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Tiaa Real Estate Account · 10-Q · For 3/31/08

Filed On 5/15/08 5:31pm ET   ·   SEC File 33-92990   ·   Accession Number 930413-8-3224

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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 5/15/08  Tiaa Real Estate Account          10-Q        3/31/08    3:137                                    Command Financial...Corp

Quarterly Report   ·   Form 10-Q
Filing Table of Contents

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10-Q   ·   Quarterly Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
3Statements of Assets and Liabilities
4Statements of Operations
5Statements of Changes in Net Assets
6Statements of Cash Flows
7Notes to the Financial Statements
18Statement of Investments

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UNITED STATES
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 March 31, 2008

 

OR

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________________ to ________________________

Commission file number: 33-92990; 333-149862

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

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

NOT APPLICABLE
(I.R.S. Employer Identification No.)

C/O TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
730 THIRD AVENUE
NEW YORK, NEW YORK 10017-3206
(Address of principal executive offices, including zip code)

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

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller Reporting Company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

 

 

YES o

NO x




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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

INDEX TO UNAUDITED FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
MARCH 31, 2008

 

 

 

 

 

Page

 

 


 

 

 

Statements of Assets and Liabilities

 

3

 

 

 

Statements of Operations

 

4

 

 

 

Statements of Changes in Net Assets

 

5

 

 

 

Statements of Cash Flows

 

6

 

 

 

Notes to the Financial Statements

 

7

 

 

 

Statement of Investments

 

18

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TIAA REAL ESTATE ACCOUNT
 STATEMENTS OF ASSETS AND LIABILITIES
(In thousands, except per accumulation unit amounts)

 

 

 

 

 

 

 

 

 

 

March 31,
2008

 

December 31,
2007

 

 

 


 


 

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Investments, at value:

 

 

 

 

 

 

 

Real estate properties
(cost: $9,888,575 and $9,804,489)

 

$

12,110,602

 

$

11,983,715

 

Real estate joint ventures and limited partnerships
(cost: $2,294,816 and $2,260,919)

 

 

3,115,908

 

 

3,158,870

 

Marketable securities:

 

 

 

 

 

 

 

Real estate related
(cost: $442,958 and $439,154)

 

 

431,056

 

 

426,630

 

Other
(cost: $3,147,834 and $3,371,896)

 

 

3,148,714

 

 

3,371,866

 

Mortgage loan receivable
    (cost: $75,000 and $75,000)

 

 

73,106

 

 

72,520

 

 

 



 



 

Total investments
(cost: $15,849,183 and $15,951,458)

 

 

18,879,386

 

 

19,013,601

 

Cash

 

 

1,312

 

 

6,144

 

Due from investment advisor

 

 

 

 

11,196

 

Other

 

 

212,214

 

 

201,826

 

 

 



 



 

TOTAL ASSETS

 

 

19,092,912

 

 

19,232,767

 

 

 



 



 

LIABILITIES

 

 

 

 

 

 

 

Mortgage loans payable—Note 5

 

 

1,426,620

 

 

1,392,093

 

(principal outstanding: $1,427,261 and $1,427,857)

 

 

 

 

 

 

 

Payable for securities transactions

 

 

1,473

 

 

866

 

Due to investment advisor

 

 

25,285

 

 

 

Accrued real estate property level expenses

 

 

163,606

 

 

154,639

 

Security deposits held

 

 

24,593

 

 

24,632

 

 

 



 



 

TOTAL LIABILITIES

 

 

1,641,577

 

 

1,572,230

 

 

 



 



 

NET ASSETS

 

 

 

 

 

 

 

Accumulation Fund

 

 

16,944,927

 

 

17,160,703

 

Annuity Fund

 

 

506,408

 

 

499,834

 

 

 



 



 

TOTAL NET ASSETS

 

$

17,451,335

 

$

17,660,537

 

 

 



 



 

NUMBER OF ACCUMULATION UNITS
OUTSTANDING
— Notes 6 and 7

 

 

54,037

 

 

55,106

 

 

 



 



 

NET ASSET VALUE, PER ACCUMULATION UNIT — Note 6

 

$

313.58

 

$

311.41

 

 

 



 



 

See notes to the financial statements.

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TIAA REAL ESTATE ACCOUNT
 STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

INVESTMENT INCOME

 

 

 

 

 

 

 

Real estate income, net:

 

 

 

 

 

 

 

Rental income

 

$

242,841

 

$

245,537

 

 

 



 



 

Real estate property level expenses and taxes:

 

 

 

 

 

 

 

Operating expenses

 

 

63,556

 

 

66,566

 

Real estate taxes

 

 

33,328

 

 

31,227

 

Interest expense

 

 

20,845

 

 

21,577

 

 

 



 



 

Total real estate property level expenses and taxes

 

 

117,729

 

 

119,370

 

 

 



 



 

Real estate income, net

 

 

125,112

 

 

126,167

 

Income from real estate joint ventures and limited partnerships

 

 

30,891

 

 

19,540

 

Interest

 

 

34,451

 

 

25,906

 

Dividends

 

 

3,841

 

 

2,605

 

 

 



 



 

TOTAL INCOME

 

 

194,295

 

 

174,218

 

 

 



 



 

Expenses—Note 2:

 

 

 

 

 

 

 

Investment advisory charges

 

 

12,432

 

 

13,143

 

Administrative and distribution charges

 

 

22,061

 

 

15,458

 

Mortality and expense risk charges

 

 

2,194

 

 

1,798

 

Liquidity guarantee charges

 

 

7,021

 

 

1,098

 

 

 



 



 

TOTAL EXPENSES

 

 

43,708

 

 

31,497

 

 

 



 



 

INVESTMENT INCOME, NET

 

 

150,587

 

 

142,721

 

 

 



 



 

 

 

 

 

 

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND MORTGAGE LOANS PAYABLE

 

 

 

 

 

 

 

Net realized gain (loss) on investments:

 

 

 

 

 

 

 

Real estate properties

 

 

148

 

 

7,162

 

Real estate joint ventures and limited partnerships

 

 

(17

)

 

(611

)

Marketable securities

 

 

1,194

 

 

20,378

 

 

 



 



 

Total net realized gain on investments

 

 

1,325

 

 

26,929

 

 

 



 



 

Net change in unrealized appreciation (depreciation) on:

 

 

 

 

 

 

 

Real estate properties

 

 

42,801

 

 

273,845

 

Real estate joint ventures and limited partnerships

 

 

(43,703

)

 

111,993

 

Marketable securities

 

 

4,789

 

 

2,798

 

Mortgage loan receivable

 

 

586

 

 

(167

)

Mortgage loans payable

 

 

(34,710

)

 

21,366

 

 

 



 



 

Net change in unrealized (depreciation) appreciation on
investments and mortgage loans payable

 

 

(30,237

)

 

409,835

 

 

 



 



 

NET REALIZED AND UNREALIZED
(LOSS) GAIN ON INVESTMENTS AND
MORTGAGE LOANS PAYABLE

 

 

(28,912

)

 

436,764

 

 

 



 



 

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS

 

$

121,675

 

$

579,485

 

 

 



 



 

See notes to the financial statements.

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

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

FROM OPERATIONS

 

 

 

 

 

 

 

Investment income, net

 

$

150,587

 

$

142,721

 

Net realized gain on investments

 

 

1,325

 

 

26,929

 

Net change in unrealized (depreciation) appreciation on investments and mortgage loans payable

 

 

(30,237

)

 

409,835

 

 

 



 



 

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS

 

 

121,675

 

 

579,485

 

 

 



 



 

FROM PARTICIPANT TRANSACTIONS

 

 

 

 

 

 

 

Premiums

 

 

285,039

 

 

300,544

 

Net transfers (to) from TIAA

 

 

(124,446

)

 

57,376

 

Net transfers (to) from CREF Accounts

 

 

(288,306

)

 

287,805

 

Net transfers to TIAA-CREF Institutional Mutual Funds

 

 

(30,851

)

 

(22,093

)

Annuity and other periodic payments

 

 

(24,950

)

 

(18,963

)

Withdrawals and death benefits

 

 

(147,363

)

 

(129,655

)

 

 



 



 

NET (DECREASE) INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS

 

 

(330,877

)

 

475,014

 

 

 



 



 

NET (DECREASE) INCREASE IN NET ASSETS

 

 

(209,202

)

 

1,054,499

 

NET ASSETS

 

 

 

 

 

 

 

Beginning of period

 

 

17,660,537

 

 

14,132,693

 

 

 



 



 

End of period

 

$

17,451,335

 

$

15,187,192

 

 

 



 



 

See notes to the financial statements.

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TIAA REAL ESTATE ACCOUNT
 STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net increase in net assets resulting from operations

 

$

121,675

 

$

579,485

 

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Purchase of real estate properties

 

 

(46,240

)

 

(338,637

)

Amortization of discount on debt

 

 

 

 

130

 

Capital improvements on real estate properties

 

 

(37,846

)

 

(37,141

)

Proceeds from sale of real estate properties

 

 

148

 

 

22,000

 

Decrease (increase) in other investments

 

 

223,951

 

 

(251,484

)

(Increase) decrease in other assets

 

 

(10,388

)

 

4,351

 

Increase in accrued real estate property level expenses and taxes

 

 

8,967

 

 

3,526

 

(Decrease) increase in security deposits held

 

 

(39

)

 

403

 

Increase (decrease) in payable for securities transactions

 

 

607

 

 

(1,219

)

Increase in due to (from) investment advisor

 

 

38,189

 

 

(17,019

)

Net realized gain on investments

 

 

(1,325

)

 

(26,929

)

Unrealized loss (gain) on investments and mortgage loans payable

 

 

30,237

 

 

(409,835

)

 

 



 



 

NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES

 

 

327,936

 

 

(472,369

)

 

 



 



 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Principal payments of mortgage loans payable

 

 

(183

)

 

(140

)

Premiums

 

 

283,331

 

 

300,544

 

Net transfers (to) from TIAA

 

 

(124,446

)

 

57,376

 

Net transfers (to) from CREF Accounts

 

 

(288,306

)

 

287,805

 

Net transfers to TIAA-CREF Institutional Mutual Funds

 

 

(30,851

)

 

(22,093

)

Annuity and other periodic payments

 

 

(24,950

)

 

(18,963

)

Withdrawals and death benefits

 

 

(147,363

)

 

(129,655

)

 

 



 



 

NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES

 

 

(332,768

)

 

474,874

 

 

 



 



 

NET (DECREASE) INCREASE IN CASH

 

 

(4,832

)

 

2,505

 

CASH

 

 

 

 

 

 

 

Beginning of period

 

 

6,144

 

 

3,585

 

 

 



 



 

End of period

 

$

1,312

 

$

6,090

 

 

 



 



 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

Cash paid for interest

 

$

20,897

 

$

20,631

 

 

 



 



 

See notes to the financial statements.

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TIAA REAL ESTATE ACCOUNT
 NOTES TO THE FINANCIAL STATEMENTS

Note 1 — Organization and Significant Accounting Policies

Business: 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 real estate properties directly and through wholly-owned subsidiaries. The Account also holds interests in real estate joint ventures and limited partnerships in which the Account does not hold a controlling interest; as such, such interests are not consolidated for financial statement purposes. The Account also invests in mortgage loans receivable collateralized by commercial real estate properties. The Account also invests in publicly-traded securities and other instruments to maintain adequate liquidity levels for operating expenses, capital expenditures and benefit payments.

The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America 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 of the Account.

Basis of Presentation: The accompanying financial statements include the Account and those subsidiaries wholly-owned by TIAA for the benefit of the Account. All significant intercompany accounts and transactions have been eliminated in consolidation.

Accounting Pronouncements Adopted: In September 2006, FASB issued Statement No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. This Statement is effective as of January 1, 2008 for the Account. The adoption of Statement No. 157 did not have a material impact on the Account’s financial position or results of operations.

In February 2007, FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits entities to choose to measure financial instruments and certain other items at fair value and is expected to expand the use of fair value measurement when warranted. The Account adopted Statement No. 159 on January 1, 2008 and plans to report all existing and future mortgage loans payable at fair value using this Statement. Historically, the Account recorded mortgage loans payable at fair value. The adoption of Statement 159 did not have a material impact on the Account’s financial position or results of operations.

Valuation Hierarchy: In accordance with FASB Statement No.157, “Fair Value Measurements”, the Account groups financial assets and certain financial liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, if any, and the observability of the assumptions used to determine fair value. These levels are:

Level 1 — Valuations using unadjusted quoted prices for assets traded in active exchange markets, such as stocks listed on the New York Stock Exchange. Level 1 includes Real Estate related Marketable Securities.

Level 2 — Valuations for assets and liabilities traded in less active, dealer or broker markets. Fair values are primarily obtained from third party pricing services for identical or comparable assets or liabilities. Level 2 inputs for fair value measurements are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include:

 

 

 

a. Quoted prices for similar assets or liabilities in active markets;

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b. Quoted prices for identical or similar assets or liabilities in markets that are not active (that is, markets in which there are few transactions for the asset (or liability), the prices are not current, price quotations vary substantially either over time or among market makers (for example, some brokered markets), or in which little information is released publicly);

 

 

 

c. Inputs other than quoted prices that are observable within the market for the asset (or liability) (for example, interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates that are observable at commonly quoted intervals);

 

 

 

d. Inputs that are derived principally from or corroborated by observable market data by correlation or other means (for example, market-corroborated inputs).

Examples of securities which may be held by the Account and included in Level 2 include Certificates of Deposit, Commercial Paper, Government Agency Bonds and Variable Notes.

Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including pricing models, discounted cash flow models and similar techniques, and are not based on market, exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections that are not observable in the market and significant professional judgment in determining the fair value assigned to such assets or liabilities.

An investment’s categorization within the valuation hierarchy described above is based upon the lowest level of input that is significant to the fair value measurement.

The Account’s investments and mortgage loans payable are stated at fair value. Effective January 1, 2008, in connection with the adoption of SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities”, the Account plans to report all existing and future mortgage loans payable and will continue to report these payables at fair value. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon vendor-provided, evaluated prices or internally-developed models that primarily use market-based or independently-sourced market data, including interest rate yield curves, market spreads, and currency rates. Valuation adjustments may be made to reflect credit quality, the Account’s creditworthiness, liquidity, and other observable and unobservable data that are applied consistently over time.

The methods described above are considered to produce fair values that represent a good faith estimate of what an unaffiliated buyer in the market place would pay to purchase the asset or would receive to transfer the liability. Since fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, actual realizable values or future fair values may differ from amounts reported.

The adoption of SFAS 157 and 159 did not have a material impact upon the Account’s financial position or its results of operations.

The following is a description of the valuation methodologies used for investments measured at fair value.

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 judgment 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 based on an independent appraisal at the time of the closing of the purchase, which may result in a potential unrealized gain or loss reflecting the difference between an investment’s fair value (i.e., exit price) and its cost basis (which is inclusive of transaction costs).

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Further, management reserves the right to order an appr