10-Q 1 tiaa-realestate03312020x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to __________
Commission file number: 33-92990; 333-230322

TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction
of incorporation or organization)
NOT APPLICABLE
(I.R.S. Employer Identification No.)
C/O TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
730 THIRD AVENUE
NEW YORK, NEW YORK 10017-3206
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (212) 490-9000
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ý  NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES ý  NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer ý (Do not check if a smaller reporting company)
 
Smaller Reporting Company o
 
 
Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o  NO ý




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






PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(In millions, except per accumulation unit amounts)
 
March 31,
 
December 31,
 
2020
 
2019
 
(Unaudited)
 
 
 
ASSETS
 
 
 
 
 
Investments, at fair value:
 
 
 
 
 
Real estate properties
(cost: $14,098.9 and $13,048.5)
$
17,082.1

 
 
$
15,835.0

 
       Real estate joint ventures and funds
(cost: $5,042.0 and $6,244.4)
6,591.5

 
 
7,516.0

 
Marketable securities:
 
 
 
 
 
Real estate-related
(cost: $800.4 and $686.0)
724.7

(1) 
 
825.7

(1) 
Other
(cost: $1,354.4 and $4,144.7)
1,347.3

 
 
4,150.2

 
Loans receivable
(principal: $1,574.5 and $1,504.5)
1,562.5

 
 
1,503.1

 
      Loans receivable with related parties
(principal: $69.3 and $69.3)
68.5

 
 
69.0

 
Total investments
(cost: $22,939.5 and $25,697.4)
27,376.6

 
 
29,899.0

 
Cash and cash equivalents
1,354.1

 
 
15.1

 
Due from investment manager

 
 
5.5

 
Receivable for securities sold
363.5

 
 

 
Other
270.2

(2) 
 
290.3

(2) 
TOTAL ASSETS
29,364.4

 
 
30,209.9

 
LIABILITIES
 
 
 
 
 
  Loans payable, at fair value
(principal outstanding: $2,624.3 and $2,338.0)
2,605.6

 
 
2,365.0

 
Line of credit, at fair value
190.0

 
 
250.0

 
Due to investment manager
19.0

 
 

 
Accrued real estate property expenses
242.4

 
 
225.9

 
Payable for collateral for securities loaned
2.5

 
 
25.7

 
Payable for securities purchased
251.6

 
 

 
Other
38.2

 
 
35.4

 
TOTAL LIABILITIES
3,349.3

 
 
2,902.0

 
COMMITMENTS AND CONTINGENCIES

 
 

 
NET ASSETS
 
 
 
 
 
Accumulation Fund
25,466.4

 
 
26,759.1

 
Annuity Fund
548.7

 
 
548.8

 
TOTAL NET ASSETS
$
26,015.1

 
 
$
27,307.9

 
NUMBER OF ACCUMULATION UNITS OUTSTANDING
57.8

 
 
60.8

 
NET ASSET VALUE, PER ACCUMULATION UNIT
$
440.892

 
 
$
440.422

 
(1) Includes securities loaned of $2.4 million at March 31, 2020 and $25.2 million at December 31, 2019.
(2) Includes cash collateral for securities loaned of $2.5 million at March 31, 2020 and $25.7 million at December 31, 2019.

See notes to the consolidated financial statements

3


TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
(Unaudited)
 
For the Three Months Ended March 31,
2020
 
2019
INVESTMENT INCOME
 
 
 
Real estate income, net:
 
 
 
Rental income
$
299.7

 
$
262.6

Real estate property level expenses and taxes:
 
 
 
Operating expenses
69.2

 
59.2

Real estate taxes
50.1

 
46.6

Interest expense
24.3

 
25.7

Total real estate property level expenses and taxes
143.6

 
131.5

Real estate income, net
156.1

 
131.1

Income from real estate joint ventures and funds
55.2

 
49.7

Interest
42.5

 
41.1

Dividends
4.5

 
4.4

TOTAL INVESTMENT INCOME
258.3

 
226.3

Expenses:
 
 
 
Investment management charges
17.2

 
19.5

Administrative charges
11.7

 
13.3

Distribution charges
7.6

 
7.9

Mortality and expense risk charges
0.3

 
0.3

Liquidity guarantee charges
16.2

 
12.9

TOTAL EXPENSES
53.0

 
53.9

INVESTMENT INCOME, NET
205.3

 
172.4

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND LOANS PAYABLE
 
 
 
Net realized gain (loss) on investments:
 
 
 
Real estate properties
(59.2
)
 

Real estate joint ventures and funds
(460.3
)
 
5.1

Marketable securities
35.2

 
141.0

Loans receivable
(1.6
)
 

Net realized (loss) gain on investments
(485.9
)
 
146.1

Net change in unrealized appreciation (depreciation) on:
 
 
 
Real estate properties
196.7

 
73.9

Real estate joint ventures and funds
300.5

 
2.5

Marketable securities
(230.8
)
 
76.3

Loans receivable
(10.6
)
 
1.2

Loans receivable with related parties
(0.5
)
 

Loans payable
45.7

 
(29.6
)
Net change in unrealized appreciation on
investments and loans payable
301.0

 
124.3

NET REALIZED AND UNREALIZED (LOSS) GAIN ON INVESTMENTS AND LOANS PAYABLE
(184.9
)
 
270.4

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$
20.4

 
$
442.8



See notes to the consolidated financial statements

4


TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(In millions)
(Unaudited)
 
For the Three Months Ended March 31,
2020
 
2019
FROM OPERATIONS
 
 
 
Investment income, net
$
205.3

 
$
172.4

Net realized (loss) gain on investments
(485.9
)
 
146.1

Net change in unrealized appreciation on investments and loans payable
301.0

 
124.3

NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS
20.4

 
442.8

FROM PARTICIPANT TRANSACTIONS
 
 
 
Premiums
702.6

 
677.4

Annuity payments
(12.3
)
 
(11.5
)
Withdrawals and death benefits
(2,003.5
)
 
(629.6
)
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM PARTICIPANT TRANSACTIONS
(1,313.2
)
 
36.3

NET (DECREASE) INCREASE IN NET ASSETS
(1,292.8
)
 
479.1

NET ASSETS
 
 
 
Beginning of period
27,307.9

 
25,842.6

End of period
$
26,015.1

 
$
26,321.7





























See notes to the consolidated financial statements

5


TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, Unaudited)
 
For the Three Months Ended March 31,
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net increase in net assets resulting from operations
$
20.4

 
$
442.8

Adjustments to reconcile net changes in net assets resulting from operations to net cash provided by (used in) operating activities:
 
 
 
Net realized gain (loss) on investments
485.9

 
(146.1
)
Net change in unrealized appreciation on investments
and loans payable
(301.0
)
 
(124.3
)
Purchase of real estate properties
(1,097.7
)
 
(301.0
)
Capital improvements on real estate properties
(68.5
)
 
(54.7
)
Proceeds from sale of real estate properties
347.6

 
3.1

Purchases of long term investments
(701.7
)
 
(105.6
)
Proceeds from long term investments
1,385.8

 
542.5

Purchases and originations of loans receivable
(107.7
)
 
(74.4
)
Proceeds from sales of loans receivable
28.0

 

Proceeds from payoffs of loans receivable
11.4

 
21.3

Decrease (Increase) in other investments
2,788.6

 
(179.3
)
Change in due to (from) investment manager
24.5

 
(7.8
)
Increase in receivable for securities sold
(363.5
)
 

Increase in payable for securities purchased
251.6

 

Decrease in other assets
16.3

 
79.6

Decrease in other liabilities
(8.3
)
 
(94.2
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
2,711.7

 
1.9

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from line of credit
400.0

 

Payments on line of credit
(460.0
)
 

Payments of mortgage loans
(3.3
)
 
(4.7
)
Premiums
702.6

 
677.4

Annuity payments
(12.3
)
 
(11.5
)
Withdrawals and death benefits
(2,003.5
)
 
(629.6
)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
(1,376.5
)
 
31.6

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
1,335.2

 
33.5

CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
 
 
 Beginning of period cash, cash equivalents and restricted cash
40.4

 
47.3

 Net increase in cash, cash equivalents and restricted cash
1,335.2

 
33.5

 End of period cash, cash equivalents and restricted cash
$
1,375.6

 
$
80.8

SUPPLEMENTAL DISCLOSURES:
 
 
 
 Cash paid for interest
$
24.3

 
$
26.2

 Mortgage loan assumed as part of real estate acquisition
$
289.6

 
$

 Loan receivable converted to equity in real estate investment
$
(3.3
)
 
$

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statements of Assets and Liabilities that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows (in millions):
 
As of March 31,
 
2020
 
2019
Cash and cash equivalents
$
1,354.1

 
$
38.1

Restricted cash(1)
21.5

 
42.7

TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH
$
1,375.6

 
$
80.8

(1) Restricted cash is included within other assets in the Consolidated Statements of Assets and Liabilities.
See notes to the consolidated financial statements

6


TIAA REAL ESTATE ACCOUNT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1—Organization and Significant Accounting Policies
Business: The TIAA Real Estate Account (“Account”) is an insurance separate account of Teachers Insurance and Annuity Association of America (“TIAA”) and was established by resolution of TIAA’s Board of Trustees (the “Board”) on February 22, 1995, under the insurance laws of the State of New York, for the purpose of funding variable annuity contracts issued by TIAA. The Account offers individual and group accumulating annuity contracts (with contributions made on a pre-tax or after-tax basis), as well as individual lifetime and term-certain variable payout annuity contracts (including the payment of death benefits to beneficiaries). Investors are entitled to transfer funds to or from the Account, and make withdrawals from the Account on a daily basis, under certain circumstances. Funds invested in the Account for each category of contract are expressed in terms of units, and unit values will fluctuate depending on the Account’s performance.
The investment objective of the Account is to seek favorable total returns primarily through the rental income and appreciation of a diversified portfolio of directly held, private real estate investments and real estate-related investments while offering investors guaranteed, daily liquidity. The Account holds real estate properties directly and through subsidiaries wholly-owned by TIAA for the sole benefit of the Account. The Account also holds limited interests in real estate joint ventures and funds, as well as investments in loans receivable with real estate properties as underlying collateral. Additionally, the Account invests in real estate-related and non-real estate-related publicly traded securities, cash and other instruments to maintain adequate liquidity levels for operating expenses, capital expenditures and to fund benefit payments (withdrawals, transfers and related transactions).
The Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which requires the use of estimates made by management. Actual results may vary from those estimates and such differences may be material.
The Consolidated Financial Statements of the Account as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 are unaudited and include all adjustments necessary to present a fair statement of results for the interim periods presented. Results of operations for the interim periods are not necessarily indicative of results for the entire year. These Consolidated Financial Statements have been prepared in accordance with the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the SEC. As a result, these Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Account’s annual report on Form 10-K for the year ended December 31, 2019.
The following is a summary of the significant accounting policies of the Account.
Basis of Presentation: The accompanying Consolidated Financial Statements include the Account and those subsidiaries wholly-owned by TIAA for the sole benefit of the Account. All significant intercompany accounts and transactions between the Account and such subsidiaries have been eliminated.
The Accumulation Unit Value (“AUV”) used for financial reporting purposes may differ from the AUV used for processing transactions. The AUV used for financial reporting purposes includes security and participant transactions effective through the period end date to which this report relates. Total return is computed based on the AUV used for processing transactions.
Determination of Investments at Fair Value: The Account reports all investments at fair value in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services—Investment Companies ("ASC 946"). Further in accordance with the adoption of the fair value option allowed under ASC 825 - Financial Instruments, and at the election of Account management, loans payable and a line of credit are reported at fair value. The FASB has defined fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants excluding transaction costs.

7


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


8


The Independent Fiduciary was initially appointed in March 2006 by a special subcommittee of the Investment Committee of the Board to, among other things, oversee the entire appraisal process. In March 2018, RERC, LLC, was re-appointed as the Account's Independent Fiduciary for a term expiring in February 2021. The Independent Fiduciary must approve all independent appraisers used by the Account. All appraisals are performed in accordance with Uniform Standards of Professional Appraisal Practices, the real estate appraisal industry standards created by The Appraisal Foundation. Real estate appraisals are estimates of property values based on a professional’s opinion. Appraisals of properties held outside of the U.S. are performed in accordance with industry standards commonly applied in the applicable jurisdiction. These independent appraisers are always expected to be MAI-designated members of the Appraisal Institute (or its European equivalent, Royal Institute of Chartered Surveyors) and state certified appraisers from national or regional firms with relevant property type experience and market knowledge. Under the Account’s current procedures, each independent appraisal firm will be rotated off of a particular property at least every three years, although such appraisal firm may perform appraisals of other Account properties subsequent to such rotation.
Also, the Independent Fiduciary may require additional appraisals if factors or events have occurred that could materially change a property’s value (including those identified previously) and such change is not reflected in the quarterly valuation review, or otherwise to ensure that the Account is valued appropriately. The Independent Fiduciary must also approve any valuation change of real estate-related assets where a property’s value changed by more than 6% from the most recent independent annual appraisal, or if the value of the Account would change by more than 4% within any calendar quarter or more than 2% since the prior calendar month. When a real estate property is subject to a mortgage, the property is valued independently of the mortgage and the property and mortgage fair values are reported separately (see Valuation of Loans Payable). The Independent Fiduciary reviews and approves all mortgage valuation adjustments before such adjustments are recorded by the Account. The Account continues to use the revised value for each real estate property and mortgage loan payable to calculate the Account’s daily net asset value until the next valuation review or appraisal.
Valuation of Real Estate Joint Ventures—Real estate joint ventures are stated at the fair value of the Account’s ownership
interests of the underlying entities. The Account’s ownership interests are valued based on the fair value of the underlying
real estate, any related loans payable, and other factors, such as ownership percentage, ownership rights, buy/sell agreements, distribution provisions and capital call obligations. The fair value of real estate and loans payable held by
joint ventures is determined in the same manner described above in Valuation of Real Estate Properties. The Independent
Fiduciary reviews and approves all valuation adjustments before such adjustments are recorded by the Account. Upon
the disposition of all real estate investments by an investee entity, the Account will continue to state its equity in the
remaining net assets of the investee entity during the wind down period, if any, which occurs prior to the dissolution
of the investee entity.
Valuation of Real Estate Funds—Real estate fund interests are stated at the fair value of the Account’s ownership in
the real estate fund. Management uses net asset value information provided by limited partners as a practical expedient to estimate fair value. The Account receives estimates from limited partners on a quarterly basis, and audited information is provided annually. Upon receipt of the information, management reviews and determines whether the net asset values provided are an appropriate representation of the fair value of the Account's interests in the real estate funds and makes valuation adjustments as necessary. Valuation of real estate funds proceeds under the direction of the Investment Committee of the Board and in accordance with the responsibilities of the Board as a whole.
Valuation of Marketable Securities—Equity securities listed or traded on any national market or exchange are valued at the last sale price as of the close of the principal securities market or exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such market or exchange, exclusive of transaction costs.




9


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

10


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

11


the value of the individual real properties (based on the most recent valuation of that property) and other real estate-related investments owned by the Account;
an estimate of the net operating income accrued by the Account from its properties, other real estate-related investments and non-real estate-related investments (including short-term marketable securities) since the end of the prior valuation day; and
actual net operating income earned from the Account’s properties, other real estate-related investments and non-real estate-related investments (but only to the extent any such item of income differs from the estimated income accrued for on such investments),
and then reducing the sum by liabilities held within the Account, including the daily investment management fee, administration and distribution fees, mortality and expense fee, liquidity guarantee fee, and certain other expenses attributable to operating the Account. Daily estimates of net operating income are adjusted to reflect actual net operating income on a monthly basis, at which time such adjustments (if any) are reflected in the Account’s unit value.
After the end of every quarter, the Account reconciles the amount of expenses deducted from the Account (which is established in order to approximate the costs that the Account will incur) with the expenses the Account actually incurred. If there is a difference, the Account adds it to or deducts it from the Account in equal daily installments over the remaining days of the following quarter. Material differences may be repaid in the current calendar quarter. The Account’s at cost deductions are based on projections of Account assets and overall expenses, and the size of any adjusting payments will be directly affected by the difference between management’s projections and the Account’s actual assets or expenses.
Variable Interest Entities: Variable interests are financial relationships which expose a reporting entity to the risks and rewards of variability in the entity's assets and operations. When variable interests exist, they are subject to evaluation under the variable interest entity ("VIE") model if any one of the following four characteristics are present: (a) the entity is insufficiently capitalized; (b) the equity holders do not have power to control the activities that most significantly impact the entity's financial performance; (c) the voting rights of the equity holders are not proportionate
to their economic interests; or (d) the equity holders are not exposed to the residual losses or benefits that would normally be associated with equity interests.
ASC 810 - Consolidation prohibits a reporting entity that qualifies as an investment company under ASC 946 from consolidating an investee that is not an investment company. This scope exception does not apply to situations in which an investment company has an interest in another investment company. Accordingly, the Account's investments in other investment companies (e.g., real estate funds) are subject to evaluation under the VIE model.
The Account consolidates a VIE if it concludes that the Account is the primary beneficiary of the VIE. The primary beneficiary has both: (i) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance; and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The following activities have been identified by the Account as having the most significant impact on a VIE's economic performance:
control over the ability to acquire and dispose of investments held by the entity;
the ability to kick out a managing entity without cause, either unilaterally or with a group of equity investors;
the ability to modify the power of the managing entity without its consent; and
control over the day-to-day decision making of the underlying investments
An equity investor in a VIE may not actively be involved in the significant activities (i.e., it may cede day-to-day decision making to a third party), but if the equity investor has approval rights or some other mechanism to retain ultimate control, the equity investor with these rights would be concluded as having power over the activity. On a quarterly basis, the Account evaluates all involvements with VIEs, including any changes to governing powers of continuing VIEs. The consolidation status of VIEs may change as a result of such continued evaluation. At the reporting date, the Account was not deemed to be the primary beneficiary of any VIEs. Refer to Note 7—Investments in Real Estate Funds for additional detail.

12


Cash and Cash Equivalents: Cash and cash equivalents are balances held by the Account in bank deposit accounts which, at times, exceed federally insured limits. The Account’s management monitors these balances to mitigate the exposure of risk due to concentration and has not experienced any losses from such concentration.
Other Assets and Other Liabilities: Other assets and other liabilities consist of operating assets and liabilities utilized
and held at each individual real estate property investment. Other assets consist of, amongst other items, cash, tenant receivables and prepaid expenses; whereas other liabilities primarily consist of security deposits. Other assets also include cash collateral held for securities on loan.
Federal Income Taxes: Based on provisions of Section 817 of the Internal Revenue Code of 1986, as amended, the Account is taxed as a segregated asset account of TIAA and as such, the Account incurs no material federal income tax attributable to the net investment activity of the Account. The Account’s federal income tax return is generally subject to examination for a period of three years after filed. State and local tax returns may be subject to examination for an additional period of time depending on the jurisdiction. Management has analyzed the Account’s tax positions taken for all open federal income tax years and has concluded that no provision for federal income tax is required in the Account’s Consolidated Financial Statements.
Restricted Cash: The Account held restricted cash in escrow accounts for security deposits, as required by certain states, as well as for property taxes, insurance, and various other property related matters as required by certain creditors related to outstanding loans payable collateralized by certain real estate investments. These amounts are recorded within other assets on the Consolidated Statements of Assets and Liabilities. See Note 9—Loans Payable for additional information regarding the Account’s outstanding loans payable.
Changes in Net Assets: Premiums include premiums paid by existing accumulation unit holders in the Account and transfers into the Account. Withdrawals and death benefits include withdrawals out of the Account which include transfers out of the Account and required minimum distributions.
Due to/from Investment Manager: Due to/from investment manager represents amounts that are to be paid or received by TIAA on behalf of the Account. Amounts generally are paid or received by the Account within one or two business days and no interest is contractually charged on these amounts.
Securities Lending: The Account may lend securities to qualified borrowers to earn additional income. The Account receives cash collateral against the loaned securities and maintains cash collateral in an amount not less than 100% of the market value of loaned securities during the period of the loan; any additional collateral required due to changes in security values is delivered to the Account the next business day. Cash collateral received by the Account is invested exclusively in an interest-bearing deposit account. The value of the loaned securities and the liability to return the cash collateral received are reflected in the Consolidated Statements of Assets and Liabilities. When loaning securities, the Account retains the benefits of owning the securities, including the economic equivalent of dividends or interest generated by the securities. All income generated by the securities lending program is reflected within interest income on the Consolidated Statements of Operations.
Securities lending transactions are for real estate-related equity securities, and the resulting loans are continuous, can be recalled at any time, and have no set maturity. Securities lending income recognized by the Account consists of interest earned on cash collateral and lending fees, net of any rebates to the borrower and compensation to the agent. Such income is reflected within interest income on the Consolidated Statements of Operations.  In lending its securities, the Account bears the market risk with respect to the investment of collateral and the risk that the agent may default on its contractual obligations to the Account. The agent bears the risk that the borrower may default on its obligation to return the loaned securities as the agent is contractually obligated to indemnify the Account if at the time of a default by a borrower some or all of the loan securities have not been returned.
Accounting Pronouncement: In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Management does not expect the guidance to materially impact the Account.

13


Note 2—Related Party Transactions
Investment management, administrative and distribution services are provided to the Account at cost by TIAA. Services provided at cost are paid by the Account on a daily basis based upon projected expenses to be provided to the Account. Payments are adjusted periodically to ensure daily payments are as close as possible to the Account’s actual expenses incurred. Differences between actual expenses and the amounts paid by the Account are reconciled and adjusted quarterly.
Investment management services for the Account are provided by TIAA officers, under the direction and control of the Board, pursuant to investment management procedures adopted by TIAA for the Account. TIAA’s investment management decisions for the Account are subject to review by the Independent Fiduciary. TIAA also provides various portfolio accounting and related services for the Account.
The Account is a party to the Distribution Agreement for the Contracts Funded by the TIAA Real Estate Account (the “Distribution Agreement”), dated January 1, 2008, by and among TIAA, for itself and on behalf of the Account, and TIAA-CREF Individual and Institutional Services, LLC (“Services”). Services is a direct wholly-owned subsidiary of TIAA, and is registered with the SEC as a broker-dealer and a registered investment adviser and is a member of the Financial Industry Regulatory Authority. Pursuant to the Distribution Agreement, Services performs distribution services for the Account which include, among other things, (i) distribution of annuity contracts issued by TIAA and funded by the Account, (ii) advising existing annuity contract owners in connection with their accumulations and (iii) helping employers implement and manage retirement plans. In addition, TIAA performs administrative functions for the Account, which include, among other things, (i) maintaining accounting records and performing accounting services, (ii) receiving and allocating premiums, (iii) calculating and making annuity payments, (iv) processing withdrawal requests, (v) providing regulatory compliance and reporting services, (vi) maintaining the Account’s records of contract ownership and (vii) otherwise assisting generally in all aspects of the Account’s operations. Both distribution services (pursuant to the Distribution Agreement) and administrative services are provided to the Account by Services and TIAA, as applicable, on an at cost basis. The Distribution Agreement is terminable by either party upon 60 days written notice and terminates automatically upon any assignment thereof.
In addition to providing the services described above, TIAA charges the Account fees to bear certain mortality and expense risks, and risks with providing the liquidity guarantee (described below). These fees are charged as a percentage of the net assets of the Account. Rates for these fees are established annually.
Once an Account participant begins receiving lifetime annuity income benefits, payment levels cannot be reduced as a result of the Account’s actual mortality experience. As such, mortality and expense risk expenses are contractual charges for TIAA’s assumption of this risk.
TIAA provides the Account with a liquidity guarantee enabling the Account to have funds available to meet participant redemption, transfer or cash withdrawal requests. The liquidity guarantee is required by the New York State Department of Financial Services and is subject to a prohibited transaction exemption that the Account received in 1996 (96-76) from the U.S. Department of Labor (the “PTE 96-76”). The Account pays TIAA for the risk associated with providing the liquidity guarantee through a daily deduction from the Account’s net assets. Whether the liquidity guarantee is exercised is based on the cash level of the Account from time to time, as well as recent participant withdrawal activity and the Account’s expected working capital, debt service and cash needs, and subject to the oversight of the Independent Fiduciary. If the Account cannot fund participant withdrawal or redemption requests from the Account’s own cash flow and liquid investments, TIAA will fund them by purchasing accumulation units issued by the Account (accumulation units that are purchased by TIAA are generally referred to as “liquidity units”). TIAA guarantees that participants can redeem their accumulation units at the accumulation unit value next determined after their transfer or cash withdrawal request is received in good order. Liquidity units owned by TIAA are valued in the same manner as accumulation units owned by the Account’s participants.
Expenses for the services and fees described above are identified as such in the accompanying Consolidated Statements of Operations and are further identified as "Expenses" in Note 11—Financial Highlights.


14


The Account has loans receivable outstanding with related parties as of March 31, 2020. The loans are with joint ventures in which the Account also has an equity interest. The loans are held at fair value in accordance with the valuation policies described in Note 1—Organization and Significant Accounting Policies. The following table presents the key terms of the loans as of the reporting date:
 
 
Related Party
 
Equity Ownership Interest
 
Interest Rate
 
Maturity Date
 
Fair Value at
Principal
 
 
 
 
 
March 31, 2020
 
December 31, 2019
2020
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
 
 
36.5

 
36.5

 
MRA Hub 34 Holding, LLC
 
95.00%
 
2.50% + LIBOR
 
9/1/2022
 
$
36.5

 
$
36.5

32.8

 
32.8

 
THP Student Housing, LLC
 
97.00%
 
3.200%
 
9/1/2024
 
32.0

 
32.5

TOTAL LOANS RECEIVABLE WITH RELATED PARTIES
 
$
68.5

 
$
69.0

Note 3—Concentrations of Risk
The outbreak of the novel coronavirus (commonly known as “COVID-19”) and the subsequent global pandemic began significantly impacting the U.S. and global financial markets and economies during the quarter ended March 31, 2020. The worldwide spread of the COVID-19 pandemic has created significant uncertainty in the global economy. At this time the Account reasonably expects tenants will request certain rent relief and lease modifications as a result of the pandemic; however, such requests have not been significant as of March 31, 2020. The duration and extent of COVID-19 over the long-term cannot be reasonably estimated at this time. The ultimate impact of the COVID-19 pandemic and the extent to which the COVID-19 pandemic impacts the Account’s business, results of operations, investments, and cash flows will depend on future developments, which are highly uncertain and difficult to predict.
Concentrations of risk may arise when a number of properties are located in a similar geographic region such that the economic conditions of that region could impact tenants’ obligations to meet their contractual obligations or cause the values of individual properties to decline. Additionally, concentrations of risk may arise if any one tenant comprises a significant amount of the Account's rent, or if tenants are concentrated in a particular industry.
As of March 31, 2020, the Account had no significant concentrations of tenants as no single tenant had annual contract rent that made up more than 4% of the rental income of the Account. Moreover, the Account's tenants have no notable concentration present in any one industry. There are no significant lease expirations scheduled to occur over the next twelve months.
The Account’s wholly-owned real estate investments and investments in joint ventures are located in the United States. The following table represents the diversification of the Account’s portfolio by region and property type as of March 31, 2020 (unaudited):
Diversification by Fair Value(1)
 
West
 
East
 
South
 
Midwest
 
Total
Office
13.2
%
 
18.7
%
 
5.3
%
 
%
 
37.2
%
Apartment
10.0
%
 
6.6
%
 
8.1
%
 
1.0
%
 
25.7
%
Retail
6.8
%
 
3.9
%
 
8.0
%
 
0.9
%
 
19.6
%
Industrial
9.1
%
 
1.6
%
 
4.6
%
 
0.5
%
 
15.8
%
Other(2)
0.6
%
 
0.5
%
 
0.6
%
 
%
 
1.7
%
Total
39.7
%
 
31.3
%
 
26.6
%
 
2.4
%
 
100.0
%

(1) 
Wholly-owned properties are represented at fair value and gross of any debt, while joint venture properties are represented at the net equity value.
(2) 
Represents interests in Storage Portfolio investments, a hotel investment and land.
Properties in the “West” region are located in: AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY.
Properties in the “East” region are located in: CT, DC, DE, KY, MA, MD, ME, NC, NH, NJ, NY, PA, RI, SC, VA, VT, WV.
Properties in the “South” region are located in: AL, AR, FL, GA, LA, MS, OK, TN, TX.
Properties in the “Midwest” region are located in: IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI.

15


Note 4—Leases
The Account’s wholly-owned real estate properties are leased to tenants under operating lease agreements which expire on various dates through 2051. Rental income is recognized in accordance with the billing terms of the lease agreements. The leases do not have material variable payments, material residual value guarantees or material restrictive covenants. Certain leases have the option to extend or terminate at the tenant's discretion, with termination options resulting in additional fees due to the Account. Aggregate minimum annual rentals for wholly-owned real estate investments owned by the Account through the non-cancelable lease term, excluding short-term residential leases, as of March 31, 2020 (unaudited) and December 31, 2019 are as follows (millions):
 
 
As of
Years Ended
 
March 31, 2020
 
December 31, 2019
2020
 
$
486.2

(1) 
$
550.4

2021
 
593.9

 
505.0

2022
 
512.9

 
442.1

2023
 
437.7

 
381.2

2024
 
360.6

 
316.6

Thereafter
 
1,209.5

 
1,078.4

Total
 
$
3,600.8

 
$
3,273.7

(1) Representative of minimum rents owed for the remaining months of the calendar year ending December 31, 2020.
Certain leases provide for additional rental amounts based upon the recovery of actual operating expenses in excess of specified base amounts, sales volume or contractual increases as defined in the lease agreement. These contractual contingent rentals are not included in the table above.
The Account has ground leases for which the Account is the lessee. The leases do not contain material residual value guarantees or material restrictive covenants. The fair value of right-of-use assets and leases liabilities related to ground leases are reflected on the balance sheet within other assets and other liabilities, respectively.
The fair values and key terms of the right-of-use assets and lease liabilities related to the Account's ground leases are as follows (millions):
 
 
As of
 
 
March 31, 2020
 
December 31, 2019
 
 
(Unaudited)
 
 
Assets:
 
 
 
 
  Right-of-use assets, at fair value
 
$
25.8

 
$
25.7

Liabilities:
 
 
 
 
  Ground lease liabilities, at fair value
 
$
25.8

 
$
25.7

 
 
As of
 
 
March 31, 2020
 
December 31, 2019
Key Terms:
 
(Unaudited)
 
 
  Weighted-average remaining lease term (years)
 
83.9

 
84.4

  Weighted-average discount rate(1)
 
6.16
%
 
6.15
%
(1) Discount rates are reflective of the rates utilized during the most recent appraisal of the associated real estate investments.

16


For the three months ended March 31, 2020, operating lease costs related to ground leases were $0.4 million. These costs include variable lease costs, which are immaterial. Aggregate future minimum annual payments for ground leases held by the Account are as follows (millions):
 
 
As of
Years Ended
 
March 31, 2020
 
December 31, 2019
 
 
(Unaudited)
 
 
2020(1)
 
$
0.9

(1) 
$
1.2

2021
 
1.2

 
1.2

2022
 
1.2

 
1.2

2023
 
1.2

 
1.2

2024
 
1.3

 
1.3

Thereafter
 
375.9

 
375.9

Total
 
$
381.7

 
$
382.0

(1) Representative of minimum rents owed for the remaining months of the calendar year ending December 31, 2020.
Note 5—Assets and Liabilities Measured at Fair Value on a Recurring Basis
Valuation Hierarchy: The Account’s fair value measurements are grouped into three levels, as defined by the FASB. The levels are defined as follows:
Level 1 fair value inputs are quoted prices for identical items in active, liquid and visible markets such as stock exchanges.
Level 2 fair value inputs are observable information for similar items in active or inactive markets, and appropriately consider counterparty creditworthiness in the valuations.
Level 3 fair value inputs reflect our best estimate of inputs and assumptions market participants would use in pricing an asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation estimate.
An investment’s categorization within the valuation hierarchy described above is based upon the lowest level of input that is significant to the fair value measurement. Real estate fund investments are excluded from the valuation hierarchy, as these investments are fair valued using their net asset value as a practical expedient since market quotations or values from independent pricing services are not readily available. See Note 1Organization and Significant Accounting Policies for further discussion regarding the use of a practical expedient for the valuation of real estate funds.
The Account’s determination of fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon vendor-provided, evaluated prices or internally developed models that primarily use market-based or independently sourced market data, including interest rate yield curves, market spreads, and currency rates. Valuation adjustments will be made to reflect changes in credit quality, a counterparty’s creditworthiness, the Account’s creditworthiness, liquidity, and other observable and unobservable inputs that are applied consistently over time.
The methods described above are considered to produce fair values that represent an estimate by management of what an unaffiliated buyer in the marketplace would pay to purchase the asset or would receive to transfer the liability. Since fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, actual realizable values or future fair values may differ from amounts reported. Furthermore, while the Account believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments, while reasonable, could result in different estimates of fair value at the reporting date. As discussed in Note 1Organization and Significant Accounting Policies in more detail, the Account generally obtains independent third party appraisals on a quarterly basis, and there may be circumstances in the interim in which the true realizable value of a property is not reflected in the Account’s daily net asset value calculation or in the Account’s periodic Consolidated Financial Statements. This

17


disparity may be more apparent when the commercial and/or residential real estate markets experience an overall and possibly dramatic decline (or increase) in property values in a relatively short period of time between appraisals.
The following tables show the major categories of assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 (unaudited) and December 31, 2019, using unadjusted quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3); and fair value using the practical expedient (millions):
Description
 
Level 1: Quoted Prices in Active Markets for Identical Assets
 
Level 2: Significant Other Observable Inputs
 
Level 3: Significant Unobservable Inputs
 
Fair Value Using Practical Expedient
 
Total at
March 31, 2020
Real estate properties
 
$

 
$

 
$
17,082.1

 
$

 
$
17,082.1

Real estate joint ventures
 

 

 
6,237.4

 

 
6,237.4

Real estate funds
 

 

 

 
354.1

 
354.1

Marketable securities:
 
 
 
 
 
 
 
 
 
 
Real estate-related
 
724.7

 

 

 

 
724.7

Government agency notes
 

 
62.9

 

 

 
62.9

United States Treasury securities
 

 
749.9

 

 

 
749.9

Corporate bonds
 

 
526.7

 

 

 
526.7

Municipal bonds
 

 
7.8

 

 

 
7.8

Loans receivable(1)
 

 

 
1,631.0

 

 
1,631.0

Total Investments at
March 31, 2020
 
$
724.7

 
$
1,347.3

 
$
24,950.5

 
$
354.1

 
$
27,376.6

Loans payable
 
$

 
$

 
$
(2,605.6
)
 
$

 
$
(2,605.6
)
Line of credit
 
$

 
$

 
$
(190.0
)
 
$

 
$
(190.0
)
Description
 
Level 1: Quoted Prices in Active Markets for Identical Assets
 
Level 2: Significant Other Observable Inputs
 
Level 3: Significant Unobservable Inputs
 
Fair Value Using Practical Expedient
 
Total at December 31, 2019
Real estate properties
 
$

 
$

 
$
15,835.0

 
$

 
$
15,835.0

Real estate joint ventures
 

 

 
7,204.2

 

 
7,204.2

Real estate funds
 

 

 

 
311.8

 
311.8

Marketable securities:
 
 
 
 
 
 
 
 
 
 
Real estate-related
 
825.7

 

 

 

 
825.7

Government agency notes
 

 
259.6

 

 

 
259.6

United States Treasury securities
 

 
2,589.1

 

 

 
2,589.1

Corporate bonds
 

 
1,268.3

 

 

 
1,268.3

Municipal bonds
 

 
33.2

 

 

 
33.2

Loans receivable(1)
 

 

 
1,572.1

 

 
1,572.1

Total Investments at December 31, 2019
 
$
825.7

 
$
4,150.2

 
$
24,611.3

 
$
311.8

 
$
29,899.0

Loans payable
 
$

 
$

 
$
(2,365.0
)
 
$

 
$
(2,365.0
)
Line of credit
 
$

 
$

 
$
(250.0
)
 
$

 
$
(250.0
)
(1) Amount shown is reflective of loans receivable and loans receivable with related parties.

18


The following tables show the reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2020 and 2019 (millions, unaudited):
 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
(3)
 
Total
Level 3
Investments
 
Loans
Payable
 
Line of Credit
For the three months ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance January 1, 2020
 
$
15,835.0

 
$
7,204.2

 
$
1,572.1

 
$
24,611.3

 
$
(2,365.0
)
 
$
(250.0
)
Total realized and unrealized gains (losses) included in changes in net assets
 
137.5

 
(156.4
)
 
(12.7
)
 
(31.6
)
 
45.7

 

    Purchases(1)
 
1,457.2

 
20.6

 
107.7

 
1,585.5

 
(289.6
)
 
(400.0
)
    Sales
 
(347.6
)
 

 

 
(347.6
)
 

 

    Settlements(2)
 

 
(831.0
)
 
(36.1
)
 
(867.1
)
 
3.3

 
460.0

Ending balance March 31, 2020
 
$
17,082.1

 
$
6,237.4

 
$
1,631.0

 
$
24,950.5

 
$
(2,605.6
)
 
$
(190.0
)
 
 
Real Estate
Properties
 
Real Estate
Joint Ventures
 
Loans
Receivable
(3)
 
Total
Level 3
Investments
 

Loans
Payable
 
Line of Credit
For the three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance January 1, 2019
 
$
15,531.1

 
$
6,356.6

 
$
913.0

 
$
22,800.7

 
$
(2,608.0
)
 
$

Total realized and unrealized gains included in changes in net assets
 
73.9

 
7.1

 
1.2

 
82.2

 
(29.6
)
 

    Purchases(1)
 
366.7

 
57.1

 
74.4

 
498.2

 

 

    Sales
 
(3.1
)
 

 

 
(3.1
)
 

 

    Settlements(2)
 

 
(0.4
)
 
(21.3
)
 
(21.7
)
 
4.7

 

Ending balance March 31, 2019
 
$
15,968.6

 
$
6,420.4

 
$
967.3

 
$
23,356.3

 
$
(2,632.9
)
 
$

(1) 
Includes purchases, contributions for joint ventures, capital expenditures, lending for loans receivable and assumption of loans payable.
(2) 
Includes operating income for real estate joint ventures net of distributions, principal payments and payoffs of loans receivable, and principal payments and extinguishment of loans payable.
(3) 
Amount shown is reflective of loans receivable and loans receivable with related parties.

19


The following table shows quantitative information about unobservable inputs related to the Level 3 fair value measurements as of March 31, 2020 (unaudited).
Type
Asset Class
Valuation
Technique(s)
Unobservable
Inputs
Range (Weighted Average)
Real Estate Properties and Joint Ventures
Office
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 8.5% (6.6%)
4.0% - 7.5% (5.5%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.9% - 7.0% (4.9%)
 
Industrial
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.2% - 9.3% (6.7%)
4.3% - 8.3% (5.4%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.5% - 7.7% (4.8%)
 
Apartment
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.3% - 7.8% (6.4%)
4.3% - 6.8% (5.1%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.8% - 6.0% (4.6%)
 
Retail
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.3% - 11.7% (6.7%)
5.0% - 9.4% (5.6%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
4.0% - 11.0% (5.1%)
 
Hotel
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
10.3% (10.3%) 7.8% (7.8%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
7.8% (7.8%)
Loans Payable
Office and Industrial
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
31.1% - 59.3% (45.8%)
3.2% - 4.3% (3.8%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk Premium Multiple
31.1% - 59.3% (45.8%)
1.2 - 1.5 (1.3)
 
Apartment
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
30.0% - 69.0% (46.6%)
3.1% - 4.1% (3.7%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk Premium Multiple
30.0% - 69.0% (46.6%)
1.2 - 1.6 (1.3)
 
Retail
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
37.1% - 63.8% (44.2%)
3.1% - 4.5% (3.9%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk Premium Multiple
37.1% - 63.8% (44.2%)
1.2 - 1.5 (1.3)
Loans Receivable, including those with related parties
Apartment, Hotel, Industrial, Office, Retail and Storage
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
30.9% - 90.2% (73.0%)
3.1% - 10.3% (6.0%)





20


The following table shows quantitative information about unobservable inputs related to the Level 3 fair value measurements as of March 31, 2019 (unaudited).
Type
Asset Class
Valuation
Technique(s)
Unobservable
Inputs
Range (Weighted Average)
Real Estate Properties and Joint Ventures
Office
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 8.6% (6.5%)
4.0% - 7.5% (5.5%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.8% - 7.0% (4.8%)
 
Industrial
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.3% - 9.3% (6.8%)
4.4% - 8.3% (5.5%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
4.0% - 7.8% (4.9%)
 
Apartment
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.5% - 7.8% (6.5%)
3.8% - 6.8% (5.0%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.3% - 6.0% (4.5%)
 
Retail
Income Approach—Discounted Cash Flow
Discount Rate
Terminal Capitalization Rate
5.0% - 10.7% (6.4%)
4.3% - 8.8% (5.3%)
 
 
Income Approach—Direct Capitalization
Overall Capitalization Rate
3.3% - 10.5% (4.7%)
Loans Payable
Office and Industrial
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
36.0% - 62.4% (47.1%)
3.7% - 5.5% (4.2%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
36.0% - 62.4% (47.1%)
1.2 - 1.4 (1.3)
 
Apartment
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
31.1% - 62.3% (48.0%)
3.5% - 4.2% (4.0%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
31.1% - 62.3% (48.0%)
1.2 - 1.4 (1.3)
 
Retail
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
31.9% - 55.9% (39.5%)
4.0% - 4.9% (4.2%)
 
 
Net Present Value
Loan to Value Ratio
Weighted Average Cost of Capital Risk
Premium Multiple
31.9% - 55.9% (39.5%)
1.2 - 1.3 (1.2)
Loans Receivable
Office, Retail and Storage
Discounted Cash Flow
Loan to Value Ratio
Equivalency Rate
70.8% - 79.2% (75.6%)
6.0% - 8.3% (7.1%)

Real Estate Properties and Joint Ventures: The significant unobservable inputs used in the fair value measurement of the Account’s real estate property and joint venture investments are the selection of certain investment rates (Discount Rate, Terminal Capitalization Rate, and Overall Capitalization Rate). Significant increases (decreases) in any of those inputs in isolation would result in significantly lower (higher) fair value measurements, respectively.
Loans Payable: The significant unobservable inputs used in the fair value measurement of the Account’s loans payable are the loan to value ratios and the selection of certain credit spreads and weighted average cost of capital risk premiums. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value, respectively.
Loans Receivable: The significant unobservable inputs used in the fair value measurement of the Account’s loans receivable are the loan to value ratios and the selection of certain credit spreads. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value, respectively.
During the three months ended March 31, 2020 and 2019, there were no transfers between Levels 1, 2 or 3.

21


The amount of total net unrealized gains (losses) included in changes in net assets attributable to the change in net unrealized gains (losses) relating to Level 3 investments and loans payable using significant unobservable inputs still held as of the reporting date is as follows (millions, unaudited):
 
Real Estate
Properties
 
Real Estate
Joint
Ventures
 
Loans
Receivable(1)
 
Total
Level 3
Investments
 

Loans
Payable
For the three months ended March 31, 2020
$
147.7

 
$
(62.6
)
 
$
(11.1
)
 
$
74.0

 
$
45.7

For the three months ended March 31, 2019
$
73.9

 
$
2.5

 
$
1.2

 
$
77.6

 
$
(29.6
)
(1) Amount shown is reflective of loans receivable and loans receivable with related parties.
Note 6—Investments in Joint Ventures
The Account owns interests in several real estate properties through joint ventures and receives distributions and allocations of profits and losses from the joint ventures based on the Account’s ownership interest in those investments. Several of these joint ventures have loans payable collateralized by the properties owned by the aforementioned joint ventures. At March 31, 2020, the Account held investments in joint ventures with ownership interest percentages that ranged from 33.3% to 98.0%. Certain joint ventures are subject to adjusted distribution percentages when earnings in the investment reach a pre-determined threshold.
A condensed summary of the results of operations of the joint ventures are shown below (millions, unaudited):
 
For the Three Months Ended March 31,
 
2020
 
2019
Operating Revenue and Expenses
 
 
 
Revenues
$
285.5

 
$
266.1

Expenses
154.6

 
145.3

Excess of revenues over expenses
$
130.9

 
$
120.8

Note 7—Investments in Real Estate Funds
The Account has ownership interests in real estate funds (each a "Fund", and collectively the "Funds"). The Funds are setup as limited partnerships or entities similar to a limited partnership, and as such, meet the definition of a VIE as the limited partners collectively lack the power, through voting or similar rights, to direct the activities of the Fund that most significantly impact the Fund's economic performance. Management has determined that the Account is not the primary beneficiary for any of the Funds, as the Account lacks the power to direct the activities of each Fund that most significantly impact the respective Fund's economic performance, and the Account further lacks substantive kick-out rights to remove the entity with these powers. Refer to Note 1—Organization and Significant Accounting Policies for a description of the methodology used to determine the primary beneficiary of a VIE.
No financial support (such as loans or financial guarantees) was provided to the Funds during the three months ended March 31, 2020. The Account is contractually obligated to make additional capital contributions in certain Funds in future years. These commitments are identified in Note 13—Commitments and Contingencies.

22


The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the primary beneficiary and which have not been consolidated were as follows at March 31, 2020 (in millions, unaudited):
Fund Name
Carrying Amount
 
Maximum Exposure to Loss
 
Liquidity Provisions
 
Investment Strategy
LCS SHIP Venture I, LLC (90.0% Account Interest)
$
212.8

 
$
212.8

 
Redemptions prohibited prior to liquidation.
 
To invest in senior housing properties.
 
 
 
 
 
Liquidation estimated to begin no earlier than 2025.
 
 
 
 
 
 
The Account is permitted to sell or transfer its interest in the fund, subject to consent and approval of the manager.
 
SP V - II, LLC (79.2% Account Interest)
$
28.2

 
$
28.2

 
Redemptions prohibited prior to liquidation.
 
To invest in medical office properties in the U.S.
 
 
 
 
 
Liquidation estimated to begin no earlier than 2022.
 
 
 
 
 
 
The Account is permitted to sell or transfer its interest in the fund, subject to consent and approval of the manager.
 
Taconic New York City GP Fund, LP (60.0% Account Interest)
$
29.8

 
$
29.8

 
Redemptions prohibited prior to liquidation.
 
To invest in real estate and real estate-related assets in the New York City metropolitan statistical area ("MSA").
 
 
 
 
 
Liquidation estimated to begin no earlier than 2024.
 
 
 
 
 
 
The Account is permitted to sell its interest in the fund, subject to consent and approval of the general partner.
 
Veritas - Trophy VI, LLC (92.1% Account Interest)
$
42.7

 
$
42.7

 
Redemptions prohibited prior to liquidation.
 
To invest in multi-family properties primarily in the San Francisco Bay and Los Angeles MSA.
 
 
 
 
 
The Account is not permitted to sell or transfer its interest in the fund until August 2022. After this date, the Account can sell or transfer its interest in the fund with the consent and approval of the manager.
 
 
 
 
 
 
 
IDR - Core Property Index Fund, LLC (2.0% Account Interest)
$
25.0

 
$
25.0

 
Redemptions are permitted for a full calendar quarter and upon at least 90 days prior written notice, subject to fund availability.
 
To invest primarily in open-ended funds that fall within the NFI-ODCE Index and are actively managed.
 
 
 
 
 
 
 
 
 
 
 
The Account is permitted to sell its interest in the fund, subject to consent and approval of the manager.
 
Grubb Southeast Real Estate Fund VI, LLC (66.7% Account Interest)
$
13.4

 
$
13.4

 
Redemptions prohibited prior to liquidation.
 
To acquire office investments across the Southeast.

 
 
 
 
 
Liquidation estimated to begin no earlier than 2026.
 
 
 
 
 
 
The Account is not permitted to sell or transfer its interest in the fund until June 2021. After this date, the Account can sell or transfer its interest in the fund with the consent and approval of the manager.
 
JCR Capital - REA Preferred Equity Parallel Fund (49.2% Account Interest)
$
2.2

 
$
2.2

 
Redemptions prohibited prior to liquidation.
 
To invest primarily in multi-family properties.
 
 
 
 
 
Liquidation estimated to begin no earlier than 2026.
 
 
 
 
 
 
The Account is prohibited from transferring its interest in the fund without consent by the general partner, which can be withheld in their sole discretion
 
 
 
 
 
 
 
Total
$
354.1

 
$
354.1

 
 
 
 


23


Note 8—Loans Receivable
The Account’s loan receivable portfolio is primarily comprised of mezzanine loans secured by the borrower’s direct and indirect interests in commercial real estate. Mezzanine loans are subordinate to first mortgages on the underlying real estate collateral. The following property types represent the underlying real estate collateral for the Account's mezzanine loans (millions):
 
 
March 31, 2020
 
December 31, 2019
 
 
(Unaudited)
 
 
 
 
 
 
 
 
Principal Outstanding
 
Fair Value
 
% of Fair Value
 
Principal Outstanding
 
Fair Value
 
% of Fair Value
Office(1)
 
$
825.2

 
$
821.0

 
50.3
%
 
$
769.3

 
$
768.0

 
48.8
%
Industrial
 
199.6

 
199.6

 
12.2
%
 
199.6

 
199.6

 
12.7
%
Retail
 
139.5

 
139.5

 
8.6
%
 
158.5

 
158.5

 
10.1
%
Storage
 
82.0

 
77.9

 
4.8
%
 
82.0

 
82.0

 
5.2
%
Apartments(1)
 
262.2

 
260.0

 
15.9
%
 
229.1

 
228.8

 
14.6
%
Hotel
 
135.3

 
133.0

 
8.2
%
 
135.3

 
135.2

 
8.6
%
 
 
$
1,643.8

 
$
1,631.0

 
100.0
%
 
$
1,573.8

 
$
1,572.1

 
100.0
%
(1) Includes loans receivable with related parties.
The Account monitors the risk profile of the loan receivable portfolio with the assistance of a third-party rating service that models the loans and assigns risk ratings based on inputs such as loan-to-value ratios, yields, credit quality of the borrowers, property types of the collateral, geographic and local market dynamics, physical condition of the collateral, and the underlying structure of the loans. Ratings for loans are updated monthly. Assigned ratings can range from AAA to C, with a AAA designation representing debt with the lowest level of credit risk and C representing a greater risk of default or principal loss. Loans that are more than 90 days past due are classified as delinquent and assigned a D rating. Mezzanine debt in good health is typically reflective of a risk rating in the B range (e.g., BBB, BB, or B), as these ratings reflect borrowers' having adequate financial resources to service their financial commitments, but also acknowledging that adverse economic conditions, should they occur, would likely impede on a borrowers' ability to pay.
All borrowers of loans rated B or higher are current as of March 31, 2020. The following table presents the fair values of the Account's loan portfolio based on the risk ratings as of March 31, 2020 (in millions, unaudited), listed in order of the strength of the risk rating (from strongest to weakest):
 
 
Number of Loans
 
Fair Value
 
% of Fair Value
BBB
 
10
 
$
558.6

 
34.2
%
BB
 
8
 
452.7

 
27.8
%
B
 
7
 
473.3

 
29.0
%
D
 
1
 
77.9

 
4.8
%
NR(1)
 
2
 
68.5

 
4.2
%
 
 
28
 
$
1,631.0

 
100.0
%
(1) "NR" designates loans not assigned an internal credit rating. As of March 31, 2020, this is comprised of two loans with related parties. The loans are collateralized by equity interests in real estate investments.
The following table represents loans receivable in nonaccrual status as of March 31, 2020 (in millions, unaudited). Loans are placed in nonaccrual status when a loan is more than 90 days in arrears or at any point when management believes the full collection of principal is doubtful.
Aging
 
Number of Loans
 
Principal Outstanding
 
Fair Value
Past Due - 90 Days +
 
1
 
$
82.0

 
$
77.9



24


Note 9—Loans Payable
At March 31, 2020, the Account had outstanding loans payable secured by the following assets (millions):
Property
 
Annual Interest Rate and
Payment Frequency
(2)
 
Principal
Amounts Outstanding as of
 
Maturity
March 31, 2020
 
December 31, 2019
 
 
 
 
 
(Unaudited)
 
 
 
 
Red Canyon at Palomino Park(4)
 
5.34% paid monthly
 
$
27.1

 
$
27.1

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

 
33.2

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

 
33.4

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

 
44.6

 
August 1, 2020
The Knoll(1)
 
3.98% paid monthly
 
16.2

 
16.4

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

 
34.6

 
January 1, 2022
The Palatine(1)
 
4.25% paid monthly
 
75.5

 
75.9

 
January 10, 2022
The Forum at Carlsbad(1)
 
4.25% paid monthly
 
85.3

 
85.7

 
March 1, 2022
Fusion 1560
 
3.42% paid monthly
 
37.4

 
37.4

 
June 10, 2022
San Diego Office Portfolio(5)
 
3.62% paid monthly
 
49.0

 
48.2

 
August 15, 2022
The Colorado(1)
 
3.69% paid monthly
 
87.7

 
88.1

 
November 1, 2022
The Legacy at Westwood(1)
 
3.69% paid monthly
 
44.7

 
44.9

 
November 1, 2022
Regents Court(1)
 
3.69% paid monthly
 
37.9

 
38.1

 
November 1, 2022
1001 Pennsylvania Avenue(1)
 
3.70% paid monthly
 
319.1

 
320.7

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

 
36.4

 
July 5, 2023
Cherry Knoll
 
3.78% paid monthly
 
35.3

 
35.3

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

 
35.1

 
July 5, 2023
Pacific City
 
2.00% + LIBOR paid monthly
 
105.0

 

 
October 1, 2023
Birkdale Village(1)
 
4.30% paid monthly
 
78.3

 

 
April 1, 2024
1401 H Street, NW
 
3.65% paid monthly
 
115.0

 
115.0

 
November 5, 2024
The District at La Frontera(1)
 
3.84% paid monthly
 
39.1

 
39.3

 
December 1, 2024
The District at La Frontera(1)
 
4.96% paid monthly
 
4.3

 
4.4

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

 
52.0

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

 
57.0

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

 
81.0

 
May 1, 2025
Henley at Kingstowne
 
3.60% paid monthly
 
71.0

 
71.0

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

 
24.0

 
June 6, 2025
Vista Station Office Portfolio(1)
 
4.00% paid monthly
 
20.4

 
20.5

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

 
150.0

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

 
20.0

 
August 1, 2025
Vista Station Office Portfolio(1)
 
4.20% paid monthly
 
44.5

 
44.7

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

 
184.0

 
April 1, 2026
Marketplace at Mill Creek
 
3.82% paid monthly
 
39.6

 

 
September 11, 2027
Overlook At King Of Prussia
 
3.82% paid monthly
 
40.8

 

 
September 11, 2027
Winslow Bay
 
3.82% paid monthly
 
25.8

 

 
September 11, 2027
1900 K Street, NW
 
3.93% paid monthly
 
163.0

 
163.0

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

 
277.0

 
March 1, 2030
Total Principal Outstanding
 
 
 
$
2,624.3

 
$
2,338.0

 
 
Fair Value Adjustment(3)
 
 
 
(18.7
)
 
27.0

 
 
Total Loans Payable
 
 
 
$
2,605.6

 
$
2,365.0

 
 
(1) 
The mortgage is adjusted monthly for principal payments.
(2) 
All interest rates are fixed except for Pacific City, which has a variable interest rate based on a spread above the one month London Interbank Offered Rate, as published by ICE Benchmark Administration Limited. Some mortgages held by the Account are structured to begin principal and interest payments after an initial interest only period.
(3) 
The fair value adjustment consists of the difference (positive or negative) between the principal amount of the outstanding debt and the fair value of the outstanding debt. See Note 1—Organization and Significant Accounting Policies.
(4) 
Represents mortgage loans on individual properties held within the Palomino Park portfolio.
(5) 
The loan is collateralized by a mezzanine loan receivable. The mezzanine loan receivable is collateralized by the property reflected within the table above.

25


Note 10—Line of Credit
On September 20, 2018, the Account entered into a $500.0 million unsecured revolving credit agreement (“Line of Credit”) syndicated across four national banks (each a “Lender”, and collectively the "Lenders"), with each Lender providing a $125.0 million commitment. Access to the Line of Credit expires on September 20, 2021, with an option to extend the Line of Credit for two consecutive twelve months terms at the Account’s election. The Account may request an additional $250.0 million in commitments from the Lenders at any time; however, this request is subject to approval at the sole discretion of the Lenders and is not a guarantee that an expansion beyond the original $500.0 million commitment will be granted. Draws against the Line of Credit can take the form of Eurodollar Loans or Alternate Base Rate Loans (“ABR Loans”). Eurodollar Loans and ABR Loans both require a minimum funding of $5.0 million. The Account is charged a fee of 0.20% per annum on the unused portion of the Line of Credit. For the three months ended March 31, 2020, $0.8 million was charged to the Account for expenses related to the Line of Credit.
Eurodollar Loans are issued for a term of twelve months or less and bear interest during the period (“Interest Period”) at a rate equal to the Adjusted London Interbank Offered Rate (“Adjusted LIBOR”) plus a spread ranging between 0.85%-1.05% per annum (the “Applicable Rate”), with the spread dependent upon the leverage ratio of the Account. The Adjusted LIBOR rate is calculated by multiplying the Statutory Reserve Rate, as determined by the Federal Reserve Board for Eurodollar liabilities, by the LIBOR rate, as determined by the Intercontinental Exchange on the date of issuance that corresponds to the length of the Interest Period of the Eurodollar Loan. The Account may prepay Eurodollar Loans at any time during the life of the loan without penalty. The Account is limited to five active Eurodollar Loans through the Line of Credit; however, the Account may retire and initiate new Eurodollar Loans without restriction so long as the total number of loans in active status never exceeds the limit.
ABR Loans are issued for a specific length of time and bear interest at a rate equal to the highest rate among the following calculations plus the Applicable Rate: (i) the Prime Rate on the date of issuance, with the Prime Rate being defined as the rate of interest last quoted by the Wall Street Journal as the Prime Rate; (ii) the Federal Reserve Bank of New York (“NYFRB”) rate as provided by the NYFRB on the date of issuance plus 0.5%; or (iii) the Adjusted LIBOR rate plus 1.0%. The Account may prepay ABR Loans at any time during the life of the loan without penalty.
As of March 31, 2020, the Account had $190.0 million outstanding on the Line of Credit and was in compliance with all covenants required by the Line of Credit.

26


Note 11—Financial Highlights
Selected condensed financial information for an Accumulation Unit of the Account is presented below. Per Accumulation Unit data is calculated on average units outstanding.
 
For the Three Months Ended March 31, 2020
 
Years Ended December 31,
2019
 
2018
 
2017
 
(Unaudited)
 
 
 
 
 
 
Per Accumulation Unit Data:
 
 
 
 
 
 
 
Rental income
$
5.054

 
$
18.165

 
$
17.757

 
$
17.132

Real estate property level expenses and taxes
2.422

 
8.734

 
8.548

 
7.722

Real estate income, net
2.632

 
9.431

 
9.209

 
9.410

Other income
1.724

 
6.752

 
6.162

 
4.762

Total income
4.356

 
16.183

 
15.371

 
14.172

Expense charges(1)
0.894

 
3.439

 
3.161

 
3.318

Investment income, net
3.462

 
12.744

 
12.210

 
10.854

Net realized and unrealized gain on investments and loans payable
(2.992
)
 
10.262

 
6.877

 
5.839

Net increase in Accumulation Unit Value
0.470

 
23.006

 
19.087

 
16.693

Accumulation Unit Value:
 
 
 
 
 
 
 
Beginning of period
440.422

 
417.416

 
398.329

 
381.636

End of period
$
440.892

 
$
440.422

 
$
417.416

 
$
398.329

Total return(3)
0.11
%
 
5.51
%
 
4.79
%
 
4.37
%
Ratios to Average net assets(2):
 
 
 
 
 
 
 
Expenses(1)
0.78
%
 
0.78
%
 
0.76
%
 
0.83
%
Investment income, net
3.04
%
 
2.90
%
 
2.95
%
 
2.72
%
Portfolio turnover rate(3):
 
 
 
 
 
 
 
Real estate properties(4)
5.7
%
 
7.8
%
 
11.8
%
 
2.7
%
Marketable securities(5)
74.0
%
 
28.7
%
 
5.1
%
 
5.7
%
Accumulation Units outstanding at end of period (millions)
57.8

 
60.8

 
60.7

 
61.3

Net assets end of period (millions)
$
26,015.1

 
$
27,307.9

 
$
25,842.6

 
$
24,942.6

(1) 
Expense charges per Accumulation Unit and the Ratio of Expenses to average net assets reflect the year to date Account level expenses and exclude real estate property level expenses which are included in real estate income, net.
(2) 
Percentages for the three months ended March 31, 2020 are annualized.
(3) 
Percentages for the three months ended March 31, 2020 are not annualized.
(4) 
Real estate investment portfolio turnover rate is calculated by dividing the lesser of purchases or sales of real estate property investments (including contributions to, or return of capital distributions received from, existing real estate joint ventures and fund investments) by the average value of the portfolio of real estate investments held during the period.
(5) 
Marketable securities portfolio turnover rate is calculated by dividing the lesser of purchases or sales of securities, excluding securities having maturity dates at acquisition of one year or less, by the average value of the portfolio securities held during the period.


27


Note 12—Accumulation Units
Changes in the number of Accumulation Units outstanding were as follows (in millions):
 
For the Three Months Ended March 31, 2020
 
For the Year Ended December 31, 2019
 
(Unaudited)
 
 
Outstanding:
 
 
 
Beginning of period
60.8

 
60.7

Credited for premiums
1.6

 
6.2

Annuity, other periodic payments, withdrawals and death benefits
(4.6
)
 
(6.1
)
End of period
57.8

 
60.8

Note 13—Commitments and Contingencies
Commitments—As of March 31, 2020 and December 31, 2019, the Account had the following immediately callable commitments to purchase additional interests in its real estate funds or provide additional funding through its loans receivable investments:
 
 
Commitment Expiration
 
March 31, 2020
 
December 31, 2019
 
 
 
 
(Unaudited)
 
 
Real Estate Funds(1)
 
 
 
 
 
 
Taconic New York City GP Fund
11/2020
 
$
11.4

 
$
11.4

 
LCS SHIP Venture I, LLC
12/2020
 
28.1

 
28.1

 
Veritas Trophy VI, LLC(2)
08/2022
 
42.6

 
35.8

 
SP V - II, LLC
09/2022
 
70.1

 
74.9

 
Grubb Southeast Real Estate Fund VI, LLC
06/2021
 
86.6

 
86.6

 
JCR Capital - REA Preferred Equity Parallel Fund
12/2022
 
97.8

 
100.0

 
Townsend Strategic Ventures LP
03/2021
 
250.0

 
250.0

 
Silverpeak NRE Fund Co, LLC
01/2021
 
100.0

 

 
TREA Flagler Venture, LLC
08/2020
 
100.0

 

 
 
 
 
786.6

 
586.8

Loans Receivable(3)
 
 
 
 
 
 
311 South Wacker Mezzanine
06/2020
 
$
6.0

 
$
7.6

 
Rosemont Towson Mezzanine
09/2022
 
1.2

 
1.2

 
1330 Broadway Mezzanine
09/2022
 
14.0

 
14.0

 
SCG Oakland Portfolio Mezzanine
03/2021
 
6.9

 
7.0

 
BREP VIII Industrial Mezzanine
03/2026
 
14.1

 
14.1

 
San Diego Office Portfolio Senior Loan
08/2022
 
9.2

 
10.0

 
San Diego Office Portfolio Mezzanine
08/2022