal payments and extinguishment of mortgage loans payable.

19


The following table shows quantitative information about unobservable inputs related to the Level 3 fair value measurements as of June 30, 2019 (unaudited).
Type
Asset Class
Valuation
Technique(s)
Unobservable
Inputs
Range (Weighted Average)
Real Estate Properties and Joint Ventures
Office
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 8.6% (6.6%)
4.0% - 7.5% (5.5%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.5% - 7.0% (4.9%)
 
Industrial
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.3% - 9.3% (6.7%)
4.3% - 8.3% (5.5%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.9% - 7.8% (4.9%)
 
Apartment
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 7.8% (6.4%)
3.8% - 6.8% (5.0%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.3% - 6.0% (4.5%)
 
Retail
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.0% - 10.7% (6.5%)
4.3% - 9.2% (5.4%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.3% - 10.5% (4.8%)
Mortgage Loans Payable
Office and Industrial
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
34.7% - 60.4% (47.3%)
3.5% - 5.5% (4.0%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
34.7% - 60.4% (47.3%)
1.2 - 1.4 (1.3)
 
Apartment
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
31.4% - 62.0% (48.1%)
3.4% - 4.0% (3.7%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
31.4% - 62.0% (48.1%)
1.2 - 1.4 (1.3)
 
Retail
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
32.0% - 63.3% (39.6%)
3.6% - 4.7% (4.0%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
32.0% - 63.3% (39.6%)
1.2 - 1.5 (1.2)
Loans Receivable
Office, Retail and Storage
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
69.3% - 86.2% (77.6%)
6.2% - 8.7% (7.2%)





20


The following table shows quantitative information about unobservable inputs related to the Level 3 fair value measurements as of June 30, 2018 (unaudited).
Type
Asset Class
Valuation
Technique(s)
Unobservable
Inputs
Range (Weighted Average)
Real Estate Properties and Joint Ventures
Office
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 8.6% (6.6%)
4.0% - 7.5% (5.5%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.8% - 7.0% (4.9%)
 
Industrial
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 8.9% (6.8%)
4.5% - 8.3% (5.6%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
4.0% - 7.5% (5.0%)
 
Apartment
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.3% - 7.8% (6.3%)
3.5% - 6.3% (4.8%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.3% - 5.8% (4.4%)
 
Retail
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.0% - 10.5% (6.4%)
4.3% - 8.8% (5.2%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.8% - 10.5% (4.6%)
Mortgage Loans Payable
Office and Industrial
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
37.5% - 69.2% (48.3%)
4.2% - 5.8% (4.4%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
37.5% - 69.2% (48.3%)
1.2 - 1.4 (1.3)
 
Apartment
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
26.3% - 64.7% (43.4%)
3.8% - 4.3% (4.0%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
26.3% - 64.7% (43.4%)
1.1 - 1.4 (1.3)
 
Retail
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
17.7% - 51.4% (32.6%)
4.0% - 5.3% (4.3%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
17.7% - 51.4% (32.6%)
1.1 - 1.3 (1.2)
Loans Receivable
Office, Retail and Storage
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
60.2% - 79.2% (75.1%)
4.2% - 8.3% (6.2%)

Real Estate Properties and Joint Ventures: The significant unobservable inputs used in the fair value measurement of the Account’s real estate property and joint venture investments are the selection of certain investment rates (Discount Rate, Terminal Capitalization Rate, and Overall Capitalization Rate). Significant increases (decreases) in any of those inputs in isolation would result in significantly lower (higher) fair value measurements, respectively.
Mortgage Loans Payable: The significant unobservable inputs used in the fair value measurement of the Account’s mortgage loans payable are the loan to value ratios and the selection of certain credit spreads and weighted average cost of capital risk premiums. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value, respectively.
Loans Receivable: The significant unobservable inputs used in the fair value measurement of the Account’s loans receivable are the loan to value ratios and the selection of certain credit spreads. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value, respectively.
During the six months ended June 30, 2019 and 2018, there were no transfers between Levels 1, 2 or 3.

21


The amount of total net unrealized gains (losses) included in changes in net assets attributable to the change in net unrealized gains (losses) relating to Level 3 investments and mortgage loans payable using significant unobservable inputs still held as of the reporting date is as follows (millions, unaudited):
 
Real Estate
Properties
 
Real Estate
Joint
Ventures
 
Loans
Receivable
 
Total
Level 3
Investments
 
Mortgage
Loans
Payable
For the three months ended June 30, 2019
$
170.3

 
$
(14.7
)
 
$
(4.0
)
 
$
151.6

 
$
(36.7
)
For the six months ended June 30, 2019
$
244.2

 
$
(12.2
)
 
$
(2.8
)
 
$
229.2

 
$
(66.3
)
For the three months ended June 30, 2018
$
16.1

 
$
67.4

 
$
(0.1
)
 
$
83.4

 
$
27.5

For the six months ended June 30, 2018
$
110.7

 
$
91.6

 
$

 
$
202.3

 
$
55.2

Note 6—Investments in Joint Ventures
The Account owns interests in several real estate properties through joint ventures and receives distributions and allocations of profits and losses from the joint ventures based on the Account’s ownership interest in those investments. Several of these joint ventures have mortgage loans payable collateralized by the properties owned by the aforementioned joint ventures. At June 30, 2019, the Account held investments in joint ventures with ownership interest percentages that ranged from 33.3% to 97.0%. Certain joint ventures are subject to adjusted distribution percentages when earnings in the investment reach a pre-determined threshold.
A condensed summary of the results of operations of the joint ventures are shown below (millions, unaudited):
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Operating Revenue and Expenses
 
 
 
 
 
 
 
Revenues
$
271.8

 
$
231.2

 
$
537.9

 
$
457.0

Expenses
149.4

 
117.6

 
294.7

 
258.2

Excess of revenues over expenses
$
122.4

 
$
113.6

 
$
243.2

 
$
198.8

Note 7—Investments in Limited Partnerships
Taconic New York City GP Fund, LP prohibits redemptions from the partnership prior to liquidation. Liquidation of the partnership is estimated to begin no earlier than 2024. The partnership allows the Account to sell its interest in the partnership, subject to the consent and approval of the general partner.
LCS SHIP Venture I, LLC prohibits redemptions prior to liquidation. The Account is permitted to sell or transfer its interest in the company with the consent and approval of the manager.

22


Note 8—Loans Receivable
The Account’s loan receivable portfolio is primarily comprised of mezzanine loans secured by the borrower’s direct and indirect interest in commercial real estate. Mezzanine loans are subordinate to first mortgages on the underlying real estate collateral. The following property types represent the underlying real estate collateral for the Account's mezzanine loans (millions):
 
 
June 30, 2019
 
 
 
 
(unaudited)
 
December 31, 2018
 
 
Fair Value
 
%
 
Fair Value
 
%
Office
 
$
651.3

 
58.8
%
 
$
512.1

 
56.2
%
Industrial
 
209.5

 
19.0
%
 
176.4

 
19.3
%
Retail
 
101.6

 
9.2
%
 
101.6

 
11.1
%
Storage
 
82.4

 
7.5
%
 
63.2

 
6.9
%
Apartments
 
60.3

 
5.5
%
 
59.7

 
6.5
%
 
 
$
1,105.1

 
100.0
%
 
$
913.0

 
100.0
%
The Account monitors the risk profile of the loan receivable portfolio with the assistance of a third-party rating service that models the loans and assigns risk ratings based on inputs such as loan-to-value ratios, yields, credit quality of the borrowers, property types of the collateral, geographic and local market dynamics, physical condition of the collateral, and the underlying structure of the loans. Ratings for loans are updated monthly. Assigned ratings can range from AAA to C, with a AAA designation representing debt with the lowest level of credit risk and C representing a greater risk of default or principal loss. Mezzanine debt in good health is typically reflective of a risk rating in the B range (e.g., BBB, BB, B), as these ratings reflect borrowers' having adequate financial resources to service their financial commitments, but also acknowledging that adverse economic conditions, should they occur, would likely impede on a borrowers' ability to pay.
The following table presents the fair values of the Account's loan portfolio based on the risk ratings as of June 30, 2019 (unaudited), listed in order of the strength of the risk rating (from strongest to weakest):
 
 
Number of Loans
 
Fair Value
 
%
BBB
 
1
 
$
95.2

 
8.6
%
BB
 
9
 
509.1

 
46.1
%
B
 
6
 
494.5

 
44.7
%
NR(1)
 
1
 
6.3

 
0.6
%
 
 
17
 
$
1,105.1

 
100.0
%
(1) "NR" designates loans not assigned an internal credit rating. As of June 30, 2019, this is representative of one loan collateralized by an interest in a joint venture invested in real estate. The loan is scheduled to mature on July 12, 2019. Management expects all principal and interest owed to the Account for this loan to be collected in full.
The Account had no loans in non-performing status as of June 30, 2019.


23


Note 9—Mortgage Loans Payable
At June 30, 2019, the Account had outstanding mortgage loans payable secured by the following properties (millions):
Property
 
Annual Interest Rate and
Payment Frequency
(2)
 
Principal
Amounts Outstanding as of
 
Maturity
June 30, 2019 (unaudited)
 
December 31, 2018
 
Mass Court(1)
 
2.88% paid monthly
 
89.2

 
90.2

 
September 1, 2019
Red Canyon at Palomino Park(4)
 
5.34% paid monthly
 
27.1

 
27.1

 
August 1, 2020
Green River at Palomino Park(4)
 
5.34% paid monthly
 
33.2

 
33.2

 
August 1, 2020
Blue Ridge at Palomino Park(4)
 
5.34% paid monthly
 
33.4

 
33.4

 
August 1, 2020
Ashford Meadows Apartments
 
5.17% paid monthly
 
44.6

 
44.6

 
August 1, 2020
The Knoll(1)
 
3.98% paid monthly
 
16.7

 
16.9

 
December 5, 2020
Ascent at Windward
 
3.51% paid monthly
 
34.6

 
34.6

 
January 1, 2022
The Palatine(1)
 
4.25% paid monthly
 
76.6

 
77.4

 
January 10, 2022
The Forum at Carlsbad(1)
 
4.25% paid monthly
 
86.5

 
87.3

 
March 1, 2022
Fusion 1560
 
3.42% paid monthly
 
37.4

 
37.4

 
June 10, 2022
The Colorado(1)
 
3.69% paid monthly
 
89.0

 
89.9

 
November 1, 2022
The Legacy at Westwood(1)
 
3.69% paid monthly
 
45.4

 
45.8

 
November 1, 2022
Regents Court(1)
 
3.69% paid monthly
 
38.5

 
38.8

 
November 1, 2022
Fourth & Madison(1)
 
3.75% paid monthly
 
196.4

 
198.2

 
June 1, 2023
Fourth & Madison
 
4.17% paid monthly
 
90.0

 
90.0

 
June 1, 2023
1001 Pennsylvania Avenue(1)
 
3.70% paid monthly
 
323.9

 
327.0

 
June 1, 2023
Biltmore at Midtown
 
3.94% paid monthly
 
36.4

 
36.4

 
July 5, 2023
Cherry Knoll
 
3.78% paid monthly
 
35.3

 
35.3

 
July 5, 2023
Lofts at SoDo
 
3.94% paid monthly
 
35.1

 
35.1

 
July 5, 2023
1401 H Street, NW
 
3.65% paid monthly
 
115.0

 
115.0

 
November 5, 2024
The District on La Frontera(1)
 
3.84% paid monthly
 
39.5

 

 
December 1, 2024
The District on La Frontera
 
4.96% paid monthly
 
4.4

 

 
December 1, 2024
Circa Green Lake
 
3.71% paid monthly
 
52.0

 
52.0

 
March 5, 2025
Union - South Lake Union
 
3.66% paid monthly
 
57.0

 
57.0

 
March 5, 2025
Holly Street Village
 
3.65% paid monthly
 
81.0

 
81.0

 
May 1, 2025
Township Apartments
 
3.65% paid monthly
 
49.0

 
49.0

 
May 1, 2025
32 South State Street
 
4.48% paid monthly
 
24.0

 
24.0

 
June 6, 2025
Vista Station Office Portfolio(1)
 
4.00% paid monthly
 
20.8

 

 
July 1, 2025
780 Third Avenue
 
3.55% paid monthly
 
150.0

 
150.0

 
August 1, 2025
780 Third Avenue
 
3.55% paid monthly
 
20.0

 
20.0

 
August 1, 2025
Vista Station Office Portfolio(1)
 
4.20% paid monthly
 
45.0

 

 
November 1, 2025
701 Brickell Avenue
 
3.66% paid monthly
 
184.0

 
184.0

 
April 1, 2026
55 Second Street(5)
 
3.74% paid monthly
 
137.5

 
137.5

 
October 1, 2026
1900 K Street, NW
 
3.93% paid monthly
 
163.0

 
163.0

 
April 1, 2028
99 High Street
 
3.90% paid monthly
 
277.0

 
277.0

 
March 1, 2030
Total Principal Outstanding
 
 
 
$
2,788.5

 
$
2,688.1

 
 
Fair Value Adjustment(3)
 
 
 
(13.8
)
 
(80.1
)
 
 
Total Mortgage Loans Payable
 
 
 
$
2,774.7

 
$
2,608.0

 
 
(1) 
The mortgage is adjusted monthly for principal payments.
(2) 
Interest rates are fixed. Some mortgages held by the Account are structured to begin principal and interest payments after an initial interest only period.
(3) 
The fair value adjustment consists of the difference (positive or negative) between the principal amount of the outstanding debt and the fair value of the outstanding debt. See Note 1—Organization and Significant Accounting Policies.
(4) 
Represents mortgage loans on these individual properties which are held within the Palomino Park portfolio.
(5) 
This mortgage is comprised of three individual loans, all with equal recourse, interest rate and maturity. The principal balances by loan are $79.0 million, $45.0 million and $13.5 million.


24


Note 10—Line of Credit
On September 20, 2018, the Account entered into a $500.0 million unsecured revolving credit agreement (“Line of Credit”) syndicated across four national banks (“Lenders”), with each Lender providing a $125.0 million commitment. Access to the Line of Credit expires on September 20, 2021, with an option to extend the Line of Credit for two consecutive twelve months terms at the Account’s election. The Account may request an additional $250.0 million in commitments from the Lenders at any time; however, this request is subject to approval at the sole discretion of the Lenders and is not a guarantee that an expansion beyond the original $500.0 million commitment will be granted. Draws against the Line of Credit can take the form of Eurodollar Loans or Alternate Base Rate Loans (“ABR Loans”). Eurodollar Loans and ABR Loans both require a minimum funding of $5.0 million. The Account is charged a fee of 0.20% per annum on the unused portion of the Line of Credit. For the six months ended June 30, 2019, $0.5 million was charged to the Account for expenses related to the Line of Credit.
Eurodollar Loans are issued for a term of twelve months or less and bear interest during the period (“Interest Period”) at a rate equal to the Adjusted London Interbank Offer Rate (“Adjusted LIBOR”) plus a spread ranging between 0.85%-1.05% per annum (the “Applicable Rate”), with the spread dependent upon the leverage ratio of the Account. The Adjusted LIBOR Rate is calculated by multiplying the Statutory Reserve Rate, as determined by the Federal Reserve Board for Eurodollar liabilities, by the LIBOR rate, as determined by the Intercontinental Exchange on the date of issuance that corresponds to the length of the Interest Period of the Eurodollar Loan. The Account may prepay Eurodollar Loans at any time during the life of the loan without penalty. The Account is limited to five active Eurodollar Loans through the Line of Credit; however, the Account may retire and initiate new Eurodollar Loans without restriction so long as the total number of loans in active status never exceeds the limit.
ABR Loans are issued for a specific length of time and bear interest at a rate equal to the highest rate among the following calculations plus the Applicable Rate: a) the Prime Rate on the date of issuance, with the Prime Rate being defined as the rate of interest last quoted by the Wall Street Journal as the Prime Rate; b) the Federal Reserve Bank of New York (“NYFRB”) Rate as provided by the NYFRB on the date of issuance plus 0.5%; or c) the Adjusted LIBOR Rate plus 1.0%. The Account may prepay ABR Loans at any time during the life of the loan without penalty.
As of June 30, 2019, the Account had no loans outstanding on the Line of Credit. The Account is in compliance with all covenants required by the Line of Credit.

25


Note 11—Financial Highlights
Selected condensed financial information for an Accumulation Unit of the Account is presented below. Per Accumulation Unit data is calculated on average units outstanding.
 
For the Six Months Ended June 30, 2019
 
Years Ended December 31,
2018
 
2017
 
2016
 
(Unaudited)
 
 
 
 
 
 
Per Accumulation Unit Data:
 
 
 
 
 
 
 
Rental income
$
8.898

 
$
17.757

 
$
17.132

 
$
16.433

Real estate property level expenses and taxes
4.314

 
8.548

 
7.722

 
7.534

Real estate income, net
4.584

 
9.209

 
9.410

 
8.899

Other income
3.409

 
6.162

 
4.762

 
3.594

Total income
7.993

 
15.371

 
14.172

 
12.493

Expense charges(1)
1.730

 
3.161

 
3.318

 
3.290

Investment income, net
6.263

 
12.210

 
10.854

 
9.203

Net realized and unrealized gain on investments and mortgage loans payable
6.507

 
6.877

 
5.839

 
9.660

Net increase in Accumulation Unit Value
12.770

 
19.087

 
16.693

 
18.863

Accumulation Unit Value:
 
 
 
 
 
 
 
Beginning of period
417.416

 
398.329

 
381.636

 
362.773

End of period
$
430.186

 
$
417.416

 
$
398.329

 
$
381.636

Total return(3)
3.06
%
 
4.79
%
 
4.37
%
 
5.20
%
Ratios to Average net assets(2):
 
 
 
 
 
 
 
Expenses(1)
0.81
%
 
0.76
%
 
0.83
%
 
0.86
%
Investment income, net
2.92
%
 
2.95
%
 
2.72
%
 
2.41
%
Portfolio turnover rate(3):
 
 
 
 
 
 
 
Real estate properties(4)
0.1
%
 
11.8
%
 
2.7
%
 
1.3
%
Marketable securities(5)
15.3
%
 
5.1
%
 
5.7
%
 
3.5
%
Accumulation Units outstanding at end of period (millions)
60.9

 
60.7

 
61.3

 
62.4

Net assets end of period (millions)
$
26,732.6

 
$
25,842.6

 
$
24,942.6

 
$
24,304.7

(1) 
Expense charges per Accumulation Unit and the Ratio of Expenses to average net assets reflect the year to date Account level expenses and exclude real estate property level expenses which are included in real estate income, net.
(2) 
Percentages for the six months ended June 30, 2019 are annualized.
(3) 
Percentages for the six months ended June 30, 2019 are not annualized.
(4) 
Real estate investment portfolio turnover rate is calculated by dividing the lesser of purchases or sales of real estate property investments (including contributions to, or return of capital distributions received from, existing joint venture and limited partnership investments) by the average value of the portfolio of real estate investments held during the period.
(5) 
Marketable securities portfolio turnover rate is calculated by dividing the lesser of purchases or sales of securities, excluding securities having maturity dates at acquisition of one year or less, by the average value of the portfolio securities held during the period.


26


Note 12—Accumulation Units
Changes in the number of Accumulation Units outstanding were as follows (in millions):
 
For the Six Months Ended June 30, 2019
 
For the Year Ended December 31, 2018
 
(Unaudited)
 
 
Outstanding:
 
 
 
Beginning of period
60.7

 
61.3

Credited for premiums
3.1

 
6.5

Annuity, other periodic payments, withdrawals and death benefits
(2.9
)
 
(7.1
)
End of period
60.9

 
60.7

Note 13—Commitments and Contingencies
Commitments—As of June 30, 2019 and December 31, 2018, the Account had the following immediately callable commitments to purchase additional interests in its limited partnership investments:
 
June 30, 2019
 
December 31, 2018
 
(Unaudited)
 
 
Taconic New York City GP Fund
$
13.7

 
$
26.0

LCS SHIP Venture I, LLC
47.4

 
75.0

 
$
61.1

 
$
101.0

Taconic New York City GP Fund—The general partner can call capital during the commitment period at any time. The commitment period is the fifth anniversary from closing (November 2020). The commitment period may be closed earlier at the joint election of TIAA and the general partner if 90% of the commitment has been satisfied.
LCS SHIP Venture I, LLC—The general partner can call capital at any time during the commitment period, which is one year from closing (June 2019).
Contingencies—In the normal course of business, the Account may be named, from time to time, as a defendant or may be involved in various legal actions, including arbitrations, class actions and other litigation.
The Account establishes an accrual for all litigation and regulatory matters when it believes it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted, as appropriate, in light of additional information. The amount of loss ultimately incurred in relation to those matters may be higher or lower than the amounts accrued for those matters.
As of the date of this report, management of the Account does not believe that the results of any such claims or litigation, individually or in the aggregate, will have a material effect on the Account’s business, financial position or results of operations.

27

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


REAL ESTATE PROPERTIES—55.8% and 54.5%
Location/Description
 
Type
 
Fair Value at
June 30, 2019
 
December 31, 2018
 
 
 
 
(Unaudited)
 
 
 
Alabama:
 
 
 
 
 
 
 
 
Riverchase Village
 
Retail
 
$
40.2

 
 
$
40.0

 
Arizona:
 
 
 
 
 
 
 
 
Camelback Center
 
Office
 
48.9


 
63.4

 
California:
 
 
 
 
 
 
 
 
55 Second Street
 
Office
 
408.8

(1) 
 
368.2

(1) 
88 Kearny Street
 
Office
 
196.7


 
189.1

 
200 Middlefield Road
 
Office
 
70.6


 
61.8

 
12910 Mulberry Drive Industrial
 
Industrial
 
22.6

 
 
21.7

 
30700 Russell Ranch
 
Office
 
39.0


 
34.6

 
Allure at Camarillo
 
Apartments
 
62.8


 
61.8

 
BLVD63
 
Apartments
 
165.0


 
164.0

 
Bridgepointe Shopping Center
 
Retail
 
127.0


 
125.0

 
Centre Pointe and Valley View
 
Industrial
 
52.3


 
51.2

 
Cerritos Industrial Park
 
Industrial
 
155.1


 
153.1

 
Charleston Plaza
 
Retail
 
101.0


 
100.0

 
Frontera Industrial Business Park
 
Industrial
 
83.9


 
74.0

 
Great West Industrial Portfolio
 
Industrial
 
186.0


 
178.5

 
Holly Street Village
 
Apartments
 
153.5

(1) 
 
152.1

(1) 
Larkspur Courts
 
Apartments
 
147.3


 
146.0

 
Northern CA RA Industrial Portfolio
 
Industrial
 
102.0


 
93.3

 
Oakmont IE West Portfolio
 
Industrial
 
109.2


 
103.5

 
Oceano at Warner Center
 
Apartments
 
93.7


 
89.3

 
Ontario Industrial Portfolio
 
Industrial
 
477.1


 
421.8

 
Ontario Mills Industrial Portfolio
 
Industrial
 
62.7


 
61.8

 
Otay Mesa Industrial Portfolio
 
Industrial
 
31.5

 
 
29.4

 
Pacific Plaza
 
Office
 
110.8


 
116.5

 
Rancho Cucamonga Industrial Portfolio
 
Industrial
 
80.6


 
76.2

 
Rancho Del Mar
 
Apartments
 
94.2

 
 
92.5

 
Regents Court
 
Apartments
 
104.0

(1) 
 
104.0

(1) 
Southern CA RA Industrial Portfolio
 
Industrial
 
145.0


 
143.4

 
Stella
 
Apartments
 
183.5


 
183.7

 
Stevenson Point
 
Industrial
 
63.3


 
61.3

 
The Forum at Carlsbad
 
Retail
 
224.0

(1) 
 
225.0

(1) 
The Legacy at Westwood
 
Apartments
 
149.1

(1) 
 
144.0

(1) 
Township Apartments
 
Apartments
 
90.5

(1) 
 
90.5

(1) 
West Lake North Business Park
 
Office
 
63.2


 
62.6

 
Westcreek
 
Apartments
 
56.3


 
55.0

 
Westwood Marketplace
 
Retail
 
142.0


 
142.0

 
Wilshire Rodeo Plaza
 
Office
 
330.0


 
312.4

 
Colorado:
 
 
 
 
 
 
 
 
1600 Broadway
 
Office
 
112.0

 
 

 
Palomino Park
 
Apartments
 
356.0

(1) 
 
348.0

(1) 
South Denver Marketplace
 
Retail
 
71.1


 
72.7

 
Connecticut:
 
 
 
 
 
 
 
 
Wilton Woods Corporate Campus
 
Office
 
116.3


 
121.0

 

28

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Location/Description
 
Type
 
Fair Value at
June 30, 2019
 
December 31, 2018
 
 
 
 
(Unaudited)
 
 
 
Florida:
 
 
 
 
 
 
 
 
5 West
 
Apartments
 
$
62.2

 
 
$
62.2

 
701 Brickell Avenue
 
Office
 
409.9

(1) 
 
394.3

(1) 
Broward Industrial Portfolio
 
Industrial
 
65.1


 
59.1

 
Casa Palma
 
Apartments
 
102.0


 
102.0

 
Fusion 1560
 
Apartments
 
82.3

(1) 
 
82.0

(1) 
Lofts at SoDo
 
Apartments
 
64.3

(1) 
 
66.7

(1) 
Orion on Orpington
 
Apartments
 
50.5


 
49.2

 
Publix at Weston Commons
 
Retail
 
74.5


 
74.6

 
Seneca Industrial Park
 
Industrial
 
123.1


 
117.5

 
Sole at Brandon
 
Apartments
 
77.9


 

 
South Florida Apartment Portfolio
 
Apartments
 
109.3


 
108.7

 
The Manor Apartments
 
Apartments
 
51.5


 
52.9

 
The Manor at Flagler Village
 
Apartments
 
138.0


 
137.1

 
The Residences at the Village of Merrick Park
 
Apartments
 
70.3


 
72.7

 
Weston Business Center
 
Industrial
 
101.5


 
97.8

 
Georgia:
 
 
 
 
 
 
 
 
Ascent at Windward
 
Apartments
 
68.0

(1) 
 
68.4

(1) 
Atlanta Industrial Portfolio
 
Industrial
 
40.1


 
35.5

 
Biltmore at Midtown
 
Apartments
 
73.5

(1) 
 
70.4

(1) 
Glen Lake
 
Apartments
 
54.8

 
 

 
Shawnee Ridge Industrial Portfolio
 
Industrial
 
98.7


 
89.2

 
Illinois:
 
 
 
 
 
 
 
 
32 South State Street
 
Retail
 
50.5

(1) 
 
50.4

(1) 
803 Corday
 
Apartments
 
93.6


 
94.2

 
Chicago Caleast Industrial Portfolio
 
Industrial
 
85.5


 
82.8

 
Chicago Industrial Portfolio
 
Industrial
 
30.1


 
28.7

 
Maryland:
 
 
 
 
 
 
 
 
Cherry Knoll
 
Apartments
 
59.9

(1) 
 
59.2

(1) 
Landover Logistics Center
 
Industrial
 
43.9


 
44.3

 
The Shops at Wisconsin Place
 
Retail
 
69.3


 
76.9

 
Massachusetts:
 
 
 
 
 
 
 
 
99 High Street
 
Office
 
513.0

(1) 
 
506.4

(1) 
Fort Point Creative Exchange Portfolio
 
Office
 
269.9


 
247.1

 
Northeast RA Industrial Portfolio
 
Industrial
 
42.7


 
42.0

 
One Beeman Road
 
Industrial
 
34.2


 
34.0

 
Minnesota:
 
 
 
 
 
 
 
 
The Bridges
 
Apartments
 
65.9


 
64.9

 
The Knoll
 
Apartments
 
36.7

(1) 
 
36.1

(1) 
New Jersey:
 
 
 
 
 
 
 
 
10 New Maple Avenue
 
Industrial
 
19.6


 
18.0

 
200 Milik Street
 
Industrial
 
55.0


 
54.0

 
Marketfair
 
Retail
 
104.0


 
104.3

 
South River Road Industrial
 
Industrial
 
107.2


 
102.5

 
New York:
 
 
 
 
 
 
 
 
21 Penn Plaza
 
Office
 
331.8


 
317.8

 
250 North 10th Street
 
Apartments
 
149.0


 
151.0

 
425 Park Avenue
 
Ground Lease
 
466.0


 
461.0

 

29

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Location/Description
 
Type
 
Fair Value at
June 30, 2019
 
December 31, 2018
 
 
 
 
(Unaudited)
 
 
 
780 Third Avenue
 
Office
 
$
405.0

(1) 
 
$
418.7

(1) 
837 Washington Street
 
Office
 
225.0


 
222.0

 
The Colorado
 
Apartments
 
255.0

(1) 
 
254.9

(1) 
North Carolina:
 
 
 
 
 
 
 
 
Centric Gateway
 
Apartments
 
73.5


 
70.0

 
Oregon:
 
 
 
 
 
 
 
 
The Cordelia
 
Apartments
 
42.2


 
41.7

 
Pennsylvania:
 
 
 
 
 
 
 
 
1619 Walnut Street
 
Retail
 
23.2


 
24.1

 
South Carolina:
 
 
 
 
 
 
 
 
Greene Crossing
 
Apartments
 
75.8


 
75.1

 
Tennessee:
 
 
 
 
 
 
 
 
Southside at McEwen
 
Retail
 
49.0


 
48.6

 
Texas:
 
 
 
 
 
 
 
 
3131 McKinney
 
Office
 
46.7


 
49.7

 
Beltway North Commerce Center
 
Industrial
 
30.0


 
26.3

 
Carrington Park
 
Apartments
 
64.5


 
65.1

 
Churchill on the Park
 
Apartments
 
73.2


 
71.3

 
Cliffs at Barton Creek
 
Apartments
 
45.6


 
46.7

 
Dallas Industrial Portfolio
 
Industrial
 
231.7


 
222.3

 
District on La Frontera
 
Apartments
 
75.6

(1) 
 

 
Houston Apartment Portfolio
 
Apartments
 
164.2


 
164.4

 
Lincoln Centre
 
Office
 
389.5


 
372.6

 
Northwest Houston Industrial Portfolio
 
Industrial
 
74.7


 
75.6

 
Park 10 Distribution
 
Industrial
 
10.2


 
10.0

 
Pinnacle Industrial Portfolio
 
Industrial
 
64.8


 
51.2

 
Pinto Business Park
 
Industrial
 
146.2


 
144.9

 
The Maroneal
 
Apartments
 
55.6


 
56.1

 
Utah:
 
 
 
 
 
 
 
 
Vista Station Office Portfolio
 
Office
 
111.9

(1) 
 

 
Virginia:
 
 
 
 
 
 
 
 
8270 Greensboro Drive
 
Office
 
49.9


 
47.5

 
Ashford Meadows Apartments
 
Apartments
 
105.1

(1) 
 
107.1

(1) 
Plaza America
 
Retail
 
114.0


 
116.3

 
The Ellipse at Ballston
 
Office
 
84.6


 
82.4

 
The Palatine
 
Apartments
 
124.0

(1) 
 
122.0

(1) 
Washington:
 
 
 
 
 
 
 
 
Circa Green Lake
 
Apartments
 
102.1

(1) 
 
98.2

(1) 
Fourth and Madison
 
Office
 
605.0

(1) 
 
580.0

(1) 
Northwest RA Industrial Portfolio
 
Industrial
 
47.4


 
43.0

 
Pacific Corporate Park
 
Industrial
 
59.5


 
52.8

 
Prescott Wallingford Apartments
 
Apartments
 
68.1


 
66.5

 
Rainier Corporate Park
 
Industrial
 
152.6


 
141.6

 
Regal Logistics Campus
 
Industrial
 
116.1


 
109.1

 
Union - South Lake Union
 
Apartments
 
114.0

(1) 
 
114.0

(1) 
Washington D.C.:
 
 
 
 
 
 
 
 
1001 Pennsylvania Avenue
 
Office
 
787.5

(1) 
 
782.8

(1) 
1401 H Street, NW
 
Office
 
218.0

(1) 
 
209.5

(1) 

30

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Location/Description
 
Type
 
Fair Value at
June 30, 2019
 
December 31, 2018
 
 
 
 
(Unaudited)
 
 
 
1900 K Street, NW
 
Office
 
$
340.1

(1) 
 
$
342.1

(1) 
Mass Court
 
Apartments
 
166.2

(1) 
 
166.1

(1) 
The Ashton
 
Apartments
 
30.7


 
30.5

 
The Louis at 14th
 
Apartments
 
157.0


 
162.0

 
The Woodley
 
Apartments
 
189.0


 
196.0

 
Various:
 
 
 
 
 
 
 
 
Colony Industrial Portfolio
 
Industrial
 
133.8

(3) 
 

 
TOTAL REAL ESTATE PROPERTIES
 
 
 
 
 
 
 
(Cost $13,384.4 and $12,687.8)
 
 
 
$
16,471.9

 
 
$
15,531.1

 
REAL ESTATE JOINT VENTURES AND LIMITED PARTNERSHIPS—23.4% and 22.9%
REAL ESTATE JOINT VENTURES—22.7% and 22.3%
Location/Description
 
Type
 
Fair Value at
June 30, 2019
 
December 31, 2018
 
 
 
 
(Unaudited)
 
 
 
California:
 
 
 
 
 
 
CA—Colorado Center LP
Colorado Center (50% Account Interest)
 
Office
 
$
379.4

(2) 
 
$
376.2

(2) 
PC Borrower, LLC
Pacific City (70% Account Interest)
 
Retail
 
60.5

(2) 
 
59.5

(2) 
TREA 9625 Towne Center, LLC
9625 Towne Centre Drive (49.9% Account Interest)
 
Land
 
51.6


 
45.5

 
TREA Campus Pointe 1, LLC
Campus Pointe 1 (45% Account Interest)
 
Office
 
157.3


 
153.7

 
TREA Campus Pointe 2 & 3, LLC
Campus Pointe 2 & 3 (45% Account Interest)
 
Office (5)
 
139.8


 
132.8

 
TREA Campus Pointe 4, LLC
Campus Pointe 4 (45% Account Interest)
 
Office
 
9.6


 
9.2

 
T-C 1500 Owens, LLC
1500 Owens Street (49.9% Account Interest)
 
Office
 
80.4


 
78.8

 
T-C Foundry Square II Venture LLC
Foundry Square II (50.1% Account Interest)
 
Office
 
307.1


 
290.1

 
T-C Illinois Street, LLC
409-499 Illinois Street (40% Account Interest)
 
Office
 
230.6


 
223.9

 
Valencia Town Center Associates LP
Valencia Town Center (50% Account Interest)
 
Retail
 
135.8

(2) 
 
140.5

(2) 
Florida:
 
 
 
 
 
 
Florida Mall Associates, Ltd
The Florida Mall (50% Account Interest)
 
Retail
 
769.8

(2) 
 
769.7

(2) 
TREA Florida Retail, LLC
Florida Retail Portfolio (80% Account Interest)
 
Retail
 
156.0


 
156.0

 
West Dade County Associates
Miami International Mall (50% Account Interest)
 
Retail
 
167.9

(2) 
 
170.3

(2) 
Indiana:
 
 
 
 
 
 
 
 
THP Park on Morton, LLC
Park on Morton (97% Account Interest)
 
Apartments
 
29.6

(2) 
 
29.5

(2) 
Maryland:
 
 
 
 
 
 
WP Project Developer
The Shops at Wisconsin Place (33.33% Account Interest)
 
Retail
 
24.6


 
20.4

 

31

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Location/Description
 
Type
 
Fair Value at
June 30, 2019
 
December 31, 2018
 
 
 
 
(Unaudited)
 
 
 
Massachusetts:
 
 
 
 
 
 
One Boston Place REIT
One Boston Place (50.25% Account Interest)
 
Office
 
$
243.4


 
$
239.1

 
T-C 225 Binney, LLC
225 Binney Street (70% Account Interest)
 
Office
 
225.2


 
220.2

 
T-C 501 Boylston Street Member, LLC
501 Boylston (50.1% Account Interest)
 
Office
 
204.2

(2) 
 
195.6

(2) 
Nevada:
 
 
 
 
 
 
 
 
Fashion Show Holding I, LLC
Fashion Show (50% Account Interest)
 
Retail
 
796.0

(2) 
 
819.1

(2) 
New York:
 
 
 
 
 
 
401 West 14th Street, LLC
401 West 14th Street (42.19% Account Interest)
 
Retail
 
46.1

(2) 
 
48.4

(2) 
440 Ninth Avenue Owner, LLC
440 Ninth Avenue (88.52% Account Interest)
 
Office
 
123.5

(2) 
 
121.4

(2) 
817 Broadway Owner, LLC
817 Broadway (61.46% Account Interest)
 
Office
 
40.0

(2) 
 
28.0

(2) 
MRA Hub 34 Holding, LLC
The Hub (95% Account Interest)
 
Office
 
79.8

(2) 
 
59.2

(2) 
RGM 42, LLC
MiMA (70% Account Interest)
 
Apartments
 
119.9

(2) 
 
118.4

(2) 
TREA 35th Street LIC Investor Member, LLC
Commerce LIC (97.5% Account Interest)
 
Industrial
 


 
0.6

 
North Carolina:
 
 
 
 
 
 
 
 
CC 101 North Tryon, LLC 101 N. Tryon Street (85% Account Interest)
 
Office
 
44.7

(2) 
 

 
THP 1505 Hillsborough Street, LLC
The Theory (97% Account Interest)
 
Apartments
 
32.8

(2) 
 

 
Tennessee:
 
 
 
 
 
 
West Town Mall, LLC
West Town Mall (50% Account Interest)
 
Retail
 
148.5

(2) 
 
154.3

(2) 
Texas:
 
 
 
 
 
 
Four Oaks Venture LP
Four Oaks Place LP (51% Account Interest)
 
Office
 
347.6

(2) 
 
344.6

(2) 
THP Cabana Beach San Marcos, LLC
Cabana Beach San Marcos (97% Account Interest)
 
Apartments
 
23.8

(2) 
 
23.0

(2) 
THP The Forum at Sam Houston, LLC
The Forum - Sam Houston (97% Account Interest)
 
Apartments
 
18.8

(2) 
 
17.6

(2) 
THP West Campus, LLC
Aspen Heights (97% Account Interest)
 
Apartments
 
45.5

(2) 
 
42.3

(2) 
TREA I-35 Logistics Investor Member, LLC I-35 Logistics Center (95% Account Interest)
 
Land
 
6.1


 

 
Various:
 
 
 
 
 
 
DDRTC Core Retail Fund, LLC
SITE Centers Joint Venture (85% Account Interest)
 
Retail
 
831.7

(2,3) 
 
655.8

(2,3) 
Simpson Housing LLP
Simpson Housing Portfolio (80% Account Interest)
 
Apartments
 
404.4

(2,3) 
 
400.1

(2,3) 
Storage Portfolio I, LLC
Storage Portfolio I (66.02% Account Interest)
 
Storage
 
94.6

(2,3) 
 
92.4

(2,3) 
Storage Portfolio II, LLC
Storage Portfolio II (90% Account Interest)
 
Storage
 
126.1

(2,3) 
 
120.4

(2,3) 

32

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Location/Description
 
Type
 
Fair Value at
June 30, 2019
 
December 31, 2018
 
 
 
 
(Unaudited)
 
 
 
Storage Portfolio III, LLC
Storage Portfolio III (90% Account Interest)
 
Storage
 
$
17.6

(3) 
 
$

 
TOTAL REAL ESTATE JOINT VENTURES
(Cost $5,397.0 and $5,030.9)
 
 
 
$
6,720.3

 
 
$
6,356.6

 
 
 
 
 
 
 
 
 
 
LIMITED PARTNERSHIPS—0.7% and 0.6%
 
 
 
 
Clarion Gables Multi-Family Trust LP (0.00% Account Interest)
 
$

 
 
$
30.1

 
LCS SHIP Venture I, LLC (90% Account Interest)
 
171.2

 
 
129.7

 
Taconic New York City GP Fund, LP (60% Account Interest)
 
27.7

 
 
15.7

 
Transwestern Mezz Realty Partners III, LLC (11.715% Account Interest)
 

 
 
0.4

 
TOTAL LIMITED PARTNERSHIPS
(Cost $191.7 and $176.9)
 
 
 
$
198.9

 
 
$
175.9

 
TOTAL REAL ESTATE JOINT VENTURES AND LIMITED PARTNERSHIPS
(Cost $5,588.7 and $5,207.8)
 
$
6,919.2

 
 
$
6,532.5

 
MARKETABLE SECURITIES—17.1% and 19.4%
REAL ESTATE-RELATED MARKETABLE SECURITIES—2.9% and 5.0%
Shares
 
Issuer
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
(Unaudited)
 
 
 
29,461

 
110,762

 
Acadia Realty Trust
 
$
0.8


 
$
2.6

 
77,709

 
46,535

 
Agree Realty Corporation
 
5.0


 
2.8

 
24,975

 
94,479

 
Alexander & Baldwin, Inc.
 
0.6


 
1.7

 
778

 
2,986

 
Alexander's, Inc.
 
0.3


 
0.9

 
121,725

 
146,953

 
Alexandria Real Estate Equities, Inc.
 
17.2


 
16.9

 
16,910

 
52,670

 
American Assets Trust, Inc.
 
0.8


 
2.1

 
49,511

 
188,889

 
American Campus Communities, Inc.
 
2.3


 
7.8

 
38,524

 
75,276

 
American Financial Trust, Inc.
 
0.4

(7) 
 
1.0

(7) 
452,393

 
357,614

 
American Homes 4 Rent
 
11.0


 
7.1

 
274,932

 
606,653

 
American Tower Corp.
 
56.2


 
96.0

 
206,249

 
118,616

 
Americold Realty Trust
 
6.7


 
3.0

 
53,513

 
213,704

 
Apartment Investment and Management Company
 
2.7


 
9.4

 
76,058

 
301,399

 
Apple Hospitality Inc.
 
1.2


 
4.3

 
18,763

 
69,576

 
Armada Hoffler Properties Inc.
 
0.3


 
1.0

 
31,828

 
108,956

 
Ashford Hospitality Trust, Inc.
 
0.1


 
0.4

 
101,662

 
190,742

 
Avalonbay Communities, Inc.
 
20.7


 
33.2

 
7,650

 
30,596

 
Bluerock Residential Growth, Inc.
 
0.1


 
0.3

 
180,088

 
213,492

 
Boston Properties, Inc.
 
23.2


 
24.0

 
10,697

 
39,766

 
Braemar Hotels & Resorts, Inc.
 
0.1


 
0.4

 
63,110

 
243,776

 
Brandywine Realty Trust
 
0.9


 
3.1

 
107,502

 
418,058

 
Brixmore Property Group Inc
 
1.9


 
6.1

 
34,123

 
173,572

 
Brookfield Property REIT
 
0.6


 
2.8

 
4,195

 
12,485

 
BRT Apartments Corporation
 
0.1


 
0.1

 
115,086

 
123,044

 
Camden Property Trust
 
12.0


 
10.8

 
34,405

 
115,194

 
CareTrust REIT Inc.
 
0.8


 
2.1

 
17,959

 
64,018

 
Catchmark Timber Trust, Inc.
 
0.2


 
0.5

 
61,079

 
239,329

 
CBL & Associates Properties, Inc.
 
0.1

(7) 
 
0.5

 
32,346

 
112,105

 
Cedar Shopping Centers, Inc.
 
0.1


 
0.4

 

33

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Shares
 
Issuer
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
(Unaudited)
 
 
 
16,777

 
65,187

 
Chatham Lodging Trust
 
$
0.3


 
$
1.2

 
21,694

 
80,952

 
Chesapeake Lodging Trust
 
0.6


 
2.0

 
14,200

 
47,817

 
City Office REIT Inc.
 
0.2


 
0.5

 
5,192

 
21,288

 
Clipper Realty, Inc.
 
0.1


 
0.3

 
515,252

 
661,676

 
Colony Capital, Inc.
 
2.6


 
3.1

 
42,159

 
163,866

 
Columbia Property Trust Inc.
 
0.9


 
3.2

 
6,495

 
23,436

 
Community Healthcare Trust, Inc.
 
0.3


 
0.7

 
42,931

 
162,853

 
CoreCivic, Inc.
 
0.9


 
2.9

 
4,349

 
16,269

 
Corenergy Infrastructure Trust, Inc.
 
0.2

(7) 
 
0.5

 
15,130

 
57,463

 
Corepoint Lodging, Inc.
 
0.2


 
0.7

 
13,282

 
50,118

 
CoreSite Realty Corporation
 
1.5


 
4.4

 
40,562

 
142,696

 
Corporate Office Properties Trust
 
1.1


 
3.0

 
52,741

 
580,413

 
Cousins Properties, Inc.
 
1.9


 
4.6

 
287,061

 
572,594

 
Crown Castle International Corporation
 
37.4


 
62.2

 
68,198

 
255,847

 
Cubesmart
 
2.3


 
7.3

 
104,694

 
144,491

 
CyrusOne Inc.
 
6.0


 
7.6

 
72,569

 
284,793

 
DiamondRock Hospitality Company
 
0.8


 
2.6

 
126,654

 
284,543

 
Digital Realty Trust, Inc.
 
14.9


 
30.3

 
58,370

 
222,742

 
Douglas Emmett, Inc.
 
2.3


 
7.6

 
194,405

 
493,225

 
Duke Realty Corporation
 
6.1


 
12.8

 
24,592

 
86,054

 
Easterly Government Properties, Inc.
 
0.4


 
1.3

 
43,024

 
48,463

 
EastGroup Properties, Inc.
 
5.0


 
4.4

 
53,020

 
196,612

 
Empire State Realty Trust
 
0.8


 
2.8

 
27,123

 
102,222

 
EPR Properties
 
2.0


 
6.5

 
64,628

 
110,827

 
Equinix Inc.
 
32.6


 
39.1

 
141,047

 
118,255

 
Equity Lifestyle Properties, Inc.
 
17.1


 
11.5

 
265,222

 
495,921

 
Equity Residential
 
20.1


 
32.7

 
17,853

 
47,818

 
Essential Properties Realty
 
0.4


 
0.7

 
66,490

 
90,861

 
Essex Property Trust, Inc.
 
19.4


 
22.3

 
113,187

 
168,808

 
Extra Space Storage, Inc.
 
12.0


 
15.3

 
11,014

 
39,335

 
Farmland Partners, Inc.
 
0.1

(7) 
 
0.2

 
74,197

 
100,845

 
Federal Realty Investment Trust
 
9.6


 
11.9

 
45,555

 
171,124

 
First Industrial Realty Trust, Inc.
 
1.7


 
4.9

 
74,774

 
95,288

 
Four Corners Property Trust
 
2.0


 
2.5

 
38,128

 
148,193

 
Franklin Street Properties Corp.
 
0.3


 
0.9

 
18,035

 
66,846

 
Front Yard Residential Corp.
 
0.2


 
0.6

 
188,774

 
279,615

 
Gaming and Leisure Properties, Inc.
 
7.4


 
9.0

 
158,252

 

 
GDS Holdings LTD ADR
 
3.6


 

 
42,888

 
164,774

 
GEO Group Inc./The
 
0.9

 
 
3.2

 
11,978

 
45,390

 
Getty Realty Corp.
 
0.4


 
1.3

 
10,485

 
40,600

 
Gladstone Commercial Corporation
 
0.2


 
0.7

 
6,226

 
17,897

 
Gladstone Land Corporation
 
0.1


 
0.2

 
11,085

 
27,913

 
Global Medical REIT, Inc.
 
0.1


 
0.2

 
30,410

 
97,753

 
Global Net Lease, Inc.
 
0.6


 
1.7

 

 
134,722

 
Government Properties Income Trust
 


 
0.9

 
430,118

 
651,177

 
HCP, Inc.
 
13.8


 
18.2

 
46,109

 
170,298

 
Healthcare Realty Trust Inc.
 
1.4


 
4.8

 
189,276

 
285,255

 
Healthcare Trust of America
 
5.2


 
7.2

 
13,021

 
50,946

 
Hersha Hospitality Trust
 
0.2


 
0.9

 

34

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Shares
 
Issuer
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
(Unaudited)
 
 
 
36,966

 
140,879

 
Highwoods Properties, Inc.
 
$
1.5


 
$
5.5

 
58,974

 
225,198

 
Hospitality Properties Trust
 
1.5


 
5.4

 
745,203

 
1,014,135

 
Host Hotels & Resorts, Inc.
 
13.6


 
16.9

 
196,153

 
213,134

 
Hudson Pacific Properties, Inc.
 
6.5


 
6.2

 
32,614

 
123,683

 
Independence Realty Trust, Inc.
 
0.4


 
1.1

 
23,634

 
88,878

 
Industrial Logics Properties
 
0.5


 
1.7

 
110,000

 

 
Interxion Holding NV
 
4.1

 
 

 
4,386

 
16,729

 
Investors Real Estate Trust
 
0.3


 
0.8

 
444,088

 
414,132

 
Invitation Homes, Inc.
 
11.9


 
8.3

 
103,254

 
393,221

 
Iron Mountain Inc.
 
3.2


 
12.7

 
370,420

 
1,500,000

 
iShares Dow Jones US Real Estate Index Fund
 
32.3

(7) 
 
112.4

(7) 
44,258

 
144,518

 
JBG Smith Properties
 
1.7


 
5.0

 
117,120

 
136,455

 
Kilroy Realty Corporation
 
8.6


 
8.6

 
146,235

 
563,416

 
Kimco Realty Corporation
 
2.7


 
8.3

 
30,260

 
113,467

 
Kite Realty Group Trust
 
0.5


 
1.6

 
30,817

 
116,496

 
Lamar Advertising Corporation
 
2.5


 
8.1

 
82,553

 
293,991

 
Lexington Realty Trust
 
0.8


 
2.4

 
53,522

 
204,392

 
Liberty Property Trust
 
2.7


 
8.6

 
16,858

 
63,299

 
Life Storage, Inc.
 
1.6


 
5.9

 
14,388

 
54,350

 
LTC Properties, Inc.
 
0.7


 
2.3

 
33,091

 
123,992

 
Mack-Cali Realty Corporation
 
0.8


 
2.4

 

 
44,471

 
Medequities Realty Trust, Inc.
 


 
0.3

 
141,740

 
503,539

 
Medical Properties Trust, Inc.
 
2.5


 
8.1

 
41,156

 
157,147

 
Mid-America Apartment Communities, Inc.
 
4.8


 
15.0

 
32,612

 
121,059

 
Monmouth Real Estate Investment Corporation
 
0.4


 
1.5

 
14,954

 
56,533

 
National Health Investors, Inc.
 
1.2


 
4.3

 
58,711

 
219,159

 
National Retail Properties, Inc.
 
3.1


 
10.6

 
70,704

 
78,758

 
National Storage Affiliates Trust
 
2.0


 
2.1

 
29,833

 
97,013

 
New Senior Investment Group
 
0.2


 
0.4

 
6,834

 
25,395

 
Nexpoint Residential Trust, Inc.
 
0.3


 
0.9

 
16,338

 
60,527

 
NorthStar Realty Europe Corp.
 
0.3


 
0.9

 
17,434

 

 
Office Properties Income Trust, Inc.
 
0.5

(7) 
 

 
77,395

 
273,749

 
Omega Healthcare Investors, Inc.
 
2.8


 
9.6

 
5,547

 
21,786

 
One Liberty Properties, Inc.
 
0.2


 
0.5

 
50,977

 
192,190

 
Outfront Media Inc.
 
1.3

 
 
3.5

 
72,935

 
289,253

 
Paramount Group Inc.
 
1.0


 
3.6

 
72,876

 
276,143

 
Park Hotels & Resorts, Inc.
 
2.0


 
7.2

 
149,517

 
186,399

 
Pebblebrook Hotel Trust
 
4.2


 
5.3

 
25,160

 
96,360

 
Pennsylvania Real Estate Investment Trust
 
0.2

(7) 
 
0.6

 
66,807

 
250,372

 
Physicians Realty Trust
 
1.2


 
4.0

 
45,124

 
177,784

 
Piedmont Office Realty Trust, Inc.
 
0.9


 
3.0

 
23,835

 
91,285

 
Potlatch Corporation
 
0.9


 
2.9

 
14,977

 
54,653

 
Preferred Apartment Communities, Inc.
 
0.2


 
0.8

 
510,081

 
865,465

 
ProLogis
 
40.9


 
50.8

 
7,212

 
27,314

 
PS Business Parks, Inc.
 
1.2


 
3.6

 
87,910

 
205,162

 
Public Storage, Inc.
 
20.9


 
41.5

 
122,372

 
69,517

 
QTS Realty Trust, Inc.
 
5.7


 
2.6

 
46,899

 
178,720

 
Rayonier, Inc.
 
1.4


 
4.9

 
199,709

 
408,129

 
Realty Income Corporation
 
13.8


 
25.7

 

35

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Shares
 
Issuer
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
(Unaudited)
 
 
 
207,335

 
210,244

 
Regency Centers Corporation
 
$
13.8


 
$
12.3

 
41,085

 
155,276

 
Retail Opportunity Investment
 
0.7


 
2.5

 
77,147

 
298,353

 
Retail Properties of America
 
0.9


 
3.2

 
5,614

 
21,416

 
Retail Value, Inc.
 
0.2


 
0.6

 
439,469

 
126,860

 
Rexford Industrial Realty Inc.
 
17.7


 
3.7

 
62,049

 
239,679

 
RLJ Lodging Trust
 
1.1


 
3.9

 
29,013

 
113,496

 
RPT Realty
 
0.4


 
1.4

 
16,537

 
61,126

 
Ryman Hospitality Properties
 
1.3


 
4.1

 
65,066

 
244,568

 
Sabra Health Care REIT Inc.
 
1.3


 
4.0

 
2,682

 

 
Safe Hold, Inc.
 
0.1

(7) 
 

 

 
10,996

 
Safety Income and Growth, Inc
 


 
0.2

 
4,314

 
16,999

 
Saul Centers, Inc.
 
0.2


 
0.9

 
79,153

 
154,833

 
SBA Communications Corporation
 
17.8


 
25.1

 

 
121,549

 
Select Income Real Estate Investment Trust
 


 
0.9

 
86,510

 
326,164

 
Senior Housing Properties Trust
 
0.7


 
3.8

 
221,142

 
426,117

 
Simon Property Group, Inc.
 
35.3


 
71.6

 
50,598

 
209,816

 
Site Centers Corporation
 
0.7


 
2.3

 
107,865

 
113,961

 
SL Green Realty Corp.
 
8.7


 
9.0

 
15,739

 
59,766

 
Spirit MTA REIT
 
0.1


 
0.4

 
31,478

 
117,972

 
Spirit Realty Capital Inc.
 
1.3


 
4.3

 
45,581

 
135,097

 
Stag Industrial, Inc.
 
1.4


 
3.4

 
40,000

 

 
Starwood Property Trust, Inc.
 
3.0


 

 
75,048

 
264,895

 
STORE Capital Corporation
 
2.5


 
7.5

 
37,819

 
141,848

 
Summit Hotel Properties, Inc.
 
0.4


 
1.4

 
137,537

 
116,162

 
Sun Communities, Inc.
 
17.6


 
11.8

 
424,419

 
313,714

 
Sunstone Hotel Investors, L.L.C.
 
5.8


 
4.1

 
33,608

 
126,963

 
Tanger Factory Outlet Centers, Inc.
 
0.5

(7) 
 
2.6

 
42,709

 
81,759

 
Taubman Centers, Inc.
 
1.7


 
3.8

 
137,877

 
80,363

 
Terreno Realty Corporation
 
6.7

 
 
2.8

 
51,167

 
188,118

 
The Macerich Company
 
1.7


 
8.1

 

 
73,743

 
Tier Inc.
 


 
1.5

 
101,167

 
366,433

 
UDR, Inc.
 
4.5


 
14.5

 
12,345

 
46,595

 
UMH Properties, Inc.
 
0.2


 
0.6

 
66,682

 
231,999

 
UNITI Group, Inc.
 
0.6


 
3.6

 
4,687

 
18,151

 
Universal Health Realty Income Trust
 
0.4


 
1.1

 
41,480

 
150,757

 
Urban Edge Properties
 
0.7


 
2.5

 
10,812

 
42,533

 
Urstadt Biddle Properties, Inc.
 
0.2


 
0.9

 
40,000

 

 
Vanguard Real Estate ETF
 
3.5


 

 
236,790

 
491,993

 
Ventas, Inc.
 
16.1


 
28.8

 
352,927

 
1,342,240

 
VEREIT, Inc.
 
3.2


 
9.6

 
402,108

 
554,541

 
Vici Properties, Inc.
 
8.9


 
10.4

 
62,630

 
238,674

 
Vornado Realty Trust
 
4.0


 
14.8

 
68,357

 
257,311

 
Washington Prime Group, Inc.
 
0.3

(7) 
 
1.3

 
29,264

 
110,436

 
Washington Real Estate Investment Trust
 
0.8


 
2.5

 
43,931

 
165,849

 
Weingarten Realty Investors
 
1.2


 
4.1

 
262,434

 
514,421

 
Welltower Inc.
 
21.4


 
35.7

 

36

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Shares
 
Issuer
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
(Unaudited)
 
 
 
545,037

 
1,035,575

 
Weyerhaeuser Company
 
$
14.4


 
$
22.6

 
13,958

 
54,425

 
Whitestone Real Estate Investment Trust B
 
0.2


 
0.7

 
61,258

 
219,891

 
WP Carey Inc.
 
5.0


 
14.4

 
41,209

 
154,344

 
Xenia Hotels & Resorts, Inc.
 
0.9


 
2.7

 
TOTAL REAL ESTATE-RELATED MARKETABLE SECURITIES
(Cost $719.7 and $1,274.7)
 
$
847.2

 
 
$
1,415.1

 
OTHER MARKETABLE SECURITIES—14.2% and 14.4%
GOVERNMENT AGENCY NOTES—7.6% and 7.2%
Principal
 
Issuer
 
Yield(4)
 
Maturity
Date
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
 
 
$

 
$
20.0

 
Fannie Mae Discount Notes
 
2.270%
 
1/9/2019
 
$

 
$
20.0


 
3.6

 
Fannie Mae Discount Notes
 
2.350%
 
2/6/2019
 

 
3.5


 
22.6

 
Fannie Mae Discount Notes
 
2.390%
 
2/13/2019
 

 
22.5


 
17.6

 
Fannie Mae Discount Notes
 
2.350%
 
3/1/2019
 

 
17.5

50.0

 

 
Fannie Mae Discount Notes
 
2.330%
 
8/14/2019
 
49.9

 


 
6.0

 
Farmer Mac Discount Notes
 
2.440%
 
3/15/2019
 

 
6.0


 
9.1

 
Federal Farm Credit Bank Discount Notes
 
2.380%
 
3/18/2019
 

 
9.0


 
18.0

 
Federal Farm Credit Bank Discount Notes
 
2.490%
 
5/2/2019
 

 
17.9


 
20.0

 
Federal Farm Credit Bank Discount Notes
 
2.540%
 
5/23/2019
 

 
19.8

10.0

 

 
Federal Farm Credit Bank Discount Notes
 
2.300%
 
8/14/2019
 
10.0

 


 
33.0

 
Federal Home Loan Bank Discount Notes
 
2.167%-2.195%
 
1/11/2019
 

 
33.0


 
37.6

 
Federal Home Loan Bank Discount Notes
 
2.220%
 
1/14/2019
 

 
37.6


 
36.2

 
Federal Home Loan Bank Discount Notes
 
2.220%
 
1/15/2019
 

 
36.2


 
35.0

 
Federal Home Loan Bank Discount Notes
 
2.220%
 
1/16/2019
 

 
35.0


 
40.9

 
Federal Home Loan Bank Discount Notes
 
2.189%-2.197%
 
1/18/2019
 

 
40.9


 
29.5

 
Federal Home Loan Bank Discount Notes
 
2.190%
 
1/23/2019
 

 
29.5


 
25.6

 
Federal Home Loan Bank Discount Notes
 
2.330%
 
1/28/2019
 

 
25.6


 
12.0

 
Federal Home Loan Bank Discount Notes
 
2.250%
 
1/29/2019
 

 
12.0


 
40.0

 
Federal Home Loan Bank Discount Notes
 
2.260%-2.265%
 
1/30/2019
 

 
39.9


 
14.3

 
Federal Home Loan Bank Discount Notes
 
2.290%
 
2/8/2019
 

 
14.3


 
30.0

 
Federal Home Loan Bank Discount Notes
 
2.300%-2.319%
 
2/11/2019
 

 
29.9


 
24.7

 
Federal Home Loan Bank Discount Notes
 
2.340%
 
2/15/2019
 

 
24.6


 
35.0

 
Federal Home Loan Bank Discount Notes
 
2.331%-2.353%
 
2/19/2019
 

 
34.9


 
36.8

 
Federal Home Loan Bank Discount Notes
 
2.235%-2.353%
 
2/20/2019
 

 
36.6


 
45.0

 
Federal Home Loan Bank Discount Notes
 
2.294%-2.314%
 
2/22/2019
 

 
44.8


 
14.1

 
Federal Home Loan Bank Discount Notes
 
2.330%
 
2/25/2019
 

 
14.0


 
40.0

 
Federal Home Loan Bank Discount Notes
 
2.330%
 
2/26/2019
 

 
39.9


 
21.5

 
Federal Home Loan Bank Discount Notes
 
2.330%
 
2/27/2019
 

 
21.4


 
26.4

 
Federal Home Loan Bank Discount Notes
 
2.310%
 
3/1/2019
 

 
26.3


 
31.5

 
Federal Home Loan Bank Discount Notes
 
2.316%-2.355%
 
3/6/2019
 

 
31.4


 
40.0

 
Federal Home Loan Bank Discount Notes
 
2.370%
 
3/8/2019
 

 
39.8


 
37.3

 
Federal Home Loan Bank Discount Notes
 
2.432%-2.437%
 
3/11/2019
 

 
37.2


 
40.0

 
Federal Home Loan Bank Discount Notes
 
2.420%
 
3/12/2019
 

 
39.8


 
40.0

 
Federal Home Loan Bank Discount Notes
 
2.400%
 
3/13/2019
 

 
39.8


 
10.0

 
Federal Home Loan Bank Discount Notes
 
2.360%
 
3/15/2019
 

 
10.0


 
30.0

 
Federal Home Loan Bank Discount Notes
 
2.360%
 
3/19/2019
 

 
29.8


37

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Principal
 
Issuer
 
Yield(4)
 
Maturity
Date
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
 
 
$

 
$
12.0

 
Federal Home Loan Bank Discount Notes
 
2.430%
 
3/21/2019
 
$

 
$
11.9


 
22.4

 
Federal Home Loan Bank Discount Notes
 
2.410%
 
3/26/2019
 

 
22.2


 
25.3

 
Federal Home Loan Bank Discount Notes
 
2.370%
 
3/27/2019
 

 
25.1


 
40.0

 
Federal Home Loan Bank Discount Notes
 
2.460%
 
4/5/2019
 

 
39.7


 
40.0

 
Federal Home Loan Bank Discount Notes
 
2.470%
 
4/8/2019
 

 
39.7


 
50.0

 
Federal Home Loan Bank Discount Notes
 
2.440%
 
4/10/2019
 

 
49.7


 
24.1

 
Federal Home Loan Bank Discount Notes
 
2.440%
 
4/12/2019
 

 
23.9


 
14.1

 
Federal Home Loan Bank Discount Notes
 
2.440%-2.500%
 
4/24/2019
 

 
14.0


 
10.6

 
Federal Home Loan Bank Discount Notes
 
2.450%-2.500%
 
4/26/2019
 

 
10.5


 
87.0

 
Federal Home Loan Bank Discount Notes
 
2.470%-2.510%
 
4/29/2019
 

 
86.3


 
24.0

 
Federal Home Loan Bank Discount Notes
 
2.470%-2.510%
 
5/3/2019
 

 
23.8


 
18.5

 
Federal Home Loan Bank Discount Notes
 
2.440%-2.550%
 
5/15/2019
 

 
18.3


 
40.5

 
Federal Home Loan Bank Discount Notes
 
2.520%
 
5/17/2019
 

 
40.1


 
30.0

 
Federal Home Loan Bank Discount Notes
 
2.530%
 
5/22/2019
 

 
29.7

113.4

 

 
Federal Home Loan Bank Discount Notes
 
2.439%-2.467%
 
7/1/2019
 
113.4

 

50.0

 

 
Federal Home Loan Bank Discount Notes
 
2.430%
 
7/2/2019
 
50.0

 

35.3

 

 
Federal Home Loan Bank Discount Notes
 
2.370%
 
7/3/2019
 
35.3

 

50.0

 

 
Federal Home Loan Bank Discount Notes
 
2.420%
 
7/9/2019
 
50.0

 

47.1

 

 
Federal Home Loan Bank Discount Notes
 
2.433%-2.443%
 
7/10/2019
 
47.0

 

50.0

 

 
Federal Home Loan Bank Discount Notes
 
2.430%
 
7/16/2019
 
50.0

 

100.0

 

 
Federal Home Loan Bank Discount Notes
 
2.255%
 
7/17/2019
 
99.9

 

117.6

 

 
Federal Home Loan Bank Discount Notes
 
2.246%-2.384%
 
7/19/2019
 
117.4

 

50.0

 

 
Federal Home Loan Bank Discount Notes
 
2.436%
 
7/22/2019
 
50.0

 

88.4

 

 
Federal Home Loan Bank Discount Notes
 
2.235%-2.403%
 
7/24/2019
 
88.2

 

127.9

 

 
Federal Home Loan Bank Discount Notes
 
2.215%-2.288%
 
7/26/2019
 
127.7

 

30.2

 

 
Federal Home Loan Bank Discount Notes
 
2.260%
 
7/29/2019
 
30.1

 

45.0

 

 
Federal Home Loan Bank Discount Notes
 
2.230%
 
7/30/2019
 
44.9

 

96.0

 

 
Federal Home Loan Bank Discount Notes
 
2.249%
 
7/31/2019
 
95.8

 

100.0

 

 
Federal Home Loan Bank Discount Notes
 
2.206%
 
8/2/2019
 
99.8

 

35.8

 

 
Federal Home Loan Bank Discount Notes
 
2.350%
 
8/5/2019
 
35.7

 

100.0

 

 
Federal Home Loan Bank Discount Notes
 
2.341%
 
8/6/2019
 
99.8

 

50.0

 

 
Federal Home Loan Bank Discount Notes
 
2.260%
 
8/9/2019
 
49.9

 

124.0

 

 
Federal Home Loan Bank Discount Notes
 
2.237%-2.259%
 
8/14/2019
 
123.7

 

183.4

 

 
Federal Home Loan Bank Discount Notes
 
2.238%-2.412%
 
8/16/2019
 
182.9

 

168.7

 

 
Federal Home Loan Bank Discount Notes
 
2.238%-2.343%
 
8/19/2019
 
168.2

 

10.8

 

 
Federal Home Loan Bank Discount Notes
 
2.400%
 
8/21/2019
 
10.7

 

74.1

 

 
Federal Home Loan Bank Discount Notes
 
2.365%-2.386%
 
8/23/2019
 
73.9

 

50.0

 

 
Federal Home Loan Bank Discount Notes
 
2.240%
 
8/26/2019
 
49.8

 

0.9

 

 
Federal Home Loan Bank Discount Notes
 
2.240%
 
8/27/2019
 
0.9

 

50.0

 

 
Federal Home Loan Bank Discount Notes
 
2.240%
 
8/28/2019
 
49.8

 

50.0

 

 
Federal Home Loan Bank Discount Notes
 
2.240%
 
8/29/2019
 
49.8

 

93.3

 

 
Federal Home Loan Bank Discount Notes
 
2.189%-2.257%
 
8/30/2019
 
93.0

 

53.5

 

 
Federal Home Loan Bank Discount Notes
 
2.253%
 
9/13/2019
 
53.3

 


 
25.0

 
Freddie Mac Discount Notes
 
2.130%
 
1/2/2019
 

 
25.0


 
32.4

 
Freddie Mac Discount Notes
 
2.146%-2.174%
 
1/4/2019
 

 
32.4


 
35.1

 
Freddie Mac Discount Notes
 
2.146%-2.175%
 
1/7/2019
 

 
35.1


 
35.0

 
Freddie Mac Discount Notes
 
2.130%
 
1/8/2019
 

 
35.0


 
40.0

 
Freddie Mac Discount Notes
 
2.130%
 
1/9/2019
 

 
40.0


38

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Principal
 
Issuer
 
Yield(4)
 
Maturity
Date
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
 
 
$

 
$
36.1

 
Freddie Mac Discount Notes
 
2.179%-2.217%
 
1/22/2019
 
$

 
$
36.1


 
40.0

 
Freddie Mac Discount Notes
 
2.190%
 
1/25/2019
 

 
39.9


 
16.0

 
Freddie Mac Discount Notes
 
2.200%
 
1/28/2019
 

 
15.9


 
15.0

 
Freddie Mac Discount Notes
 
2.200%
 
1/29/2019
 

 
15.0


 
39.9

 
Freddie Mac Discount Notes
 
2.190%
 
2/1/2019
 

 
39.8


 
25.9

 
Freddie Mac Discount Notes
 
2.240%
 
2/4/2019
 

 
25.8


 
35.0

 
Freddie Mac Discount Notes
 
2.240%
 
2/5/2019
 

 
34.9


 
30.0

 
Freddie Mac Discount Notes
 
2.240%
 
2/6/2019
 

 
29.9


 
39.3

 
Freddie Mac Discount Notes
 
2.300%
 
2/12/2019
 

 
39.1


 
15.0

 
Freddie Mac Discount Notes
 
2.250%
 
2/20/2019
 

 
15.0


 
21.3

 
Freddie Mac Discount Notes
 
2.290%
 
3/4/2019
 

 
21.3


 
17.1

 
Freddie Mac Discount Notes
 
2.330%
 
3/5/2019
 

 
17.1


 
23.8

 
Freddie Mac Discount Notes
 
2.380%
 
3/20/2019
 

 
23.6


 
19.5

 
Freddie Mac Discount Notes
 
2.390%
 
3/22/2019
 

 
19.4


 
25.9

 
Freddie Mac Discount Notes
 
2.380%
 
3/25/2019
 

 
25.8


 
30.0

 
Freddie Mac Discount Notes
 
2.410%
 
4/1/2019
 

 
29.8


 
16.1

 
Freddie Mac Discount Notes
 
2.380%-2.430%
 
4/2/2019
 

 
16.0


 
20.1

 
Freddie Mac Discount Notes
 
2.430%
 
4/3/2019
 

 
20.0


 
40.0

 
Freddie Mac Discount Notes
 
2.460%
 
4/17/2019
 

 
39.7


 
24.1

 
Freddie Mac Discount Notes
 
2.520%
 
5/20/2019
 

 
23.8

50.0

 

 
Freddie Mac Discount Notes
 
2.420%
 
7/3/2019
 
50.0

 

TOTAL GOVERNMENT AGENCY NOTES
(Cost $2,250.7 and $2,050.8)
 
$
2,250.8

 
$
2,050.7

UNITED STATES TREASURY SECURITIES—6.6% and 7.2%
Principal
 
Issuer
 
Yield(4)
 
Maturity
Date
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
 
 
$

 
$
33.8

 
United States Treasury Bills
 
2.147%-2.334%
 
 
1/3/2019
 
$

 
$
33.8


 
50.0

 
United States Treasury Bills
 
2.330%
 
 
1/8/2019
 

 
50.0


 
189.9

 
United States Treasury Bills
 
2.162%-2.321%
 
 
1/10/2019
 

 
189.8


 
82.1

 
United States Treasury Bills
 
2.279%-2.316%
 
 
1/15/2019
 

 
82.0


 
150.1

 
United States Treasury Bills
 
2.204%-2.315%
 
 
1/17/2019
 

 
149.9


 
153.0

 
United States Treasury Bills
 
2.226%-2.332%
 
 
1/24/2019
 

 
152.8


 
50.0

 
United States Treasury Bills
 
2.370%
 
 
1/29/2019
 

 
49.9


 
67.3

 
United States Treasury Bills
 
2.235%-2.405%
 
 
1/31/2019
 

 
67.2


 
100.0

 
United States Treasury Bills
 
2.254%
 
 
2/7/2019
 

 
99.8


 
61.9

 
United States Treasury Bills
 
2.391%-2.401%
 
 
2/12/2019
 

 
61.7


 
108.0

 
United States Treasury Bills
 
2.253%-2.334%
 
 
2/14/2019
 

 
107.7


 
20.0

 
United States Treasury Bills
 
2.410%
 
 
2/19/2019
 

 
19.9


 
84.4

 
United States Treasury Bills
 
2.276%-2.277%
 
 
2/21/2019
 

 
84.1


 
18.0

 
United States Treasury Bills
 
2.440%
 
 
2/26/2019
 

 
17.9


 
31.8

 
United States Treasury Bills
 
2.298%-2.331%
 
 
2/28/2019
 

 
31.7


 
73.7

 
United States Treasury Bills
 
2.309%-2.379%
 
 
3/7/2019
 

 
73.4


 
130.0

 
United States Treasury Bills
 
2.339%-2.372%
 
 
3/14/2019
 

 
129.4


 
50.0

 
United States Treasury Bills
 
2.340%
 
 
3/21/2019
 

 
49.7


 
100.0

 
United States Treasury Bills
 
2.415%
 
 
3/28/2019
 

 
99.4


39

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


Principal
 
Issuer
 
Yield(4)
 
Maturity
Date
 
Fair Value at
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
 
 
$

 
$
89.9

 
United States Treasury Bills
 
2.360%-2.450%
 
 
4/4/2019
 
$

 
$
89.3


 
99.5

 
United States Treasury Bills
 
2.420%-2.460%
 
 
4/11/2019
 

 
98.8


 
110.3

 
United States Treasury Bills
 
2.460%-2.470%
 
 
4/18/2019
 

 
109.5


 
57.1

 
United States Treasury Bills
 
2.390%-2.490%
 
 
4/25/2019
 

 
56.7


 
33.7

 
United States Treasury Bills
 
2.470%
 
 
5/2/2019
 

 
33.4


 
38.4

 
United States Treasury Bills
 
2.430%-2.500%
 
 
5/9/2019
 

 
38.1


 
62.7

 
United States Treasury Bills
 
2.430%-2.510%
 
 
5/16/2019
 

 
62.1

100.0

 

 
United States Treasury Bills
 
2.425%-2.428%
 
 
7/2/2019
 
100.0

 

20.0

 

 
United States Treasury Bills
 
2.400%
 
 
7/5/2019
 
20.0

 

100.0

 

 
United States Treasury Bills
 
2.403%
 
 
7/9/2019
 
100.0

 

147.7

 

 
United States Treasury Bills
 
2.403%-2.416%
 
 
7/11/2019
 
147.5

 

50.0

 

 
United States Treasury Bills
 
2.330%
 
 
7/16/2019
 
50.0

 

108.2

 

 
United States Treasury Bills
 
2.389%-2.405%
 
 
7/18/2019
 
108.1

 

50.0

 

 
United States Treasury Bills
 
2.360%
 
 
7/23/2019
 
49.9

 

163.3

 

 
United States Treasury Bills
 
2.386%-2.396%
 
 
7/25/2019
 
163.0

 

60.1

 

 
United States Treasury Bills
 
2.314%
 
 
7/30/2019
 
60.0

 

206.7

 

 
United States Treasury Bills
 
2.279%-2.396%
 
 
8/1/2019
 
206.3

 

35.3

 

 
United States Treasury Bills
 
2.270%
 
 
8/8/2019
 
35.2

 

177.0

 

 
United States Treasury Bills
 
2.110%-2.219%
 
 
8/13/2019
 
176.6

 

45.0

 

 
United States Treasury Bills
 
2.330%
 
 
8/15/2019
 
44.9

 

175.5

 

 
United States Treasury Bills
 
2.100%-2.351%
 
 
8/22/2019
 
175.0

 

152.5

 

 
United States Treasury Bills
 
2.137%-2.343%
 
 
8/29/2019
 
152.0

 

104.6

 

 
United States Treasury Bills
 
2.323%-2.327%
 
 
9/5/2019
 
104.2

 

21.3

 

 
United States Treasury Bills
 
2.480%
 
 
10/10/2019
 
21.2

 

116.8

 

 
United States Treasury Bills
 
2.508%-2.513%
 
 
11/7/2019
 
115.9

 

19.8

 

 
United States Treasury Bills
 
2.390%
 
 
11/14/2019
 
19.6

 

100.0

 

 
United States Treasury Bills
 
2.391%
 
 
11/21/2019
 
99.2

 

TOTAL UNITED STATES TREASURY SECURITIES
(Cost $1,948.0 and $2,038.1)
 
$
1,948.6

 
$
2,038.0

TOTAL OTHER MARKETABLE SECURITIES
(Cost $4,198.7 and $4,088.9)
 
$
4,199.4

 
$
4,088.7

TOTAL MARKETABLE SECURITIES
(Cost $4,918.4 and $5,363.6)
 
 
 
$
5,046.6

 
$
5,503.8



















40

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED SCHEDULES OF INVESTMENTS
(Dollar values shown in millions)


LOANS RECEIVABLE—3.7% and 3.2%
 
 
Borrower
 
Interest Rate(6)
 
 
Maturity Date
 
Fair Value at
Principal
 
 
 
 
 
June 30, 2019
 
December 31, 2018
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)

 
 
6.3

 
6.3

 
DJM Capital Partners Mezzanine
 
5.00%
 
 
7/12/2019
 
$
6.3

 
$
6.3

86.9

 
83.2

 
311 South Wacker Mezzanine
 
4.70% + LIBOR
 
 
6/7/2020
 
86.4

 
83.2

95.2

 
95.2

 
Blackstone RioCan Retail Portfolio Mezzanine
 
4.65% + LIBOR
 
 
6/9/2020
 
95.2

 
95.3

60.0

 
60.0

 
River North Point Junior Mezzanine
 
4.30% + LIBOR
 
 
7/9/2020
 
60.0

 
60.0

152.3

 
176.4

 
Project Glacier Mezzanine
 
4.40% + LIBOR
 
 
11/9/2020
 
152.3

 
176.4

53.5

 

 
SCG Oakland Portfolio
 
4.25% + LIBOR
 
 
3/1/2021
 
53.5

 

20.0

 
20.0

 
Crest at Las Colinas Station Mezzanine
 
5.11% + LIBOR
 
 
5/10/2021
 
20.0

 
20.0

125.0

 
125.0

 
State Street Financial Center Mezzanine
 
6.50%
 
 
11/10/2021
 
123.7

 
125.3

20.0

 
20.0

 
Modera Observatory Park Mezzanine
 
4.34% + LIBOR
 
 
6/10/2022
 
20.0

 
20.0

20.3

 
19.7

 
Rosemont Towson Mezzanine
 
4.15% + LIBOR
 
 
9/9/2022
 
20.3

 
19.7

26.9

 
26.7

 
1330 Broadway Mezzanine
 
5.01% + LIBOR
 
 
8/10/2023
 
26.9

 
26.8

82.0

 
63.0

 
Great Value Storage Portfolio Mezzanine
 
7.875%
 
 
12/6/2023
 
82.4

 
63.2

85.0

 

 
Park Avenue Tower Mezzanine
 
4.35% + LIBOR
 
 
3/9/2024
 
85.0

 

57.2

 

 
BREP VIII Industrial Loan Facility Mezzanine
 
5.00% + LIBOR
 
 
3/9/2026
 
57.2

 

20.0

 
20.0

 
Aspen Lake Office Portfolio Mezzanine
 
8.25%
 
 
3/10/2028
 
20.2

 
20.2

95.0

 
95.0

 
Merritt on the River Office Portfolio Mezzanine
 
8.00%
 
 
8/1/2028
 
95.7

 
95.7

100.0

 
100.0

 
Charles River Plaza North Mezzanine
 
6.08%
 
 
4/6/2029
 
100.0

 
100.9

TOTAL LOANS RECEIVABLE
(Cost $1,105.5 and $910.6)
 
 
 
$
1,105.1

 
$
913.0

TOTAL INVESTMENTS
(Cost $24,997.0 and $24,169.8)
 
 
 
$
29,542.8

 
$
28,480.4

(1) 
The investment has a mortgage loan payable outstanding, as indicated in Note 9 - Mortgage Loans Payable.
(2) 
The fair value reflects the Account’s interest in the joint venture and is net of debt.
(3) 
Properties within this investment are located throughout the United States.
(4) 
Yield represents the annualized yield.
(5) 
A portion of this investment consists of land currently under development.
(6) 
Fixed interest rate loans are represented with a single rate. Variable interest rate loans are presented with their base spread and the corresponding index rate. All variable interest loans currently held by the Account use the one month London Interbank Offered Rate ("LIBOR") rate on U.S. dollar deposits as the index rate, as published by ICE Benchmark Administration Limited.
(7) 
All or a portion of these securities are out on loan. The aggregate value of securities on loan at June 30, 2019 and December 31, 2018 were $6.9 million and $67.4 million, respectively.





41


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Account’s financial condition and results of operations should be read together with the Consolidated Financial Statements and notes contained in this report and with consideration to the sub-section entitled “Forward-Looking Statements,” which begins below, and the section of the Account’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”) entitled “Item 1A. Risk Factors.” The past performance of the Account is not indicative of future results.
Forward-looking Statements
Some statements in this Form 10-Q which are not historical facts may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about management’s expectations, beliefs, intentions or strategies for the future, include the assumptions and beliefs underlying these forward-looking statements, and are based on current expectations, estimates and projections about the real estate industry, domestic and global economic conditions, including conditions in the credit and capital markets, the sectors, and markets in which the Account invests and operates, and the transactions described in this Form 10-Q. While management believes the assumptions underlying any of its forward-looking statements and information to be reasonable, such information may be subject to uncertainties and may involve certain risks which may be difficult to predict and are beyond management’s control. These risks and uncertainties could cause actual results to differ materially from those contained in any forward-looking statement. These risks and uncertainties include, but are not limited to, the risks associated with the following:
Acquiring and Owning Real Estate: The risks associated with acquiring and owning real property, including general economic and real estate market conditions, the availability of, and economic cost associated with, financing the Account’s properties, the risk that the Account’s properties become too concentrated (whether by geography, sector or by tenant mix), competition for acquiring real estate properties, leasing risk (including tenant defaults) and the risk of uninsured losses at properties (including due to terrorism, natural disasters, and acts of violence);
Selling Real Estate: The risk that the sales price of a property may differ, perhaps significantly, from its estimated or appraised value, leading to losses or reduced profits to the Account, the risk that the Account might not be able to sell a property at a particular time for a price which management believes represents its fair or full value, the risk of a lack of availability of financing (for potential purchasers of the Account’s properties), risks associated with disruptions in the credit and capital markets, and the risk that the Account may be required to make significant expenditures before the Account is able to market and/or sell a property;
Valuation: The risks associated with property valuations, including the fact that appraisals can be subjective in a number of respects and the fact that the Account’s appraisals are generally obtained on a quarterly basis and there may be periods between appraisals of a property during which the value attributed to the property for purposes of the Account’s daily accumulation unit value may be more or less than the actual realizable value of the property;
Borrowing: Risks associated with financing the Account’s properties, including the risk of default on loans secured by the Account’s properties (which could lead to foreclosure), the risk associated with high loan to value ratios on the Account’s properties (including the fact that the Account may have limited, or no net value in such a property), the risk that significant sums of cash could be required to make principal and interest payments on the loans and the risk that the Account may not have the ability to obtain financing or refinancing on favorable terms (or at all), which may be aggravated by general disruptions in credit and capital markets;
Participant Transactions and Cash Management: Investment risk associated with participant transactions, in particular that (i) significant net participant transfers out of the Account may impair our ability to pursue or consummate new investment opportunities that are otherwise attractive to the Account and/ or may result in sales of real estate-related assets to generate liquidity, (ii) significant net participant transfers into the Account may result, on a temporary basis, in our cash holdings and/ or holdings in liquid real estate-related investments exceeding our long-term targeted holding levels and (iii) high levels of cash and liquid non-real estate-related

42


investments in the Account during times of appreciating real estate values can impair the Account’s overall return;
Joint Venture Investments: The risks associated with joint ventures organized as limited partnerships or limited liability companies, as applicable, including the risk that a co-venturer may have interests or goals inconsistent with those of the Account, that a co-venturer may have financial difficulties, and the risk that the Account may have limited rights with respect to operation of the property and transfer of the Account’s interest;
Regulatory Matters: Uncertainties associated with environmental liability and regulations and other governmental regulatory matters such as zoning laws, rent control laws, and property taxes;
Foreign Investments: The risks associated with purchasing, owning and disposing foreign investments (primarily foreign real estate properties, foreign real estate loans, and foreign mezzanine and other debt), including political risk, the risk associated with foreign currency fluctuations (whether hedged or not), regulatory and taxation risks and risks of enforcing judgments;
Conflicts of Interest: Conflicts of interest associated with TIAA serving as investment manager of the Account and provider of the liquidity guarantee at the same time as TIAA and its affiliates are serving as an investment manager to other real estate accounts or funds, including conflicts associated with satisfying its fiduciary duties to all such accounts and funds associated with purchasing, selling and leasing of properties;
Required Property Sales: The risk that, if TIAA were to own too large a percentage of the Account’s accumulation units through funding the liquidity guarantee (as determined by the independent fiduciary), the independent fiduciary could require the sales of properties to reduce TIAA’s ownership interest, which sales could occur at times and at prices that depress the sale proceeds to the Account;
Government and Government Agency Securities: Risks associated with investment securities issued by U.S. government agencies and U.S. government-sponsored entities, including the risk that the issuer may not have their securities backed by the full faith and credit of the U.S. government, and that transaction activity may fluctuate significantly from time to time, which could negatively impact the value of the securities and the Account’s ability to dispose of a security at a favorable time; and
Liquid Assets and Securities: Risks associated with investments in real estate-related liquid assets (which could include, from time to time, registered or unregistered real estate investment trust (“REIT”) securities and commercial mortgage-backed securities (“CMBS”)), and non-real estate-related liquid assets, including:
Financial/credit risk—Risks that the issuer will not be able to pay principal and interest when due or that the issuer’s earnings will fall;
Market volatility risk—Risk that the changing conditions in financial markets may cause the Account’s investments to experience price volatility;
Interest rate volatility risk—Risk that interest rate volatility may affect the Account’s current income from an investment or the pricing of that investment. In general, changing interest rates could have unpredictable effects on the markets and may expose markets to heightened volatility; and
Deposit/money market risk—Risks that the Account could experience losses if banks fail.
More detailed discussions of certain of these risk factors are contained in the section of the Form 10-K entitled “Item 1A. Risk Factors” and in this section below and also in the section below entitled “Quantitative and Qualitative Disclosures About Market Risk.” These risks could cause actual results to differ materially from historical experience or management’s present expectations.
Caution should be taken not to place undue reliance on management’s forward-looking statements, which represent management’s views only as of the date that this report is filed. Neither management nor the Account undertake any obligation to update publicly or revise any forward-looking statement, whether as a result of new information, changed assumptions, future events or otherwise.
Commercial real estate market statistics discussed in this section are obtained by the Account from sources that management considers reliable, but some of the data are preliminary for the period ended June 30, 2019 and may be subsequently revised. Prior period data may have been adjusted to reflect updated calculations. Investors should not rely exclusively on the data presented below in forming a judgment regarding the current or prospective performance of the commercial real estate market generally.

43


ABOUT THE TIAA REAL ESTATE ACCOUNT
The Account was established in February 1995 as an insurance separate account of TIAA and interests in the Account were first offered to eligible participants on October 2, 1995. The Account offers individual and group accumulating annuity contracts (with contributions made on a pre-tax or after-tax basis), as well as individual lifetime and term-certain variable payout annuity contracts (including the payment of death benefits to beneficiaries). Investors are entitled to transfer funds to or from the Account under certain circumstances. Funds invested in the Account for each category of contract are expressed in terms of units, and unit values will fluctuate depending on the Account’s performance.
Investment Objective and Strategy
The Account seeks to generate favorable total returns primarily through the rental income and appreciation of a diversified portfolio of directly held, private real estate investments and real estate-related investments while offering investors guaranteed, daily liquidity.
Real Estate-Related Investments. The Account intends to have between 75% and 85% of its net assets invested directly in real estate or real estate-related investments with the goal of producing favorable long-term returns primarily through rental income and appreciation. These investments may consist of:
Direct ownership interests in real estate;
Direct ownership of real estate through interests in joint ventures; or
Indirect interests in real estate through real estate-related securities, such as:
public and/or privately placed registered and unregistered equity investments in REITs, which investments may consist of common or preferred stock interests;
real estate limited partnerships and limited liability companies;
investments in equity or debt securities of companies whose operations involve real estate (i.e., that primarily own or manage real estate) which may not be REITs; and
conventional commercial mortgage loans, participating mortgage loans, secured domestic and foreign (including U.K.) mezzanine loans, subordinated loans and collateralized mortgage obligations, including commercial mortgage-backed securities ("CMBS") and other asset-backed securities.
The Account’s principal investment strategy is to purchase direct ownership interests in income-producing real estate, primarily office, industrial, retail and multi-family residential properties. The Account is targeted to hold between 65% and 85% of the Account’s net assets in such direct ownership interests.
In addition, while the Account is authorized to hold up to 25% of its net assets in liquid real estate-related securities, such as REITs and CMBS, management intends that the Account will not hold more than 10% of its net assets in such securities on a long-term basis. Traditionally, less than 10% of the Account’s net assets have been comprised of interests in these securities; although, the Account has held approximately 10% of its net assets in equity REIT securities at times. In addition, under the Account’s current investment guidelines, the Account is authorized to hold up to 10% of its net assets in CMBS. As of June 30, 2019, REIT securities comprised approximately 3.2% of the Account’s net assets, and the Account held no CMBS as of such date.
Non-Real Estate-Related Investments. The Account will invest the remaining portion of its assets (targeted to be between 15% and 25% of its net assets) in publicly traded, liquid investments; namely:
Short-term government-related instruments, including U.S. Treasury bills;
Long-term government-related instruments, such as securities issued by U.S. government agencies or U.S. government-sponsored entities;
Short-term non-government-related instruments, such as money market instruments and commercial paper;
Long-term non-government-related instruments, such as corporate debt securities; and
Stock of companies that do not primarily own or manage real estate.
However, from time to time, the Account’s non-real estate-related liquid investments may comprise less than 15% (and possibly less than 10%) of its assets (on a net basis and/or a gross basis), especially during and immediately following periods of significant net participant outflows, in particular due to significant participant transfer activity. In addition, the Account, from time to time and on a temporary basis, may hold in excess of 25% of its net assets in

44


non-real estate-related liquid investments, particularly during times of significant inflows into the Account and/or a lack of attractive real estate-related investments available in the market.
Liquid Securities Generally. Primarily due to management’s need to manage fluctuations in cash flows, in particular during and immediately following periods of significant participant net transfer activity into or out of the Account, the Account may, on a temporary basis (i) exceed the upper end of its targeted holdings (currently 35% of the Account’s net assets) in liquid securities of all types, including both publicly traded non-real estate-related liquid investments and liquid real estate-related securities, such as REITs and CMBS, or (ii) be below the low end of its targeted holdings in such liquid securities (currently 15% of the Account’s net assets).
The portion of the Account’s net assets invested in liquid investments of all types may exceed the upper end of its target, for example, if (i) the Account receives a large inflow of money in a short period of time, in particular due to significant participant transfer activity into the Account, (ii) the Account receives significant proceeds from sales or financings of direct real estate assets, (iii) there is a lack of attractive direct real estate investments available on the market, and/or (iv) the Account anticipates more near-term cash needs, including to apply to acquire direct real estate investments, pay expenses or repay indebtedness.
Foreign Investments. The Account from time to time will also make foreign real estate investments. Under the Account’s investment guidelines, investments in direct foreign real estate, together with foreign real estate-related securities and foreign non-real estate-related liquid investments, may not comprise more than 25% of the Account’s net assets. As of June 30, 2019, the Account did not hold any foreign real estate investments.
SECOND QUARTER 2019 U.S. ECONOMIC AND COMMERCIAL REAL ESTATE OVERVIEW
The Account invests primarily in high-quality, core real estate in order to meet its investment objective of obtaining favorable long-term returns through rental income and the appreciation of its real estate holdings.
Economic Overview and Outlook
Key Macro Economic Indicators
Actuals
 
Forecast
1Q19
 
2Q19
 
2019
 
2020
Economy(1)
 
 
 
 
 
 
 
Gross Domestic Product ("GDP")
3.1%
 
2.1%
 
2.5%
 
1.8%
Employment Growth (Thousands)
521
 
512
 
2,016
 
1,656
Unemployment Rate
3.8%
 
3.7%
 
3.7%
 
3.7%
Interest Rates(2)
 
 
 
 
 
 
 
10 Year Treasury
2.7%
 
2.3%
 
2.2%
 
2.3%
Sources: Blue Chip Economic Indicators, Blue Chip Financial Forecasts, BEA, Bureau of Labor Statistics, Federal Reserve and Moody’s Analytics
*
Data subject to revision
(1) 
GDP growth rates are annual rates. Quarterly unemployment rates are the reported value for the final month of the quarter while annual values represent a twelve-month average.
(2) 
Treasury rates are an average over the stated period.
According to the Bureau of Labor Statistics, the U.S. economy added 512,000 jobs during the second quarter of 2019, with an average of 171,000 jobs over the past three months, below the 12-month average of 192,000. In the near term, gains in employment, real disposable income, and households’ net worth continue to be supportive of solid personal consumption expenditures growth. Consumer and business confidence is high, the unemployment rate remains low, and job growth holds steady.

In June, the Federal Open Market Committee maintained the target range for the federal funds rate at 2.25%-2.50%. The Committee is closely monitoring inflation and incoming labor market data to understand the trajectory of the U.S. economy and has a primary objective of sustaining the current economic cycle.



45


Real Estate Market Conditions and Outlook
Commercial real estate conditions remained steady throughout the second quarter 2019. According to the Green Street Advisor Commercial Property Price Index (“CPPI”), property prices rose 0.2% during the second quarter and 1.8% on a year-over-year basis. According to preliminary estimates from Real Capital Analytics, sales of office, industrial, retail, and multi-family properties totaled $112.7 billion during second quarter 2019, a 5.5% increase from the same period one year earlier.
For the quarter ending June 30, 2019, the NCREIF Fund Index Open-End Diversified Core Equity (NFI-ODCE) Equal Weight total return, net of fees, decreased during the second quarter to 1.12%, from 1.48% in the first quarter. The Account's real estate assets generated a 1.66% total return during the second quarter. Total returns were positive for the 37th consecutive quarter.

chart-f26ad8496dce5d94ba6.jpg
Occupancy in the Account’s properties averaged 92.7% for the second quarter of 2019 as compared to 92.0% in the previous quarter. Data for the Account’s top five markets in terms of fair value as of June 30, 2019 are provided below. These five markets represent nearly half of the Account’s total real estate portfolio.
Top 5 Metro Areas by Fair Market Value
Account % Leased Fair Value Weighted*
Number of Property Investments
Metro Area Fair Value as a % of Total RE Portfolio**
Metro Area Fair Value as a % of Total Investments
New York-Jersey City-White Plains, NY-NJ
90.1%
14
10.4%
8.2%
Washington-Arlington-Alexandria, DC-VA-MD-WV
88.5%
13
10.4%
8.2%
Los Angeles-Long Beach-Glendale, CA
93.4%
15
9.2%
7.2%
San Francisco-Redwood City-South San Francisco, CA
93.5%
8
6.5%
5.1%
Boston, MA
92.4%
6
5.7%
4.5%
*
Weighted by fair value, which differs from the calculations provided for market comparisons to CBRE-EA data and are used here to reflect the fair value of the Account’s monetary investments in those markets.
**
Wholly-owned properties are represented at fair value and gross of any debt, while joint venture properties are represented at the net equity value.

46


Office
Leasing is historically driven by companies involved in the professional and business services sector, with technology-related companies included within this classification. The sector added 130,000 jobs during the second quarter of 2019, with the financial services sector contributing an additional 18,000 jobs. Driven by declining suburban vacancy rates, vacancy nationwide decreased from 12.5% in the first quarter of 2019 to 12.2% in the second quarter of 2019, as reported by CB Richard Ellis Econometric Advisors ("CBRE-EA"). Vacancies continue to trend lowest in cities with significant technology or research exposure (e.g., San Francisco, Seattle). The vacancy rate for the Account’s office portfolio decreased to 13.0% in the second quarter of 2019 as compared to 13.9% in the prior quarter, driven primarily by the lease-up of vacant space at the Account's largest office property in the Washington D.C. metro area. Vacancy within the Washington D.C. metro area is now in line with the market average. An above-average vacancy rate in the New York metro area is driven by two properties currently undergoing redevelopment to increase the long term value of the properties. The vacancy rate in the New York metro will remain elevated over the near term as legacy tenants fully vacate the properties and redevelopment efforts move forward.
 
 
 
 
 
 
Account Square
Foot Weighted
Average Vacancy
 
Market
Vacancy*
Top 5 Office Metropolitan Areas
 
Total Sector
by Metro Area
($M)
 
% of Total
Investments
 
2019 Q2
 
2019 Q1
 
2019 Q2
 
2019 Q1
Account / Nation
 
 
 
 
 
13.0
%
 
13.9
%
 
12.2
%
 
12.5
%
Washington-Arlington-Alexandria, DC-VA-MD-WV
 
$
1,480.2

 
5.0
%
 
14.7
%
 
19.3
%
 
14.2
%
 
14.6
%
San Francisco-Redwood City-South San Francisco, CA
 
1,294.2

 
4.4
%
 
4.3
%
 
3.2
%
 
5.1
%
 
5.2
%
Boston, MA
 
1,230.3

 
4.2
%
 
9.1
%
 
9.3
%
 
8.5
%
 
8.9
%
New York-Jersey City-White Plains, NY-NJ
 
1,204.9

 
4.1
%
 
25.3
%
 
24.7
%
 
9.0
%
 
9.2
%
Los Angeles-Long Beach-Glendale, CA
 
772.5

 
2.6
%
 
2.5
%
 
4.8
%
 
12.5
%
 
12.7
%
*
Source: CBRE-EA. Market vacancy is defined as the percentage of space vacant. The Account’s vacancy is defined as the square foot-weighted percentage of unleased space.
Industrial
Industrial market conditions are primarily influenced by GDP growth, international trade, and consumer spending, especially e-commerce sales. The national industrial availability rate increased for the first time after nearly nine years of consecutive declines, from 7.0% in the prior quarter to 7.1% in second quarter of 2019. Vacancy is expected to hover around current rates in the near term, as the gap between supply and demand is normalizing. The sector is in favorable health overall, as American consumer spending continues to show strength in the near term, GDP remains steady, and fears of an escalating trade war between the United States and China and other trade partners have receded to some degree. Trade protectionist measures, both enacted and threatened, remain a potential headwind to the sector's long term growth, but the overall fundamentals of the sector remain strong. The average vacancy rate of the Account’s industrial properties decreased to 4.9% in the second quarter of 2019 from 7.0% in the previous quarter, primarily driven by the inception of new leases at properties in the Fort Lauderdale metro area. Vacancy in the Fort Lauderdale metro area is now below the market average. Vacancy in the the Dallas and Los Angeles metro areas continued to improve as former tenants on month-to-month or similar short-term leases vacated the property and were replaced with leases of a longer duration at market rates.

47


 
 
 
 
 
 
Account Square
Foot Weighted
Average Vacancy
 
Market
Vacancy*
Top 5 Industrial Metropolitan Areas
 
Total Sector
by Metro Area
($M)
 
% of Total
Investments
 
2019 Q2
 
2019 Q1
 
2019 Q2
 
2019 Q1
Account / Nation
 
 
 
 
 
4.9
%
 
7.0
%
 
7.1
%
 
7.0
%
Riverside-San Bernardino-Ontario, CA
 
$
915.6

 
3.1
%
 
0.0
%
 
0.0
%
 
5.4
%
 
5.5
%
Tacoma-Lakewood, WA
 
375.6

 
1.3
%
 
1.4
%
 
2.0
%
 
5.8
%
 
5.5
%
Los Angeles-Long Beach-Glendale, CA
 
375.0

 
1.3
%
 
3.2
%
 
7.4
%
 
3.8
%
 
4.6
%
Dallas-Plano-Irving, TX
 
296.4

 
1.0
%
 
6.6
%
 
10.4
%
 
8.8
%
 
9.2
%
Fort Lauderdale-Pompano Beach-Deerfield Beach, FL
 
289.6

 
1.0
%
 
1.1
%
 
13.4
%
 
7.0
%
 
6.7
%
*
Source: CBRE-EA. Market availability is the percentage of space available for rent. Account vacancy is the square foot-weighted percentage of unleased space. CBRE-EA considers Tacoma part of the Seattle industrial market. Market vacancy rates reflect the Seattle-Tacoma total.
Multi-Family
Apartment demand is driven by a combination of economic and demographic forces including job growth, household formations, and changes in the U.S. homeownership rate. The national apartment vacancy rate decreased from 4.4% in the prior quarter to 4.1% in second quarter of 2019. Deliveries of new apartments continue to be absorbed well in most markets, and market rents have risen accordingly, especially among units priced for moderate incomes. However, market conditions in the sector are softening, and increased rent concessions are expected in the coming months. The vacancy rate of the Account’s apartment properties increased to 6.6% in the second quarter of 2019 as compared to 6.1% in the prior quarter. The increase was driven by renovations taking place at several properties, including some in the Los Angeles and Denver metro areas. The renovation efforts are expected to enhance the marketability and long-term value of the impacted properties.
 
 
 
 
 
 
Account Units Weighted
Average Vacancy
 
Market
Vacancy*
Top 5 Apartment Metropolitan Areas
 
Total Sector
by Metro Area
($M)
 
% of Total
Investments
 
2019 Q2
 
2019 Q1
 
2019 Q2
 
2019 Q1
Account / Nation
 
 
 
 
 
6.6
%
 
6.1
%
 
4.1
%
 
4.4
%
Washington-Arlington-Alexandria, DC-VA-MD-WV
 
$
772.1

 
2.6
%
 
7.0
%
 
6.3
%
 
4.2
%
 
4.3
%
Los Angeles-Long Beach-Glendale, CA
 
698.0

 
2.4
%
 
9.0
%
 
8.7
%
 
3.7
%
 
3.6
%
New York-Jersey City-White Plains, NY-NJ
 
523.9

 
1.8
%
 
4.1
%
 
2.3
%
 
3.3
%
 
3.3
%
Denver-Aurora-Lakewood, CO
 
411.9

 
1.4
%
 
9.4
%
 
8.9
%
 
4.8
%
 
5.3
%
San Diego-Carlsbad, CA
 
322.3

 
1.1
%
 
3.4
%
 
4.0
%
 
3.6
%
 
3.9
%
*
Source: CBRE-EA. Market vacancy is the percentage of units vacant. The Account’s vacancy is the percentage of unleased units.
Retail
Retail demand in the Account's portfolio is driven by U.S. consumers, whose willingness to spend directly correlates with retailers' need for domestic rental space. Preliminary data from the U.S. Census Bureau indicate that retail sales excluding motor vehicles and parts increased 1.7% in the second quarter of 2019 and 3.3% on a year-over-year basis. The retail leasing market is increasingly competitive, as the pool of retailers leasing space shrinks due to the long-term trend of consumers moving to digital platforms for retail spending instead of through traditional brick-and-mortar outlets. Retail properties that are older, located in suboptimal locations, or have significant exposure to low quality tenants are especially compromised as the market evolves, but well-positioned properties have shown resiliency due to continued demand for premier retail space. The Account's retail portfolio is composed primarily of high-end lifestyle shopping centers and regional malls in large metropolitan or tourist centers. Moreover, the retail portfolio is managed to minimize significant exposure to any single retailer. The vacancy rate for the Account’s retail portfolio increased to 6.7% in the second quarter of 2019 from 6.5% in the prior quarter, attributed to scheduled lease

48


expirations at several retail properties within the portfolio. New tenants to fill this recently vacated space have largely been identified, with many of the prospective tenants already under contract and scheduled to begin their leases in the coming months.
 
 
 
 
 
 
Account Units Weighted
Average Vacancy
 
Market
Vacancy*
 
 
Total Sector
by Metro Area
($M)
 
% of Total
Sector
 
2019 Q2
 
2019 Q1
 
2019 Q2
 
2019 Q1
National Retail
 
 
 
 
 
6.7
%
 
6.5
%
 
6.2
%
 
6.2
%
   Lifestyle & Mall
 
$
2,500.3

 
57.8
%
 
4.5
%
 
5.9
%
 
5.3
%
 
5.0
%
   Neighborhood, Community & Strip
 
1,231.7

 
28.5
%
 
8.9
%
 
7.5
%
 
8.8
%
 
8.8
%
   Power Center**
 
594.8

 
13.7
%
 
4.6
%
 
2.5
%
 
7.1
%
 
7.0
%
* Source: CBRE-EA. Market vacancy is defined as the percentage of space available for rent. The Account’s vacancy is the square foot-weighted percentage of unleased space.
** The Power Center designation is reserved for properties with three or more anchor units. Anchor units are leased to large retailers such as department stores, home improvement stores and warehouse clubs. Properties with the Neighborhood, Community and Strip designation consist of two or less anchor units.
INVESTMENTS
As of June 30, 2019, the Account held 78.5% of its total investments in real estate and real estate joint ventures. The Account also held investments in government agency notes representing 7.6% of total investments, U.S. Treasury securities representing 6.6% of total investments, loans receivable representing 3.7% of total investments, real estate-related equity securities representing 2.9% of total investments, and real estate limited partnerships representing 0.7% of total investments.
The outstanding principal on mortgage loans payable on the Account’s wholly-owned real estate portfolio as of June 30, 2019 was $2.8 billion. The Account’s proportionate share of outstanding principal on mortgage loans payable within its joint venture investments was $3.1 billion, which is netted against the underlying properties when determining the joint venture investment’s fair value presented on the Consolidated Schedules of Investments. When the mortgage loans payable within the joint venture investments are considered, total outstanding principal on the Account’s portfolio as of June 30, 2019 was $5.9 billion, which represented a loan to value ratio of 17.8%. The Account has no active loans outstanding on the Line of Credit as of June 30, 2019.
Management believes that the Account’s real estate portfolio is diversified by location and property type. The Account’s largest investment, Fashion Show, located in Las Vegas, Nevada, represented 4.6% of total real estate investments and 3.7% of total investments. As discussed in the Account’s prospectus, the Account does not intend to buy and sell its real estate investments simply to make short-term profits. Rather, the Account’s general strategy in selling real estate investments is to dispose of those assets that management believes (i) have maximized in value, (ii) have underperformed or face deteriorating property-specific or market conditions, (iii) need significant capital infusions in the future, (iv) are appropriate to dispose of in order to remain consistent with the Account’s intent to diversify the Account by property type and geographic location (including reallocating the Account’s exposure to or away from certain property types in certain geographic locations), or (v) otherwise do not satisfy the investment objectives of the Account. Management, from time to time, will evaluate the need to manage liquidity in the Account as part of its analysis as to whether to undertake a particular asset sale. The Account could reinvest any sale proceeds that it does not need to pay operating expenses or to meet debt service or redemption requests (e.g., participant withdrawals or benefit payments).





49


The following table lists the Account's ten largest investments as of June 30, 2019. For information regarding the Account's diversification of real estate assets by region and property type, see Note 3—Concentrations of Risk.
Ten Largest Real Estate Investments
Property Investment Name
 
Ownership Percentage
 
City
 
State
 
Type
 
Gross Real Estate Fair Value(1)
 
Debt Fair Value(2)
 
Net Real Estate Fair Value(3)
 
Property as a
% of Total
Real Estate
Portfolio
(4)
 
Property as a
% of Total
Investments
(5)
Fashion Show
 
50%
 
Las Vegas
 
NV
 
Retail
 
$
1,202.7

 
$
420.6

 
$
782.1

 
4.6%
 
3.7%
SITE Centers Corp
 
85%
 
Various
 
U.S.A.
 
Retail
 
1,069.2

 
252.8

 
816.4

 
4.1%
 
3.3%
The Florida Mall
 
50%
 
Orlando
 
FL
 
Retail
 
925.4

 
158.9

 
766.5

 
3.5%
 
2.8%
Simpson Housing Portfolio
 
80%
 
Various
 
U.S.A.
 
Apartment
 
789.8

 
395.9

 
393.9

 
3.0%
 
2.4%
1001 Pennsylvania Avenue
 
100%
 
Washington
 
D.C.
 
Office
 
787.5

 
319.5

 
468.0

 
3.0%
 
2.4%
Colorado Center
 
50%
 
Santa Monica
 
CA
 
Office
 
623.3

 
268.0

 
355.3

 
2.4%
 
1.9%
Fourth and Madison
 
100%
 
Seattle
 
WA
 
Office
 
605.0

 
287.7

 
317.3

 
2.3%
 
1.9%
99 High Street
 
100%
 
Boston
 
MA
 
Office
 
513.0

 
275.3

 
237.7

 
2.0%
 
1.6%
Ontario Industrial Portfolio
 
100%
 
Ontario
 
CA
 
Industrial
 
477.1

 

 
477.1

 
1.8%
 
1.5%
425 Park Avenue
 
100%
 
New York City
 
NY
 
Ground Lease
 
466.0

 

 
466.0

 
1.8%
 
1.4%
(1) 
The Account's share of the fair value of the property investment, gross of debt.
(2) 
Debt fair values are presented at the Account's ownership interest.
(3) 
The Account's share of the fair value of the property investment, net of debt.
(4) 
Total real estate portfolio is the aggregate fair value of the Account's wholly-owned properties and the properties held within a joint venture, gross of debt.
(5) 
Total investments are the aggregate fair value of all investments held by the Account, gross of debt. Total investments, as calculated within this table, will vary from total investments, as calculated in the Account's Schedule of Investments, as joint venture investments are presented in the Schedules of Investments at their net equity position in accordance with U.S. Generally Accepted Accounting Principals ("GAAP").


50


Results of Operations
Six months ended June 30, 2019 compared to six months ended June 30, 2018
Net Investment Income
The following table shows the results of operations for the six months ended June 30, 2019 and 2018 and the dollar and percentage changes for those periods (dollars in millions, unaudited).
 
 
For the Six Months Ended June 30,
 
Change
2019
 
2018
 
$
 
%
INVESTMENT INCOME
 
 
 
 
 
 
 
 
Real estate income, net:
 
 
 
 
 
 
 
 
Rental income
 
$
541.0

 
$
549.4

 
$
(8.4
)
 
(1.5
)%
Real estate property level expenses:
 
 
 
 
 
 
 
 
Operating expenses
 
117.3

 
113.2

 
4.1

 
3.6
 %
Real estate taxes
 
92.0

 
89.9

 
2.1

 
2.3
 %
Interest expense
 
53.0

 
52.4

 
0.6

 
1.1
 %
Total real estate property level expenses
 
262.3

 
255.5

 
6.8

 
2.7
 %
Real estate income, net
 
278.7

 
293.9

 
(15.2
)
 
(5.2
)%
Income from real estate joint ventures and limited partnerships
 
109.5

 
120.5

 
(11.0
)
 
(9.1
)%
Interest
 
86.2

 
42.5

 
43.7

 
N/M

Dividends
 
11.6

 
22.0

 
(10.4
)
 
(47.3
)%
TOTAL INVESTMENT INCOME
 
486.0

 
478.9

 
7.1

 
1.5
 %
Expenses:
 
 
 
 
 
 
 
 
Investment management charges
 
36.3

 
32.4

 
3.9

 
12.0
 %
Administrative charges
 
25.5

 
26.7

 
(1.2
)
 
(4.5
)%
Distribution charges
 
16.6

 
14.0

 
2.6

 
18.6
 %
Mortality and expense risk charges
 
0.7

 
0.6

 
0.1

 
16.7
 %
Liquidity guarantee charges
 
26.1

 
24.7

 
1.4

 
5.7
 %
TOTAL EXPENSES
 
105.2

 
98.4

 
6.8

 
6.9
 %
INVESTMENT INCOME, NET
 
$
380.8

 
$
380.5

 
$
0.3

 
0.1
 %
The following table illustrates and compares rental income, operating expenses and real estate taxes for properties held by the Account for the six months ended June 30th for each year shown below, "same property," as compared to the comparative increases or decreases associated with the acquisition and disposition of properties made in either period (dollars in millions, unaudited).
 
 
Rental Income
 
Operating Expenses
 
Real Estate Taxes
 
Change
 
 
Change
 
 
Change
2019
2018
$
%
 
2019
2018
$
%
 
2019
2018
$
%
Same Property
 
$
489.3

$
481.6

$
7.7

1.6
 %
 
$
104.2

$
101.4

$
2.8

2.8
%
 
$
82.3

$
80.7

$
1.6

2.0
%
Properties Acquired
 
50.1

9.2

40.9

N/M

 
12.4

2.0

10.4

N/M

 
9.4

1.8

7.6

N/M

Properties Sold
 
1.6

58.6

(57.0
)
N/M

 
0.7

9.8

(9.1
)
N/M

 
0.3

7.4

(7.1
)
N/M

Impact of Properties Acquired/Sold
 
51.7

67.8

(16.1
)
N/M

 
13.1

11.8

1.3

N/M

 
9.7

9.2

0.5

N/M

Total Property Portfolio
 
$
541.0

$
549.4

$
(8.4
)
(1.5
)%
 
$
117.3

$
113.2

$
4.1

3.6
%
 
$
92.0

$
89.9

$
2.1

2.3
%
N/M—Not meaningful

51


Rental Income:
Rental income decreased by $8.4 million, or 1.5%, primarily due to net disposition activity. Rental income of properties held through both comparative periods increased $7.7 million, or 1.6%, driven by rising market rents and reduced rental concessions, most notably among industrial and office properties in California.
Operating Expenses:
Operating expenses increased $4.1 million, or 3.6%, primarily driven by rising costs charged by vendors providing services to the Account's properties, most notably in the office sector. Continued tightening in the U.S. labor market is driving wages upward, causing vendors to raise pricing for services such as maintenance and groundskeeping.
Real Estate Taxes:
Real estate taxes increased $2.1 million, or 2.3%, driven by rising property values across the portfolio, most notably within the office sector.
Interest Expense:
Interest expense increased $0.6 million, or 1.1%, as a result of higher average outstanding principal balances on mortgage loans payable, as compared to the same period in 2018.
Income from Real Estate Joint Ventures and Limited Partnerships:
Income from real estate joint ventures and limited partnerships decreased $11.0 million, or 9.1%, as a result of net dispositions paired with the impact of lower distributions from the Account's retail joint venture investments. Although distributed income declined, undistributed income had a comparable increase during the period such that the change in overall income generated by the joint ventures was flat. Undistributed income is anticipated to be distributed to the Account in future quarters.
Interest and Dividend Income:
Interest income increased $43.7 million due to interest earned on a larger loan receivable portfolio in 2019 as compared to the same period in 2018 paired with an increase in interest earned on the Account's government agency notes and U.S. Treasuries due to higher interest rates. Dividend income decreased $10.4 million due to a smaller REIT portfolio held in 2019 as compared to the same period in 2018.
Expenses:
Investment management, administrative and distribution charges are costs charged to the Account associated with managing the Account. Investment management charges are comprised primarily of fixed components, but fluctuate based on the size of the Account’s portfolio of investments, whereas administrative and distribution charges are comprised of more variable components that generally correspond with movements in net assets. These expenses increased $5.3 million, or 7.3%, from the comparable period of 2018 as result of increased costs related to asset management, primarily driven by an increase in the level of transaction activity by the Account (e.g., real estate purchases and sales). The overall increase was partially offset by reductions in expenses related to information technology.
Mortality and expense risk and liquidity guarantee expenses are contractual charges to the Account from TIAA for TIAA’s assumption of these risks and provision of the liquidity guarantee. The rate for these charges is established annually and are charged at a fixed rate based on the Account’s net assets. These expenses increased $1.5 million, or 5.9%, as a result of an increase in the net assets of the Account from the comparative period.

52


Net Realized and Unrealized Gains and Losses on Investments and Mortgage Loans Payable
The following table shows the net realized and unrealized gains and losses on investments and mortgage loans payable for the six months ended June 30, 2019 and 2018 and the dollar and percentage changes for those periods (dollars in millions, unaudited).
 
 
For the Six Months Ended June 30,
 
Change
2019
 
2018
 
$
 
%
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
 
 
 
 
 
 
 
 
Net realized gain (loss) on investments:
 
 
 
 
 
 
 
 
Real estate properties
 
$

 
$
43.6

 
$
(43.6
)
 
N/M

Real estate joint ventures and limited partnerships
 
(43.7
)
 
0.2

 
(43.9
)
 
N/M

Marketable securities
 
253.1

 
6.9

 
246.2

 
N/M

Total realized gain on investments:
 
209.4

 
50.7

 
158.7

 
N/M

Net change in unrealized appreciation (depreciation) on:
 
 
 
 
 
 
 
 
Real estate properties
 
244.2

 
54.7

 
189.5

 
N/M

Real estate joint ventures and limited partnerships
 
43.7

 
92.3

 
(48.6
)
 
N/M

Marketable securities
 
(17.5
)
 
6.9

 
(24.4
)
 
N/M

Loans receivable
 
(2.8
)
 

 
(2.8
)
 
N/M

Mortgage loans payable
 
(66.3
)
 
55.2

 
(121.5
)
 
N/M

Net change in unrealized appreciation on investments and mortgage loans payable
 
201.3

 
209.1

 
(7.8
)
 
(3.7
)%
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
 
$
410.7

 
$
259.8

 
$
150.9

 
N/M

N/M—Not meaningful
Real Estate Properties, Joint Ventures and Limited Partnerships:
Net realized gains in the Account are primarily attributed to the sale of wholly-owned investments. See the Recent Transactions section herein for additional disclosure regarding the sale of the Account’s real estate property investments in the second quarter of 2019.
Real Estate Properties:
Wholly-owned real estate investments experienced net realized and unrealized gains of $244.2 million during the six months ended June 30, 2019 compared to $98.3 million during the comparable period of 2018. Appreciation is primarily concentrated within the industrial and office sectors, with the most notable gains occurring in California. Specific California submarkets, such as Los Angeles and San Francisco, continue to be favored by domestic and foreign institutional investors. These cities have limited opportunities for new construction in favorable locations, and demand continues to increase, allowing market rents and pricing to reach new heights.
Real Estate Joint Ventures and Limited Partnerships:
Realized and unrealized gains of real estate joint ventures and limited partnerships net to zero for the six months ended June 30, 2019, compared to $92.5 million during the comparable period of 2018. Similar to the wholly-owned portfolio, office joint ventures in California have been the strongest performers in 2019; however, the appreciation generated by these office investments was offset by declines in the fair values of the Account's largest retail joint ventures. Rising investor caution to overexposure in retail is tempering pricing among the largest investments in the sector. Moreover, market rents in the retail sector are leveling as lessors navigate an increasingly competitive market for high-quality tenants.



53


Marketable Securities:
The Account’s marketable securities experienced net realized and unrealized gains of $235.6 million during the six months ended June 30, 2019 compared to net realized and unrealized gains of $13.8 million during the comparable period of 2018. The performance of the Account's REIT portfolio was in line with the FTSE NAREIT All Equity REITs Index in both periods. Additionally, as of June 30, 2019, the Account held $4.2 billion of investments in government agency notes and U.S. Treasury securities, which had nominal changes due to the short-term nature of these investments.
Loans Receivable:
Loans receivable experienced an unrealized loss of $2.8 million during the six months ended June 30, 2019 compared to no gain or loss during the comparable period of 2018. The changes in both periods were minimal as there were no significant changes in the credit quality of the underlying collateral of the debt investments in either period.
Mortgage Loans Payable:
Mortgage loans payable experienced an unrealized loss of $66.3 million during the six months ended June 30, 2019 compared to a $55.2 million unrealized gain during the comparable period of 2018. The changes in both periods were consistent with the directional movement of U.S. Treasury rates.
Net Investment Income
The following table shows the results of operations for the three months ended June 30, 2019 and 2018 and the dollar and percentage changes for those periods (dollars in millions, unaudited).
 
 
For the Three Months Ended June 30,
 
Change
2019
 
2018
 
$
 
%
INVESTMENT INCOME
 
 
 
 
 
 
 
 
Real estate income, net:
 
 
 
 
 
 
 
 
Rental income
 
$
278.4

 
$
277.4

 
$
1.0

 
0.4
 %
Real estate property level expenses:
 
 
 
 
 
 
 
 
Operating expenses
 
58.1

 
55.9

 
2.2

 
3.9
 %
Real estate taxes
 
45.4

 
45.0

 
0.4

 
0.9
 %
Interest expense
 
27.3

 
28.6

 
(1.3
)
 
(4.5
)%
Total real estate property level expenses
 
130.8

 
129.5

 
1.3

 
1.0
 %
Real estate income, net
 
147.6

 
147.9

 
(0.3
)
 
(0.2
)%
Income from real estate joint ventures and limited partnerships
 
59.8

 
65.6

 
(5.8
)
 
(8.8
)%
Interest
 
45.1

 
24.4

 
20.7

 
N/M

Dividends
 
7.2

 
12.3

 
(5.1
)
 
(41.5
)%
TOTAL INVESTMENT INCOME
 
259.7

 
250.2

 
9.5

 
3.8
 %
Expenses:
 
 
 
 
 
 
 
 
Investment management charges
 
16.8

 
17.8

 
(1.0
)
 
(5.6
)%
Administrative charges
 
12.2

 
11.9

 
0.3

 
2.5
 %
Distribution charges
 
8.7

 
7.1

 
1.6

 
22.5
 %
Mortality and expense risk charges
 
0.4

 
0.3

 
0.1

 
33.3
 %
Liquidity guarantee charges
 
13.2

 
12.5

 
0.7

 
5.6
 %
TOTAL EXPENSES
 
51.3

 
49.6

 
1.7

 
3.4
 %
INVESTMENT INCOME, NET
 
$
208.4

 
$
200.6

 
$
7.8

 
3.9
 %



54


The following table illustrates and compares rental income, operating expenses and real estate taxes for properties held by the Account for the three months ended June 30th for each year shown below, "same property," as compared to the comparative increases or decreases associated with the acquisition and disposition of properties made in either period (dollars in millions, unaudited).
 
 
Rental Income
 
Operating Expenses
 
Real Estate Taxes
 
Change
 
 
Change
 
 
Change
2019
2018
$
%
 
2019
2018
$
%
 
2019
2018
$
%
Same Property
 
$
250.9

$
244.6

$
6.3

2.6
%
 
$
51.5

$
50.0

$
1.5

3.0
%
 
$
35.7

$
35.8

$
(0.1
)
(0.3
)%
Properties Acquired
 
26.9

7.2

19.7

N/M

 
6.4

1.7

4.7

N/M

 
9.4

1.8

7.6

N/M

Properties Sold
 
0.6

25.6

(25.0
)
N/M

 
0.2

4.2

(4.0
)
N/M

 
0.3

7.4

(7.1
)
N/M

Impact of Properties Acquired/Sold
 
27.5

32.8

(5.3
)
N/M

 
6.6

5.9

0.7

N/M

 
9.7

9.2

0.5

N/M

Total Property Portfolio
 
$
278.4

$
277.4

$
1.0

0.4
%
 
$
58.1

$
55.9

$
2.2

3.9
%
 
$
45.4

$
45.0

$
0.4

0.9
 %
N/M—Not meaningful
Rental Income:
Rental income increased by $1.0 million, or 0.4%, due to rising market rents and reduced rental concessions, most notably among office and industrial properties in California. Market rents in the office, industrial and apartment sectors have trended upward the last several consecutive quarters, but retail market rents have largely remained flat over the same period. These increases were partially offset by net disposition activity.
Operating Expenses:
Operating expenses increased $2.2 million, or 3.9%, primarily driven by rising costs charged by vendors providing services to the Account's properties, most notably in the office sector. Continued tightening in the U.S. labor market is driving wages upward, causing vendors to raise pricing for services such as maintenance and groundskeeping.
Real Estate Taxes:
Real estate taxes increased $0.4 million, or 0.9%, primarily due to net acquisition activity.
Interest Expense:
Interest expense decreased $1.3 million, or 4.5%, as a result of lower average outstanding principal balances on mortgage loans payable, as compared to the same period in 2018.
Income from Real Estate Joint Ventures and Limited Partnerships:
Income from real estate joint ventures and limited partnerships decreased $5.8 million, or 8.8%, as a result of net dispositions paired with the impact of lower distributions from the Account's retail joint venture investments. Although distributed income declined, undistributed income had a comparable increase during the period such that the change in overall income generated by the joint ventures was flat. Undistributed income is anticipated to be distributed to the Account in future quarters.
Interest and Dividend Income:
Interest income increased $20.7 million due to interest earned on a larger loan receivable portfolio in 2019 as compared to the same period in 2018 paired with an increase in interest earned on the Account's government agency notes and U.S. Treasuries due to higher interest rates. Dividend income decreased $5.1 million due to a smaller REIT portfolio held in 2019 as compared to the same period in 2018.
Expenses:
Investment management, administrative and distribution charges are costs charged to the Account associated with managing the Account. Investment management charges are comprised primarily of fixed components, but fluctuate

55


based on the size of the Account’s portfolio of investments, whereas administrative and distribution charges are comprised of more variable components that generally correspond with movements in net assets. These expenses increased $0.9 million, or 2.4%, from the comparable period of 2018, as a result of increased costs related to asset management, primarily driven by an increase in the level of transaction activity by the Account (e.g., real estate purchases and sales). The overall increase was partially offset by reductions in expenses related to information technology.
Mortality and expense risk and liquidity guarantee expenses are contractual charges to the Account from TIAA for TIAA’s assumption of these risks and provision of the liquidity guarantee. The rate for these charges is established annually and are charged at a fixed rate based on the Account’s net assets. These expenses increased $0.8 million, or 6.3%, as a result of an increase in the net assets of the Account from the comparative period.
Net Realized and Unrealized Gains and Losses on Investments and Mortgage Loans Payable
The following table shows the net realized and unrealized gains and losses on investments and mortgage loans payable for the three months ended June 30, 2019 and 2018 and the dollar and percentage changes for those periods (dollars in millions, unaudited).
 
 
For the Three Months Ended June 30,
 
Change
2019
 
2018
 
$
 
%
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
 
 
 
 
 
 
 
 
Net realized gain (loss) on investments:
 
 
 
 
 
 
 
 
Real estate properties
 
$

 
$
55.4

 
$
(55.4
)
 
N/M

Real estate joint ventures and limited partnerships
 
(48.8
)
 

 
(48.8
)
 
N/M

Marketable securities
 
112.1

 
3.9

 
108.2

 
N/M

Total realized gain on investments:
 
63.3

 
59.3

 
4.0

 
6.7
 %
Net change in unrealized appreciation (depreciation) on:
 
 
 
 
 
 
 
 
Real estate properties
 
170.3

 
(47.6
)
 
217.9

 
N/M

Real estate joint ventures and limited partnerships
 
41.2

 
68.0

 
(26.8
)
 
(39.4
)%
Marketable securities
 
(93.8
)
 
97.7

 
(191.5
)
 
N/M

Loans receivable
 
(4.0
)
 
(0.1
)
 
(3.9
)
 
N/M

Mortgage loans payable
 
(36.7
)
 
27.5

 
(64.2
)
 
N/M

Net change in unrealized appreciation on investments and mortgage loans payable
 
77.0

 
145.5

 
(68.5
)
 
(47.1
)%
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
 
$
140.3

 
$
204.8

 
$
(64.5
)
 
(31.5
)%
N/M—Not meaningful
Real Estate Properties, Joint Ventures and Limited Partnerships:
Net realized gains in the Account are primarily attributed to the sale of wholly-owned investments. See the Recent Transactions section herein for additional disclosure regarding the sale of the Account’s real estate property investments.
Real Estate Properties:
Wholly-owned real estate investments experienced net realized and unrealized gains of $170.3 million during the second quarter of 2019 compared to $7.8 million during the comparable period of 2018. Appreciation is primarily concentrated within the industrial and office sectors, with the most notable gains occurring in California.
Real Estate Joint Ventures and Limited Partnerships:
Real estate joint ventures and limited partnerships experienced net realized and unrealized losses of $7.6 million during the second quarter of 2019, compared to $68.0 million of net realized and unrealized gains during the comparable

56


period of 2018. Net losses in the second quarter of 2019 were driven by the Account's largest retail joint ventures, attributed to rising investor caution to overexposure in the retail sector.
Marketable Securities:
The Account’s marketable securities experienced net realized and unrealized gains of $18.3 million during the second quarter of 2019 compared to net realized and unrealized gains of $101.6 million during the comparable period of 2018. The performance of the Account's REIT portfolio was in line with the FTSE NAREIT All Equity REITs Index in both periods. Additionally, as of June 30, 2019, the Account held $4.2 billion of investments in government agency notes and U.S. Treasury securities, which had nominal changes due to the short-term nature of these investments.
Loans receivable:
Loans receivable experienced an unrealized loss of $4.0 million during the second quarter of 2019 compared to a $0.1 million unrealized loss during the comparable period of 2018. The changes in both periods were minimal as there were no significant changes in the credit quality of the underlying collateral of the debt investments in either period.
Mortgage Loans Payable:
Mortgage loans payable experienced an unrealized loss of $36.7 million during the second quarter of 2019 compared to a $27.5 million unrealized gain during the comparable period of 2018. The changes in both periods were consistent with the directional movement of U.S. Treasury rates.
Liquidity and Capital Resources
As of June 30, 2019 and December 31, 2018, the Account’s cash and cash equivalents and non-real estate-related marketable securities had a value of $4.2 billion and $4.1 billion representing 15.7% and 15.8% of the Account’s net assets at such dates, respectively.
Net Income and Marketable Securities
The Account’s net investment income is a source of liquidity for the Account. Net investment income was $380.8 million for the six months ended June 30, 2019, as compared to $380.5 million for the comparable period of 2018. The increase in total net investment income is described more fully in the Results of Operations section.
As of June 30, 2019, cash and cash equivalents, along with real estate-related and non-real estate related marketable securities comprised 18.9% of the Account’s net assets. The Account’s real estate-related marketable securities primarily consist of publicly traded REITs. The Account’s liquid assets continue to be available to purchase suitable real estate properties, meet the Account’s debt obligations, expense needs, and participant redemption requests (i.e., participant withdrawals or benefit payments).
The Account has a $500.0 million unsecured line of credit available as needed to fund the Account's near-term objectives, as further described in Note 10—Line of Credit. As of June 30, 2019, the Account has no active loans outstanding on the unsecured line of credit.
The Account may from time to time borrow money and assume or obtain a mortgage on a property to make leveraged real estate investments. The Account is authorized to borrow money in accordance with its investment guidelines. Under the Account’s current investment guidelines, the Account’s loan to value ratio (as described below) is to be maintained at or below 30%. Such incurrences of debt from time to time may include:
placing new debt on properties;
refinancing outstanding debt;
assuming debt on acquired properties or interests in the Account’s properties;
extending the maturity date of outstanding debt; and/or
an unsecured line of credit or credit facility.
In calculating this limit, only the Account’s actual percentage interest in any borrowings is included, and not that percentage interest held by any joint venture partner. Further, the Account may only borrow up to 70% of the then-current value of a property, although construction loans may be for 100% of the costs incurred in developing a property.

57


At the time the Account (or a joint venture in which the Account is a partner) enters into a revolving line of credit, for the purpose of calculating the loan-to-value ratio, management includes only amounts outstanding when calculating outstanding indebtedness.
As of June 30, 2019, the Account’s ratio of outstanding principal amount of debt (inclusive of the Account’s proportionate share of debt held within its joint venture investments) to total gross asset value (i.e., a “loan to value ratio”) was 17.8%. The Account intends to maintain its loan to value ratio at or below 30% (this ratio is measured at the time of incurrence and after giving effect thereto). The Account’s total gross asset value, for these purposes, is equal to the total fair value of the Account’s assets (including the fair value of the Account’s interest in joint ventures), with no reduction associated with any indebtedness on such assets.
As of June 30, 2019, there is one mortgage obligation secured by real estate investments wholly-owned by the Account maturing within the next twelve months. The Account has sufficient liquidity in the form of cash and cash equivalents and securities to meet its mortgage obligations.
In times of high net inflow activity, in particular during times of high net participant transfer inflows, management may determine to apply a portion of such cash flows to make prepayments of indebtedness prior to scheduled maturity, which would have the effect of reducing the Account’s loan to value ratio.
Recent Transactions
The following describes transactions occurring during the second quarter of 2019 related to real estate properties, real estate joint ventures and limited partnerships, loans receivable, and mortgage loans payable. Except as noted, expenses for operating the properties purchased are either borne or reimbursed, in whole or in part, by the property tenants, although the terms vary under each lease. Dollar amounts are shown in millions.
Purchases
Property Name
 
Purchase Date
 
Ownership Percentage
 
Sector
 
Location
 
Net Purchase Price (1)
Sole at Brandon
 
5/8/2019
 
100.00%
 
Apartments
 
Riverview, FL
 
$
77.6

District on La Frontera
 
5/15/2019
 
100.00%
 
Apartments
 
Austin, TX
 
73.8

I-35 Logistics Center
 
6/4/2019
 
95.00%
 
Land
 
Fort Worth, TX
 
9.6

101 N. Tryon Street
 
6/14/2019
 
85.00%
 
Office
 
Charlotte, NC
 
113.4

Vista Station Office Portfolio
 
6/26/2019
 
100.00%
 
Office
 
Draper, UT
 
111.2

(1)  
The net purchase price represents the purchase price and closing costs.
Sales
Property Name
 
Sales Date
 
Ownership Percentage
 
Sector
 
Location
 
Net Sales Price (1)
 
Realized Loss on Sale
Westside Centre(2)
 
4/16/2019
 
85.00%
 
Retail
 
Huntsville, AL
 
$
29.8

 
$
(48.8
)
(1)  
The net sales price represents the sales price, less selling expenses.
(2) 
Westside Centre, a property held within the DDRTC Core Retail Fund, LLC, was sold in April 2019.
Loans Receivable
Borrower Name
 
Financing Date
 
Interest Rate
 
Sector
 
Maturity Date
 
Location
 
Loan Amount(1)
Park Avenue Tower Mezzanine
 
4/22/2019
 
4.35% + LIBOR
 
Office
 
3/9/2024
 
New York, NY
 
$
85.0

BREP VIII Industrial Loan Facility Mezzanine
 
5/1/2019
 
5.00% + LIBOR
 
Industrial
 
3/9/2026
 
Sparks, NV
 
43.6

(1)
Loan Amount represents the Account's mezzanine loan receivable position.

58


Financings
Property Name
 
Financing/Payoff Date
 
Ownership Percentage
 
Interest Rate
 
Sector
 
Maturity Date
 
Location
 
Financing Amount(1)
District on La Frontera
 
5/15/2019
 
100.00%
 
3.84%
 
Apartments
 
12/1/2024
 
Austin, TX
 
$
39.6

District on La Frontera
 
5/15/2019
 
100.00%
 
4.96%
 
Apartments
 
12/1/2024
 
Austin, TX
 
4.4

101 N. Tryon Street
 
6/14/2019
 
85.00%
 
1.75% + LIBOR
 
Office
 
6/1/2024
 
Charlotte, NC
 
69.0

DDRTC Holdings Pool 3(2)
 
6/26/2019
 
85.00%
 
3.85%
 
Retail
 
6/30/19
 
Various
 
(131.2
)
DDRTC Holdings Pool 5(3)
 
6/26/2019
 
85.00%
 
3.61%
 
Retail
 
6/30/19
 
Various
 
(134.6
)
Vista Station Office Portfolio
 
6/26/2019
 
100.00%
 
4.00%
 
Office
 
7/1/2025
 
Draper, UT
 
20.8

Vista Station Office Portfolio
 
6/26/2019
 
100.00%
 
4.20%
 
Office
 
11/1/2025
 
Draper, UT
 
45.2

(1)  
Value represents a new mortgage loan or loan payoff.
(2) 
The loan payoff of DDRTC Holdings Pool 3 represents the extinguishment of mortgage debt associated with five properties held within DDRTC Core Retail Fund, LLC.
(3) 
The loan payoff of DDRTC Holdings Pool 5 represents the extinguishment of mortgage debt associated with eight properties held within DDRTC Core Retail Fund, LLC.
Critical Accounting Policies
Management’s discussion and analysis of the Account’s financial condition and results of operations is based on the Account’s Consolidated Interim Financial Statements, which have been prepared by management in accordance with GAAP. The preparation of the Account’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgments about the effect of matters that are inherently uncertain and that may change in subsequent periods. Management evaluates its estimates and assumptions on an ongoing basis. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities of the Account that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
In the Form 10-K for the year ended December 31, 2018, management identified the critical accounting policies which affect its significant estimates and assumptions used in preparing the Account’s financial statements. Certain of these accounting policies are described in Note 1—Organization and Significant Accounting Policies in this Form 10-Q. There have been no material changes to these accounting policies to those disclosed in the Account's Annual Report on Form 10-K for the year ended December 31, 2018.

59


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Account’s real estate holdings, including real estate joint venture, limited partnerships and loans receivable, which, as of June 30, 2019, represented 82.9% of the Account’s total investments, expose the Account to a variety of risks. These risks include, but are not limited to:
General Real Estate Risk—The risk that the Account’s property values or rental and occupancy rates could decline due to general economic conditions, a weak market for real estate generally, disruptions in the credit and/or capital markets, or changing supply and demand for certain types of properties;
Appraisal Risk—The risk that the sale price of an Account property (i.e., the value that would be determined by negotiations between independent parties) might differ substantially from its estimated or appraised value, leading to losses or reduced profits to the Account upon sale;
Risk Relating to Property Sales—The risk that the Account might not be able to sell a property at a particular time for its full value, particularly in a declining market. This might make it difficult to raise cash quickly and also could lead to Account losses;
Risks of Borrowing—The risk that interest rate changes may impact Account returns if the Account takes out a mortgage on a property, buys a property subject to a mortgage or holds a property subject to a mortgage, and hedging against such interest rate changes, if undertaken by the Account, may entail additional costs and be unsuccessful; and
Foreign Currency Risk—The risk that the value of the Account’s foreign investments, related debt, or rental income could increase or decrease due to changes in foreign currency exchange rates or foreign currency exchange control regulations, and hedging against such currency changes, if undertaken by the Account, may entail additional costs and be unsuccessful.
The Account believes the diversification of its real estate portfolio, both geographically and by sector, along with its quarterly valuation procedure, helps manage the real estate and appraisal risks described above.
As of June 30, 2019, 17.1% of the Account’s total investments were comprised of marketable securities. Marketable securities include high-quality debt instruments (i.e., U.S. government agency notes) and REIT securities. The Consolidated Schedule of Investments for the Account sets forth the general financial terms of these instruments, along with their fair values, as determined in accordance with procedures described earlier in the Critical Accounting Policies section above and in Note 1—Organization and Significant Accounting Policies to the Account’s Consolidated Financial Statements included herewith. As of the date of this report, the Account does not invest in derivative financial investments, nor does the Account engage in any hedging activity, although it may do so in selected circumstances in the future.
Risks associated with investments in real estate-related liquid assets (which could include, from time to time, REIT securities and CMBS), and non-real estate-related liquid assets, including financial/credit risk, market volatility risk, interest rate volatility risk and deposit/money market risk.
Financial/Credit Risk—The risk, for debt securities, that the issuer will not be able to pay principal and interest when due (and/or declare bankruptcy or be subject to receivership) and, for equity securities such as common or preferred stock, that the issuer’s current earnings will fall or that its overall financial soundness will decline, reducing the security’s value.
Market Volatility Risk—The risk that the Account’s investments will experience price volatility due to changing conditions in the financial markets regardless of the credit quality or financial condition of the underlying issuer. This risk is particularly acute to the extent the Account holds equity securities, which have experienced significant short-term price volatility over the past year. Also, to the extent the Account holds debt securities, changes in overall interest rates can cause price fluctuations.
Interest Rate Volatility—The risk that interest rate volatility may affect the Account’s current income from an investment.
Deposit/Money Market Risk—The risk that, to the extent the Account’s cash held in bank deposit accounts exceeds federally insured limits as to that bank, the Account could experience losses if that bank fails. The Account does not believe it has exposure to significant concentration of deposit risk. In addition, investments held in money market accounts may also suffer losses.

60


In addition, to the extent the Account were to hold mortgage-backed securities (including commercial mortgage-backed securities) these securities are subject to prepayment risk or extension risk (i.e., the risk that borrowers will repay the loans earlier or later than anticipated). If the underlying mortgage assets experience faster than anticipated repayments of principal, the Account could fail to recoup some or all of its initial investment in these securities, since the original price paid by the Account was based in part on assumptions regarding the receipt of interest payments. If the underlying mortgage assets are repaid later than anticipated, the Account could lose the opportunity to reinvest the anticipated cash flows at a time when interest rates might be rising. The rate of prepayment depends on a variety of geographic, social and other functions, including prevailing market interest rates and general economic factors. The fair value of these securities is also highly sensitive to changes in interest rates. Note that the potential for appreciation, which could otherwise be expected to result from a decline in interest rates, may be limited by any increased prepayments. These securities may be harder to sell than other securities.
In addition to these risks, real estate equity securities (such as REIT stocks and mortgage-backed securities) would be subject to many of the same general risks inherent in real estate investing, making mortgage loans and investing in debt securities. For more information on the risks associated with all of the Account’s investments, see the Account’s most recent prospectus.
ITEM 4. CONTROLS AND PROCEDURES
(a) The registrant maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the registrant’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including TIAA’s Executive Vice President, and Chief Product Officer of TIAA Financial Solutions Product Group (Principal Executive Officer (“PEO”)) and TIAA’s Senior Vice President, Chief Accounting Officer and Corporate Controller (Principal Financial and Accounting Officer (“PFO”)), as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and participation of the registrant’s management, including the registrant’s PEO and PFO, the registrant conducted an evaluation of the effectiveness of the registrant’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of June 30, 2019. Based upon management’s review, the PEO and PFO concluded that the registrant’s disclosure controls and procedures provide reasonable assurance that material information required to be included in the Account's periodic reports is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms.
(b) Changes in internal control over financial reporting. There have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

61


PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the normal course of business, the Account may be named, from time to time, as a defendant or may be involved in various legal actions, including arbitrations, class actions and other litigation.
The Account establishes an accrual for all litigation and regulatory matters when it believes it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted, as appropriate, in light of additional information. The amount of loss ultimately incurred in relation to those matters may be higher or lower than the amounts accrued for those matters.
As of the date of this report, management of the Account does not believe that the results of any such claims or litigation, individually or in the aggregate, will have a material effect on the Account’s business, financial position or results of operations.
ITEM 1A. RISK FACTORS.
There have been no material changes from the Account’s risk factors as previously reported in the Account’s Annual Report on Form 10-K for the year ended December 31, 2018.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
The Code of Ethics for TIAA’s senior financial officers, including its principal executive officer, principal financial officer, principal accounting officer, or controller, and persons performing similar functions, has been filed as an exhibit to the Account’s Annual Report on Form 10-K for the year ended December 31, 2018 and can also be found on the following web site, http://www.tiaa.org/public/prospectuses/index.html.


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ITEM 6. EXHIBITS
(1)
(A)
Distribution Agreement for the Contracts Funded by the TIAA Real Estate Account, dated as of January 1, 2008, by and among Teachers Insurance and Annuity Association of America, for itself and on behalf of the Account, and TIAA-CREF Individual & Institutional Services, LLC1
 
 

(3)
(A)
Restated Charter of TIAA (as amended)2
 
 
 
(B)
Amended Bylaws of TIAA3
 
 
(4)
(A)
Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account Endorsements,4 Keogh Contract,5 Retirement Choice and Retirement Choice Plus Contracts5 and Retirement Select and Retirement Select Plus Contracts and Endorsements6
 
 
 
 
 
 
 
(B)
Forms of Income-Paying Contracts4
 
 
 
(C)
Form of Contract Endorsement for Internal Transfer Limitation7
 
 
 
(D)
Form of Non-ERISA Retirement Choice Plus Contract9
 
 
 
 
 
(E)
Form of Trust Company Retirement Choice Contract10
 
 
 
 
 
(F)
Form of Trust Company Retirement Choice Plus Contract11
 
 
 
 
 
(G)
Form of Income Test Drive Endorsement for Retirement Annuity Contracts. After-Tax Retirement Annuity Contracts, Supplemental Retirement Annuity Contracts and IRA Contracts (including Rollover IRA, Contributory IRA, Roth IRA, OneIRA)12
 
 
 
(H)
Form of Income Test Drive Endorsement for Group Retirement Annuity Certificates, Group Supplemental Retirement Annuity Certificates, Keogh Certificates, Retirement Choice Certificates, Retirement Choice Plus Certificates, Non-ERISA Retirement Choice Plus Certificates, Trust Retirement Choice Certificates, and Trust Retirement Choice Plus Certificates13
 
 
 
(I)
Form of OneIRA Non-Qualified Deferred Annuity Contract (and Rate Schedule)14
 
 
 
(J)
(1) Form of Endorsement to Retirement Choice and Retirement Choice Plus Contracts for Custom Portfolios16
 
 
 
 
(2) Form of Endorsement to Retirement Choice and Retirement Choice Plus Certificates for Custom Portfolios17
 
 
 
(K)
Form of Endorsement to Group Supplemental Retirement Annuity (GSRA) Certificate18
 
 
(10)
(A)
Amended and Restated Independent Fiduciary Letter Agreement, dated as of February 21, 2018, between TIAA, on behalf of the Registrant, and RERC, LLC15
 
 
 
(B)
Custodian Agreement, dated as of March 3, 2008, by and between TIAA, on behalf of the Registrant, and State Street Bank and Trust Company, N.A.8
 
 

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(101)
 
The following financial information from the Quarterly Report on Form 10-Q for the period ended June 30, 2019 (Unaudited), formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Assets and Liabilities as of June 30, 2019 (Unaudited), (ii) the Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (Unaudited) , (iii) the Consolidated Statements of Changes in Net Assets for the three and six months ended June 30, 2019 and 2018 (Unaudited), (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (Unaudited), and (v) the Notes to the Consolidated Financial Statements (Unaudited).**
*
Filed herewith.
**
Furnished electronically herewith.
(1) 
Previously filed and incorporated herein by reference to Exhibit 1(A) to the Account’s Registration Statement on Form S-1, filed with the Commission on March 15, 2013 (File No. 333-187309).
(2) 
Previously filed and incorporated herein by reference to Exhibit 3(A) to the Account’s Registration Statement on Form S-1, filed with the Commission on April 22, 2015 (File No. 333-202583).
(3) 
Previously filed and incorporated herein by reference to Exhibit 3(B) to the Account’s Registration Statement on Form S-1, filed with the Commission on April 22, 2015 (File No. 333-202583).
(4) 
Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 2 to the Registration Statement on Form S-1, filed with the Commission on April 30, 1996 (File No. 33-92990).
(5) 
Previously filed and incorporated herein by reference to Exhibit 4(A) to the Account’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-1, filed with the Commission on May 2, 2005 (File No. 333-121493).
(6) 
Previously filed and incorporated herein by reference to the Account’s Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1, filed with the Commission on April 29, 2004 (File No. 333-113602).
(7) 
Previously filed and incorporated by reference to Exhibit 4(C) to the Account’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 and filed with the Commission on November 12, 2010 (File No. 33-92990).
(8) 
Previously filed and incorporated herein by reference to Exhibit 10(B) to the Account's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and filed with the Commission on March 14, 2013 (File No. 33-92990).
(9) 
Previously filed and incorporated herein by reference to Exhibit 4(D)(1) and 4(D)(2) to the Account’s Registration Statement on Form S-1, filed with the Commission on March 21, 2017 (File No. 333-216849).
(10) 
Previously filed and incorporated herein by reference to Exhibit 4(E)(1) and 4(E)(2) to the Account’s Registration Statement on Form S-1, filed with the Commission on March 21, 2017 (File No. 333-216849).
(11) 
Previously filed and incorporated herein by reference to Exhibit 4(F)(1) and 4(F)(2) to the Account’s Registration Statement on Form S-1, filed with the Commission on March 21, 2017 (File No. 333-216849).
(12) 
Previously filed and incorporated herein by reference to Exhibit 4(G) to the Account’s Annual Report on Form 10-K, filed with the Commission on March 15, 2018 (File No. 333-216849).
(13) 
Previously filed and incorporated herein by reference to Exhibit 4(H) to the Account’s Annual Report on Form 10-K, filed with the Commission on March 15, 2018 (File No. 333-216849).
(14) 
Previously filed and incorporated herein by reference to Exhibit 4(I) to the Account’s Annual Report on Form 10-K, filed with the Commission on March 15, 2018 (File No. 333-216849).
(15) 
Previously filed and incorporated herein by reference to Exhibit 10.1 to the Account’s Current Report on Form 8-K, filed with the Commission on March 1, 2018 (File No. 33-92990).
(16) 
Previously filed and incorporated herein by reference to Exhibit 4(J)(1) to the Account’s Current Report on Form 10-K, filed with the Commission on March 14, 2019 (File No. 33-92990).
(17) 
Previously filed and incorporated herein by reference to Exhibit 4(J)(2) to the Account’s Current Report on Form 10-K, filed with the Commission on March 14, 2019 (File No. 33-92990).
(18) 
Previously filed and incorporated herein by reference to Exhibit 4(K) to the Account’s Current Report on Form 10-K, filed with the Commission on March 14, 2019 (File No. 33-92990).




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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant, TIAA Real Estate Account, has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York, on the 8th day of August 2019.
 
TIAA REAL ESTATE ACCOUNT
 
 
 
 
 
By:
 
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
 
 
 
 
August 8, 2019
By:
 
/s/ Carol W. Deckbar
 
 
 
Carol W. Deckbar
Executive Vice President, Teachers Insurance and Annuity Association of America and Chief Product Officer of TIAA Financial Solutions Product Group
(Principal Executive Officer)
 
 
 
 
August 8, 2019
By:
 
/s/ Oluseun S. Salami
 
 
 
Oluseun S. Salami
Senior Vice President, Chief Accounting Officer and Corporate Controller of Teachers Insurance and Annuity Association of America (Principal Financial and Accounting Officer)


65