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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10 - Q

(Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________________ to ________________________

Commission File Numbers 33-92990, 333-13477, 333-22809, 333-59778, 333-83964, and 333-113602

TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)

NEW YORK
(State or other jurisdiction of
incorporation or organization)

NOT APPLICABLE
(IRS Employer Identification No.)

C/O TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
730 THIRD AVENUE
NEW YORK, NEW YORK
(address of principal executive offices)

10017-3206
(Zip code)

(212) 490-9000
(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes  |X|     No  |_|

PART I. FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

INDEX TO UNAUDITED FINANCIAL STATEMENTS
OF THE TIAA REAL ESTATE ACCOUNT
September 30, 2004

  Page  
Consolidated Statements of Assets and Liabilities
 3  
Consolidated Statements of Operations 4  
Consolidated Statements of Changes in Net Assets 5  
Consolidated Statements of Cash Flows 6  
Notes to Consolidated Financial Statements 7  
Consolidated Statement of Investments 13 

2

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

    September 30,
2004
 December 31,
2003
  
(Unaudited)
 
ASSETS        
      Investments, at value:        
            Real estate properties held for investment        
                  (cost: $4,868,342,563 and $4,016,534,969)   $4,919,318,131   $3,935,639,068  
            Real estate properties held for sale        
                  (cost: $97,684,909 and $96,287,588)   94,211,883   85,100,000  
            Other real estate related investments, including joint ventures        
                  (cost: $478,374,728 and $256,127,352)   618,741,097   283,252,850  
            Marketable securities:        
                  Real estate related        
                        (cost: $311,523,063 and $295,835,312)   330,181,546   318,251,737  
                  Other        
                        (cost: $892,535,901 and $435,725,426)   892,313,857   435,720,073  
                  Total Investments
                        (cost $6,648,461,164 and $5,100,510,647)		   6,854,766,514   5,057,963,728  
      Cash   1,432,650   —  
      Other assets   129,928,257   107,719,658  
TOTAL ASSETS
   6,986,127,421   5,165,683,386  
LIABILITIES        
      Mortgage notes payable—Note 6   124,521,077   —  
      Amount due to bank   —   1,015,345  
      Payable for securities transactions   4,529,110   —  
      Accrued real estate property level expenses and taxes   99,928,960   67,791,195  
      Security deposits held   13,192,119   13,137,670  
TOTAL LIABILITIES
   242,171,266   81,944,210  
MINORITY INTEREST IN SUBSIDIARIES   265,852,156   290,317,015  
NET ASSETS        
      Accumulation Fund   6,261,937,912   4,621,918,975  
      Annuity Fund   216,166,087   171,503,186  
TOTAL NET ASSETS
   $6,478,103,999   $4,793,422,161  
NUMBER OF ACCUMULATION UNITS        
      OUTSTANDING—Notes 7 and 8   30,760,870   24,724,183  
NET ASSET VALUE, PER ACCUMULATION UNIT—Note 7   $203.57   $186.94  

See notes to consolidated financial statements.

3

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

      For the
Three Months Ended
September 30,		   For the
Nine Months Ended
September 30,		  
        2004 2003 2004 2003
INVESTMENT INCOME                    
      Real estate income, net:                    
            Rental income       $127,930,840   $ 95,947,219   $372,054,340   $282,551,806  
            Real estate property level expenses and taxes:                    
                  Operating expenses       32,647,947   23,830,434   94,086,733   68,429,574  
                  Real estate taxes       18,436,191   13,071,061   53,955,456   38,616,581  
                  Interest expense       1,328,250   —   2,695,856   —  
    Total real estate property level                
    expenses and taxes   52,412,388   36,901,495   150,738,045   107,046,155  
    Real estate income, net   75,518,452   59,045,724   221,316,295   175,505,651  
Income from real estate joint ventures       4,923,248   4,468,598   12,443,808   14,620,644  
Interest       4,463,220   2,096,425   9,319,462   4,402,372  
Dividends       5,612,876   3,381,215   15,208,315   7,499,103  
 TOTAL INCOME
   90,517,796   68,991,962   258,287,880   202,027,770  
Expenses—Note 2:                    
      Investment advisory charges       4,322,840   3,635,544   10,225,925   9,370,775  
      Administrative and distribution charges       3,952,538   3,680,035   11,166,357   11,087,140  
      Mortality and expense risk charges       1,072,428   755,582   2,884,388   2,099,836  
      Liquidity guarantee charges       497,758   318,421   1,297,846   816,184  
 TOTAL EXPENSES
   9,845,564   8,389,582   25,574,516   23,373,935  
 INVESTMENT INCOME, NET
   80,672,232   60,602,380   232,713,364   178,653,835  
REALIZED AND UNREALIZED                    
      GAIN (LOSS) ON INVESTMENTS                    
      Net realized gain (loss) on marketable securities       11,975,878   40,568   32,945,273   (797,978)  
      Net change in unrealized appreciation                    
            (depreciation) on:                    
            Real estate properties       112,635,940   19,557,920   131,871,469   (13,695,618)  
            Other real estate related investments       61,941,808   20,880,331   113,240,871   26,675,169  
            Marketable securities       7,469,091   10,890,810   (3,974,633)   21,306,489  
Net change in unrealized appreciation
                
(depreciation) on investments
   182,046,839   51,329,061   241,137,707   34,286,040  
 NET REALIZED AND UNREALIZED
                
 GAIN ON INVESTMENTS
   194,022,717   51,369,629   274,082,980   33,488,062  
NET INCREASE IN NET ASSETS RESULTING
                
FROM CONTINUING OPERATIONS
                
BEFORE MINORITY INTEREST                
AND DISCONTINUED OPERATIONS   274,694,949   111,972,009   506,796,344   212,141,897  
Minority interest in net increase in net assets                    
      resulting from continuing operations       (13,167,550)   (2,893,330)   (30,157,854)   (4,522,199)  
    NET INCREASE IN NET ASSETS RESULTING                
    FROM CONTINUING OPERATIONS                
    BEFORE DISCONTINUED OPERATIONS   261,527,399   109,078,679   476,638,490   207,619,698  
Discontinued operations—Note 3:                    
      Investment income, net       905,941   2,790,482   2,437,353   13,986,518  
      Realized gain       —   33,371,021   —   32,598,548  
      Net change in unrealized appreciation on                    
            real estate properties held for sale       6,400,737   (34,138,817)   7,714,562   (23,557,780)  
Net increase in net assets resulting
               
   from discontinued operations
   7,306,678   2,022,686   10,151,915   23,027,286  
 NET INCREASE IN NET ASSETS
                
RESULTING FROM OPERATIONS
   $268,834,077   $111,101,365   $486,790,405   $230,646,984  

See notes to consolidated financial statements.

4

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)

   
For the
Three Months Ended
September 30,
For the
Nine Months Ended
September 30,
 
    2004 2003 2004 2003
FROM OPERATIONS                
      Investment income, net   $ 80,672,232   $ 60,602,380   $ 232,713,364   $ 178,653,835  
      Net realized gain (loss) on investments   11,975,878   40,568   32,945,273   (797,978)  
      Net change in unrealized appreciation                
            (depreciation) on investments   182,046,839   51,329,061   241,137,707   34,286,040  
      Minority interest in net increase in net assets                
            resulting from continuing operations   (13,167,550)   (2,893,330)   (30,157,854)   (4,522,199)  
      Net increase in net assets resulting
            from discontinued operations		   7,306,678   2,022,686   10,151,915   23,027,286  
 NET INCREASE IN NET ASSETS
                
RESULTING FROM OPERATIONS
   268,834,077   111,101,365   486,790,405   230,646,984  
FROM PARTICIPANT TRANSACTIONS                
      Premiums   187,188,445   125,951,357   524,415,992   366,878,102  
      Net transfers from TIAA   40,440,138   15,927,602   91,804,633   4,770,906  
      Net transfers from CREF Accounts and
            affiliated mutual funds		   335,027,508   166,569,920   717,031,696   289,071,930  
      Annuity and other periodic payments   (6,634,462)   (4,807,180)   (18,676,797)   (14,078,057)  
      Withdrawals and death benefits   (43,889,934)   (30,323,403)   (116,684,091)   (78,242,150)  
 NET INCREASE IN NET ASSETS RESULTING
                
FROM PARTICIPANT TRANSACTIONS
   512,131,695   273,318,296   1,197,891,433   568,400,731  
 NET INCREASE IN NET ASSETS
   780,965,772   384,419,661   1,684,681,838   799,047,715  
NET ASSETS                
      Beginning of period   5,697,138,227   4,090,616,614   4,793,422,161   3,675,988,560  
      End of period   $6,478,103,999   $4,475,036,275   $6,478,103,999   $4,475,036,275  

See notes to consolidated financial statements.

5

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

   

For the
Three Months Ended
September 30
   
For the
Nine Months Ended
September 30
 
    2004 2003 2004 2003
CASH FLOWS FROM OPERATING                
      ACTIVITIES                
      Net increase in net assets resulting                 
            from operations    $ 268,834,077   $ 111,101,365   $ 486,790,405   $ 230,646,984  
      Adjustments to reconcile net increase in                 
            net assets resulting from operations to                 
            net cash used in operating activities:                 
            Increase in investments    (786,836,869)   (375,657,998)   (1,787,281,709)   (812,295,853)  
            Increase in other assets   (40,324,271)   (9,036,937)   (22,208,599)   (1,533,109)  
            Increase in accrued real estate property                
                  level expenses and taxes   35,100,508   5,268,469   32,137,765   12,095,621  
            Increase (decrease) in security deposits held  901,517   (263,666)   54,449   (249,081)  
            Increase (decrease) in other liabilities   3,262,863   (5,498,248)   3,513,765   (868)  
            Increase (decrease) in minority interest   8,363,130   1,521,537   (24,464,859)   3,191,529  
 NET CASH USED IN
                
OPERATING ACTIVITIES
   (510,699,045)   (272,565,478)   (1,311,458,783)   (568,144,777)  
CASH FLOWS FROM PARTICIPANT                
      TRANSACTIONS                
      Premiums   187,188,445   125,951,357   524,415,992   366,878,102  
      Net transfers from TIAA   40,440,138   15,927,602   91,804,633   4,770,906  
      Net transfers from CREF Accounts and                
            affiliated mutual funds   335,027,508   166,569,920   717,031,696   289,071,930  
      Annuity and other periodic payments   (6,634,462)   (4,807,180)   (18,676,797)   (14,078,057)  
      Withdrawals and death benefits   (43,889,934)   (30,323,403)   (116,684,091)   (78,242,150)  
 NET CASH PROVIDED BY
                
PARTICIPANT TRANSACTIONS
   512,131,695   273,318,296   1,197,891,433   568,400,731  
CASH FLOWS FROM FINANCING                
      TRANSACTIONS                
      Proceeds of mortgage loan   —   —   115,000,000   —  
 NET CASH PROVIDED BY
                
FINANCING TRANSACTIONS
   —   —   115,000,000   —  
 NET INCREASE IN CASH
   1,432,650   752,818   1,432,650   255,954  
CASH                
      Beginning of period   —   —   —   496,864  
      End of period   $ 1,432,650   $ 752,818   $ 1,432,650   $ 752,818  

See notes to consolidated financial statements.

6

TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 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 holds various properties in wholly-owned and majority-owned subsidiaries which are consolidated for financial statement purposes. The Account also holds various other properties in joint ventures in which the Account does not hold a controlling interest. Such joint ventures are not consolidated for financial statement purposes. 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. Real estate properties subject to a mortgage are generally valued as described above; however, the value may be adjusted if it is determined that the outstanding debt could have a material affect on the value of the property. The independent fiduciary reviews and approves any such valuation adjustments which exceed certain prescribed limits before such adjustments are recorded by the Account. The Account continues to use the revised value to calculate the Account’s net asset value until the next valuation review or appraisal.

Valuation of Unconsolidated Joint Ventures: Real estate joint ventures (in which the Account does not have a controlling interest and therefore are not consolidated) are stated at the Account’s equity in the net assets of the underlying entities, which value their real estate holdings at fair value.

Valuation of Marketable Securities: Equity securities listed or traded on any national market or exchange are valued at the last sale price as of the close of the principal securities 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. Debt securities, other than money market instruments, are valued at the most recent bid price or the equivalent quoted yield for such securities (or those of comparable maturity, quality and type). Money market instruments, with maturities of one year or less, are valued in the same manner as debt securities or derived from a pricing matrix that has various types of money market instruments along one axis and various maturities along the other. Portfolio securities and limited partnership interests for which market quota-

7

tions 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.

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 specific identification method.

Federal Income Taxes: Based on provisions of the Internal Revenue Code, the Account is taxed as a segregated asset account of TIAA. The Account should incur no material federal income tax attributable to the net investment experience of the Account.

Note 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, LLC (“Services”) pursuant to a Distribution and Administrative Services Agreement 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. Effective January 1, 2004, Services was converted from a regular corporation to a limited liability corporation.

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.

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.

8

Note 3—Real Estate Properties

During the nine months ended September 30, 2004, the Account purchased 14 properties for approximately $800 million. Had the Account’s real estate properties which were purchased during the nine months ended September 30, 2004 been acquired at the beginning of the period (January 1, 2004), rental income and operating expenses for the nine months ended September 30, 2004 would have increased by approximately $63,954,000 and $25,451,000, respectively. In addition, interest income for the nine months ended September 30, 2004 would have decreased by approximately $12,920,000. Accordingly, the total proforma effect on the Account’s net investment income for the nine months ended September 30, 2004 would have been an increase of approximately $25,583,000, if the real estate properties acquired during the nine months ended September 30, 2004, had been acquired at the beginning of the year.

During the nine months ended September 30, 2004, the Account moved five real estate properties from the held for investment category to the held for sale category. The current unrealized gain on these properties for the nine months ended September 30, 2004 was $7,714,562 which is included in discontinued operations along with net investment income for the period of $2,437,353, consisting of rental income of $6,374,458 less operating expense of $3,937,105.

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,   
2004   $  395,045,000
2005   441,609,000
2006   392,366,000
2007   342,454,000
2008   280,558,000
2009-2046   884,023,000
Total   $2,736,055,000

Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts.

9

Note 5—Investments in Unconsolidated Joint Ventures

The Account owns several real estate properties through unconsolidated 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 mortgage notes payable on the properties owned. The Account’s allocated portion of the mortgage notes payable at September 30, 2004 is $217,244,302. The Accounts’ equity in the joint ventures at September 30, 2004 is $574,826,810. A condensed summary of the financial position and results of operations of the joint ventures is shown below.

  September 30, 2004   December 31, 2003  
  (Unaudited)       
Assets            
Real estates properties $1,587,007,626     $914,645,112    
Other assets 20,528,494     24,673,188    
            Total assets $1,607,536,120     $939,318,300    
Liabilities and Equity            
Mortgage notes payable, including            
      accrued interest 434,488,604     $436,448,116    
Other liabilities 23,393,896     20,826,160    
            Total liabilities 457,882,500     457,274,276    
Equity 1,149,653,620     482,044,024    
            Total liabilities and equity $1,607,536,120     $939,318,300    
  For the
Nine Months Ended
September 30, 2004		   For the
Nine Months Ended
September 30, 2003		  
Operating Revenues and Expenses            
      Revenues $ 81,985,649     $72,489,535    
      Expenses 47,194,227     42,074,376    
 
            Excess of revenues over expenses $ 34,791,422     $30,415,159    

Note 6—Mortgage Notes Payable

On March 31, 2004, the Account obtained a mortgage totaling $115 million on a portfolio of 32 storage facilities located throughout the U.S. which were purchased at the end of 2003. The interest on the mortgage is paid monthly based on an annual rate of 4.62%. The total principal is due on April 1, 2011. On September 30, 2004, the Account assumed a mortgage totaling $9.5 million in the purchase of a property. The interest on the mortgage is paid monthly based on an annual rate of 7.24%. The total principal is due on May 1, 2011.

10

Note 7—Condensed Consolidated Financial Information

Selected condensed consolidated financial information for an Accumulation Unit of the Account is presented below.

   
For the
Nine Months
Ended
September 30,
2004 (1)
 
   
For the Years Ended December 31,
  
   
 
   
2003
2002
2001
2000
1999
                     
Per Accumulation Unit data:  
(Unaudited)
                 
      Rental income   $ 11.934   $ 16.514   $ 14.537   $ 14.862   $ 14.530   $ 12.168  
      Real estate property                        
            level expenses and taxes   4.835   6.263   4.988   4.754   4.674   3.975  
Real estate income, net
   7.099   10.251   9.549   10.108   9.856   8.193  
      Income from real estate joint
            ventures		   0.399   0.790   0.665   0.130   0.056   —  
      Dividends and interest   0.787   0.788   1.244   1.950   2.329   2.292  
Total income
   8.285   11.829   11.458   12.188   12.241   10.485  
      Expense charges (2)   0.820   1.282   1.097   0.995   0.998   0.853  
Investment income, net
   7.465   10.547   10.361   11.193   11.243   9.632  
      Net realized and unrealized                        
            gain (loss) on investments   9.164   2.492   (4.621)   (1.239)   3.995   1.164  
      Net increase in                        
            Accumulation Unit Value   16.629   13.039   5.740   9.954   15.238   10.796  
Accumulation Unit Value:                        
      Beginning of year   186.939   173.900   168.160   158.206   142.968   132.172  
      End of period   $203.568   $186.939   $173.900   $168.160   $158.206   $142.968  
Total return   8.90%   7.50%   3.41%   6.29%   10.66%   8.17%  
Ratios to Average Net Assets:                        
      Expenses (2)   0.47%   0.76%   0.67%   0.61%   0.67%   0.63%  
      Investment income, net   4.24%   6.25%   6.34%   6.81%   7.50%   7.13%  
Portfolio turnover rate:                        
      Real estate properties   0.00%   5.12%   0.93%   4.61%   3.87%   4.46%  
      Securities   97.46%   71.83%   52.08%   40.62%   32.86%   27.68%  
Thousands of Accumulation Units                        
      outstanding at end of period   30,761   24,724   20,347   18,456   14,605   11,487

(1)   The percentages shown for this period are not annualized.  
(2)   Expense charges per Accumulation Unit and the Ratio of Expenses to Average Net Assets include the portion of expenses related to the minority interests and exclude real estate property level expenses and taxes. If the real estate property level expenses and taxes were included, the expense charge per Accumulation Unit for the nine months ended September 30, 2004 would be $5.655 ($7.545, $6.085, $5.749, $5.672 and $4.828 for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 respectively), and the Ratio of Expenses to Average Net Assets for the nine months ended September 30, 2004 would be 3.21% (4.47%, 3.72%, 3.50%, 3.79% and 3.58% for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 respectively). 

11

Note 8—Accumulation Units

Changes in the number of Accumulation Units outstanding were as follows:

    For the
Nine Months
Ended
September 30, 2004		 For the
Year
Ended
December 31, 2003
    (Unaudited)  
Accumulation Units:        
      Credited for premiums   2,712,898   2,860,354  
      Credited for transfers, net disbursements and        
            amounts applied to the Annuity Fund   3,323,789   1,517,133  
      Outstanding:        
            Beginning of year   24,724,183   20,346,696  
            End of period   30,760,870   24,724,183  

12

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (Unaudited)
September 30, 2004

REAL ESTATE PROPERTIES—73.14%    
REAL ESTATE PROPERTIES HELD FOR INVESTMENT—71.77%    
Location / Description  
Value
Arizona:    
  Biltmore Commerce Center—Office building   $ 31,502,060  
  RREEF America Mountain Portfolio—Industrial building   5,504,662  
California:    
  3 Hutton Centre Drive—Office building   40,423,955  
  9 Hutton Centre—Office building   22,321,856  
  88 Kearny Street—Office building   64,077,351  
  Cabot Industrial Portfolio—Industrial building   57,800,000  
  Capitol Place—Office building   42,418,500  
  Centerside I—Office building   65,000,000  
  Eastgate Distribution Center—Industrial building   18,300,000  
  Kenwood Mews—Apartments   25,592,033  
  Larkspur Courts—Apartments   57,100,000  
  The Legacy at Westwood—Apartments   86,500,000  
  Northpoint Commerce Center—Industrial building   42,700,000  
  Ontario Industrial Portfolio—Industrial building   179,337,691 (1)
  Regents Court—Apartments   56,500,000  
  RREEF America Northern California Portfolio—Industrial building   59,040,654  
  RREEF America Southern California Portfolio—Industrial building   88,832,725  
  Treat Towers—Office building   119,519,868 (2)
  Westcreek—Apartments   25,513,821  
  West Lake North Business Park—Office building   49,500,000  
  Westwood Marketplace—Shopping center   77,000,000  
Colorado:    
  The Lodge at Willow Creek—Apartments   32,200,000  
  The Market at Southpark—Shopping center   33,429,560  
  Monte Vista—Apartments   22,306,264  
Connecticut:    
  Ten & Twenty Westport Road—Office building   148,005,670  
Delaware:    
  RREEF America Mideast Portfolio—Industrial building   16,518,688  
Florida:    
  701 Brickell—Office building   174,040,353  
  4200 West Cypress Street—Office building   32,528,132  
  Golfview—Apartments   27,765,787  
  The Fairways of Carolina—Apartments   17,900,000  
  The Greens at Metrowest—Apartments   14,300,000  
  Maitland Promenade One—Office building   36,017,751  
  Plantation Grove—Shopping center   10,700,000  
  Pointe on Tampa Bay—Office building   40,577,392  
  Quiet Waters at Coquina Lakes—Apartments   19,415,000  
  Royal St. George—Apartments   19,400,000  
  Sawgrass Office Portfolio—Office building   50,501,250  
  South Florida Apartment Portfolio—Apartments   48,000,000  
Georgia:    
  Alexan Buckhead—Apartments   37,500,000  
  Atlanta Industrial Portfolio—Industrial building   38,000,000  
  Prominence in Buckhead—Office building   105,478,853 (2)

See notes to consolidated financial statements.

13

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (Unaudited)
September 30, 2004

Location / Description   Value
Illinois:    
  161 North Clark Street—Office building   $ 210,357,385 (2)
  Chicago Caleast Industrial Portfolio—Industrial building   41,400,000  
  Chicago Industrial Portfolio—Industrial building   69,840,912  
  Columbia Center III—Office building   30,100,000  
  Oak Brook Regency Towers—Office building   68,100,000  
  Parkview Plaza—Office building   48,000,000  
  RREEF America EN Central Portfolio—Industrial building   23,661,072  
  Rolling Meadows—Shopping center   14,800,000  
Kentucky:    
  IDI Kentucky Portfolio—Industrial building   48,842,583  
Maryland:    
  Corporate Boulevard—Office building   70,000,000  
  FEDEX Distribution Facility—Industrial building   8,100,000  
Massachusetts:    
  Batterymarch Park II—Office building   10,700,000  
  Longwood Towers—Apartments   78,000,000  
  Mellon Financial Center at One Boston Place—Office building   275,000,000 (2)
  Needham Corporate Center—Office building   11,640,984  
  RREEF America Northeast Portfolio—Industrial building   33,077,653  
Michigan:    
  Indian Creek—Apartments   18,000,000  
Minnesota:    
  Interstate Crossing—Industrial building   6,525,088  
  River Road Distribution Center—Industrial building   4,150,000  
Nevada:    
  UPS Distribution Facility—Industrial building   12,900,000  
New Jersey:    
  10 Waterview Boulevard—Office building   27,000,000  
  371 Hoes Lane—Office building   10,700,000  
  Konica Photo Imaging Headquarters—Industrial building   21,000,000  
  Morris Corporate Center III—Office building   85,400,000  
  NJ Caleast Industrial Portfolio—Industrial building   39,300,000  
  South River Road Industrial—Industrial building   33,000,000  
New York:    
  780 Third Avenue—Office building   190,000,000  
  The Colorado—Apartments   58,073,061  
Ohio:    
  Bent Tree—Apartments   13,300,000  
  BISYS Fund Services Building—Office building   35,700,000 (2)
  Columbus Portfolio—Office building   21,500,000  
Oregon:    
  Five Centerpointe—Office building   14,000,000  
Pennsylvania:    
  Lincoln Woods—Apartments   27,301,678  
Tennessee:    
  Memphis Caleast Industrial Portfolio—Industrial building   46,100,000  
  Summit Distribution Center—Industrial building   23,300,000 

See notes to consolidated financial statements.

14

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (Unaudited)
September 30, 2004

Location / Description  
Value
Texas:
  Butterfield Industrial Park—Industrial building   $ 4,600,000 (3)
  Dallas Industrial Portfolio—Industrial building   140,000,000  
  Four Oaks Place—Office building   255,357,238  
  The Legends at Chase Oaks—Apartments   26,999,927  
Utah:    
  Landmark at Salt Lake City (Building #4)—Industrial building   12,500,000  
Virginia:    
  Ashford Meadows—Apartments   67,000,228  
  Fairgate at Ballston—Office building   28,500,000  
  Monument Place—Office building   37,000,000  
  One Virginia Square—Office building   42,428,275  
Washington:    
  Rainier Corporate Park—Industrial building   54,000,000  
  RREEF America Northwest Portfolio—Industrial building   19,412,990  
Washington DC:    
  1015 15th Street—Office building   60,000,000  
  Mazza Gallerie—Shopping center   80,000,000  
  The Farragut Building—Office building   46,500,000  
Other:    
  Storage Portfolio   177,079,181 (2)(4)(5)
TOTAL REAL ESTATE PROPERTIES HELD FOR INVESTMENT    
      (Cost $4,868,342,563)   4,919,318,131  
REAL ESTATE PROPERTIES HELD FOR SALE—1.37%    
Location / Description    
Florida:    
  Doral Pointe—Apartments   55,011,883  
Maryland:    
  Longview Executive Park—Office building   19,500,000  
North Carolina:    
  The Lynnwood Collection—Shopping center   8,400,000  
  The Millbrook Collection—Shopping center   6,100,000  
Ohio:    
  Northmark Business Center III—Office building   5,200,000  
  TOTAL REAL ESTATE PROPERTIES HELD FOR SALE (Cost $97,684,909)   94,211,883  
  TOTAL REAL ESTATE PROPERTIES (Cost $4,966,027,472)   5,013,530,014  
OTHER REAL ESTATE RELATED INVESTMENTS—9.03%    
REAL ESTATE JOINT VENTURE—8.39%    
  Colorado Center Limited Partnership    
      Colorado Center (50% Account Interest)   223,435,699  
  Florida Mall Association, Ltd.    
      The Florida Mall (50% Account Interest)   158,315,354 (6)
  Teachers REA IV, LLC    
      Tyson’s Executive Plaza II (50% Account Interest)   27,140,804  

See notes to consolidated financial statements.

15

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (Unaudited)
September 30, 2004

Location / Description  
Value
  West Dade County Associates    
      Miami International Mall (50% Account Interest).   $ 60,357,331 (6)
  West Town Mall Joint Venture    
      West Town Mall (50% Account Interest)   105,577,622 (6)
  TOTAL REAL ESTATE JOINT VENTURE (Cost $435,044,036)   574,826,810  
      LIMITED PARTNERSHIPS— 0.64%    
        Essex Apartment Value Fund, L.P. (10% Account Interest)   17,751,022  
        Heitman Value Part Fund (34.17% Account Interest)   9,986,066  
        MONY/Transwestern Mezzanine Realty Partners L.P.
          (19.76% Account Interest)		   16,177,199  
      TOTAL LIMITED PARTNERSHIP (Cost $43,330,692)   43,914,287  
       
TOTAL OTHER REAL ESTATE RELATED INVESTMENTS (Cost $478,374,728)   618,741,097  
MARKETABLE SECURITIES—17.83%    
REAL ESTATE RELATED—4.81%    
REAL ESTATE INVESTMENT TRUSTS—4.09%    

Shares   Issuer  
Value
77,500   Acadia Realty Trust   $ 1,143,125  
540,688   Affordable Residential Communities   7,894,045  
36,685   AMB Property Corp   1,358,079  
557,300   American Campus Communities   10,343,488  
140,000   Amli Residential Properties   4,277,000  
602,800   Ashford Hospitality Trust   5,666,320  
30,000   Avalonbay Communities Inc   1,806,600  
110,750   Biomed Realty Trust Inc   1,948,093  
191,600   Boston Properties Inc   10,612,724  
177,000   Brandywine Realty Trust   5,040,960  
35,000   BRE Properties   1,342,250  
21,000   Capital Automotive Reit   656,670  
120,000   Capital Lease Funding Inc   1,324,800  
158,000   CB Richard Ellis Group Inc   3,649,800  
60,000   Centerpoint Properties Trust   2,614,800  
200,000   Cohen & Steers Inc   3,088,000  
220,300   Corporate Office Properties   5,644,086  
150,000   Developers Diversified Realty   5,872,500  
200,000   Equity Office Properties Trust   5,450,000  
203,800   Equity Residential   6,317,800  
594,500   Extra Space Storage Inc   7,579,875  
400,000   Falcon Financial Investment   3,236,000  
100,000   General Growth Properties   3,100,000  
446,400   Gramercy Capital Corp   6,963,840  
92,700   Health Care Realty Trust Inc   3,619,008  
374,800   Hersha Hospitality Trust   3,523,120  
114,700   Hilton Hotels Corp   2,160,948  
294,200   Home Properties Inc   11,638,552 

See notes to consolidated financial statements.

16

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (Unaudited)
September 30, 2004

  
Shares   Issuer  
Value
350,000   Homebanc Corp/Ga   $ 3,150,000  
574,049   Host Marriott Corp   8,053,907  
300,000   Interstate Hotels & Resorts   1,215,000  
1,450,000   Jameson Inns Inc   2,581,000  
60,000   Kimco Realty Corp   3,078,000  
649,000   Kite Realty Group Trust   8,534,350  
467,670   Lexington Corporate Properties Trust   10,153,116  
1,266,660   Lodgian Inc   12,539,934  
163,807   LTC Properties Inc   2,930,507  
175,000   Luminent Mortgage Capital   2,219,000  
150,000   Macerich Company/The   7,993,500  
30,420   Mack-Cali Realty Corp   1,347,606  
31,875   Manufactured Home Communities   1,059,525  
1,155,000   Meristar Hospitality Trust   6,294,750  
65,000   Mills Corp/The   3,371,550  
150,000   Mission West Properties   1,552,500  
193,190   Mortgageit Holdings Inc   2,791,596  
370,000   New York Mortgage Trust Inc   3,459,500  
60,000   NewCastle Investment Corp   1,842,000  
525,000   Origen Financial Inc   3,864,000  
75,000   Prentiss Properties Trust   2,700,000  
200,000   Prologis Trust   7,048,000  
79,000   Reckson Associates Realty Corp   2,271,250  
50,000   Regency Centers Corp   2,324,500  
150,000   Saxon Captal Inc   3,225,000  
255,900   Simon Property Group Inc   13,723,917  
50,000   Starwood Hotels & Resorts   2,321,000  
150,000   Strategic Hotel Capital Inc   2,028,000  
303,820   Sunset Financial Resources   3,241,759  
128,000   The St Joe Company   6,114,560  
123,090   Trizec Properties Inc   1,965,747  
100,000   United Dominion Realty Trust   1,983,000  
77,558   Ventas Inc   2,010,303  
100,000   Vornado Realty Trust   6,268,000  
190,975   Weingarten Realty Investors   6,304,085  
106,200   Winston Hotels Inc   1,136,340  
 TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $261,771,340)
280,569,285

See notes to consolidated financial statements.

17

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (Unaudited)
September 30, 2004

COMMERCIAL MORTGAGE BACKED SECURITIES—0.72%
      
 Principal    Issuer, Current Rate and Maturity Date  
Value
$10,000,000   Bear Stearns CMS    
      1.978% 05/14/16   $ 9,991,930  
10,000,000   COMM 2004 HTL1 A1  
      2.000% 07/15/16   9,999,660  
10,000,000   GSMS 2001-Rock A2FL  
      2.030% 05/03/18   10,012,190  
10,000,000   MSDWC 2001-280 A2F  
      1.894% 02/03/11   9,851,160  
7,807,731   Opryland Hotel Trust  
      2.180% 04/01/11   7,811,128  
1,940,947   Trize 2001 – TZHA A3FL  
      2.130% 03/15/13   1,946,193  
 TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $49,751,723)  
49,612,261
  
 TOTAL REAL ESTATE RELATED (Cost $311,523,063)  
330,181,546
  
OTHER—13.02%    
COMMERCIAL PAPER—5.86%    
13,000,000   American Honda Finance, Corp    
      1.750% 11/08/04   12,974,791  
10,000,000   Beta Finance, Inc    
      1.890% 01/14/05   9,941,994  
15,000,000   Beta Finance, Inc    
      1.970% 01/21/05   14,907,246  
745,000   CC (USA), Inc    
      1.770% 10/15/04   744,454  
13,000,000   CC (USA), Inc    
      1.940% 01/14/05   12,924,593  
11,000,000   CC (USA), Inc    
      1.690% 10/14/04   10,992,428  
3,295,000   Ciesco LP    
      1.730% 11/15/04   3,287,295  
20,000,000   Ciesco LP    
      1.790% 11/16/04   19,952,217  
19,140,000   Corporate Asset Funding Corp, Inc    
      1.820% 11/29/04   19,081,623  
6,000,000   Delaware Funding Corp    
      1.780% 11/02/04   5,990,155  
3,500,000   Dorada Finance Inc    
      1.680% 11/24/04   3,490,215  
19,015,000   Dorada Finance Inc    
      1.780% 11/15/04   18,970,537  
17,175,000   Eli Lilly & Co    
      1.540% 10/14/04   17,163,178  
10,000,000   FCAR Owner Trust I    
      1.560% 10/15/04   9,992,667  
10,000,000   Govco Incorporated    
      1.510% 10/08/04   9,996,067  

See notes to consolidated financial statements.

18

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (Unaudited)
September 30, 2004

 Principal    Issuer, Current Rate and Maturity Date  
Value
15,000,000   Govco Incorporated    
      1.490% 10/07/04   $ 14,994,808  
25,000,000   Kitty Hawk Funding Corp    
      1.600% 10/12/04   24,985,250  
15,000,000   Links Finance L.L.C.    
      1.810% 12/09/04   14,945,604  
10,000,000   Links Finance L.L.C.    
      1.550% 10/18/04   9,991,200  
13,216,000   McCormick & Co, Inc.    
      1.700% 11/02/04   13,193,224  
6,200,000   Morgan Stanley    
      1.790% 11/04/04   6,189,210  
2,255,000   Paccar Financial Corp    
      1.730% 12/01/04   2,247,757  
10,000,000   Paccar Financial Corp    
      1.910% 01/24/05   9,936,522  
18,340,000   Proctor & Gamble    
      1.470% 10/04/04   18,336,373  
1,605,000   Royal Bank of Scotland PLC    
      1.630% 10/25/04   1,603,038  
3,830,000   Sigma Finance Inc    
      1.280% 10/21/04   3,826,068  
20,325,000   Sigma Finance Inc    
      1.190% 10/22/04   20,303,139  
15,000,000   Societe Generale North America, Inc    
      1.490% 10/12/04   14,991,150  
25,000,000   Toronto Dominion Bank    
      2.015% 03/10/05   24,985,172  
25,000,000   UBS Finance, (Delaware) Inc    
      1.790% 11/23/04   24,931,375  
10,000,000   Wells Fargo    
      1.760% 10/28/04   9,999,914  
3,078,000   Yorktown Capital, LLC    
      1.830% 12/13/04   3,066,200  
13,000,000   Yorktown Capital, LLC    
      1.850% 12/17/04   12,946,483  
                 TOTAL COMMERCIAL PAPER (Amortized cost $401,948,231)  
401,881,947
 GOVERNMENT AGENCIES—7.16%  
9,380,000   Federal Farm Credit Banks    
      1.780% 03/15/05   9,290,901  
500,000   Federal Farm Credit Banks    
      1.080% 10/13/04   499,688  
8,603,000   Federal Farm Credit Banks    
      1.220% 01/07/05   8,556,867  
10,750,000   Federal Farm Credit Banks    
      1.100% 11/17/04   10,723,913  
41,941,000   Federal Home Loan Banks    
      1.650% 10/01/04   41,939,078  
3,655,000   Federal Home Loan Banks    
      1.540% 12/03/04   3,643,174

See notes to consolidated financial statements.

19

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (Unaudited)
September 30, 2004

   

 Principal    Issuer, Current Rate and Maturity Date  
Value
9,825,000   Federal Home Loan Banks    
      1.090% 10/06/04   $ 9,822,167  
27,075,000   Federal Home Loan Banks    
      1.550% 11/19/04   27,006,560  
8,510,000   Federal Home Loan Banks    
      1.935% 03/11/05   8,431,112  
21,345,000   Federal Home Loan Banks    
      1.850% 12/27/04   21,246,386  
17,500,000   Federal Home Loan Banks    
      1.730% 11/12/04   17,463,002  
4,000,000   Federal Home Loan Banks    
      1.090% 10/08/04   3,998,462  
7,145,000   Federal Home Loan Banks    
      1.200% 10/20/04   7,138,093  
7,860,000   Federal Home Loan Banks    
      1.850% 04/21/05   7,766,481  
21,016,000   Federal Home Loan Banks    
      1.520% 11/10/04   20,973,635  
2,240,000   Federal Home Loan Mortgage Corp    
      1.500% 11/30/04   2,233,092  
5,134,000   Federal Home Loan Mortgage Corp    
      1.540% 10/04/04   5,133,013  
15,000,000   Federal Home Loan Mortgage Corp    
      1.875% 01/15/05   14,991,379  
6,860,000   Federal Home Loan Mortgage Corp    
      1.650% 11/23/04   6,841,272  
15,000,000   Federal Home Loan Mortgage Corp    
      1.790% 12/07/04   14,948,433  
24,100,000   Federal Home Loan Mortgage Corp    
      1.550% 10/19/04   24,077,868  
50,000,000   Federal Home Loan Mortgage Corp    
      1.570% 10/26/04   49,937,167  
4,345,000   Federal Home Loan Mortgage Corp    
      1.780% 12/14/04   4,328,525  
17,974,000   Federal Home Loan Mortgage Corp    
      1.620% 11/09/04   17,938,651  
25,000,000   Federal National Mortgage Association    
      1.490% 10/06/04   24,992,792  
20,000,000   Federal National Mortgage Association    
      1.590% 10/20/04   19,980,667  
13,590,000   Federal National Mortgage Association    
      1.520% 11/03/04   13,567,282  
45,000,000   Federal National Mortgage Association    
      1.560% 10/27/04   44,941,275  
185,000   Federal National Mortgage Association    
      1.700% 12/08/04   184,355  
18,000,000   Federal National Mortgage Association    
      1.740% 11/17/04   17,956,320  
30,000,000   Federal National Mortgage Association    
      1.792% 12/15/04   29,880,300  
        TOTAL GOVERNMENT AGENCIES (Amortized cost $490,587,670)  
490,431,910

See notes to consolidated financial statements.

20

TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS (Unaudited)
September 30, 2004

TOTAL OTHER (Cost $892,535,901)  
892,313,857
  
TOTAL MARKETABLE SECURITIES (Cost $1,204,058,964)  
1,222,495,403
  
TOTAL INVESTMENTS—100.00% (Cost $6,648,461,164)  
$6,854,766,514
  

(1)   The market value reflects the Account’s interest in the property gross of debt.  
(2)   This amount reflects the market value of the property as stated in the consolidated financial statements,
which includes minority interest.		  
(3)   Leasehold interest only.  
(4)   The market value reflects the Account’s interest in the joint venture gross of debt.  
(5)   32 facilities throughout the U.S.  
(6)   The market value reflects the Account’s interest in the joint venture after debt.  

See notes to consolidated financial statements.

21

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

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 September 30, 2004, the Account owned a total of 101 real estate properties (five of which are held in unconsolidated joint ventures), representing 81.53% of the Account’s total investment portfolio. This real estate portfolio includes 40 office properties (five of which are held in consolidated joint ventures and two of which are held in an unconsolidated joint venture), 28 industrial properties, 22 apartment complexes, 10 retail properties (including three unconsolidated joint ventures, each owning a regional mall, in which the Account owns a 50% partnership interest), and a 75% consolidated joint venture partnership interest in a portfolio of storage facilities.

During the third quarter of 2004, the Account purchased two office, one retail, and eight industrial properties in the aggregate amount of $614.2 million. In addition, the Account purchased a 50% interest in a joint venture partnership which owns an office building for a total equity investment of $228.5 million.

The two charts below reflect the diversification of the Account’s real estate assets by region and property type as well as its ten largest holdings. All information is based on the value of each property as stated in the consolidated financial statements as of September 30, 2004.

Real Estate Assets Diversification by Market Value
   
East (30)
West (30)
South (25)
Midwest (15)
Various (1)
TOTAL (101)
Office (40)   19.49%   12.12%   12.43%   7.50%   0.00%   51.54%  
Apartment (22)   4.12%   5.47%   4.76%   0.56%   0.00%   14.91%  
Industrial (28)   3.57%   9.84%   4.51%   2.60%   0.00%   20.52%  
Retail (10)   1.69%   1.98%   5.93%   0.26%   0.00%   9.86%  
Other* (1)   0.00%   0.00%   0.00%   0.00%   3.17%  
3.17%
  
TOTAL (101)   28.87%   29.41%   27.63%   10.92%   3.17%
100.0%

( )   Number of properties in parentheses.  
  *   Represents a portfolio of storage facilities located in various regions across the U.S.  

Property Name   State   Property
Type 		 
Value
(000,000) 
  % of Total
Investments 		  % of Total
Real EstatePortfolio
  
Mellon Financial Center at
      One Boston Place		   MA   Office   $275.0 (1)(2)   4.01%   4.92%  
Four Oaks Place   TX   Office   $255.4     3.73%   4.57%  
Colorado Center   CA   Office   $223.4 (3)   3.26%   4.00%  
161 North Clark Street   IL   Office   $210.4 (1)(4)   3.07%   3.76%  
780 Third Avenue   NY   Office   $190.0     2.77%   3.40%  
Ontario Industrial Portfolio   CA   Industrial   $179.3 (5)   2.62%   3.21%  
Storage Portfolio   Various   Other
—Commercial
 
$177.1
 (1)(6)   2.58%  
3.17%
701 Brickell   FL   Office   $174.0     2.54%   3.12%  
The Florida Mall   FL   Retail   $158.3 (7)   2.31%   2.83%  
Ten & Twenty Westport Road   CT   Office   $148.0     2.16%  
2.65%
  

(1)   This amount represents the value as reported in the September 30, 2004 Consolidated Statement of Investments, which includes minority interests.  
(2)   The value of the Account’s interest in the property is $138.2 million, representing 2.02% of Total Investments and 2.47% of the Total Real Estate Portfolio.  
(3)   The value represents the Account’s joint venture interest in the property.  
(4)   The value of the Account’s interest in the property is $157.8 million, representing 2.30% of Total Investments and 2.82% of the Total Real Estate Portfolio.  
(5)   This property is subject to debt. The value of the Account’s interest less the leverage is $169.8 million, representing 2.48% of Total Investments and 3.04% of the Total Real Estate Portfolio.  
(6)   This property is subject to debt. The value of the Account’s joint venture interest less the leverage is $46.6 million, representing 0.68% of Total Investments and 0.84% of the Total Real Estate Portfolio.  
(7)   This property is held in an unconsolidated joint venture and is subject to debt. The value represents the Account’s Joint Venture interest in the property and is net of leverage. 

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As of September 30, 2004, the Account also held investments in real estate limited partnerships representing 0.64% of the portfolio, real estate investment trusts (REITs) representing 4.09% of the portfolio, commercial mortgage backed securities (CMBS) representing 0.72% of the portfolio, commercial paper representing 5.86% of the portfolio, and government agency bonds representing 7.16% of the portfolio.

Real Estate Market Outlook in General

Alan Greenspan noted in his September 2004 testimony to the U.S. House of Representatives that the U.S. economy hit a “soft patch” in the third quarter 2004. The softness was borne out by payroll employment data as the Bureau of Labor Statistics (BLS) reported that nonfarm payroll employment rose by 96,000 in September and by 103,000 on average during the third quarter 2004 as compared to an average of 295,000 during the March-May period. The softness was attributed largely to the steep increase in energy prices and manifested in part by a slowdown in consumer spending. Nonetheless, the twelve Federal Reserve Banks in the September 2004 “Beige Book” indicated that while economic activity had slowed in several districts since their July 2004 reports, most districts still reported modest or moderate growth.

The modest growth in payroll employment was reflected by incremental improvement in the office and industrial real estate markets. Office market vacancies declined for the fifth consecutive quarter with third quarter 2004 vacancies averaging 15.9% compared with 16.2% in the second quarter 2004. Industrial market vacancies declined to 11.2% in the third quarter 2004 compared with 11.4% in the second quarter 2004.

Apartment markets also showed modest improvement. M/PF Research reported that vacancy rates in institutional grade apartments averaged 6.4% in second quarter 2004 compared with 6.6% in second quarter 2003. (third quarter 2004 data are not yet available. Because of seasonality in leasing, it is best to compare available data with data for the same quarter in the prior year.) Rents increased slightly by 0.7%, and concessions to attract new tenants, such as a month’s free rent and/or free internet service were still necessary though less generous.

Retail sales picked up modestly during the third quarter 2004. Excluding automobile sales, which often swing wildly from month to month, retail sales rose by a brisk 0.6% in September, up from 0.2% in August, and better than the 0.4% increase that some economists were expecting. Retail markets saw vacancies decline and rents edge up during the second quarter 2004. (Market data for the third quarter 2004 are not yet available.) Reis, Inc. reported that, while vacancies in regional malls fell to 5.6% as of the second quarter 2004 compared with 5.8% in the first quarter 2004, rents increased by 0.4%. Vacancies in neighborhood and community centers decreased to 6.9% in the second quarter 2004 compared to 7.0% in the first quarter 2004, while rents increased 0.6%.

Near-term fluctuations in the U.S. economy are not predictable, but most economists expect stronger growth in the coming months. The consensus of 44 top economists surveyed by the “Blue Chip Financial Forecasts” is that U.S. Gross Domestic Product (GDP) will grow in the fourth quarter 2004. As Alan Greenspan observed in his September 2004 testimony, “the most recent data suggest that...the expansion has regained some traction.” The Blue Chip Financial Forecasts does not provide a consensus forecast of employment growth, but the projected growth in GDP may provide a strong impetus for firms to increase hiring. Nonetheless, the near-term outlook for commercial real estate markets remains murky since space demand often lags employment growth by several quarters.

Results of Operations

When reviewing this discussion, it is important to note that when the Account owns a controlling interest (generally over 50%) in a joint venture, consistent with accounting principles generally accepted in the United States (GAAP), the Account’s consolidated financial statements and all financial data discussed in the report reflect 100% of the market value, free and clear of leverage, if applicable, 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 (generally 50% or less), then only the Account’s proportionate interest in the unconsolidated joint venture is recorded by the Account.

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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 from discontinued operations.

Nine Months Ended September 30, 2004 Compared to
Nine Months Ended September 30, 2003

Results from Continuing Operations

Performance

The Account’s total net return was 8.90% for the nine months ended September 30, 2004 and 5.83% for the nine months ended September 30, 2003. This increase in the Account’s total return was primarily due to substantial increases in the market value of the Account’s real estate holdings.

The Account’s net investment income after deduction of all expenses was 30% higher for the nine months ended September 30, 2004 compared to the same period in 2003. This increase was primarily due to a 45% increase in total net assets and the 64% increase in real estate holdings over the same period.

The Account’s real estate holdings, including unconsolidated joint venture investments, generated approximately 91% and 94% of the Account’s total investment income (before deducting Account level expenses) during the nine months ended September 30, 2004 and 2003, respectively. The remaining portion of the Account’s total investment income was generated by marketable securities investments.

Gross real estate rental income increased approximately 32% in the nine months ended September 30, 2004, as compared to the same period in 2003. This increase was due to the increased number of properties owned by the Account as of September 30, 2004 as compared with September 30, 2003. Income from unconsolidated real estate joint ventures was $12,443,808 for the nine months ended September 30, 2004, as compared with $14,620,644 for the same period in 2003. This decrease in unconsolidated joint venture income was partially due to the increase in leverage on one of the regional malls. Interest income on the Account’s marketable securities investments increased to $9,319,462 for the nine months ended September 30, 2004 from $4,402,372 for the nine months ended September 30, 2003 due to the increase in the amount of non-real estate assets held by the Account. Dividend income on the Account’s REIT investments increased to $15,208,315 for the nine months ended September 30, 2004 from $7,499,103 for the nine months ended September 30, 2003. The increase was primarily due to the strong performance by the Account’s REIT holdings.

Total property level expenses for the nine months ended September 30, 2004 and 2003 were $150,738,045 and $107,046,155, respectively. This 41% increase in property level expenses reflected the increased number of investments in real estate by the Account (76 properties as of September 30, 2003 compared to 101 properties as of September 30, 2004). In addition, during the nine months ended September 30, 2004, the Account incurred interest expense of $2,695,856 related to the mortgages on a portfolio of storage facilities in which the Account has a 75% joint venture interest and an industrial property purchased in the third quarter 2004.

The Account also incurred expenses for the nine months ended September 30, 2004 and 2003 of $10,225,925 and $9,370,775 respectively, for investment advisory services, $11,166,357 and $11,087,140, respectively, for administrative and distribution services and $4,182,234 and $2,916,020, respectively, for the mortality, expense risk and 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 the Account.

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The Account had net realized and unrealized gains on investments of $274,082,980 for the nine months ended September 30, 2004, as compared with net realized and unrealized gains on investments of $33,488,062 for the nine months ended September 30, 2003. The increase in net realized and unrealized gains is primarily due to the substantial net unrealized gain on the Account’s real estate properties of $131,871,469 for the nine months ended September 30, 2004 as compared to net unrealized losses for the nine months ended September 30, 2003 of $13,695,618. In addition, the Account had an unrealized gain on its unconsolidated joint venture holdings of $113,240,871 for the nine months ended September 30, 2004 as compared to unrealized gain of $26,675,169 for the nine months ended September 30, 2003. The substantial net gains in the nine month period ending September 30, 2004 are due to the increase in market value of several real estate properties, including the value of three regional malls in which the Account owns an unconsolidated joint venture interest. The Account’s marketable securities for the nine months ended September 30, 2004 had net realized and unrealized gains totaling $28,970,640, as compared with net realized and unrealized gains of $20,508,511, for the nine months ended September 30, 2003.

Results from Discontinued Operations

During the nine months ended September 30, 2004, the Account did not sell any properties but moved five properties to the held for sale category. During the nine months ended September 30, 2003, the Account sold two properties and had five properties moved to the held for sale category. The investment income and unrealized gains for the nine months ended September 30, 2004 related to the properties held for sale, as well as the investment income and unrealized and realized gains and losses for the properties sold or held for sale during 2003, were removed from continuing operations in the accompanying consolidated financial statements and were classified as discontinued operations. The income for the nine months ended September 30, 2004 from the properties held for sale during 2004, consisted of rental income of $6,374,458 less operating expenses and real estate taxes of $3,937,105, resulting in a net investment income of $2,437,353. The income for the nine months ended September 30, 2003 from the property sold during 2003 and the properties held for sale during 2003, consisted of rental income of $22,641,742 less operating expenses and real estate taxes of $8,655,224, resulting in net investment income of $13,986,518. The net realized and unrealized gain on discontinued operations for the nine month period ended September 30, 2004 and 2003 was $7,714,562 and $9,040,768, respectively. At the time of sale, the properties sold during the nine months ended September 30, 2003 had a cost of $154,626,452 and the proceeds of sale were $187,225,000, resulting in a net realized gain of $32,598,548.

Three Months Ended September 30, 2004 compared to
Three Months Ended September 30, 2003

Results from Continuing Operations

Performance

For the three months ended September 30, 2004, the Account’s total net return was 4.48%. This was 186 basis points higher than the return of 2.62% for the three months ended September 30, 2003. The returns were higher in the 2004 period as compared to the same time in 2003 primarily due to the strong performance of the Account’s real estate and REIT holdings. The Account’s net investment income, after deduction of all expenses, was $80,672,232 for the three months ended September 30, 2004 and $60,602,380 for the three months ended September 30, 2003, a 33% increase.

The Account’s real estate holdings including income from unconsolidated joint ventures generated approximately 89% and 92% of the Account’s total investment income (before deducting Account level expenses) during the three months ended September 30, 2004 and 2003. The remaining portion of the Account’s total investment income was generated by investments in marketable securities.

Gross real estate rental income increased 33% in the three months ended September 30, 2004 compared with the same period in 2003. The higher real estate income for the three months ended September 30, 2004 was due primarily to the increase in the number of properties owned by the Account. Income from uncon-

25

solidated real estate joint ventures was $4,923,248 and $4,468,598 in the three months ended September 30, 2004 and September 30, 2003, respectively. Interest income on the Account’s marketable securities investments for the three months ended September 30, 2004 and 2003 totaled $4,463,220 and $2,096,425, respectively. This increase was due to an increase in the amount of non-real estate assets held by the Account. Dividend income on the Account’s investments in REITs increased to $5,612,876 from $3,381,215 for the three months ended September 30, 2004 and September 30, 2003. The increase was primarily due to the strong performance by the Account’s REIT holdings.

Total property level expenses for the three months ended September 30, 2004 and 2003 were $52,412,388 and $36,901,495, respectively. The 42% increase in property level expenses during the three months ended September 30, 2004 reflected the increased number of properties held in the Account and the interest expense of $1,328,250 for mortgages on a portfolio of storage facilities and an industrial property owned by the Account.

The Account also incurred expenses for the three months ended September 30, 2004 and 2003 of $4,322,840 and $3,635,544, respectively, for investment advisory services, $3,952,538 and $3,680,035, respectively, for administrative and distribution services and $1,570,186 and $1,074,003, respectively, for the mortality, expense risk and 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 the Account.

The Account had net realized and unrealized gains of $194,022,717 and $51,369,629 for the three months ended September 30, 2004 and 2003, respectively. The difference was primarily due to a substantial increase in the aggregate market value of the Account’s real estate holdings in the three-months ended September 30, 2004 as compared to lesser increases in market values in the same period in 2003. The Account posted net unrealized gains of $112,635,940 and of $19,557,920 on its real estate investments for the three months ended September 30, 2004 and 2003, respectively. The Account posted total realized and unrealized gains on its marketable securities of $19,444,969 during the third quarter of 2004, as compared to net realized and unrealized gains on its marketable securities of $10,931,378 during the third quarter of 2003. The Account had unrealized gain on its joint venture holdings of $61,941,808 for the three months ended September 30, 2004, as compared to unrealized gains of $20,880,331 for the same period 2003, which can be attributed primarily to an increase in value of the three regional malls in which the Account owns a 50% joint venture interest.

Results from Discontinued Operations

At September 30, 2004, the Account had five real estate properties in the held for sale category. During the three months ended September 30, 2003, the Account sold one property and moved five properties into the held for sale category. The investment income and realized and unrealized gains for the three months ended September 30, 2004 and 2003 relating to the properties moved to the held for sale category was removed from continuing operations and classified as discontinued operations. The income from the properties during the third quarter 2004 consisted of rental income of $2,052,569 less operating expenses and real estate taxes totaling $1,146,628 resulting in net investment income in the amount of $905,941. The income from these properties during the third quarter 2003 consisted of rental income of $5,835,692 less operating expenses and real estate taxes totaling $3,045,210 resulting in net investment income of $2,790,482. The net realized and unrealized gain/loss on discontinued operation for the three month period ended September 30, 2004 and 2003 was a gain of $6,400,737 and a loss of $767,796, respectively.

Liquidity and Capital Resources

At September 30, 2004 and 2003, the Account’s liquid assets (i.e., its REITs, CMBSs, commercial paper, government securities and cash) had a value of $1,223,928,053 and $1,173,529,230, respectively. The increase in the Account’s liquid assets is primarily due to net positive inflow of transfers and premiums

26

into the Account. In addition, there was an increase in the value of the Account’s REIT holdings during the same period.

During the nine months ended September 30, 2004, the Account received $524,415,992 in premiums and $808,836,329 in net participant transfers from TIAA, the CREF Accounts and affiliated mutual funds, while for the same period in 2003, the Account received $366,878,102 in premiums and $293,842,836 in net participant transfers. 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 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.

Critical Accounting Policies

The consolidated financial statements of the Account 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.

Management believes that the following policies related 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 TIAA 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. Determination of fair value involves subjective judgment because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. 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 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 Unconsolidated Joint Ventures: Real estate joint ventures (in which the Account does not have a controlling interest and therefore are not consolidated) are stated at the Account’s equity in the net assets of the underlying entities, which value their real estate holdings at fair value.

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Valuation of Marketable Securities: Equity securities listed or traded on any national market or exchange are valued at the last sale price as of the close of the principal securities 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. Debt securities, other than money market instruments, are valued at the most recent bid price or the equivalent quoted yield for such securities (or those of comparable maturity, quality and type). Money market instruments, with maturities of one year or less, are valued in the same manner as debt securities are derived from a pricing matrix that has various types of money market instruments along one axis and various maturities along the other. 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.

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.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As of September 30, 2004, 17.83% of the Account’s investments were in market risk sensitive instruments, comprised entirely of marketable securities. These include real estate investment trusts (REITs), commercial mortgage-backed securities (CMBSs), and high-quality short-term debt instruments (i.e., commercial paper). The Consolidated Statement of Investments for the Account sets forth the terms of these instruments, along with their fair value, as determined in accordance with procedures described in Note 1 to the Account’s financial statements. Note that the Account does not currently invest in derivative financial instruments.

The Account’s investments in marketable securities are subject to the following general risks:

•   financial risk—for debt securities, the possibility that the issuer won’t be able to pay principal and interest when due, and for common or preferred stock, the possibility that the issuer’s current earnings will fall or that its overall financial soundness will decline, reducing the security’s value.  

•		   market risk—price volatility due to changing conditions in the financial markets and, particularly for debt securities, changes in overall interest rates.  

•		   interest rate volatility, which may affect current income from an investment.  

In addition, mortgage-backed securities are subject to prepayment risk — i.e., the risk that borrowers will repay the loans early. If the underlying mortgage assets experience greater than anticipated payments of principal, the Account could fail to recoup some or all of its initial investment in these securities. The market value of these securities is also highly sensitive to changes in interest rates. Note that the potential for appreciation, which could otherwise be expected to result from a decline in interest rates, may be limited by any increased prepayments.

In addition to these risks, REITs and mortgage-backed securities are subject to many of the same general risks inherent in real estate investing, making mortgage loans and investing in debt securities. For more information on the risks associated with all of the Account’s investments, see the Account’s most recent prospectus.

Item 4. CONTROLS AND PROCEDURES.

(a) Evaluation of disclosure controls and procedures. An evaluation was performed as of September 30, 2004, 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 quarterly reporting period.

(b) Changes in internal controls over financial reporting. There have been no significant changes in the registrant’s internal controls over financial reporting that occurred during the registrant’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

There are no material current or pending legal proceedings that the Account is a party to, or to which the Account’s assets are subject.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Not applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

Not applicable.

Item 5. OTHER INFORMATION.

Not applicable.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
 
(3)
 (A) Charter of TIAA (as amended) *
 
(B) Bylaws of TIAA (as amended) *
 
(4)
 (A) Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account Endorsements2 , Keogh Contract3 and Retirement Select and Retirement Select Plus Contracts and Endorsements1
 
(B) Forms of Income-Paying Contracts2
 
 (10)
 (A)  Independent Fiduciary Agreement by and among TIAA, the Registrant, and The Townsend Group3, as amended5
 
(B) Custodial Services Agreement by and between TIAA and Morgan Guaranty Trust Company of New York with respect to the Real Estate Account (Agreement assigned to Bank of New York, January 1996)2
 
(C) Distribution and Administrative Services Agreement by and between TIAA and TIAA-CREF Individual & Institutional Services, Inc. (as amended) (filed previously as Exhibit (1))1
  (31) Rule 13a-15(e)/15d-15(e) Certifications
  (32)  Section 1350 Certifications

1

  Previously filed and incorporated herein by reference to the Account’s Pre-Effective Amendment No. 1 to the Registration statement on Form S-1 filed April 29, 2004 (File No. 333-113602).  
2   Previously filed and incorporated herein by reference to Post-Effective Amendment No. 2 to the Account’s Registration Statement on Form S-1 filed April 30, 1996 (File No. 33-92990).  

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3       Previously filed and incorporated herein by reference to Post-Effective Amendment No. 6 to the Account’s Registration Statement on Form S-1 filed April 26, 2000 (File No. 333-22809).
4       Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 2 to the Registration statement on Form S-1 filed April 29, 2002 (File No. 333-83964).
5       Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 2 to the Registration statement on Form S-1 filed April 29, 2003 (File No. 333-83964).
*       Filed herewith.
    (b)   REPORTS ON 8-K. The Account did not file any reports on Form 8-K during the period.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE: November 4, 2004  
  TIAA REAL ESTATE ACCOUNT
  By:

TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA

  By: /s/ Herbert M. Allison, Jr.
   
   

Herbert M. Allison, Jr.
Chairman of the Board, President
and Chief Executive Officer
     
DATE: November 4, 2004 By: /s/ Elizabeth A. Monrad
   
   

 Elizabeth A. Monrad
Executive Vice President and
Chief Financial Officer

  

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