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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file numbers 33-92990, 333-13477, 333-22809, 333-59778, and 333-83964
TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)
New York Not Applicable
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
c/o Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (212) 490-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [X] -- Not Applicable
Aggregate market value of voting stock held by non-affiliates: Not Applicable
Documents Incorporated by Reference: None
PART I
ITEM 1. BUSINESS.
GENERAL. The TIAA Real Estate Account (the "Real Estate Account" or the
"Account") was established on February 22, 1995, as a separate investment
account of Teachers Insurance and Annuity Association of America ("TIAA"), a New
York insurance company, by resolution of TIAA's Board of Trustees. The Account,
which invests mainly in real estate and real estate-related investments, is a
variable annuity investment option offered through individual, group and
tax-deferred annuity contracts available to employees of educational and
research institutions. The Account commenced operations on July 3, 1995, when
TIAA contributed $100 million of seed money to the Account, and interests in the
Account were first offered to eligible participants on October 2, 1995.
INVESTMENT OBJECTIVE. The Real Estate Account seeks favorable long term
returns primarily through rental income and appreciation of real estate
investments owned by the Account. The Account also invests in publicly-traded
securities and other investments that are easily converted to cash to make
redemptions, purchase or improve properties or cover expenses.
INVESTMENT STRATEGY. The Account seeks to invest between 70 percent to
95 percent of its assets directly in real estate or real estate-related
investments. The Account's principal strategy is to purchase direct ownership
interests in income-producing real estate, such as office, industrial, retail,
and multi-family residential properties. The Account can also invest in other
real estate or real estate-related investments, through joint ventures, real
estate partnerships or real estate investment trusts (REITs). To a limited
extent, the Account can also invest in conventional mortgage loans,
participating mortgage loans, common or preferred stock of companies whose
operations involve real estate (I.E., that primarily own or manage real estate),
and collateralized mortgage obligations, including commercial mortgage backed
securities and other similar instruments.
The Account will invest the remaining portion of its assets in
government and corporate debt securities, money market instruments and other
cash equivalents, and, at times, stock of companies that don't primarily own or
manage real estate. In some circumstances, the Account can increase the portion
of its assets invested in debt securities or money market instruments. This
could happen if the Account receives a large inflow of money in a short period
of time, there is a lack of attractive real estate investments available on the
market, or the Account anticipates a need to have more cash available.
The amount the Account invests in real estate and real estate-related
investments at a given time will vary depending on market conditions and real
estate prospects, among other factors.
NET ASSETS AND PORTFOLIO INVESTMENTS. As of December 31, 2002, the
Account's net assets totaled $3,675,988,560. At December 31, 2002 the Account
held a total of 77 real estate properties (including its interests in four real
estate-related joint ventures),
2
representing 92.56% of the Account's total investment portfolio. As of that
date, the Account also held investments in real estate investment trusts
(REITs), representing 2.87% of the portfolio, commercial mortgage backed
securities (CMBSs), representing 1.16% of the portfolio, real estate limited
partnerships, representing 0.31% of the portfolio and commercial paper and
government bonds, representing 3.10% of the portfolio.
PERSONNEL AND MANAGEMENT. The Real Estate Account does not directly
employ any persons nor does the Account have its own management or board of
directors. Rather, TIAA employees, under the direction and control of TIAA's
Board of Trustees and Investment Committee, manage the investment of the
Account's assets pursuant to investment management procedures adopted by TIAA
for the Account. TIAA and TIAA-CREF Individual & Institutional Services, Inc.
("Services"), a subsidiary of TIAA, provide all portfolio accounting, custodial,
distribution, administrative and related services for the Account at cost.
AVAILABLE INFORMATION. The Account's annual report on Form 10-K, any
quarterly reports on Form 10-Q and current reports on Form 8-K, and any
amendments to those reports, filed by the Account with the Securities and
Exchange Commission on or after the date hereof, can be accessed free of charge
at www.tiaa-cref.org.
ITEM 2. PROPERTIES.
THE PROPERTIES--IN GENERAL
As of December 31, 2002, the TIAA Real Estate Account owned a total of
77 real estate properties, including 30 office properties (three of which are
held in joint venture), 17 industrial properties (including one development
joint venture project), 22 apartment complexes, and 8 retail properties
(including the three joint ventures that each own a regional mall in which the
Account owns an approximately 50% partnership interest). In the table below you
will find general information about each of the Account's portfolio properties
as of December 31, 2002.
ANNUAL AVG.
RENTABLE BASE RENT
YEAR YEAR AREA PERCENT PER LEASED MARKET
PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) VALUE(2)
- -------- -------- ----- --------- --------- ------- ---------- --------
OFFICE PROPERTIES
Mellon Financial Center at
One Boston Place(3) Boston, MA 1970(4) 2002 782,241 96% $39.09 $261,896,938
780 Third Avenue New York, NY 1984 1999 487,501 92% $45.73 $178,500,000
701 Brickell Miami, FL 1986(4) 2002 677,667 99% $28.27 $172,088,618
1801 K Street, N.W. Washington, DC 1971(4) 2000 564,359 99% $33.34 $162,636,836
Ten & Twenty Westport Road Wilton, CT 1974(4); 2001 2001 538,840 100% $25.11 $140,000,000
Morris Corporate Center III Parsippany, NJ 1990 2000 525,154 85% $23.88 $ 92,400,000
Corporate Boulevard Rockville, MD 1984-1989 2002 339,786 90% $22.95 $ 68,020,401
Oak Brook Regency Towers Oakbrook, IL 1977(4) 2002 402,318 88% $16.65 $ 66,602,200
88 Kearny Street San Francisco, CA 1986 1999 228,470 89% $41.72 $ 65,083,257
1015 15th Street Washington, DC 1978(4) 2001 184,825 100% $31.24 $ 51,600,000
3
ANNUAL AVG.
RENTABLE BASE RENT
YEAR YEAR AREA PERCENT PER LEASED MARKET
PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) VALUE(2)
- -------- -------- ----- --------- --------- ------- ---------- --------
OFFICE PROPERTIES (CONTINUED)
Parkview Plaza(5) Oakbrook, IL 1990 1997 266,020 94% $18.79 $ 50,315,694
The Farragut Building Washington, DC 1962(4) 2002 146,792 90% $36.27 $ 46,500,000
Sawgrass Office Portfolio Sunrise, FL 1997-2000 1997, 344,009 93% $14.61 $ 45,000,000
1999-2000
The Pointe on Tampa Bay Tampa, FL 1982(4) 2002 249,215 93% $23.45 $ 41,239,643
Maitland Promenade One Maitland, FL 1999 2000 227,814 95% $21.08 $ 37,600,000
Columbia Centre III Rosemont, IL 1989 1997 238,696 79% $18.89 $ 33,800,000
Monument Place Fairfax, VA 1990 1999 221,538 91% $20.28 $ 33,500,000
BISYS Fund Services
Building(6) Eaton, OH 1995; 2002 1999; 2002 155,964 100% $ 8.41 $ 34,700,000
Fairgate at Ballston(5) Arlington, VA 1988 1997 137,117 99% $29.67 $ 30,700,000
Biltmore Commerce Center Phoenix, AZ 1985 1999 259,792 66% $ 6.75 $ 28,394,213
10 Waterview Boulevard Parsippany, NJ 1984 1999 209,553 60% $16.02 $ 27,000,000
Needham Corporate Center Needham, MA 1987 2001 138,684 97% $26.15 $ 26,500,000
Tysons Executive Plaza II(7) McLean, VA 1988 2000 252,552 97% $25.05 $ 25,632,730
Longview Executive Park(5) Hunt Valley, MD 1988 1997 258,999 89% $11.50 $ 24,990,805
Columbus Portfolio 259,626 $12.18 $ 23,600,000
Metro South Building Dublin, OH 1997 1999 90,726 72% --
Vision Service Plan Building Eaton, OH 1997 1999 50,000 100% --
One Metro Place Dublin, OH 1998 2001 118,900 97% --
9 Hutton Centre Santa Ana, CA 1990 2001 148,265 85% $16.79 $ 19,425,493
Five Centerpointe(5) Lake Oswego, OR 1988 1997 113,910 70% $21.60 $ 16,002,154
Batterymarch Park II Quincy, MA 1986 2001 104,718 88% $21.60 $ 15,000,000
371 Hoes Lane Piscataway, NJ 1986 1997 139,670 30% $10.38 $ 10,817,795
Northmark Business Center(5) Blue Ash, OH 1985 1997 108,561 83% $12.35 $ 8,000,000
-------------
SUBTOTAL--OFFICE PROPERTIES $1,837,546,777
INDUSTRIAL PROPERTIES
Dallas Industrial Portfolio Dallas and 1997- 2000- 3,763,886 94% $2.95 $ 136,034,954
(formerly Parkwest Center) Coppell, TX 2001 2002
Ontario Industrial Portfolio 2,698,717 100% $3.41 $ 108,000,000
Timberland Building Ontario, CA 1998 1998 414,435 --
5200 Airport Drive Ontario, CA 1997 1998 404,500 --
1200 S. Etiwanda Ave. Ontario, CA 1998 1998 223,170 --
Park Mira Loma West Mira Loma, CA 1998 1998 557,500 --
Wineville Center Buildings Mira Loma, CA 1999 2000 1,099,112 --
IDI Kentucky Portfolio
(formerly, Parkwest Int'l) 1,437,022 100% $3.20 $ 50,200,000
Building C Hebron, KY 1998 1998 520,000 --
Building D Hebron, KY 1998 1998 184,800 --
Building E Hebron, KY 2000 2000 207,222 --
Building J Hebron, KY 2000 2000 525,000 --
Chicago Industrial Portfolio Chicago and 1997- 1998; 866,064 90% $4.14 $ 40,100,000
(consolidation of Rockrun, Joliet, IL 2000 2000
Glen Pointe and Woodcreek
Business Parks)
4
ANNUAL AVG.
RENTABLE BASE RENT
YEAR YEAR AREA PERCENT PER LEASED MARKET
PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) VALUE(2)
- -------- -------- ----- --------- --------- ------- ---------- --------
INDUSTRIAL PROPERTIES (CONTINUED)
Atlanta Industrial Portfolio Lawrenceville, GA 1996-99 2000 1,145,693 92% $ 2.63 $ 38,400,000
Northpoint Commerce
Center Fullerton, CA 1990-94 2000 612,023 100% $ 5.85 $ 37,972,054
Cabot Industrial Portfolio(8) Rancho 2000- 2000; 1,214,475 47% $ 1.82 $ 41,586,565
Cucamonga, CA 2002 2001; 2002
South River Road Industrial Cranbury, NJ 1999 2001 626,071 82% $ 3.80 $ 32,800,000
Konica Photo Imaging
Headquarters Mahwah, NJ 1999 1999 168,000 100% $ 9.71 $ 17,900,000
Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $ 6.22 $ 15,200,000
Landmark at Salt Lake City Salt Lake City, UT 2000 2000 328,508 100% $ 3.98 $ 12,700,000
Building #4
UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $ 3.54 $ 11,500,000
FEDEX Distribution Facility Crofton, MD 1998 1998 111,191 100% $ 6.41 $ 7,500,000
Interstate Crossing Eagan, MN 1995 1996 131,380 79% $ 5.03 $ 6,304,905
Westinghouse Facility Coral Springs, FL 1997 1997 75,630 100% $ 8.02 $ 5,300,000
Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $ 3.00 $ 4,500,000
River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $ 4.19 $ 4,150,000
--------------
SUBTOTAL--INDUSTRIAL PROPERTIES $ 570,148,478
RETAIL PROPERTIES
The Florida Mall(9) Orlando, FL 1986(4) 2002 921,370(10) 93% $45.45 $ 84,997,624(11)
Westwood Marketplace Los Angeles, CA 1950(12) 2002 202,201 100% $27.25 $ 74,026,411
West Town Mall(9) Knoxville, TN 1972(4) 2002 684,777(10) 97% $29.96 $ 67,216,965(11)
Miami International Mall(9) Miami, FL 1982(4) 2002 290,299(10) 99% $36.39 $ 57,322,356(11)
Rolling Meadows Rolling Meadows, IL 1957(4) 1997 130,909 99% $10.69 $ 12,850,000
Plantation Grove Ocoee, FL 1995 1995 73,655 100% $10.53 $ 8,200,000
The Lynnwood Collection Raleigh, NC 1988 1996 86,362 92% $ 7.95 $ 7,983,285
The Millbrook Collection Raleigh, NC 1988 1996 102,221 82% $ 6.19 $ 7,000,000
--------------
SUBTOTAL--RETAIL PROPERTIES $ 319,596,641
--------------
SUBTOTAL--COMMERCIAL PROPERTIES $2,727,291,896
RESIDENTIAL PROPERTIES(13)
The Legacy at Westwood
Apartments Los Angeles, CA 2001 2002 NA 97% NA $ 85,075,210
Longwood Towers Brookline, MA 1926(4) 2002 NA 87% NA $ 80,202,248
Ashford Meadows Apartments Herndon, VA 1998 2000 NA 94% NA $ 62,000,000
The Colorado New York, NY 1987 1999 NA 94% NA $ 55,702,614
Larkspur Courts Larkspur, CA 1991 1999 NA 94% NA $ 55,014,500
Regents Court Apartments San Diego, CA 2001 2002 NA 94% NA $ 49,567,031
South Florida Apartment Boca Raton and 1986 2001 NA 95% NA $ 46,800,000
Portfolio Plantation, FL
Alexan Buckhead Atlanta, GA 2002 2002 NA 24%(14) NA $ 45,739,570
5
ANNUAL AVG.
RENTABLE BASE RENT
YEAR YEAR AREA PERCENT PER LEASED MARKET
PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) VALUE(2)
- -------- -------- ----- --------- --------- ------- ---------- --------
RESIDENTIAL PROPERTIES(13) (CONTINUED)
Doral Pointe Apartments Miami, FL 1990 2001 NA 95% NA $ 43,507,416
The Lodge at Willow Creek Denver, CO 1997 1997 NA 86% NA $ 31,000,000
Golfview Apartments Lake Mary, FL 1998 1998 NA 95% NA $ 26,240,000
The Legends at Chase Oaks Plano, TX 1997 1998 NA 98% NA $ 26,000,000
Lincoln Woods Apartments Lafayette Hill, PA 1991 1997 NA 93% NA $ 24,676,180
Kenwood Mews Apartments Burbank, CA 1991 2001 NA 97% NA $ 22,700,000
Monte Vista Littleton, CO 1995 1996 NA 93% NA $ 20,499,262
Westcreek Apartments Westlake Village, CA 1988 1997 NA 97% NA $ 18,686,112
Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 99% NA $ 17,700,000
Quiet Waters at Coquina Lakes Deerfield Beach, FL 1995 2001 NA 97% NA $ 17,600,000
Royal St. George W. Palm Beach, FL 1995 1996 NA 94% NA $ 17,100,000
The Fairways of Carolina Margate, FL 1993 2001 NA 98% NA $ 16,100,000
The Greens at Metrowest Orlando, FL 1990 1995 NA 93% NA $ 13,900,000
Apartments
Bent Tree Apartments Columbus, OH 1987 1998 NA 93% NA $ 13,400,000
--------------
SUBTOTAL--RESIDENTIAL NA $ 789,210,143
PROPERTIES
--------------
TOTAL--ALL PROPERTIES $3,516,502,039
==============
(1) Based on total contractual rent on leases existing at December 31, 2002. For
those properties purchased in 2002, the number was derived by annualizing the
rents charged by the Account since acquiring the property.
(2) Market value reflects the value determined in accordance with the procedures
described in the Account's prospectus and as stated in the Consolidated
Statement of Investments.
(3) The Account purchased a 50.25% interest in a private REIT which owns this
property. The remaining 49.70% is owned by Societe Immobiler Trans-Quebec,
and .05% is owned by 100 individuals.
(4) Undergone extensive renovations since original construction.
(5) Purchased through Light Street Partners, L.P. (now 100% owned by the
Account).
(6) Property held in 96%/4% joint venture with Georgetown BISYS Phase II LLC.
Phase II was purchased in 2002.
(7) Property held in 50%/50% joint venture with Tennessee Consolidated
Retirement System. Market value shown reflects the value of the Account's
interest in the property.
(8) The property is held in an 80%/20% joint venture with Cabot Industrial
Trust.
(9) Each property is held in an approximately 50%/50% joint venture with the
Simon Property Group.
(10) Reflects the square footage owned by the joint venture.
(11) Market value shown represents the Account's interest after debt.
(12) Total renovation completed in 2001.
(13) For the average unit size and annual average rent per unit for each
residential property, see "Residential Properties" below.
(14) This property was completed in late 2002 and is currently in its lease-up
phase. At closing, an escrow was established to provide the Account with a 7%
return on this property during the first twelve months of ownership.
COMMERCIAL (NON-RESIDENTIAL) PROPERTIES
IN GENERAL. At December 31, 2002, the Account held 55 commercial
(non-residential) properties in its portfolio. Three of these properties, which
are held through joint ventures, are subject to mortgages. Although the terms
vary under each lease, certain expenses, such as real estate taxes and other
operating expenses, are paid or reimbursed by the tenants.
The Account had a portfolio of 30 office properties containing
approximately 8.8 million square feet located in 12 states and the District of
Columbia, 17 industrial properties containing 14 million square feet located in
11 states, and 8 retail properties containing approximately 2.6 million square
feet located in 5 states.
6
As of December 31, 2002, the overall occupancy rate of Account's real
estate portfolio was 92% on a weighted average basis. Office properties were 90%
leased with 770 leases, industrial properties were 92% leased with 116 leases,
and retail properties were 96% leased with 521 leases. No single tenant accounts
for more than 4.8% of the total rentable area of the Account's commercial
properties.
RESIDENTIAL PROPERTIES
The Account's residential property portfolio currently consists of 22
first class or luxury multi-family garden apartment complexes, mid-rise and high
rise apartment buildings containing approximately 5,796 units located in 11
states and the District of Columbia. The overall occupancy rate for the
residential properties is 94%. None of the residential properties in the
portfolio is subject to a mortgage. The complexes generally contain one- to
three-bedroom apartment units, with a range of amenities, such as patios or
balconies, washers and dryers, and central air conditioning. Many of these
apartment communities have use of on-site fitness facilities, including some
with swimming pools. Rents on each of the properties tend to be comparable with
competitive communities and are not subject to rent regulation. The Account is
responsible for the expenses of operating the properties.
In the table below you will find additional information regarding the
residential properties in the Account's portfolio as of December 31, 2002.
AVERAGE AVG. RENT
NUMBER UNIT SIZE PER UNIT/
PROPERTY LOCATION OF UNITS (SQUARE FEET) PER MONTH
- ------------------------------------------------------------------------------------------------------------
The Legacy at Westwood Apartments Los Angeles, CA 187 1,180 $4,070.93
Longwood Towers Brookline, MA 268 938 $2,541.80
Ashford Meadows Herndon, VA 440 1,050 $1,473.40
The Colorado New York, NY 254 622 $2,573.11
Larkspur Courts Larkspur, CA 248 1,001 $2,015.84
Regents Court Apartments San Diego, CA 251 886 $1,535.03
South Florida Apartment Portfolio Boca Raton, Plantation, FL 550 889 $1,057.59
Alexan Buckhead Atlanta, GA 230 984 $1,532.00
Doral Pointe Apartments Miami, FL 440 1,150 $1,162.93
The Lodge at Willow Creek Denver, CO 316 996 $1,219.66
Golfview Apartments Lake Mary, FL 277 1,134 $1,170.89
The Legends at Chase Oaks Plano, TX 346 972 $1,058.60
Lincoln Woods Apartments Lafayette Hill, PA 216 774 $1,140.45
Kenwood Mews Apartments Burbank, CA 141 942 $1,424.00
Monte Vista Littleton, CO 219 888 $1,099.65
Westcreek Apartments Westlake Village, CA 126 951 $1,571.71
Indian Creek Apartments Farmington Hills, MI 196 1,139 $1,011.11
Quiet Waters at Coquina Lakes Deerfield Beach, FL 200 1,048 $1,099.07
Royal St. George West Palm Beach, FL 224 870 $ 983.32
The Fairways of Carolina Margate, FL 208 1,026 $1,024.33
The Greens at Metrowest Apartments Orlando, FL 203 920 $ 867.15
Bent Tree Apartments Columbus, OH 256 928 $ 739.73
RECENT PROPERTY PURCHASES AND SALES
THE FOLLOWING DESCRIBES A RECENT PROPERTY SALE BY THE ACCOUNT. WHEN
REVIEWING THIS INFORMATION, IT IS IMPORTANT TO KEEP IN MIND THAT ANY CHANGES IN
THE VALUATION OF THE PROPERTY SINCE IT WAS PURCHASED HAVE BEEN REFLECTED IN THE
ACOUNT'S DAILY UNIT VALUE OVER THE PERIOD THE ACCOUNT HELD THE PROPERTY.
7
On January 9, 2003, the Account sold one industrial property building
(the Westinghouse Facility) located in Coral Springs, Florida for approximately
$5.4 million. The Account had purchased the building in February, 1997 at a cost
of approximately $6.1 million.
ITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. There is no established public trading market
for participating interests in the TIAA Real Estate Account. Accumulation units
in the Account are sold to eligible participants at the Account's current
accumulation unit value, which is based on the value of the Account's then
current net assets. For the period from January 1, 2002 to December 31, 2002,
the high and low accumulation unit values for the Account were $173.899 and
$168.224, respectively.
(b) APPROXIMATE NUMBER OF HOLDERS. The number of contract owners at
February 28, 2003 was 524,633.
(c) DIVIDENDS. Not applicable.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be considered in
conjunction with the Account's consolidated financial statements and notes
provided in this report.
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
Investment income:
Real estate income, net:
Rental income .............. $308,948,225 $253,839,662 $192,894,812 $129,523,631 $ 78,404,412 $ 41,686,852 $ 9,504,481
------------ ------------ ------------ ------------ ------------ ------------ ------------
Real estate property level
expenses and taxes:
Operating expenses ......... 67,604,266 52,274,213 39,876,941 27,177,841 17,192,385 8,843,562 1,995,822
Real estate taxes .......... 38,410,380 29,408,054 22,604,315 15,631,453 8,755,526 4,234,044 1,053,703
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total real estate property
level expenses and taxes . 106,014,646 81,682,267 62,481,256 42,809,294 25,947,911 13,077,606 3,049,525
------------ ------------ ------------ ------------ ------------ ------------ ------------
Real estate income, net .. 202,933,579 172,157,395 130,413,556 86,714,337 52,456,501 28,609,246 6,454,956
Income from real estate
joint ventures ................ 14,125,306 2,392,594 756,133 -- -- -- --
Dividends and interest ......... 26,437,901 33,687,343 31,334,291 24,932,733 23,943,728 16,486,279 6,027,486
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total investment income .. 243,496,786 208,237,332 162,503,980 111,647,070 76,400,229 45,095,525 12,482,442
Expenses ....................... 23,304,336 17,191,929 13,424,566 9,278,410 6,274,594 3,526,545 1,155,796
------------ ------------ ------------ ------------ ------------ ------------ ------------
Investment income, net ... 220,192,450 191,045,403 149,079,414 102,368,660 70,125,635 41,568,980 11,326,646
Net realized and unrealized
gain on investments ........... (106,424,480) (23,485,614) 54,147,449 9,834,743 7,864,659 18,147,053 3,330,539
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations
before minority interest and
discontinued operations ....... 113,767,970 167,559,789 203,226,863 112,203,403 77,990,294 59,716,033 14,657,185
Minority interest .............. (1,484,585) (811,789) -- 1,364,619 (3,487,991) (1,881,178) --
Discontinued operations ........ 3,958,653 2,470,985 2,215,831 2,375,745 2,109,359 2,236,545 1,125,730
Participant transactions ....... 346,079,345 657,326,121 486,196,949 383,171,774 333,936,510 356,052,262 233,653,793
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets ..... $462,321,383 $826,545,106 $691,639,643 $499,115,541 $410,548,172 $416,123,662 $249,436,708
============ ============ ============ ============ ============ ============ ============
JULY 3, 1995
(COMMENCEMENT
OF OPERATIONS)
TO DECEMBER 31,
1995
----
$ 165,762
- ------------
29,173
14,659
- ------------
43,832
- ------------
121,930
--
2,828,900
- ------------
2,950,830
310,433
- ------------
2,640,397
35,603
- ------------
2,676,000
--
--
117,582,345
- ------------
$120,258,345
============
8
DECEMBER 31,
2002 2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
Total assets ............ $3,870,532,278 $3,270,384,450 $2,423,100,402 $1,719,457,715 $1,229,603,431 $815,760,825 $426,372,007
Total liabilities and
minority interest ...... 194,543,718 56,717,273 35,978,331 23,975,287 33,236,544 29,942,110 56,676,954
-------------- -------------- -------------- -------------- -------------- ------------ ------------
Total net assets ........ $3,675,988,560 $3,213,667,177 $2,387,122,071 $1,695,482,428 $1,196,366,887 $785,818,715 $369,695,053
============== ============== ============== ============== ============== ============ ============
Accumulation units
outstanding ........... 20,346,696 18,456,445 14,604,673 11,487,360 8,833,911 6,313,015 3,295,786
Accumulation unit value . $173.90 $168.16 $158.21 $142.97 $132.17 $122.30 $111.11
======= ======= ======= ======= ======= ======= =======
1995
----
$143,177,421
22,919,076
------------
$120,258,345
============
1,172,498
$102.57
=======
QUARTERLY SELECTED FINANCIAL INFORMATION
The following is selected financial information for the Account for each full
quarter within the past two calendar years:
2002
FOR THE THREE MONTHS ENDED
------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Investment income, net $47,812,962 $54,419,265 $55,532,867 $62,427,356
Net realized gain (loss)
on investments 4,320,393 3,091,947 1,428,243 (1,914,498)
Net unrealized gain (loss)
on investments (29,088,106) (20,049,625) (30,606,185) (33,606,649)
Minority interest (119,166) (521,681) 42,020 (885,758)
Discontinued operations 2,181,256 1,777,397 -- --
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations $25,107,339 $38,717,303 $26,396,945 $26,020,451
=========== =========== =========== ===========
Total return 0.77% 1.13% 0.75% 0.72%
==== ==== ==== ====
2001
FOR THE THREE MONTHS ENDED
------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Investment income, net $44,988,150 $47,346,855 $49,788,149 $48,922,249
Net realized gain (loss)
on investments 978,396 514,453 759,534 (3,522,087)
Net unrealized gain (loss)
on investments (4,436,522) 11,549,836 (8,110,459) (21,218,765)
Minority interest -- (448,023) (213,578) (150,188)
Discontinued operations 276,485 585,167 697,453 911,880
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations $41,806,509 $59,548,288 $42,921,099 $24,943,089
=========== =========== =========== ===========
Total return 1.67% 2.21% 1.46% 0.82%
==== ==== ==== ====
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ACCOUNT'S FINANCIAL CONDITION
AND OPERATING RESULTS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ TOGETHER WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES CONTAINED IN THIS REPORT.
As of December 31, 2002, the TIAA Real Estate Account owned a total of
77 real estate properties, representing 92.56% of the Account's total investment
portfolio. These included 30 office properties (three of which are held in joint
venture), 17 industrial properties (including one development joint venture
project), 22 apartment complexes, and 8 retail properties (including the three
joint ventures that each own a regional mall in which the Account owns an
approximately 50% partnership interest). The following chart breaks down the
Account's real estate assets by region and property type, based on the market
values of the properties as stated in the consolidated financial statements:
EAST MIDWEST SOUTH WEST TOTAL
(26) (12) (21) (18) (77)
------- ------- ------- ------- -------
Office (30) 34.0% 6.2% 8.4% 3.7% 52.3%
Industrial (17) 3.1% 1.4% 5.2% 6.5% 16.2%
Residential (22) 6.3% 0.9% 7.2% 8.0% 22.4%
Retail (8) 0.4% 0.4% 6.2% 2.1% 9.1%
----- ---- ----- ----- ------
TOTAL (77) 43.8% 8.9% 27.0% 20.3% 100.0%
( ) Number of properties in parentheses.
The following table lists the Account's 10 largest properties by market
value as of December 31, 2002:
MARKET VALUE % OF NET
PROPERTY NAME STATE PROPERTY TYPE (000,000) ASSETS
- ------------- ----- ------------ ----------- -------
Mellon Financial Center at One Boston Place MA Office $261.9* 7.12%*
780 Third Avenue NY Office $178.5 4.86%
701 Brickell FL Office $172.1 4.68%
1801 K Street, N.W. DC Office $162.6 4.42%
Ten & Twenty Westport Road CT Office $140.0 3.81%
Dallas Industrial Portfolio TX Industrial $136.0 3.70%
Ontario Industrial Portfolio CA Industrial $108.0 2.94%
Morris Corporate Center III NJ Office $ 92.4 2.51%
The Legacy at Westwood Apartments CA Residential $ 85.1 2.31%
The Florida Mall** FL Retail $ 85.0 2.31%
* This amount reflects the market value of the property, as stated in the
Consolidated Financial Statements, which includes minority interests. The
market value of the Account's interest in the property is $131.6 million,
which represents 3.58% of the Account's net assets.
** This property is held in joint venture and is subject to debt. The market
value reflects the Account's interest in the joint venture after debt.
The Account closed 19 transactions in 2002 in the total net amount of
$1.1 billion. It purchased 16 properties: seven office properties, including two
joint ventures, four apartment properties, four retail properties and one
industrial property for a total of $1.1 billion. In
10
addition, the Account made a commitment of $25 million for one real
estate-related fund investment and sold two properties (one office and one
industrial) for a total of $26 million. The Account continues to pursue suitable
real estate properties for acquisition.
As of December 31, 2002, the Account also held investments in real
estate investment trusts (REITs), representing 2.87% of the portfolio,
commercial mortgage backed securities (CMBS), representing 1.16% of the
portfolio, real estate limited partnerships, representing 0.31% of the portfolio
and commercial paper and government bonds, representing 3.10% of the portfolio.
REAL ESTATE MARKET OUTLOOK IN GENERAL
We believe the outlook for the commercial real estate market is clouded
by persistent weakness in the U.S. economy and the uncertainties of war. These
uncertainties make businesses cautious about hiring and making new space
commitments. Of positive note are the continued growth in U.S. GDP (gross
domestic product, a basic economic indicator), the ongoing improvement in
business productivity, and an increase in hiring by temporary help firms, which
often precedes full-time hiring. In addition, office and warehouse construction
have declined sharply, which should ultimately improve supply/demand
fundamentals when employment growth resumes. Nonetheless, the timing and
strength of the economic recovery are not predictable.
RESULTS OF OPERATIONS
WHEN REVIEWING THIS DISCUSSION, IT IS IMPORTANT TO NOTE THAT WHEN THE
ACCOUNT OWNS A CONTROLLING INTEREST (OVER 50%) IN A JOINT VENTURE, CONSISTENT
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP), THE ACCOUNT'S CONSOLIDATED
FINANCIAL STATEMENTS AND ALL FINANCIAL DATA DISCUSSED IN THE REPORT REFLECT 100%
OF THE MARKET VALUE OF THE JOINT VENTURE'S ASSETS. THE INTERESTS OF THE OTHER
JOINT VENTURE PARTNERS ARE REFLECTED AS MINORITY INTERESTS IN THE ACCOUNT'S
CONSOLIDATED FINANCIAL STATEMENTS. WHEN THE ACCOUNT DOES NOT HAVE A CONTROLLING
INTEREST IN A JOINT VENTURE, THEN ONLY THE ACCOUNT'S NET INVESTMENT IN THE JOINT
VENTURE IS RECORDED BY THE ACCOUNT.
NOTE ALSO THAT ALL OF THE ACCOUNT'S PROPERTIES ARE APPRAISED AND
REVALUED ON A QUARTERLY BASIS, IN ACCORDANCE WITH THE VALUATION POLICIES
DESCRIBED IN NOTE 1 TO THE CONSOLIDATED FINANCIAL STATEMENTS. UNTIL A PROPERTY
IS SOLD, THESE CHANGES IN PROPERTY VALUES ARE RECORDED AS UNREALIZED GAINS OR
LOSSES. UPON THE SALE OF A PROPERTY, THE DIFFERENCE BETWEEN THE ACCOUNT'S THEN
CURRENT COST FOR THE PROPERTY (ORIGINAL PURCHASE PRICE PLUS THE COST OF ANY
CAPITAL IMPROVEMENTS MADE) AND THE SALE PRICE IS RECORDED AS A REALIZED GAIN OR
LOSS.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO
YEAR ENDED DECEMBER 31, 2001
RESULTS FROM CONTINUING OPERATIONS
The Account's total net return was 3.41% for the year ended December
31, 2002 and 6.29% for 2001. The substantial decline in the Account's overall
performance on a year-to-year basis reflects the continuing effects of the
economic recession, which began in early 2001, and persisted throughout 2002.
The decline in the 2002 performance of the Account's real estate and real
estate-related assets from its 2001 performance had the largest negative impact
on the Account's total net return. The real estate properties owned by the
Account experienced continued declines in value due to deteriorating market
conditions. The negative impact of the recessionary economy was reflected in
lower market rental rates, higher vacancies, and increased leasing costs and
tenant concessions. In 2002, the Account's real estate properties, however,
continued to produce strong income returns, and at year end 2002, the
non-residential property portfolio was 92% occupied overall with only 10% of the
non-residential property portfolio's square footage up for renewal or re-leasing
in 2003.
The modest returns produced by the REIT markets in 2002, as well as the
low interest rates earned by its short-term holdings, also negatively affected
the Account's overall performance.
11
The Account's net investment income after deduction of all expenses was
15.26% higher for the year ended December 31, 2002 compared to the same period
in 2001 primarily due to a 14.39% increase in total net assets and an 49.16%
increase in the Account's real estate holdings over the same period.
The Account's real estate holdings, including joint venture
investments, generated approximately 89% and 84% of the Account's total
investment income (before deducting Account level expenses) during 2002 and
2001, respectively. The remaining portion of the Account's total investment
income was generated by marketable securities investments.
Gross real estate rental income increased approximately 22% in the year
ended December 31, 2002 over the same period in 2001. This increase was
primarily due to the increase in the number of properties owned by the Account
from 65 properties as of December 31, 2001 to 77 properties (including joint
ventures) as of December 31, 2002. Income from real estate joint ventures was
$14,125,306 vs. $2,392,594, respectively for the same periods. This increase was
due to an increase in the number of joint venture partnership interests owned by
the Account in the year ended December 31, 2002. Interest income on the
Account's marketable securities investments decreased from $24,490,376 for 2001
to $13,546,694 for 2002 due to a decline in short-term rates from 2001 to 2002
and the decrease in the amount of non-real estate assets held by the Account.
Dividend income on the Account's REIT investments increased from $9,196,967 for
the year ended December 31, 2001 to $12,891,207 for the year ended December 31,
2002.
Total property level expenses for the year ended December 31, 2002 and
2001 were $106,014,646, and $81,682,267, respectively. In both years ended 2002
and 2001, 64% of the total expenses represented operating expenses and 36%
represented real estate taxes. The 30% increase in property level expenses
during 2002 reflected the increased number of properties in the Account, as well
as an increase in operating expenses.
The Account also incurred expenses for the years ended December 31,
2002 and 2001 of $9,495,736 and $5,896,729, respectively, for investment
advisory services, $10,390,705 and $8,470,496, respectively, for administrative
and distribution services and $3,417,895 and $2,824,704, respectively, for the
mortality and expense risk charges and the liquidity guarantee charges. Such
expenses increased primarily as a result of the larger net asset base in the
Account and increased costs associated with managing and administering a larger
account. The expenses for investment advisory services for the year ended
December 31, 2001 also were substantially lower than those in 2002 since they
included adjustments related to fourth quarter 2000 expenses.
The Account had net realized and unrealized losses on investments of
$106,424,480 and $23,485,614 for the years ended December 31, 2002 and 2001,
respectively. The unrealized losses were primarily due to the continued decrease
in the aggregate market value of the Account's real estate holdings amounting to
$94,447,265 during 2002, as compared to unrealized losses of $26,611,066 during
2001. The Account's marketable securities in the year ended December 31, 2002
had net realized and unrealized losses totaling $6,195,855 and net realized and
unrealized gains of $5,231,736 for the year ended December 31, 2001. For the
year
12
ended December 31, 2002, the Account's investments in other real estate-related
investments had net unrealized losses of $5,781,360 as compared to net
unrealized gains of $2,002,837 for the year ended December 31, 2001.
RESULTS FROM DISCONTINUED OPERATIONS
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS No. 144"). The Account
adopted SFAS No. 144 as of January 1, 2002. During the year ended December 31,
2002, the Account sold two real estate properties. In accordance with SFAS No.
144, the investment income and realized gain for the years ended December 31,
2002, 2001, and 2000 relating to those properties were removed from continuing
operations in the accompanying financial statements and classified as
discontinued operations. The income from the two properties, one sold on January
31, 2002 and one sold on April 30, 2002, for the year ended December 31, 2002
consisted of rental income of $643,564 less operating expenses of $68,031 and
real estate taxes of $74,076, resulting in net investment income of $501,457.
The income from these two properties sold in 2002 for the full year ended
December 31, 2001 consisted of rental income of $2,915,653 less operating
expenses of $182,266 and real estate taxes of $262,402, resulting in net
investment income of $2,470,985. The net investment income represents income for
the properties for one month and four months, respectively, for the year ended
December 31, 2002 and twelve months in 2001. At the time of sale, the properties
had a cost of $22,592,804 and the proceeds of sale were $26,050,000, resulting
in a net realized gain of $3,457,196.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO
YEAR ENDED DECEMBER 31, 2000
The Account's total net return was 6.29% for the year ended December
31, 2001 and 10.66% for 2000. The 2001 performance of each of the Account's
asset types, i.e., real estate, REITs and commercial paper, declined as compared
to 2000, with the decline in the value of the Account's real estate having the
largest impact. The Account's net investment income, after deducting all
expenses, was $191,045,403 for the year ended December 31, 2001 and $149,079,414
for 2000, a 28% increase. This increase was the result of a 35% increase in net
assets and an increase in the Account's real estate holdings from December 31,
2000 to December 31, 2001. The Account had net realized and unrealized losses on
investments of $23,485,614 for the year ended December 31, 2001, compared with
the net realized and unrealized gains on its investments of $54,147,449 for
2000. This difference was primarily due to the decrease of $26,611,066 in the
aggregate market value of the Account's real estate holdings during 2001, as
compared to 2000, during which the Account's holdings experienced a $22,257,781
market value increase. The Account's net realized losses in 2001 were primarily
due to the sale of certain properties identified as sales candidates because
they no longer met the Account's investment objectives or were located in
markets that were experiencing declining economic conditions. The Account's
investments in marketable securities had modest realized and unrealized gains in
2001 totaling $5,231,736, as compared to substantial net gains of $22,145,715 in
2000.
13
The Account's real estate holdings, including real estate joint
ventures, generated approximately 84% of the Account's total investment income
(before deducting Account level expenses) during 2001 compared with 81% during
2000. The remaining portion of the Account's total investment income was
generated by investments in marketable securities.
Gross real estate rental income was $253,839,662 for the year ended
December 31, 2001 and $192,894,812 for the same period in 2000. This increase
was primarily due to the increase in the number of properties owned by the
Account, from 60 properties at the end of 2000 to 65 properties at the end of
2001. Interest income on the Account's short-term investments for 2001 and 2000
totaled $24,490,376 and $24,294,579, respectively. Dividend income on the
Account's REIT investments totaled $9,196,967 and $7,039,712, respectively, for
the same periods.
Total property level expenses for the years ended December 31, 2001 and
2000 were $81,682,267 and $62,481,256, respectively. For both years, 64% of
total expenses represented operating expenses and 36% represented real estate
taxes. The increase in property level expenses during 2001 reflected the
increased number of properties in the Account.
The Account incurred expenses for the years ended December 31, 2001 and
2000 of $5,896,729 and $6,924,202, respectively, for investment advisory
services, $8,470,496 and $4,392,882, respectively, for administrative and
distribution services, and $2,824,704 and $2,107,482, respectively, for
mortality and expense risk charges and liquidity guarantee charges. Such
expenses generally increased as a result of the larger net asset base in the
Account. The expenses for investment advisory services in 2001, however,
decreased because they included an expense adjustment credit in the first
quarter of 2001 to reflect a change in the way certain investment expenses were
allocated to the Account.
LIQUIDITY AND CAPITAL RESOURCES
At year end 2002 and 2001, the Account's liquid assets (i.e., its
REITs, CMBSs, commercial paper, government securities and cash) had a value of
$271,568,803 and $853,769,802, respectively. The decline in the Account's liquid
assets was primarily due to the Account's increased investment in real estate.
During 2002, the Account received $395,464,695 in premiums and
$64,698,804 in net participants transfers from the TIAA and CREF Accounts, while
for the same time period in 2001, the Account received $254,149,962 in premiums
and $486,614,583 in net participant transfers from other TIAA and CREF accounts.
The slowdown in net participant transfers into the Account in 2002 is contrasted
against the unprecedented volume of net participant's transfers in 2001. Real
estate properties costing approximately $1.1 billion and $538.4 million were
purchased during 2002 and 2001, respectively. In 2002, the Account also received
approximately $26 million in proceeds from the sale of one office and one
industrial property. The Account's liquid assets, exclusive of the REITs, will
continue to be available to purchase additional suitable real estate properties
and to meet expense needs and redemption requests (i.e., cash withdrawals or
transfers). In the unlikely event that the Account's liquid assets and its
14
cash flow from operating activities and participant transactions are not
sufficient to meet its cash needs, including redemption requests, TIAA's general
account will purchase liquidity units in accordance with TIAA's liquidity
guarantee to the Account.
The Account, under certain conditions more fully described in the
Account's prospectus, may borrow money and assume or obtain a mortgage on a
property -- i.e., to make leveraged real estate investments. Also, to meet any
short-term cash needs, the Account may obtain a line of credit whose terms may
require that the Account secure a loan with one or more of its properties. The
Account's total borrowings may not exceed 20% of the Account's total net asset
value.
EFFECTS OF INFLATION AND INCREASING OPERATING EXPENSES
Inflation, along with increased insurance and security costs, may
increase property operating expenses in the future. We anticipate that these
increases in operating expenses will generally be billed to tenants either
through contractual lease provisions in office, industrial, and retail
properties or through rent increases in apartment complexes. However, depending
on how long any vacant space in a property remains unleased, the Account may not
be able to recover the full amount of such increases in operating expenses.
CRITICAL ACCOUNTING POLICIES
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE ACCOUNT AND ITS
SUBSIDIARIES ARE PREPARED IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES.
In preparing the Account's consolidated financial statements,
management is required to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. Management bases its
estimates on historical experience and assumptions that are believed to be
reasonable under the circumstances -- the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes that the following policies relating to the
valuation of the Account's assets reflected in the Account's consolidated
financial statements affect the significant judgments, estimates and assumptions
used in preparing its financial statements:
VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate
properties are stated at fair value, as determined in accordance with procedures
approved by the Investment Committee of the Board of Trustees. Fair value for
real estate properties is defined as the most probable price for which a
property will sell in a competitive market under all conditions requisite to a
fair sale. Determining fair value involves subjective judgment because the
actual market value of real estate can be determined only by negotiation between
the parties in a sales transaction. The Account's properties are initially
valued at their respective purchase prices (including acquisition costs).
Subsequently, independent appraisers value each real estate property at least
once a year. TIAA's appraisal staff performs a valuation of each real estate
property on a quarterly basis and updates the property value if it believes that
the value of the
15
property has changed since the previous valuation or appraisal. The appraisals
are performed in accordance with Uniform Standards of Professional Appraisal
Practices (USPAP), 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.
VALUATION OF MORTGAGES: Mortgages are initially valued at their face
amount. Fixed rate mortgages thereafter are valued quarterly by discounting
payments of principal and interest to their present value using a rate at which
commercial lenders would make similar mortgage loans. Floating variable rate
mortgages are generally valued at their face amount, although the value may be
adjusted as market conditions dictate.
VALUATION OF REAL ESTATE JOINT VENTURES: Real estate joint ventures are
stated at the Account's equity in the net assets of the underlying entity, which
value their real estate holdings at fair value.
VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded
on any United States national securities exchange are valued at the last sale
price as of the close of the principal securities exchange on which such
securities are traded or, if there is no sale, at the mean of the last bid and
asked prices on such exchange. Short-term money market instruments are stated at
market value. Portfolio securities and limited partnership interests for which
market quotations are not readily available are valued at fair value as
determined in good faith under the direction of the Investment Committee of the
Board of Trustees and in accordance with the responsibilities of the Board as a
whole.
FORWARD-LOOKING STATEMENTS
Some statements in this report which are not historical facts may be
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements about our expectations, beliefs,
intentions or strategies for the future, and the assumptions underlying these
forward-looking statements. Forward-looking statements involve risks and
uncertainties that 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 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, future events or otherwise.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
- --------------------------------------------------------------------------------
Page
----
Report of Management Responsibility ...................................... 18
Report of Audit Committee ................................................ 19
Audited Consolidated Financial Statements:
Consolidated Statements of Assets and Liabilities ...................... 20
Consolidated Statements of Operations .................................. 21
Consolidated Statements of Changes in Net Assets ....................... 22
Consolidated Statements of Cash Flows .................................. 23
Notes to Consolidated Financial Statements ............................. 24
Report of Independent Auditors. ........................................ 29
Consolidated Statement of Investments .................................. 30
Schedule III - Real Estate Owned ......................................... 34
All other schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule or because the
information is included in the financial statements and notes thereto.
17
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT RESPONSIBILITY
To the Participants of the
TIAA Real Estate Account:
The accompanying consolidated financial statements of the TIAA Real Estate
Account ("Account") of Teachers Insurance and Annuity Association of America
("TIAA") are the responsibility of TIAA's management. They have been prepared in
accordance with accounting principles generally accepted in the United States
and have been presented fairly and objectively in accordance with such
principles.
TIAA has established and maintains a strong system of internal controls and
disclosure controls designed to provide reasonable assurance that assets are
properly safeguarded and transactions are properly executed in accordance with
management's authorization, and to carry out the ongoing responsibilities of
management for reliable financial statements. In addition, TIAA's internal audit
personnel provide a continuing review of the internal controls and operations of
TIAA, including its separate account operations, and the chief audit executive
regularly reports to the Audit Committee of the TIAA Board of Trustees.
The accompanying consolidated financial statements have been audited by the
independent auditing firm of Ernst & Young LLP. To maintain auditor independence
and avoid even the appearance of conflict of interest, it continues to be the
Account's policy that any management advisory or consulting services be obtained
from a firm other than the external financial audit firm. The independent
auditors' report, which follows the notes to consolidated financial statements,
expresses an independent opinion on the fairness of presentation of these
consolidated financial statements.
The Audit Committee of the TIAA Board of Trustees, consisting entirely of
trustees who are not officers of TIAA, meets regularly with management,
representatives of Ernst & Young LLP and internal audit personnel to review
matters relating to financial reporting, internal controls and auditing. In
addition to the annual audit of the Account's consolidated financial statements
by the independent auditing firm, the New York State Insurance Department and
other state insurance departments perform periodic examinations of the Account's
operations.
/s/ Herbert M. Allison, Jr.
-----------------------------
Chairman, President and
Chief Executive Officer
/s/ Richard L. Gibbs
-----------------------------
Executive Vice President and
Principal Accounting Officer
18
- --------------------------------------------------------------------------------
REPORT OF THE AUDIT COMMITTEE
To the Participants of the
TIAA Real Estate Account:
The TIAA Audit Committee oversees the financial reporting process of the TIAA
Real Estate Account ("Account") on behalf of TIAA's Board of Trustees. The Audit
Committee operates in accordance with a formal written charter (copies are
available upon request) which describes the Audit Committee's responsibilities.
All members of the Audit Committee ("Committee") are independent, as defined
under the listing standards of the New York Stock Exchange.
Management has the primary responsibility for the Account's consolidated
financial statements, development and maintenance of a strong system of internal
controls and disclosure controls, and compliance with applicable laws and
regulations. In fulfilling its oversight responsibilities, the Committee
reviewed and approved the audit plans of the internal auditing group and the
independent auditing firm in connection with their respective audits of the
Account. The Committee also meets regularly with the internal and independent
auditors, both with and without management present, to discuss the results of
their examinations, their evaluation of internal controls, and the overall
quality of financial reporting. The committee has direct responsibility for the
appointment, compensation and oversight of the independent auditing firm. As
required by its charter, the Committee will evaluate rotation of the external
financial audit firm whenever circumstances warrant, but in no event will the
evaluation be later than between their fifth and tenth year of service.
The Committee reviewed and discussed the accompanying audited consolidated
financial statements with management, including a discussion of the quality and
appropriateness of the accounting principles and financial reporting practices
followed, the reasonableness of significant judgments, and the clarity and
completeness of disclosures in the consolidated financial statements. The
Committee has also discussed the audited consolidated financial statements with
Ernst & Young LLP, the independent auditing firm responsible for expressing an
opinion on the conformity of these audited consolidated financial statements
with generally accepted accounting principles.
The discussion with Ernst & Young LLP focused on their judgments concerning the
quality and appropriateness of the accounting principles and financial reporting
practices followed by the Account, the clarity and completeness of the
consolidated financial statements and related disclosures, and other significant
matters, such as any significant changes in accounting policies, internal
controls, management judgments and estimates, and the nature of any
uncertainties or unusual transactions. In addition, the Committee discussed with
Ernst & Young LLP the auditors' independence from management and the Account and
has received a written disclosure regarding such independence, as required by
the Independence Standards Board.
Based on the review and discussions referred to above, the Committee has
approved the release of the accompanying audited consolidated financial
statements for publication and filing with appropriate regulatory authorities.
Willard T. Carleton, Audit Committee Chair
Leonard S. Simon, Audit Committee Member
Rosalie J. Wolf, Audit Committee Member
March 19, 2003
19
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, DECEMBER 31,
2002 2001
-------------- --------------
ASSETS
Investments, at value:
Real estate properties
(cost: $3,321,279,641 and $2,276,414,478) .............................. $3,281,332,364 $2,330,914,466
Mortgages
(cost: $--and $7,265,887) .............................................. -- 7,265,887
Other real estate related investments, including joint ventures
(cost: $249,182,234 and $30,925,755) ................................... 246,906,005 34,430,886
Marketable securities:
Real estate related
(cost: $163,146,056 and $301,967,699) ................................. 153,137,369 305,250,475
Other
(cost: $117,786,465 and $548,265,288) ................................. 117,934,570 548,243,870
Cash ..................................................................... 496,864 275,457
Other .................................................................... 70,725,106 44,003,409
-------------- --------------
TOTAL ASSETS 3,870,532,278 3,270,384,450
-------------- --------------
LIABILITIES
Accrued real estate property level expenses and taxes .................... 43,795,572 39,595,315
Security deposits held ................................................... 11,718,245 8,767,676
Other .................................................................... 868 618,289
-------------- --------------
TOTAL LIABILITIES 55,514,685 48,981,280
-------------- --------------
MINORITY INTEREST IN SUBSIDIARIES ........................................ 139,029,033 7,735,993
-------------- --------------
NET ASSETS
Accumulation Fund ....................................................... 3,538,288,326 3,103,639,556
Annuity Fund ............................................................ 137,700,234 110,027,621
-------------- --------------
TOTAL NET ASSETS $3,675,988,560 $3,213,667,177
============== ==============
NUMBER OF ACCUMULATION UNITS
OUTSTANDING--Notes 6 and 7 ............................................... 20,346,696 18,456,445
========== ==========
NET ASSET VALUE, PER ACCUMULATION UNIT--Note 6 ........................... $173.90 $168.16
======= =======
See notes to consolidated financial statements.
20
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------------------
2002 2001 2000
------------ ------------ ------------
INVESTMENT INCOME
Real estate income, net:
Rental income ................................................. $308,948,225 $253,839,662 $192,894,812
------------ ------------ ------------
Real estate property level expenses and taxes:
Operating expenses ........................................... 67,604,266 52,274,213 39,876,941
Real estate taxes ............................................ 38,410,380 29,408,054 22,604,315
------------ ------------ ------------
Total real estate property level expenses and taxes 106,014,646 81,682,267 62,481,256
------------ ------------ ------------
Real estate income, net 202,933,579 172,157,395 130,413,556
Income from real estate joint ventures ......................... 14,125,306 2,392,594 756,133
Interest ....................................................... 13,546,694 24,490,376 24,294,579
Dividends ...................................................... 12,891,207 9,196,967 7,039,712
------------ ------------ ------------
TOTAL INCOME 243,496,786 208,237,332 162,503,980
------------ ------------ ------------
Expenses -- Note 2:
Investment advisory charges ................................... 9,495,736 5,896,729 6,924,202
Administrative and distribution charges ....................... 10,390,705 8,470,496 4,392,882
Mortality and expense risk charges ............................ 2,430,240 1,987,604 1,414,888
Liquidity guarantee charges ................................... 987,655 837,100 692,594
------------ ------------ ------------
TOTAL EXPENSES 23,304,336 17,191,929 13,424,566
------------ ------------ ------------
INVESTMENT INCOME, NET 220,192,450 191,045,403 149,079,414
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Real estate properties ........................................ -- (4,109,121) 8,382,660
Marketable securities ......................................... 6,926,085 2,839,417 (106,726)
------------ ------------ ------------
Net realized gain (loss) on investments 6,926,085 (1,269,704) 8,275,934
------------ ------------ ------------
Net change in unrealized appreciation (depreciation) on:
Real estate properties ........................................ (94,447,265) (26,611,066) 22,257,781
Other real estate related investments ......................... (5,781,360) 2,002,837 1,361,293
Marketable securities ......................................... (13,121,940) 2,392,319 22,252,441
------------ ------------ ------------
Net change in unrealized appreciation (depreciation)
on investments (113,350,565) (22,215,910) 45,871,515
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (106,424,480) (23,485,614) 54,147,449
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
CONTINUING OPERATIONS BEFORE MINORITY
INTEREST AND DISCONTINUED OPERATIONS 113,767,970 167,559,789 203,226,863
Minority interest in net increase in net assets
resulting from operations (1,484,585) (811,789) --
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE DISCONTINUED OPERATIONS 112,283,385 166,748,000 203,226,863
------------ ------------ ------------
Discontinued operations -- Note 3:
Investment income from discontinued operations ................ 501,457 2,470,985 2,215,831
Realized gain from discontinued operations .................... 3,457,196 -- --
------------ ------------ ------------
Net increase in net assets resulting from discontinued operations 3,958,653 2,470,985 2,215,831
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $116,242,038 $169,218,985 $205,442,694
============ ============ ============
See notes to consolidated financial statements.
21
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
--------------------------------------------------
2002 2001 2000
-------------- -------------- --------------
FROM OPERATIONS
Investment income, net ......................................... $ 220,192,450 $ 191,045,403 $ 149,079,414
Net realized gain (loss) on investments ........................ 6,926,085 (1,269,704) 8,275,934
Net change in unrealized appreciation (depreciation)
on investments ................................................ (113,350,565) (22,215,910) 45,871,515
Minority interest in net increase in net assets
resulting from operations ..................................... (1,484,585) (811,789) --
Discontinued operations ........................................ 3,958,653 2,470,985 2,215,831
-------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 116,242,038 169,218,985 205,442,694
-------------- -------------- --------------
FROM PARTICIPANT TRANSACTIONS
Premiums ....................................................... 395,464,695 254,149,962 161,668,073
Net transfers from (to) TIAA ................................... (158,282,438) (6,241,427) 36,271,547
Net transfers from CREF Accounts ............................... 222,981,242 492,856,010 343,338,864
Annuity and other periodic payments ............................ (18,024,403) (13,710,081) (9,924,802)
Withdrawals and death benefits ................................. (96,059,751) (69,728,343) (45,156,733)
-------------- -------------- --------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 346,079,345 657,326,121 486,196,949
-------------- -------------- --------------
NET INCREASE IN NET ASSETS 462,321,383 826,545,106 691,639,643
NET ASSETS
Beginning of year .............................................. 3,213,667,177 2,387,122,071 1,695,482,428
-------------- -------------- --------------
End of year .................................................... $3,675,988,560 $3,213,667,177 $2,387,122,071
============== ============== ==============
See notes to consolidated financial statements.
22
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------------------
2002 2001 2000
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ........... $ 116,242,038 $ 169,218,985 $ 205,442,694
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
Increase in investments ....................................... (573,204,724) (836,986,805) (702,336,424)
Increase in other assets ...................................... (26,721,697) (10,737,652) (1,207,996)
Increase in accrued real estate property level expenses
and taxes .................................................... 1,713,246 15,199,279 5,970,708
Increase in security deposits held ............................ 2,950,569 1,949,704 1,268,013
Increase (decrease) in other liabilities ...................... 1,869,590 (1,117,817) 1,736,106
Increase in minority interest ................................. 131,293,040 4,707,776 3,028,217
------------- ------------- -------------
NET CASH USED IN
OPERATING ACTIVITIES (345,857,938) (657,766,530) (486,098,682)
------------- ------------- -------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums ....................................................... 395,464,695 254,149,962 161,668,073
Net transfers from (to) TIAA ................................... (158,282,438) (6,241,427) 36,271,547
Net transfers from CREF Accounts ............................... 222,981,242 492,856,010 343,338,864
Annuity and other periodic payments ............................ (18,024,403) (13,710,081) (9,924,802)
Withdrawals and death benefits ................................. (96,059,751) (69,728,343) (45,156,733)
------------- ------------- -------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 346,079,345 657,326,121 486,196,949
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 221,407 (440,409) 98,267
CASH
Beginning of year .............................................. 275,457 715,866 617,599
------------- ------------- -------------
End of year .................................................... $ 496,864 $ 275,457 $ 715,866
============= ============= =============
See notes to consolidated financial statements.
23
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The TIAA Real Estate Account ("Account") is a segregated investment account of
Teachers Insurance and Annuity Association of America ("TIAA") and was
established by resolution of TIAA's Board of Trustees on February 22, 1995,
under the insurance laws of the State of New York, for the purpose of funding
variable annuity contracts issued by TIAA. The Account holds various properties
in wholly-owned and majority-owned subsidiaries which are consolidated for
financial statement purposes. The investment objective of the Account is a
favorable long-term rate of return primarily through rental income and capital
appreciation from real estate investments owned by the Account. The Account also
invests in publicly-traded securities and other instruments to maintain adequate
liquidity for operating expenses, capital expenditures and to make benefit
payments. The financial statements were prepared in accordance with accounting
principles generally accepted in the United States which may require the use of
estimates made by management. Actual results may vary from those estimates. The
following is a summary of the significant accounting policies consistently
followed by the Account.
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the Account and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate properties are
stated at fair value, as determined in accordance with procedures approved by
the Investment Committee of the TIAA Board of Trustees and in accordance with
the responsibilities of the Board as a whole; accordingly, the Account does not
record depreciation. Fair value for real estate properties is defined as the
most probable price for which a property will sell in a competitive market under
all conditions requisite to a fair sale. Determination of fair value involves
subjective judgement because the actual market value of real estate can be
determined only by negotiation between the parties in a sales transaction. Real
estate properties owned by the Account are initially valued at their respective
purchase prices (including acquisition costs). Subsequently, independent
appraisers value each real estate property at least once a year. The independent
fiduciary, The Townsend Group, must approve all independent appraisers used by
the Account. The independent fiduciary can also require additional appraisals if
it believes that a property's value has changed materially or otherwise to
assure that the Account is valued correctly. TIAA's appraisal staff performs a
valuation review of each real estate property on a quarterly basis and updates
the property value if it believes that the value of the property has changed
since the previous valuation review or appraisal. The independent fiduciary
reviews all appraisals and approves any valuation adjustments which exceed
certain prescribed limits before such adjustments are reconciled by the Account.
TIAA continues to use the revised value to calculate the Account's net asset
value until the next valuation review or appraisal.
VALUATION OF MORTGAGES: Mortgages are initially valued at their face amount.
Fixed rate mortgages are, thereafter, valued quarterly by discounting payments
of principal and interest to their present value using a rate at which
commercial lenders would make similar mortgage loans. Floating variable rate
mortgages are generally valued at their face amount, although the value may be
adjusted as market conditions dictate.
VALUATION OF REAL ESTATE JOINT VENTURES: Real estate joint ventures are stated
at the Account's equity in the net assets of the underlying entity, which value
their real estate holdings at fair value.
VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded on any
United States national securities exchange are valued at the last sale price as
of the close of the principal securities exchange on
24
which such securities are traded or, if there is no sale, at the mean of the
last bid and asked prices on such exchange. Short-term money market instruments
are stated at market value. Portfolio securities and limited partnership
interests for which market quotations are not readily available are valued at
fair value as determined in good faith under the direction of the Investment
Committee of the TIAA Board of Trustees and in accordance with the
responsibilities of the Board as a whole.
ACCOUNTING FOR INVESTMENTS: Real estate transactions are accounted for as of the
date on which the purchase or sale transactions for the real estate properties
close (settlement date). Rent from real estate properties consists of all
amounts earned under tenant operating leases, including base rent, recoveries of
real estate taxes and other expenses and charges for miscellaneous services
provided to tenants. Rental income is recognized in accordance with the billing
terms of the lease agreements. The Account bears the direct expenses of the real
estate properties owned. These expenses include, but are not limited to, fees to
local property management companies, property taxes, utilities, maintenance,
repairs, insurance and other operating and administrative costs. An estimate of
the net operating income earned from each real estate property is accrued by the
Account on a daily basis and such estimates are adjusted as soon as actual
operating results are determined. Realized gains and losses on real estate
transactions are accounted for under the specific identification method.
Securities transactions are accounted for as of the date the securities are
purchased or sold (trade date). Interest income is recorded as earned and
includes accrual of discount and amortization of premium. Dividend income is
recorded on the ex-dividend date. Realized gains and losses on securities
transactions are accounted for on the average cost basis.
FEDERAL INCOME TAXES: Based on provisions of the Internal Revenue Code, the
Account is taxed as a segregated asset account of TIAA. The Account should incur
no material federal income tax attributable to the net investment experience of
the Account.
RECENT ACCOUNTING PRONOUNCEMENTS: In October 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS No. 144").
SFAS No. 144 provides accounting guidance for financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. It also supersedes the accounting and
reporting of APB Opinion No. 30 "Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions" related to the disposal of a
segment of a business. The Account adopted SFAS No. 144 as of January 1, 2002.
RECLASSIFICATIONS: Certain amounts in the 2001 and 2000 consolidated financial
statements have been reclassified to conform with the 2002 presentation.
NOTE 2--MANAGEMENT AGREEMENTS
Investment advisory services for the Account are provided by TIAA employees,
under the direction of TIAA's Board of Trustees and its Investment Committee,
pursuant to investment management procedures adopted by TIAA for the Account.
TIAA's investment management decisions for the Account are also subject to
review by the Account's independent fiduciary. TIAA also provides all portfolio
accounting and related services for the Account.
Distribution and administrative services for the Account are provided by
TIAA-CREF Individual & Institutional Services, Inc. ("Services") pursuant to a
Distribution and Administrative Services Agreement
25
with the Account. Services, a wholly-owned subsidiary of TIAA, is a registered
broker-dealer and member of the National Association of Securities Dealers, Inc.
TIAA also provides a liquidity guarantee to the Account, for a fee, to ensure
that sufficient funds are available to meet participant transfer and cash
withdrawal requests in the event that the Account's cash flows and liquid
investments are insufficient to fund such requests. TIAA also receives a fee for
assuming certain mortality and expense risks.
The services provided by TIAA and Services are provided at cost. TIAA and
Services receive payments from the Account on a daily basis according to
formulas established each year with the objective of keeping the payments as
close as possible to the Account's actual expenses. Any differences between
actual expenses and the amounts paid are adjusted quarterly.
NOTE 3--REAL ESTATE PROPERTIES
Had the Account's real estate properties which were purchased during the year
ended December 31, 2002 been acquired at the beginning of the year (January 1,
2002), rental income and real estate property level expenses and taxes for the
year ended December 31, 2002 would have increased by approximately $92,211,000
and $40,363,000, respectively and income from real estate joint ventures would
have increased by $5,469,000. In addition, interest income for the year ended
December 31, 2002 would have decreased by approximately $23,477,000.
Accordingly, the total proforma effect on the Account's net investment income
for the year ended December 31, 2002 would have been an increase of
approximately $33,840,000, if the real estate properties acquired during the
year ended December 31, 2002 had been acquired at the beginning of the year.
During the year ended December 31, 2002 the Account sold two real estate
properties. The income for these properties during 2002 (prior to the sale)
consisted of rental income of $643,564 less operating expenses of $68,031 and
real estate taxes of $74,076 resulting in net investment income of $501,457. At
the time of sale, the properties had a cost basis of $22,592,804 and the
proceeds of sale were $26,050,000, resulting in a realized gain of $3,457,196.
NOTE 4--LEASES
The Account's real estate properties are leased to tenants under operating lease
agreements which expire on various dates through 2046. Aggregate minimum annual
rentals for the properties owned, excluding short-term residential leases, are
as follows:
Years Ending
December 31,
------------
2003 $ 318,638,000
2004 287,959,000
2005 248,748,000
2006 200,419,000
2007 167,190,000
Thereafter 584,414,000
--------------
Total $1,807,368,000
==============
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
26
NOTE 5--INVESTMENT IN JOINT VENTURES
The Account owns 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 percentages. Several of these
joint ventures have mortgages payable on the properties owned. The Account's
allocated portion of the mortgages payable at December 31, 2002 is $192,588,252.
The Accounts' equity in the joint ventures at December 31, 2002 is $235,169,675.
A condensed summary of the financial position and results of operations of the
joint ventures is shown below.
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
ASSETS
Real estates properties ......................... $851,578,413 $56,686,326
Other assets .................................... 32,997,030 1,435,578
------------ -----------
Total assets ............................... $884,575,443 $58,121,904
============ ===========
LIABILITIES AND EQUITY
Mortgages payable, including accrued interest ... $385,456,582 $ --
Other liabilities ............................... 15,040,756 708,502
------------ -----------
Total liabilities .......................... 400,497,338 708,502
EQUITY ........................................... 484,078,105 57,413,402
------------ -----------
Total liabilities and equity ............... $884,575,443 $58,121,904
============ ===========
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
OPERATING REVENUES AND EXPENSES
Revenues ........................................ $ 93,708,332 $ 6,461,814
Expenses ........................................ 54,386,720 2,240,630
------------ -----------
Excess of revenues over expenses ............. $ 39,321,612 $ 4,221,184
============ ===========
27
NOTE 6--CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Selected condensed consolidated financial information for an Accumulation Unit
of the Account is presented below.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Per Accumulation Unit data:
Rental income ........................................ $ 14.537 $ 14.862 $ 14.530 $ 12.168 $ 10.425
Real estate property level expenses and taxes ........ 4.988 4.754 4.674 3.975 3.403
-------- -------- -------- -------- --------
Real estate income, net 9.549 10.108 9.856 8.193 7.022
Income from real estate joint ventures ............... 0.665 0.130 0.056 -- --
Dividends and interest ............................... 1.244 1.950 2.329 2.292 3.082
-------- -------- -------- -------- --------
Total income 11.458 12.188 12.241 10.485 10.104
Expense charges (1) .................................. 1.097 0.995 0.998 0.853 0.808
-------- -------- -------- -------- --------
Investment income, net 10.361 11.193 11.243 9.632 9.296
Net realized and unrealized
gain (loss) on investments .......................... (4.621) (1.239) 3.995 1.164 0.579
-------- -------- -------- -------- --------
Net increase in Accumulation Unit Value .............. 5.740 9.954 15.238 10.796 9.875
Accumulation Unit Value:
Beginning of year ................................... 168.160 158.206 142.968 132.172 122.297
-------- -------- -------- -------- --------
End of year ......................................... $173.900 $168.160 $158.206 $142.968 $132.172
======== ======== ======== ======== ========
Total return ......................................... 3.41% 6.29% 10.66% 8.17% 8.07%
Ratios to Average Net Assets:
Expenses (1) ........................................ 0.67% 0.61% 0.67% 0.63% 0.64%
Investment income, net ............................... 6.34% 6.81% 7.50% 7.13% 7.34%
Portfolio turnover rate:
Real estate properties .............................. 0.93% 4.61% 3.87% 4.46% 0%
Securities .......................................... 52.08% 40.62% 32.86% 27.68% 24.54%
Thousands of Accumulation
Units outstanding at end of year .................... 20,347 18,456 14,605 11,487 8,834
(1) Expense charges per Accumulation Unit and the Ratio of Expenses to Average
Net Assets exclude real estate property level expenses and taxes. If the
real estate property level expenses and taxes were included, the expense
charge per Accumulation Unit for the year ended December 31, 2002 would be
$6.085 ($5.749, $5.672, $4.828 and $4.211 for the years ended December 31,
2001, 2000, 1999 and 1998, respectively), and the Ratio of Expenses to
Average Net Assets for the year ended December 31, 2002 would be 3.72%
(3.50%, 3.79%, 3.58% and 3.32% for the years ended December 31, 2001, 2000,
1999 and 1998, respectively).
28
NOTE 7--ACCUMULATION UNITS
Changes in the number of Accumulation Units outstanding were as follows:
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
2002 2001 2000
---------- ---------- ----------
Accumulation Units:
Credited for premiums ..................................... 2,310,355 1,542,511 1,074,708
Credited (cancelled) for transfers, net disbursements
and amounts applied to the Annuity Fund .................. (420,104) 2,309,261 2,042,605
Outstanding:
Beginning of year ........................................ 18,456,445 14,604,673 11,487,360
---------- ---------- ----------
End of year .............................................. 20,346,696 18,456,445 14,604,673
========== ========== ==========
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
To the Participants of the TIAA Real Estate Account and the
Board of Trustees of Teachers Insurance and Annuity Association of America:
We have audited the accompanying consolidated statements of assets and
liabilities, including the statement of investments as of December 31, 2002, of
the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity
Association of America ("TIAA") as of December 31, 2002 and 2001, and the
related consolidated statements of operations, changes in net assets and cash
flows for each of the three years in the period ended December 31, 2002. Our
audits also included the financial statement schedule listed in the Index at
item 14(a). These financial statements and schedule are the responsibility of
TIAA's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Account at
December 31, 2002 and 2001, and the consolidated results of its operations and
the changes in its net assets and its cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, TIAA Real
Estate Account adopted Statement of Financial Accounting Standard No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
New York, New York
February 7, 2003
/s/ Ernst & Young LLP
- --------------------------------------------------------------------------------
29
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
DECEMBER 31, 2002
REAL ESTATE PROPERTIES--86.37%
LOCATION / DESCRIPTION VALUE
- ---------------------- ---------
ARIZONA:
Biltmore Commerce Center - Office building ................ $ 28,394,213
CALIFORNIA:
9 Hutton Centre - Office building ......................... 19,425,493
88 Kearny Street - Office building ........................ 65,083,257
Cabot Industrial Portfolio - Industrial building .......... 41,586,565
Eastgate Distribution Center - Industrial building ........ 15,200,000
Kenwood Mews Apartments - Apartments ...................... 22,700,000
Larkspur Courts - Apartments .............................. 55,014,500
The Legacy at Westwood Apartments - Apartments ............ 85,075,210
Northpoint Commerce Center - Industrial building .......... 37,972,054
Ontario Industrial Portfolio - Industrial building ........ 108,000,000
Regents Court Apartments - Apartments ..................... 49,567,031
Westcreek Apartments - Apartments ......................... 18,686,112
Westwood Marketplace - Shopping Center .................... 74,026,411
COLORADO:
The Lodge at Willow Creek - Apartments .................... 31,000,000
Monte Vista - Apartments .................................. 20,499,262
CONNECTICUT:
Ten & Twenty Westport Road - Office building .............. 140,000,000
FLORIDA:
701 Brickell - Office building ............................ 172,088,618
Doral Pointe Apartments - Apartments ...................... 43,507,416
Golfview Apartments - Apartments .......................... 26,240,000
The Fairways of Carolina - Apartments ..................... 16,100,000
The Greens at Metrowest Apartments - Apartments ........... 13,900,000
Maitland Promenade One - Office building .................. 37,600,000
Plantation Grove - Shopping center ........................ 8,200,000
The Pointe on Tampa Bay - Office building ................. 41,239,643
Quiet Waters at Coquina Lakes - Apartments ................ 17,600,000
Royal St. George - Apartments ............................. 17,100,000
Sawgrass Office Portfolio - Office building ............... 45,000,000
South Florida Apartment Portfolio - Apartments ............ 46,800,000
Westinghouse Facility - Industrial building ............... 5,300,000
GEORGIA:
Alexan Buckhead - Apartments .............................. 45,739,570
Atlanta Industrial Portfolio - Industrial building ........ 38,400,000
ILLINOIS:
Chicago Industrial Portfolio - Industrial building ........ 40,100,000
Columbia Center III - Office building ..................... 33,800,000
Oak Brook Regency Towers - Office building ................ 66,602,200
Parkview Plaza - Office building .......................... 50,315,694
Rolling Meadows - Shopping center ......................... 12,850,000
KENTUCKY:
IDI Kentucky Portfolio - Industrial building .............. 50,200,000
30
LOCATION / DESCRIPTION VALUE
- ---------------------- ---------
MARYLAND:
Corporate Boulevard - Office building ................... $ 68,020,401
FEDEX Distribution Facility - Industrial building ....... 7,500,000
Longview Executive Park - Office building ............... 24,990,805
MASSACHUSETTS:
Batterymarch Park II - Office building .................. 15,000,000
Longwood Towers - Apartments ............................ 80,202,248
Mellon Financial Center at One Boston Place - Office
building .............................................. 261,896,938
Needham Corporate Center - Office building .............. 26,500,000
MICHIGAN:
Indian Creek Apartments - Apartments .................... 17,700,000
MINNESOTA:
Interstate Crossing - Industrial building ............... 6,304,905
River Road Distribution Center - Industrial building .... 4,150,000
NEVADA:
UPS Distribution Facility - Industrial building ......... 11,500,000
NEW JERSEY:
10 Waterview Boulevard - Office building ................ 27,000,000
371 Hoes Lane - Office building ......................... 10,817,795
Konica Photo Imaging Headquarters - Industrial building . 17,900,000
Morris Corporate Center III - Office building ........... 92,400,000
South River Road Industrial - Industrial building ....... 32,800,000
NEW YORK:
780 Third Avenue - Office building ...................... 178,500,000
The Colorado - Apartments ............................... 55,702,614
NORTH CAROLINA:
The Lynnwood Collection - Shopping center ............... 7,983,285
The Millbrook Collection - Shopping center .............. 7,000,000
OHIO:
Bent Tree Apartments - Apartments ....................... 13,400,000
BISYS Fund Services Building - Office building .......... 34,700,000
Columbus Portfolio - Office building .................... 23,600,000
Northmark Business Center - Office building ............. 8,000,000
OREGON:
Five Centerpointe - Office building ..................... 16,002,154
PENNSYLVANIA:
Lincoln Woods Apartments - Apartments ................... 24,676,180
TEXAS:
Butterfield Industrial Park - Industrial building ....... 4,500,000(1)
Dallas Industrial Portfolio - Industrial building ....... 136,034,954
The Legends at Chase Oaks - Apartments .................. 26,000,000
UTAH:
Landmark at Salt Lake City (Building #4) - Industrial
building .............................................. 12,700,000
VIRGINIA:
Ashford Meadows Apartments - Apartments ................. 62,000,000
Fairgate at Ballston - Office building .................. 30,700,000
Monument Place - Office building ........................ 33,500,000
WASHINGTON DC:
1015 15th Street - Office building ...................... 51,600,000
1801 K Street, N.W. - Office building ................... 162,636,836
The Farragut Building - Office building ................. 46,500,000
-------------
TOTAL REAL ESTATE PROPERTIES (Cost $3,321,279,641) .... 3,281,332,364
-------------
(1) Leasehold interest only.
31
VALUE
---------
OTHER REAL ESTATE RELATED INVESTMENTS--6.50%
REAL ESTATE JOINT VENTURE--6.19%
Florida Mall Association, Ltd.
The Florida Mall (49.975% Account Interest) * ........... $ 84,997,624
Teachers REA IV, LLC, which owns
Tyson's Executive Plaza II (50% Account Interest) ....... 25,632,730
West Dade County Associates
Miami International Mall (49.950% Account Interest) * ... 57,322,356
West Town Mall Joint Venture
West Town Mall (49.932% Account Interest) * ............. 67,216,965
-------------
TOTAL REAL ESTATE JOINT VENTURE (Cost $237,492,256) ....... 235,169,675
-------------
LIMITED PARTNERSHIPS-- 0.31%
MONY/Transwestern Mezzanine Realty Partners L.P. (19.76%
Account Interest) ....................................... 6,457,921
Essex Apartment Value Fund, L.P. (10% Account Interest) ... 5,278,409
-------------
TOTAL LIMITED PARTNERSHIP (Cost $11,689,978) .............. 11,736,330
-------------
TOTAL OTHER REAL ESTATE RELATED INVESTMENTS (Cost $249,182,234) .. 246,906,005
-------------
MARKETABLE SECURITIES--7.13%
REAL ESTATE RELATED--4.03%
REAL ESTATE INVESTMENT TRUSTS--2.87%
SHARES ISSUER
----------- ----------
75,600 Alexandria Real Estate Equities, Inc. ........ 3,220,560
210,000 Apartment Investment & Management Co ......... 7,870,800
335,325 Archstone-Smith Trust ........................ 7,893,551
125,700 Avalonbay Communities, Inc. .................. 4,919,898
306,800 Boston Properties, Inc ....................... 11,308,648
154,500 Chateau Communities, Inc ..................... 3,553,500
500,000 Equity Office Properties Trust. .............. 12,490,000
463,800 Equity Residential Properties Trust Co. ...... 11,400,204
125,000 Heritage Property Investment . ............... 3,121,250
114,700 Hilton Hotels Corp ........................... 1,457,837
222,800 Host Marriott Corp (New). .................... 1,971,780
230,750 Kimco Realty Corp. ........................... 7,070,180
47,100 Manufactured Home Communities, Inc. .......... 1,395,573
56,000 Mills Corp. .................................. 1,643,040
290,000 Mission West Properties, Inc. ................ 2,871,000
180,000 Post Properties, Inc. ........................ 4,302,000
180,000 Prologis Trust ............................... 4,527,000
184,700 Public Storage, Inc. ......................... 5,967,657
230,000 Reckson Associates Realty Corp ............... 4,841,500
160,900 Simon Property Group, Inc. ................... 5,481,863
43,700 Sun Communities, Inc ......................... 1,598,109
-------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $117,775,472) ... 108,905,950
-------------
* The market value reflects the Account's interest in the joint venture after
debt.
32
COMMERICAL MORTGAGE BACKED SECURITIES--1.16%
PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE
--------- -------------------------------------- ---------
$ 10,000,000 GSMS 2001-Rock A2FL
1.799% 05/03/11 ...............................$ 9,473,810
10,000,000 MSDW Capital
1.830% 02/03/11 ............................... 9,669,950
8,000,000 MSDWC 2001 - FRMA C
2.001% 07/12/16 ............................... 7,780,528
2,378,141 MSDWC 2001 - XLF A1
1.940% 10/07/13 ............................... 2,378,386
10,000,000 Opryland Hotel Trust
1.840% 04/01/04 ............................... 9,983,850
5,000,000 Trize 2001 - TZHA A3FL
1.790% 03/15/13 ............................... 4,944,895
--------------
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES
(Cost $45,370,584) ..................................... 44,231,419
--------------
TOTAL REAL ESTATE RELATED (Cost $163,146,056) ............ 153,137,369
-------------
OTHER--3.10%
COMMERCIAL PAPER--2.94%
PRINCIPAL ISSUER, COUPON AND MATURITY DATE
--------- --------------------------------
$ 25,000,000 General Electric Capital Corp
1.260% 01/09/03 ............................... 24,991,500
10,000,000 Merck, Inc
1.200% 01/02/03 ............................... 9,999,267
1,800,000 Pharmacia Corp
1.180% 01/02/03 ............................... 1,799,868
25,000,000 Royal Bank of Scotland PLC
1.320% 01/09/03 ............................... 24,991,500
25,000,000 Salomon Smith Barney Holdings, Inc
1.150% 01/02/03 ............................... 24,998,167
25,000,000 UBS Finance (Delaware) Inc
1.200% 01/02/03 ............................... 24,998,168
--------------
TOTAL COMMERCIAL PAPER (Amortized cost $111,783,643) ..... 111,778,470
--------------
GOVERNMENT BONDS--0.16%
PRINCIPAL ISSUER, COUPON AND MATURITY DATE
--------- --------------------------------
$ 5,610,798 Treasury Inflation Indexed
3.625% 01/15/08 ............................... 6,156,100
--------------
TOTAL GOVERNMENT BONDS (Cost $6,002,822) ................. 6,156,100
--------------
TOTAL OTHER (Cost $117,786,465) .......................... 117,934,570
--------------
TOTAL MARKETABLE SECURITIES (Cost $280,932,521) .......... 271,071,939
--------------
TOTAL INVESTMENTS--100.00% (Cost $3,851,394,396) .........$3,799,310,308
==============
See notes to consolidated financial statements.
33
TIAA REAL ESTATE ACCOUNT
SCHEDULE III - REAL ESTATE OWNED
DECEMBER 31, 2002
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
River Road Distribution Center $-0- $4,174,182 ($24,182) $4,150,000 1995 11/22/95
Industrial Building
Fridley, Minnesota
The Greens At Metrowest Apartments -0- 12,522,047 1,377,953 13,900,000 1990 12/15/95
Apartments
Orlando, Florida
Butterfield Industrial Park -0- 4,456,125 43,875 4,500,000 1981 12/22/95
Industrial Building
El Paso, Texas (1)
Plantation Grove Shopping Center -0- 7,350,129 849,871 8,200,000 1995 12/28/95
Shopping Center
Ocoee, Florida
The Millbrook Collection -0- 6,774,711 225,289 7,000,000 1988 03/29/96
Shopping Center
Raleigh, North Carolina
The Lynnwood Collection -0- 6,708,120 1,275,165 7,983,285 1988 03/29/96
Shopping Center
Raleigh, North Carolina
Monte Vista -0- 17,663,849 2,835,413 20,499,262 1995 06/21/96
Apartments
Littleton, Colorado
34
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
Royal St. George $-0- $16,072,612 $ 1,027,388 $ 17,100,000 1995 12/20/96
Apartments
West Palm Beach, Florida
Interstate Crossing -0- 6,454,888 (149,982) 6,304,906 1995 12/31/96
Industrial Building
Eagan, Minnesota
Westcreek Apartments -0- 13,488,279 5,197,833 18,686,112 1988 01/02/97
Apartments
Westlake Village, California
Westinghouse Facility -0- 6,089,473 (789,473) 5,300,000 1997 02/05/97
Industrial Building
Coral Springs, Florida
Rolling Meadows Shopping Center -0- 12,930,463 (80,463) 12,850,000 1957 05/28/97
Shopping Center
Rolling Meadows, Illinois
Eastgate Distribution Center -0- 11,952,402 3,247,598 15,200,000 1996 05/29/97
Industrial Building
San Diego, California
Five Centerpointe -0- 15,656,341 345,813 16,002,154 1988 04/21/97
Office Building
Lake Oswego, Oregon
Longview Executive Park -0- 23,628,567 1,362,237 24,990,804 1988 04/21/97
Office Building
Longview, Maryland
35
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
Northmark Business Center $-0- $8,812,644 ($812,644) $8,000,000 1985 04/21/97
Office Building
Blue Ash, Ohio
Fairgate at Ballston -0- 26,977,436 3,722,564 30,700,000 1988 04/21/97
Office Building
Arlington, Virginia
Parkview Plaza -0- 49,412,494 903,200 50,315,694 1990 04/29/97
Office Building
Oakbrook Terrace, Illinois
Lincoln Woods Apartments -0- 21,464,483 3,211,697 24,676,180 1991 10/20/97
Apartments
Lafayette Hill, Pennsylvania
371 Hoes Lane -0- 15,499,306 (4,681,511) 10,817,795 1986 12/15/97
Office Building
Piscataway, New Jersey
Columbia Centre III -0- 38,580,069 (4,780,069) 33,800,000 1989 12/23/97
Office Building
Rosemont, Illinois
The Lodge at Willow Creek -0- 27,562,882 3,437,118 31,000,000 1997 12/24/97
Apartments
Douglas County, Colorado
The Legends at Chase Oaks -0- 29,701,668 (3,701,668) 26,000,000 1997 03/31/98
Apartments
Plano, Texas
36
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
Chicago Industrial Portfolio $-0- $41,953,686 ($1,853,686) $40,100,000 1997 06/30/98
Industrial Building
Joliet, Illinois
Golfview Apartments -0- 28,066,591 (1,826,591) 26,240,000 1998 07/31/98
Apartments
Lake Mary, Florida
Indian Creek Apartments -0- 17,002,932 697,068 17,700,000 1988 10/08/98
Apartments
Farmington Hills, Michigan
Bent Tree Apartments -0- 14,420,590 (1,020,590) 13,400,000 1987 10/22/98
Apartments
Columbus, Ohio
UPS Distribution Facility -0- 10,989,393 510,607 11,500,000 1998 11/13/98
Industrial Building
Fernly, Nevada
Ontario Industrial Portfolio -0- 105,364,400 2,635,600 108,000,000 1997 12/17/98
Industrial Building
Ontario, California
IDI Kentucky Portfolio -0- 53,030,599 (2,830,599) 50,200,000 1998 12/17/98
Industrial Building
Hebron, Kentucky
FEDEX Distribution Facility -0- 7,828,025 (328,025) 7,500,000 1998 12/18/98
Industrial Building
Crofton, Maryland
37
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
Biltmore Commerce Center $-0- $37,323,058 ($8,928,845) $28,394,213 1985 02/23/99
Office Building
Phoenix, Arizona
The Colorado -0- 52,687,840 3,014,774 55,702,614 1987 04/14/99
Apartments
New York, New York
Sawgrass Office Portfolio -0- 52,933,368 (7,933,368) 45,000,000 1998 05/11/99
Office Building
Sunrise, Florida
780 Third Avenue -0- 161,511,019 16,988,981 178,500,000 1984 07/08/99
Office Building
New York, New York
Monument Place -0- 34,597,698 (1,097,698) 33,500,000 1990 07/15/99
Office Building
Fairfax, Virginia
88 Kearney Street -0- 65,795,171 (711,914) 65,083,257 1986 07/22/99
Office Building
San Francisco, California
10 Waterview Boulevard -0- 31,063,636 (4,063,636) 27,000,000 1984 07/27/99
Office Building
Parsippany, New Jersey
Larkspur Courts -0- 53,038,988 1,975,512 55,014,500 1991 08/17/99
Apartments
Larkspur, California
38
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
Columbus Portfolio $-0- 30,227,305 ($6,627,305) $ 23,600,000 1997 11/30/99
Office Building
Columbus, Ohio
Konica Photo Imaging Headquarters -0- 17,049,875 850,125 17,900,000 1999 12/21/99
Industrial Building
Mahwah, New Jersey
Atlanta Industrial Portfolio -0- 39,816,868 (1,416,868) 38,400,000 1999 04/04/00
Industrial Building
Atlanta, Georgia
1801 K Street, N.W. -0- 40,719,040 21,917,796 162,636,836 1971 05/15/00
Office Building
Washington, DC
Northpoint Commerce Center -0- 38,818,013 (845,959) 37,972,054 1994 06/15/00
Industrial Building
Fullerton, California
Morris Corporate Center III -0- 03,119,739 (10,719,739) 92,400,000 1990 07/12/00
Office Building
Parsippany, New Jersey
Ashford Meadows Apartments -0- 64,171,626 (2,171,626) 62,000,000 1998 09/28/00
Apartments
Herndon, Virginia
Landmark at Salt Lake City (Building #4) -0- 14,411,088 (1,711,088) 12,700,000 2000 11/03/00
Industrial Building
Salt Lake City, Utah
39
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
Cabot Industrial Portfolio $-0- $ 38,659,380 $ 2,927,185 $ 41,586,565 2000 11/17/00
Industrial Building
Rancho Cucamonga, California
Maitland Promenade One -0- 36,520,162 1,079,838 37,600,000 1999 12/14/00
Office Building
Maitland, Florida
Dallas Industrial Portfolio -0- 138,389,123 (2,354,169) 136,034,954 1997 12/19/00
Industrial Building
Coppell, Texas
BISYS Fund Services Building -0- 32,332,485 2,367,515 34,700,000 2001 11/30/99
Office Building
Columbus, Ohio
Batterymarch Park II -0- 17,824,765 (2,824,765) 15,000,000 1986 05/31/01
Office Building
Quincy, Massachusetts
South River Road Industrial -0- 33,700,429 (900,429) 32,800,000 1999 06/25/01
Industrial Building
Cranbury, New Jersey
Needham Corporate Center -0- 28,150,986 (1,650,986) 26,500,000 1987 07/30/01
Office Building
Needham, Massachusetts
South Florida Apt Portfolio -0- 44,114,457 2,685,543 46,800,000 1986 08/24/01
Apartments
Boca Raton, Florida
40
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
The Fairways of Carolina $-0- $ 17,286,931 ($1,186,931) $ 16,100,000 1993 08/24/01
Apartments
Margate, Florida
Quiet Waters at Coquina Lakes -0- 19,094,415 (1,494,415) 17,600,000 1995 08/24/01
Apartments
Deerfield Beach, Florida
9 Hutton Centre -0- 20,448,764 (1,023,272) 19,425,493 1981 10/30/01
Office Building
Santa Ana, California
Doral Pointe Apartments -0- 45,341,796 (1,834,379) 43,507,416 1990 11/06/01
Apartments
Miami, Florida
1015 15th Street -0- 48,749,491 2,850,509 51,600,000 1978 11/09/01
Office Building
Washington D.C.
Kenwood Mews Apartments -0- 22,686,216 13,784 22,700,000 1991 11/30/01
Apartments
Burbank, California
Ten & Twenty Westport Road -0- 140,178,508 (178,508) 140,000,000 2001 12/28/01
Office Building
Wilton, Connecticut
The Farragut Building -0- 46,170,678 329,323 46,500,000 1962 05/16/02
Office Building
Washington, DC
41
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- ---------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
The Legacy at Westwood Apartments $-0- $ 85,075,210 $0 $ 85,075,210 2001 09/09/02
Apartments
Los Angeles, California
Westwood Marketplace -0- 74,026,411 0 74,026,411 1950 09/26/02
Shopping Center
Los Angeles, California
The Point on Tampa Bay -0- 41,239,643 0 41,239,643 1982 10/09/02
Office Building
Tampa, Florida
Corporate Boulevard -0- 68,020,401 0 68,020,401 1989 10/31/02
Office Building
Rockville, Maryland
Regents Court Apartments -0- 49,567,031 0 49,567,031 2001 11/15/02
Apartments
San Diego, California
Oak Brook Regency Towers -0- 66,602,200 0 66,602,200 1977 11/26/02
Office Building
Oakbrook, Illinois
701 Brickell -0- 172,088,618 0 172,088,618 1986 11/27/02
Office Building
Miami, Florida
Mellon Financial Center at -0- 261,896,938 0 261,896,938 1970 12/03/02
One Boston Place
Office Building
Boston, Massachusetts
42
COSTS CAPITALIZED
SUBSEQUENT TO
ACQUISITION
INITIAL COST (INCLUDING VALUE AT YEAR
ENCUM- TO ACQUIRE UNREALIZED GAINS DECEMBER 31, CONSTRUCTION DATE
DESCRIPTION BRANCES PROPERTY AND LOSSES) 2002 COMPLETED ACQUIRED
- -------------------------------- --------- ------------ ----------------- ------------ ------------ ------------
Longwood Towers $-0- $ 80,202,248 $0 $80,202,248 1926 12/12/02
Apartments
Brookline, Massachusetts
Alexan Buckhead -0- 45,739,570 0 45,739,570 2002 12/30/02
Apartments
Atlanta, Georgia
----- -------------- ----------- --------------
$ -0- $3,273,980,574 $ 7,351,791 $3,281,332,364
===== ============== =========== ==============
(1) Leasehold interest only
Reconciliation of investment property owned:
Balance at beginning of period $2,330,914,466
Acquisitions (including properties
under construction) 1,051,818,027
Dispositions (25,923,370)
(Initial Cost 20,003,383, costs capitalized 5,919,987)
Capital improvements and carrying costs
(including unrealized gains and losses) (75,476,759)
--------------
Balance at end of period $3,281,332,364
==============
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION
The Real Estate Account has no officers or directors and no TIAA
trustee or executive officers receives compensation from the Account. The
Trustees and principal executive officers of TIAA, and their principal
occupations during the last five years, are as follows:
TRUSTEES
- --------
ELIZABETH E. BAILEY, 64
John C. Hower Professor of Public Policy and Management, Wharton School,
University of Pennsylvania. Director, CSX Corporation and Philip Morris
Companies, Inc.
WILLARD T. CARLETON, 68.
Donald R. Diamond Professor of Finance Emeritus, College of Business and Public
Administration, University of Arizona.
ROBERT C. CLARK, 59.
Dean and Royall Professor of Law, Harvard Law School, Harvard University.
ESTELLE A. FISHBEIN, 68.
Vice President and General Counsel, Johns Hopkins University.
RUTH SIMMS HAMILTON, 65.
Professor, Department of Sociology, and Director, African Diaspora Research
Project, Michigan State University.
MARJORIE FINE KNOWLES, 63
Professor of Law, Georgia State University College of Law.
ROBERT M. O'NEIL, 68.
Professor of Law, University of Virginia and Director, Thomas Jefferson Center
for the Protection of Free Expression.
LEONARD S. SIMON, 66.
Vice Chairman, Charter One Financial, Inc. Formerly, Chairman, President and
Chief Executive Officer, RCSB Financial, Inc. and Chairman and Chief Executive
Officer, Rochester Community Savings Bank.
44
RONALD L. THOMPSON, 53.
Chairman and Chief Executive Officer, Midwest Stamping Co.
PAUL R. TREGURTHA, 67.
Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran
Transportation Company, Inc.; Vice Chairman, Interlake Steamship Company and
Lakes Shipping Company; formerly, Chairman, Meridian Aggregates, L.P.
WILLIAM H. WALTRIP, 65.
Chairman, Technology Solutions Company. Formerly, Chairman and Chief Executive
Officer, Bausch & Lomb, Inc.
ROSALIE J. WOLF, 61.
Managing Director, Offit Hall Capital Management LLC and its predecessor
company, Laurel Management Company LLC. Formerly, Treasurer and Chief Investment
Officer, The Rockefeller Foundation.
OFFICER-TRUSTEES
- ----------------
HERBERT M. ALLISON, JR., 59.
Chairman, President and Chief Executive Officer, TIAA. President and Chief
Executive Officer, CREF. Formerly, President and Chief Executive Officer of
Alliance for LifeLong Learning, Inc., 1999 -2002. President, Chief Operating
Officer and Member of the Board of Directors of Merrill Lynch & Co., Inc.,
1997-1999.
MARTIN L. LEIBOWITZ, 66.
Vice Chairman and Chief Investment Officer, TIAA and CREF.
OTHER OFFICERS
- --------------
RICHARD J. ADAMSKI, 61.
Vice President and Treasurer, TIAA and CREF.
RICHARD L. GIBBS, 56.
Executive Vice President, Finance and Planning, TIAA and CREF.
E. LAVERNE JONES, 54.
Vice President and Corporate Secretary, TIAA and CREF.
45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TIAA's general account plays a significant role in operating the Real
Estate Account, including providing a liquidity guarantee, and investment
management and other services.
LIQUIDITY GUARANTEE. If the Account's cash flow is insufficient to fund
redemption requests, TIAA's general account has agreed to fund them by
purchasing accumulation units. TIAA thereby guarantees that a participant can
redeem accumulation units at their then current daily net asset value. For the
year ended December 31, 2002, the Account paid TIAA $987,655 for this liquidity
guarantee through a daily deduction from the net assets of the Account.
INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES/CERTAIN RISKS BORNE
BY TIAA. Deductions are made each valuation day from the net assets of the
Account for various services required to manage investments, administer the
Account and distribute the contracts, and to cover mortality and expense risks
borne by TIAA. These services are performed at cost by TIAA and Services.
For the year ended December 31, 2002, the Account paid TIAA $9,495,736
for investment management services and $2,430,240 for mortality and expense
risks. For the same period, the Account paid Services $10,390,705 for its
administrative and distribution services.
ITEM 14. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. An evaluation was
performed within 90 days from the date hereof under the supervision of the
registrant's management, including the principal executive officer and principal
financial officer, of the effectiveness of the design and operation of the
registrant's disclosure controls and procedures. Based on that evaluation, the
registrant's management, including the principal executive officer and principal
financial officer, concluded that the registrant's disclosure controls and
procedures were effective for this annual reporting period.
(b) CHANGES IN INTERNAL CONTROLS. There have been no significant
changes in the registrant's internal controls or in other factors that could
significantly affect internal controls subsequent to the date of the evaluation
described above, including any corrective actions with regard to significant
deficiencies and material weaknesses.
46
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements. See Item 8 for required financial
statements.
(a) 2. Financial Statement Schedules. See Item 8 for required
financial statement schedules.
(a) 3. Exhibits.
(1) Distribution and Administrative Services Agreement by and between
TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as
amended)*
(3) (A) Charter of TIAA (as amended)****
(B) Bylaws of TIAA (as amended)**
(4) (A) Forms of RA, GRA, GSRA, SRA, and IRA Real Estate Account
Contract Endorsements*
(B) Forms of Income-Paying Contracts*
(10) (A) Independent Fiduciary Agreement by and among TIAA, the
Registrant, and Institutional Property Consultants, Inc. (as
amended)***
(B) Custodial Services Agreement by and between TIAA and Morgan
Guaranty Trust Company of New York with respect to the Real
Estate Account*
(b) Reports on 8-K. No reports on Form 8-K have been filed during the
last quarter of the period covered by this report. The Account
filed a report on Form 8-K on January 9, 2003 under Item 5 of the
form with respect to the acquisition of properties for its
portfolio.
- ----------
* - Previously filed and incorporated herein by reference to Post-Effective
Amendment No. 2 to the Account's previous Registration Statement on Form S-1
filed April 30, 1996 (File No. 33-92990).
** - Previously filed and incorporated herein by reference to the Account's Form
10-Q Quarterly Report for the period ended September 30, 1997, filed November
13, 1997.
*** - Previously filed and incorporated herein by reference to Pre-Effective
Amendment No. 1 to the Account's Registration Statement on Form S-1 filed April
29, 1997 (File No. 333-22809).
**** - Previously filed and incorporated herein by reference to the Account's
Form 10-K Annual Report for the period ended December 31, 2000, filed March 27,
2001.
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TIAA REAL ESTATE ACCOUNT
By: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Lisa Snow
--------------------------------
Lisa Snow
Vice President and
Chief Counsel, Corporate Law
March 24, 2003
--------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons, trustees and officers of
Teachers Insurance and Annuity Association of America, in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Herbert M. Allison, Jr. Chairman of the Board, President, and Chief 3/24/03
- ---------------------------- Executive Officer (Principal Executive and
Herbert M. Allison, Jr. Financial Officer)
/s/ Martin L. Leibowitz Vice Chairman and Chief Investment Officer 3/24/03
- ---------------------------- (Principal Investment Officer)
Martin L. Leibowitz
/s/ Richard L. Gibbs Executive Vice President (Principal Accounting 3/24/03
- ---------------------------- Officer)
Richard L. Gibbs
48
Signature of Trustee Date Signature of Trustee Date
- -------------------- ---- -------------------- ----
/s/ Elizabeth E. Bailey 3/24/03 /s/ Robert M. O'Neil 3/24/03
- ---------------------------- ------------------------
Elizabeth E. Bailey Robert M. O'Neil
/s/ Willard T. Carleton 3/24/03 /s/ Leonard S. Simon 3/24/03
- ---------------------------- ------------------------
Willard T. Carleton Leonard S. Simon
/s/ Robert C. Clark 3/24/03 /s/ Ronald L. Thompson 3/24/03
- ---------------------------- ------------------------
Robert C. Clark Ronald L. Thompson
/s/ Paul R. Tregurtha 3/24/03
- ---------------------------- ------------------------
Estelle A. Fishbein Paul R. Tregurtha
/s/ Ruth Simms Hamilton 3/24/03 /s/ William H. Waltrip 3/24/03
- ---------------------------- ------------------------
Ruth Simms Hamilton William H. Waltrip
/s/ Marjorie Fine Knowles 3/24/03 /s/ Rosalie J. Wolf 3/24/03
- ---------------------------- ------------------------
Marjorie Fine Knowles Rosalie J. Wolf
49
CERTIFICATIONS
I, Herbert M. Allison, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of the TIAA Real
Estate Account;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
50
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ Herbert M. Allison, Jr.
-------------------------------------------
Herbert M. Allison, Jr.
Chairman of the Board, President and Chief
Executive Officer, Teachers Insurance and
Annuity Association of America
51
I, Richard L. Gibbs, certify that:
1. I have reviewed this annual report on Form 10-K of the TIAA Real
Estate Account;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
52
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ Richard L. Gibbs
-------------------------------------------
Richard L. Gibbs
Executive Vice President
(Chief Financial Officer),
Teachers Insurance and Annuity Association
of America
53
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of section 1350, chapter 63 of title 18, United States Code), each
of the undersigned officers of Teachers Insurance and Annuity Association of
America, do hereby certify, to such officer's knowledge, that:
The annual report on Form 10-K of the TIAA Real Estate Account (the
"Account") for the year ended December 31, 2002 (the "Form 10-K") fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and information contained in the Form 10-K fairly presents, in all
material respects, the financial condition and results of operations of the
Account.
Dated: March 24, 2003
/s/ Herbert M. Allison, Jr.
-------------------------------------------
Herbert M. Allison, Jr.
Chairman of the Board, President and Chief
Executive Officer, Teachers Insurance and
Annuity Association of America
Dated: March 24, 2003
/s/ Richard L. Gibbs
-------------------------------------------
Richard L. Gibbs
Executive Vice President
(Chief Financial Officer),
Teachers Insurance and Annuity Association
of America
54
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
Because the Registrant has no voting securities, nor its own management
or board of directors, no annual report or proxy materials will be sent to
contractowners holding interests in the Account.
55
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