PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC - FORM 10-Q

Attached files

file	filename
EX-32.1 - SECTION 906 CEO CERTIFICATION - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	dex321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	dex312.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	dex322.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 033-20018

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

in respect of

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Exact name of registrant as specified in its charter)


New Jersey				22-2426091
(State or other jurisdiction of				(IRS Employer Identification No.)
incorporation or organization)

213 Washington Street, Newark, New Jersey 07102-2992

(Address of principal executive offices) (Zip Code)

(973) 802-6000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO

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 and posted 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 and post such files). Yes No

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

(Check one):


Large accelerated filer				Accelerated filer
Non-accelerated filer X (Do not check if a smaller reporting company)				Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO X

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Registrant)

INDEX


	Page
Forward Looking Statement Disclosure		3
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets – March 31, 2011 and December 31, 2010		4
Statements of Operations – Three Months Ended March 31, 2011 and 2010		4
Statements of Changes in Net Assets – Three Months Ended March 31, 2011 and 2010		4
Notes to the Financial Statements of the Real Property Account		5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Consolidated Statements of Assets and Liabilities – March 31, 2011 and December 31, 2010		11
Consolidated Statements of Operations – Three Months Ended March 31, 2011 and 2010		12
Consolidated Statements of Changes in Net Assets – Three Months Ended March 31, 2011 and 2010		13
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2011 and 2010		14
Consolidated Schedules of Investments – March 31, 2011 and December 31, 2010		15
Notes to Consolidated Financial Statements of the Partnership		17
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		30
Part II - Other Information
Item 1A. Risk Factors		31
Item 6. Exhibits		31
Signatures		32

Forward-Looking Statement Disclosure

Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Pruco Life Insurance Company of New Jersey, or the “Company”, or the Pruco Life of New Jersey Variable Contract Real Property Account, or the “Real Property Account”. There can be no assurance that future developments affecting the Company and the Real Property Account will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and other financial markets; (2) interest rate fluctuations or prolonged periods of low interest rates; (3) reestimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates, or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (5) changes in our assumptions related to deferred policy acquisition costs; (6) changes in our financial strength or credit ratings; (7) investment losses and defaults; (8) competition in our product lines and for personnel; (9) changes in tax law; (10) regulatory or legislative changes, including the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act; (11) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities; (12) domestic or international military actions, natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (13) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (14) changes in statutory or “U.S. GAAP” accounting principles, practices or policies. The Company and the Real Property Account do not intend, and are under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Annual Report Form 10-K for the year ended December 31, 2010 for discussion of certain risks relating to the operation of the Partnership and investment in our securities.

FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS

March 31, 2011 and December 31, 2010


	March 31, 2011 (unaudited)		December 31, 2010
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	7,621,257	$	7,285,446

Net Assets	$	7,621,257	$	7,285,446

NET ASSETS, representing:
Equity of contract owners	$	5,628,196	$	5,392,667
Equity of Pruco Life Insurance Company of New Jersey		1,993,061		1,892,779

	$	7,621,257	$	7,285,446


Units outstanding		2,959,631		2,955,276


Portfolio shares held		256,727		256,727
Portfolio net asset value per share	$	29.69	$	28.38

STATEMENTS OF OPERATIONS
For the three months ended March 31, 2011 and 2010	1/1/2011-3/31/2011		1/1/2010-3/31/2010
	(unaudited)		(unaudited)
INVESTMENT INCOME
Net investment income from Partnership operations	$	93,586	$	80,317


EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		7,731		7,228

NET INVESTMENT INCOME		85,855		73,089


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership		242,225		(126,386)
NET GAIN (LOSS) ON INVESTMENTS		242,225		(126,386)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	328,080	$	(53,297)


STATEMENTS OF CHANGES IN NET ASSETS
For the three months ended March 31, 2011 and 2010	1/1/2011-3/31/2011		1/1/2010-3/31/2010
	(unaudited)		(unaudited)
OPERATIONS
Net investment income	$	85,855	$	73,089
Net change in unrealized gain (loss) on investments in Partnership		242,225		(126,386)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		328,080		(53,297)


CAPITAL TRANSACTIONS
Net (withdrawals) by contract owners		(4,398)		(27,887)
Net contributions (withdrawals) by Pruco Life Insurance Company of New Jersey		12,129		35,115


NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS		7,731		7,228


TOTAL INCREASE (DECREASE) IN NET ASSETS		335,811		(46,069)

NET ASSETS
Beginning of period		7,285,446		7,317,018

End of period	$	7,621,257	$	7,270,949

The accompanying notes are an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2011

(Unaudited)

Note 1: General

Pruco Life of New Jersey Variable Contract Real Property Account (the “Account”) was established on October 30, 1987 by resolution of the Board of Directors of Pruco Life Insurance Company of New Jersey (“Pruco Life of New Jersey” or the “Company”), a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential”), an indirect wholly-owned subsidiary of Prudential Financial, Inc. (“PFI”) as a separate investment account pursuant to New Jersey law and is registered under the Securities Act of 1933, as amended. The assets of the Account are segregated from Pruco Life of New Jersey’s other assets. The Account is used to fund benefits under certain variable life insurance and variable annuity contracts issued by Pruco Life of New Jersey. These products are Appreciable Life (“VAL”), Variable Life (“VLI”), Discovery Plus (“SPVA”), and Discovery Life Plus (“SPVL”).

The assets of the Account are invested in The Prudential Variable Contract Real Property Partnership (the “Partnership”). The Partnership is the investment vehicle for assets allocated to the real estate investment option under certain variable life insurance and annuity contracts. The Account, along with the Pruco Life Variable Contract Real Property Account and The Prudential Variable Contract Real Property Account, are the sole investors in the Partnership. These financial statements should be read in conjunction with the unaudited interim financial statements of the Partnership.

The Partnership has a policy of investing at least 65% of its assets in direct ownership interests in income-producing real estate and participating mortgage loans.

Note 2: Summary of Significant Accounting Policies and Pronouncements

A.	Basis of Accounting

The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

The interim financial data as of March 31, 2011 and for the three months ended March 31, 2011 and 2010 is unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim period.

In January 2010, the FASB issued updated guidance that requires new fair value disclosures about significant transfers between Level 1 and 2 measurement categories and separate presentation of purchases, issuances, and settlements within the roll forward of Level 3 activity. Also, this updated fair value guidance clarifies the disclosure requirements about level of disaggregation and valuation techniques and inputs. This new guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 activity, which are effective for interim and annual reporting periods beginning after December 15, 2010. The Account adopted the guidance effective for interim and annual reporting periods beginning after December 15, 2009 on January 1, 2010. The Account adopted the guidance effective for interim and annual reporting periods beginning after December 15, 2010 on January 1, 2011. The required disclosures are provided in Note 9.

B.	Investment in Partnership Interest

The investment in the Partnership is based on the Account’s proportionate interest of the Partnership’s fair value. At March 31, 2011 and December 31, 2010 the Account’s interest in the General Partners’ Controlling Interest was 4.4% or 256,727 shares. Properties owned by the Partnership are illiquid and based on estimated fair value as discussed in the notes to the Partnership’s unaudited financial statements.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2011

(Unaudited)

C.	Income Recognition

Net investment income, realized and unrealized gains and losses are recognized daily for the Partnership. Amounts are based upon the Account’s proportionate interest in the Partnership.

D.	Equity of Pruco Life Insurance Company of New Jersey

Pruco Life of New Jersey maintains a position in the Account for liquidity purposes, including unit purchases and redemptions, Partnership share transactions, and expense processing. The position does not affect contract owners’ accounts or the related unit values.

Note 3: Charges and Expenses

A.	Mortality Risk and Expense Risk Charges

Mortality risk and expense risk charges are determined daily using an effective annual rate of 0.6%, 0.35%, 0.9% and 0.9% for VAL, VLI, SPVA and SPVL, respectively. Mortality risk is the risk that life insurance contract owners may not live as long as estimated or annuitants may live longer than estimated and expense risk is the risk that the cost of issuing and administering the policies may exceed related charges by Pruco Life of New Jersey. The mortality risk and expense risk charges are assessed through reduction in unit values.

B.	Administrative Charges

Administrative charges are determined daily using an effective annual rate of 0.35% applied daily against the net assets representing equity of contract owners held in each subaccount for SPVA and SPVL. Administrative charges include costs associated with issuing the contract, establishing and maintaining records, and providing reports to contract owners. The administrative charge is assessed through reduction in unit values.

C.	Cost of Insurance and Other Related Charges

Contract owner contributions are subject to certain deductions prior to being invested in the Account. The deductions for VAL and VLI are (1) state premium taxes; (2) sales charges, not to exceed 5% for VAL and 9% for VLI, which are deducted in order to compensate Pruco Life of New Jersey for the cost of selling the contract and (3) transaction costs, applicable to VAL, which are deducted from each premium payment to cover premium collection and processing costs. Contracts are subject to charges on each basic premium for assuming a guaranteed minimum death benefit risk. This charge compensates Pruco Life of New Jersey for the risk that an insured may die at a time when the death benefit exceeds the benefit that would have been payable in the absence of a minimum guarantee. These charges are assessed through the redemption of units.

D.	Deferred Sales Charge

A deferred sales charge is imposed upon surrenders of certain variable life insurance contracts to compensate Pruco Life of New Jersey for sales and other marketing expenses. The amount of any sales charge will depend on the number of years that have elapsed since the contract was issued, but will not exceed 45% of one scheduled annual premium for VAL and 9% of the initial premium payment for SPVL. No sales charge will be imposed after the sixth and tenth year of the contract for SPVL and VAL, respectively. No sales charge will be imposed on death benefits. This deferred sales charge is assessed through the redemption of units. For SPVA, there is a deferred sales charge that applies at the time of a full or partial withdrawal, and the amount of the charge (which declines over time) depends on the number of years that have elapsed since the contract was issued.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2011

(Unaudited)

E.	Partial Withdrawal Charge

A charge is imposed by Pruco Life of New Jersey on partial withdrawals of the cash surrender value for VAL. A charge equal to the lesser of $15 or 2% will be made in connection with each partial withdrawal of the cash surrender value of a contract. This charge is assessed through the redemption of units.

Note 4: Taxes

Pruco Life of New Jersey is taxed as a “life insurance company”, as defined by the Internal Revenue Code. The results of operations of the Account form a part of PFI’s consolidated federal tax return. Under current federal law, no federal income taxes are payable by the Account. As such, no provision for the tax liability has been recorded in these financial statements.

Note 5: Net Withdrawals by Contract Owners

Net contract owner withdrawals for the real estate investment option in Pruco Life of New Jersey’s variable insurance and variable annuity products for the three months ended March 31, 2011, and 2010 were as follows:


Three Months Ended March 31, (Unaudited)

	2011		2010
VAL	$	(3,124)	$	(19,207)
VLI		(528)		(8,560)
SPVA		(0)		(0)
SPVL		(746)		(120)
TOTAL	$	(4,398)	$	(27,887)

Note 6: Partnership Distributions

For the three months ended March 31, 2011, the Partnership made no distribution. For the year ended December 31, 2010, the Partnership made distributions of $10 million on October 27^th and $7.5 million on May 3^rd. The Pruco Life of New Jersey Account’s share of these distributions were $0.4 and $0.3 million respectively.

Note 7: Unit Information

Outstanding units and unit values at March 31, 2011 and December 31, 2010 were as follows:


	March 31, 2011	December 31, 2010
	(Unaudited)
Units Outstanding:	2,959,631	2,995,276
Unit Value:	2.19152 to 2.72659	2.10140 to 2.60866

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2011

(Unaudited)

Note 8: Financial Highlights

The range of total return for the three months ended March 31, 2011 and 2010, were as follows:


	Three Months Ended March 31, (Unaudited)
	2011		2010
Total Return		4.29% to 4.52%	-0.93% to -0.72%

Note 9: Fair Value Disclosure

FASB guidance on fair value measurements and disclosures establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These generally provide the most reliable evidence and should be used to measure fair value whenever available.

Level 2 – Fair value is based on inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data.

Level 3 – Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The investment in the Partnership is based on the Account’s proportionate interest of the Partnership’s fair value which approximates the Partnership’s net asset value. Properties owned by the Partnership are illiquid and fair value is based on estimates from property appraisal reports prepared by independent real estate appraisers as discussed in the notes to the Partnership’s unaudited financial statements.

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. In the reconciliation of these three approaches, the one most heavily relied upon is the one then recognized as the most appropriate by the independent appraiser for the type of real estate in the market.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2011

(Unaudited)

In general, the input values used in the appraisal process are unobservable, therefore unless indicated otherwise; the underlying investments in the Partnership are classified as Level 3 under the fair value hierarchy. The inputs or methodology used for valuing assets are not an indication of the risk associated with investing in those securities.

Table 1 below summarizes the assets measured at fair value on a recurring basis and their respective position in the fair value hierarchy.

Table 1:


	($ in 000’s) Fair Value Measurements at March 31, 2011

Assets:	Amounts Measured at Fair Value 03/31/2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Investment in The Prudential Variable Contract Real Property Partnership	$	7,621	$	-	$	-	$	7,621


Total Assets	$	7,621	$	-	$	-	$	7,621


	($ in 000’s)
	Fair Value Measurements at December 31, 2010

Assets:	Amounts Measured at Fair Value 12/31/2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Investment in The Prudential Variable Contract Real Property Partnership	$	7,285	$	-	$	-	$	7,285


Total Assets	$	7,285	$	-	$	-	$	7,285

Table 2 below provides a reconciliation of the beginning and ending balances for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2011 and March 31, 2010.

Table 2:


	($ in 000’s)

	Fair Value Measurements Using Significant Unobservable Inputs for the three months ending March 31. 2011 (Level 3)
Beginning balance @ 01/01/11	$	7,285
Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations	$	242
Net Investment Income from Partnership operations	$	94
Acquisition/Additions		-
Equity Income		-
Contributions		-
Disposition/Settlements	$	-
Equity losses		-
Distributions		-

Ending balance @ 03/31/2011	$	7,621


The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized gains

or losses relating to assets still held at the reporting date	$	242


	($ in 000’s)

	Fair Value Measurements Using Significant Unobservable Inputs for the three months ending March 31, 2010 (Level 3)
Beginning balance @ 01/01/10	$	7,317
Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations	$	(126)
Net Investment Income from Partnership operations	$	80
Acquisition/Additions		-
Equity Income		-
Contributions		-
Disposition/Settlements	$	-
Equity losses		-
Distributions		-

Ending balance @ 03/31/2010	$	7,271


The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in unrealized gains

or losses relating to assets still held at the reporting date	$	(126)

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES


	March 31, 2011 (Unaudited)		December 31, 2010
ASSETS

REAL ESTATE INVESTMENTS - At estimated fair value:
Real estate and improvements
(cost: 3/31/2011 - $194,390,822; 12/31/2010 - $194,140,941)	$	164,400,000	$	158,900,000
Real estate partnerships and preferred equity investments (cost:
3/31/2011 - $8,445,469; 12/31/2010 - $14,166,536)		7,834,182		12,591,448


Total real estate investments		172,234,182		171,491,448

CASH AND CASH EQUIVALENTS		35,856,842		28,881,784

OTHER ASSETS, NET		2,202,765		2,416,157


Total assets	$	210,293,789	$	202,789,389


LIABILITIES & PARTNERS' EQUITY

INVESTMENT LEVEL DEBT (net of unamortized discount: 3/31/11 $4,095; 12/31/10 $10,237)	$	30,388,599	$	30,565,616

ACCOUNTS PAYABLE AND ACCRUED EXPENSES		2,296,498		2,870,545

DUE TO AFFILIATES		587,508		597,136

OTHER LIABILITIES		940,289		1,028,318


Total liabilities		34,212,894		35,061,615


COMMITMENTS AND CONTINGENCIES

NET ASSETS, REPRESENTING PARTNERS' EQUITY:

GENERAL PARTNERS’ CONTROLLING INTEREST		172,634,642		165,027,953

NONCONTROLLING INTEREST		3,446,253		2,699,821


		176,080,895		167,727,774


Total liabilities and partners' equity	$	210,293,789	$	202,789,389


NUMBER OF SHARES OUTSTANDING AT END OF PERIOD		5,815,305		5,815,305


SHARE VALUE AT END OF PERIOD	$	29.69	$	28.38

The accompanying notes are an integral part of these consolidated financial statements.

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ending March 31,
	2011		2010
INVESTMENT INCOME:
Revenue from real estate and improvements	$	5,376,444	$	5,817,966
Equity in income of real estate partnerships		451,303		249,109
Interest on short-term investments		9,132		5,853


Total investment income		5,836,879		6,072,928


INVESTMENT EXPENSES:
Operating		1,541,345		1,559,772
Investment management fee		574,103		575,677
Real estate taxes		381,495		650,703
Administrative		874,184		1,164,870
Interest expense		246,644		253,675


Total investment expenses		3,617,771		4,204,697


NET INVESTMENT INCOME		2,219,108		1,868,231


UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Change in unrealized gain (loss) on real estate investments held		6,213,920		(2,743,798)


INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	8,433,028	$	(875,567)


Amounts attributable to noncontrolling interest:
Net investment income (loss) attributable to noncontrolling interest		99,227		32,867
Net unrealized gain (loss) attributable to noncontrolling interest		727,112		144,303


Net increase (decrease) in net assets resulting from operations attributable to the noncontrolling interest	$	826,339	$	177,170


Amounts attributable to general partners' controlling interest:
Net investment income attributable to general partners' controlling interest		2,119,881		1,835,364
Net unrealized gain (loss) attributable to general partners' controlling interest		5,486,808		(2,888,101)


Net increase (decrease) in net assets resulting from operations attributable to general partners' controlling interest	$	7,606,689	$	(1,052,737)

The accompanying notes are an integral part of these consolidated financial statements.

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)


	For the Three Months Ending March 31,
	2011						2010
	General Partners' Controlling Interest		Noncontrolling Interest		Total		General Partners' Controlling Interest		Noncontrolling Interest		Total
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss)	$	2,119,881	$	99,227	$	2,219,108	$	1,835,364	$	32,867	$	1,868,231
Net realized and unrealized gain (loss) from real estate investments		5,486,808		727,112		6,213,920		(2,888,101)		144,303		(2,743,798)

Increase (decrease) in net assets resulting from operations		7,606,689		826,339		8,433,028		(1,052,737)		177,170		(875,567)


INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Distributions to noncontrolling interest		-		(79,907)		(79,907)		-		(72,256)		(72,256)


Increase (decrease) in net assets resulting from capital transactions		-		(79,907)		(79,907)		-		(72,256)		(72,256)


INCREASE (DECREASE) IN NET ASSETS		7,606,689		746,432		8,353,121		(1,052,737)		104,914		(947,823)

NET ASSETS - Beginning of period		165,027,953		2,699,821		167,727,774		167,204,272		2,097,909		169,302,181


NET ASSETS - End of period	$	172,634,642	$	3,446,253	$	176,080,895	$	166,151,535	$	2,202,823	$	168,354,358

The accompanying notes are an integral part of these consolidated financial statements.

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Three Months Ended March, 31
	2011		2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets from operations	$	8,433,028	$	(875,567)
Adjustments to reconcile net increase (decrease) in net assets to net cash provided by (used in) operating activities
Net realized and unrealized loss (gain)		(6,213,920)		2,743,798
Amortization of discount on investment level debt		6,142		(930)
Amortization of deferred financing costs		8,797		17,581
Distributions in excess of (less than) equity in income of real estate partnerships' operations		(147,594)		17,793
Bad debt expense		(21,777)		1,531
(Increase) decrease in:
Other assets		226,372		170,847
Increase (decrease) in:
Accounts payable and accrued expenses		(574,047)		647,702
Due to affiliates		(9,628)		(14,017)
Other liabilities		(88,029)		(65,617)


Net cash flows provided by (used in) operating activities		1,619,344		2,643,121


CASH FLOWS PROVIDED FOR INVESTING ACTIVITIES:
Additions to real estate and improvements		(249,881)		(1,329,519)
Return of investment in real estate partnerships		5,868,661		-


Net cash flows provided by (used in) investing activities		5,618,780		(1,329,519)


CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on investment level debt		(183,159)		(137,683)
Distributions to noncontrolling interest		(79,907)		(72,256)


Net cash flows provided by (used in) financing activities		(263,066)		(209,939)


NET CHANGE IN CASH AND CASH EQUIVALENTS		6,975,058		1,103,663

CASH AND CASH EQUIVALENTS - Beginning of period		28,881,784		24,522,159


CASH AND CASH EQUIVALENTS - End of period	$	35,856,842	$	25,625,822

The accompanying notes are an integral part of these consolidated financial statements.

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS


			2011 Total Rentable Square Feet Unless Otherwise	March 31,2011 (Unaudited)				December 31,2010
Property Name	March 31, 2011 Ownership	City, State	Indicated (Unaudited)	Cost		Estimated Fair Value		Cost		Estimated Fair Value

OFFICES
750 Warrenville	WO	Lisle, IL	103,193	$	26,362,333	$	7,200,000	$	26,339,685	$	7,200,000
Summit @ Cornell Oaks	WO	Beaverton , OR	72,109		12,934,644		6,700,000		12,937,126		6,700,000
Westpark	WO	Brentwood, TN	97,199		14,667,971		11,500,000		14,585,669		10,400,000
Financial Plaza	WO	Brentwood, TN	98,049		12,787,144		9,400,000		12,854,615		9,500,000
		Offices % as of 3/31/11	20%		66,752,092		34,800,000		66,717,095		33,800,000

APARTMENTS

Dunhill Trace Apartments	WO	Raleigh, NC	250 Units		16,710,641		18,100,000		16,649,083		17,400,000
Broadstone Crossing	WO	Austin, TX	225 Units		22,858,398		23,700,000		22,854,377		23,500,000
The Reserve At Waterford Lakes	WO	Charlotte, NC	140 Units		13,934,488		10,800,000		13,850,701		10,200,000
		Apartments % as of 3/31/11	31%		53,503,527		52,600,000		53,354,161		51,100,000

RETAIL
Hampton Towne Center	WO	Hampton, VA	174,540		18,197,093		17,000,000		18,197,093		16,300,000
White Marlin Mall	CJV	Ocean City, MD	197,098		23,712,456		27,500,000		23,707,485		26,200,000
Westminster Crossing East, LLC	CJV	Westminster, MD	89,890		15,068,438		15,100,000		15,068,438		14,600,000
CARS Preferred Equity	PE	Various	N/A		8,445,469		7,834,182		14,166,536		12,591,448
Harnett Crossing	WO	Dunn, NC	193,325		6,281,294		3,300,000		6,239,696		3,300,000
		Retail % as of 3/31/11	41%		71,704,750		70,734,182		77,379,248		72,991,448

HOTEL
Portland Crown Plaza	CJV	Portland, OR	161 Rooms		10,875,922		14,100,000		10,856,973		13,600,000
		Hotel % as of 3/31/11	8%		10,875,922		14,100,000		10,856,973		13,600,000

Total Real Estate Investments as a Percentage of General Partners' Controlling Interest as of 3/31/11			100%	$	202,836,291	$	172,234,182	$	208,307,477	$	171,491,448

WO - Wholly Owned Investment

CJV - Consolidated Joint Venture

PE - Preferred equity investments

The accompanying notes are an integral part of these consolidated financial statements.

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS


			March 31, 2011 (Unaudited)						December 31, 2010
	Face Amount		Maturity Date		Cost		Estimated Fair Value		Cost		Estimated Fair Value
CASH AND CASH EQUIVALENTS - Percentage of General Partner’s Controlling Interest								20.8%				17.5%

Investments in Prudential Investment Liquidity Pool:
‘Federal Home Loan Bank, 0 coupon bond	$	4,859,000		April, 2011	$	4,859,000	$	4,859,000	$	8,181,000	$	8,181,000
‘Federal Home Loan Bank, 0 coupon bond		15,000,000		June, 2011		14,996,588		14,996,588		4,999,740		4,999,740
‘Federal Home Loan Bank, 0 coupon bond		15,000,000		June, 2011		14,995,729		14,995,729		4,676,891		4,676,891
‘Federal Home Loan Bank, 0 coupon bond		-		March, 2011		-		-		9,997,022		9,997,022



Total Cash Equivalents						34,851,317		34,851,317		27,854,653		27,854,653

Cash						1,005,525		1,005,525		1,027,131		1,027,131


Total Cash and Cash Equivalents					$	35,856,842	$	35,856,842	$	28,881,784	$	28,881,784

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2011 and December 31, 2010

(Unaudited)

Note 1: Summary of Significant Accounting Policies

Basis of Presentation - The accompanying consolidated financial statements of The Prudential Variable Contract Real Property Partnership (the “Partnership”) included herein have been prepared in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States of America that are applicable to real estate investment companies. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011. For further information, refer to the audited consolidated financial statements and notes of the Partnership for the year ended December 31, 2010. The Partnership has evaluated subsequent events through May 11, 2011, the date these financial statements were available to be issued.

Accounting Pronouncements Adopted - In January 2010, the FASB issued updated guidance that requires new fair value disclosures for significant transfers between Level 1 and 2 measurement categories and separate presentation of purchases, issuances, and settlements within the roll forward of Level 3 activity. Also, this updated fair value guidance clarifies the disclosure requirements about level of disaggregation and valuation techniques and inputs. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 activity, which are effective for interim and annual reporting periods beginning after December 15, 2010. The Partnership adopted the guidance effective for interim and annual reporting periods beginning after December 15, 2009 on January 1, 2010. The Partnership adopted the guidance effective for interim and annual reporting periods beginning after December 15, 2010 on January 1, 2011. The required disclosures are provided in Note 3.

Note 2: Disclosure of Supplemental Cash Flow Information and Non-Cash Investing and Financing Activity

Cash paid for interest during the three months ended March 31, 2011 and March 31, 2010, was $237,847 and $236,094, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2011 and December 31, 2010

(Unaudited)

Note 3: Fair Value Measurements

Valuation Methods:

Real estate investments are carried at fair value. Properties owned are initially recorded at the purchase price plus closing costs. Development costs and major renovations are capitalized as a component of cost, and routine maintenance and repairs are charged to expense as incurred. Real estate costs include the cost of acquired property, including all the tangible and intangible assets. Tangible assets include the value of all land, building and tenant improvements at the time of acquisition. Intangible assets include the value of any above and below market leases, in-place leases, and tenant relationships at the time of acquisition.

In general fair value estimates are based upon property appraisal reports prepared by independent real estate appraisers (members of the Appraisal Institute or an equivalent organization) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter. The Chief Real Estate Appraiser of Prudential Investment Management, Inc. (“PIM”), which is an indirectly owned subsidiary of Prudential Financial, Inc. (“PFI”), is responsible to assure that the valuation process provides independent and reasonable property fair value estimates. An unaffiliated third party has been appointed by PIM to assist the Chief Real Estate Appraiser in maintaining and monitoring the independence and the accuracy of the appraisal process. The fair value of real estate investments does not reflect the transaction sale costs, which may be incurred upon disposition of the real estate investments.

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. In accordance with FASB authoritative guidance on fair value measurements and disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. Key inputs and assumptions include rental income and expense amounts, related rental income and expense growth rates, discount rates and capitalization rates. In the reconciliation of these three approaches, the independent appraiser uses one or a combination of them, to come up with the approximated value for the type of real estate in the market.

Fair Value Measurements:

FASB authoritative guidance on fair value measurements and disclosures establishes a fair value measurement framework, provides a single definition of fair value and requires expanded disclosure summarizing fair value measurements. This guidance provides a three-level hierarchy based on the inputs used in the valuation process. The levels in the fair value hierarchy within which the fair value measurements falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows;

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the entity for identical assets or liabilities. These generally provide the most reliable evidence and should be used to measure fair value whenever available.

Level 3 – Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the entity’s own assumptions about how market participants would price the asset or liability.

For items classified as Level 3, a reconciliation of the beginning and ending balances, as shown in table 2 below, is also required.

During the three months ended March 31, 2011 and 2010, there were no transfers between Level 1 and Level 2.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2011 and December 31, 2010

(Unaudited)

Note 3: Fair Value Measurements (continued)

Table 1 below summarizes the assets measured at fair value on a recurring basis and their respective position in the fair value hierarchy.


Table 1
					(in 000's)

			Fair value measurements at March 31, 2011 using

Assets:	Cost at 3/31/11		Amounts measured at fair value 3/31/11		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)

Real estate and improvements	$	194,391	$	164,400	$	-	$	-	$	164,400
Real estate partnerships and preferred equity investments		8,445		7,834		-		-		7,834


Total	$	202,836	$	172,234	$	-	$	-	$	172,234


					(in 000's)
			Fair value measurements at December 31, 2010 using
Assets:	Cost at 12/31/10		Amounts measured at fair value 12/31/2010		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Real estate and improvements	$	194,141	$	158,900	$	-	$	-	$	158,900
Real estate partnerships and preferred equity investments		14,166		12,591		-		-		12,591


Total	$	208,307	$	171,491	$	-	$	-	$	171,491

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2011 and December 31, 2010

(Unaudited)

Note 3: Fair Value Measurements (continued)


Table 2
(in 000's) Fair value measurements using significant unobservable inputs for the three months ending March 31, 2011 (Level 3)
	Real estate and improvements			Real estate and partnerships and preferred equity investments			Total


Beginning balance @ 1/1/11	$	158,900		$	12,591		$	171,491

Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		5,250			964			6,214
Equity income (losses)/interest income		-			451			451
Acquisitions, issuances and contributions		250			-			250
Disposition, settlements and distributions		-			(6,172	)		(6,172	)

Ending balance @ 3/31/11	$	164,400		$	7,834		$	172,234


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	5,250		$	964		$	6,214


(in 000’s) Fair value measurements using significant unobservable inputs for the three months ending March 31, 2010 (Level 3)
	Real estate and improvements			Real estate and partnerships and preferred equity investments			Total


Beginning balance @ 1/1/10	$	167,100		$	10,045		$	177,145

Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		(3,029	)		286			(2,743	)
Equity income (losses)/interest income		-			249			249
Acquisitions, issuances and contributions		1,329			-			1,329
Disposition, settlements and distributions		-			(268	)		(268	)

Ending balance @ 3/31/10	$	165,400		$	10,312		$	175,712


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	(3,029	)	$	286		$	(2,743	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2011 and December 31, 2010

(Unaudited)

Note 4: Investment Level Debt

Investment level debt includes mortgage loans payable on wholly owned properties and consolidated partnerships and is stated at the principal amount of the obligations outstanding. At times the Partnership may assume debt in connection with the purchase of real estate. For debt assumed, the Partnership allocates a portion of the purchase price to the below/above market debt and amortizes the premium/discount over the remaining life of the debt.

Based on borrowing rates available to the Partnership at March 31, 2011 for loans with similar terms and average maturities, the Partnership’s mortgages on wholly owned properties and consolidated partnerships have an estimated fair value of approximately $30 million, and a carrying value (cost) of $30 million. Different assumptions or changes in future market conditions could significantly affect estimated fair value.

Note 5: Risk

A. Valuation Risk

The estimated fair value of real estate and real estate related assets is generally determined through an appraisal process. These estimated fair values may vary significantly from the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller. These differences could be material to the financial statements. Although the estimated fair values represent subjective estimates, management believes that these estimated fair values are reasonable approximations of market prices and the aggregate estimated value of investments in real estate are fairly presented as of March 31, 2011 and December 31, 2010.

B. Financing, Covenant, and Repayment Risks

In the normal course of business, the Partnership enters into loan agreements with certain lenders to finance its real estate investment transactions. Unfavorable economic conditions could increase related borrowing costs, limit access to the capital markets or result in a decision by lenders not to extend credit to the Partnership. There is no guarantee that the Partnership’s borrowing arrangements or ability to obtain leverage will continue to be available, or if available, will be available on terms and conditions acceptable to the Partnership. Further, these loan agreements contain, among other conditions, events of default and various covenants and representations. In the normal course of business, the Partnership may be in the process of renegotiating terms for loans outstanding that have passed their maturity dates. At March 31, 2011 the Partnership had no outstanding matured loans.

A decline in market value of the Partnership’s assets may also have particular adverse consequences in instances where the Partnership borrowed money based on the fair value of specific assets. A decrease in market value of these assets may result in the lender requiring the Partnership to post additional collateral or otherwise repay these loans.

In the event the Partnership’s current portfolio and investment obligations are not refinanced or extended when they become due and/or the Partnership is required to repay such borrowings and obligations, management anticipates that the repayment of these obligations will be provided by operating cash flow, new debt refinancing, and real estate investment sales.

Note 6: Commitments and Contingencies

The Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. These matters are generally covered by insurance. In the opinion of Partnership's management, the outcome of such matters will not have a significant effect on the financial position of the Partnership.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2011 and December 31, 2010

(Unaudited)

Note 7: Related Party Transactions

Pursuant to an investment management agreement, PIM charges the Partnership a daily investment management fee at an annual rate of 1.25% of the average daily gross asset valuation of the Partnership. For the periods ended March 31, 2011 and March 31, 2010, management fees incurred by the Partnership were $574,103 and $575,677, respectively. The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the three months ended March 31, 2011 and March 31, 2010, were $13,407 and $13,407, respectively, and are classified as administrative expenses in the Consolidated Statements of Operations.

Note 8: Financial Highlights


	For The Three Months Ended March 31,
	2011		2010		2009		2008		2007
Per Share(Unit) Operating Performance:
Net Asset Value attributable to general partners' controlling interest, beginning of period	$	28.38		$ 25.88		$ 31.65	$	36.55		$ 33.87
Income From Investment Operations:
Net investment income attributable to general partners' controlling interest, before management fee		0.46		0.37		0.42		0.61		0.52
Investment Management fee attributable to general partners' controlling interest		(0.09)		(0.09)		(0.11)		(0.13)		(0.12)
Net realized and unrealized gain (loss) on investments attributable to general partners' controlling interest		0.94		(0.45)		(3.74)		(0.10)		0.33

Net Increase (decrease) in Net Assets Resulting from Operations attributable to general partners' controlling interest		1.31		(0.17)		(3.43)		0.38		0.73


Net Asset Value attributable to general partners' controlling interest, end of period	$	29.69	$	25.71	$	28.22	$	36.93	$	34.60


Total Return attributable to general partners‘ controlling interest, before Management Fee:		4.96%		-0.29%		-10.50%		1.38%		2.53%
Total Return attributable to general partners’ controlling interest, after Management Fee (a):		4.61%		-0.63%		-10.83%		1.03%		2.17%
Ratios/Supplemental Data:
Net Assets attributable to general partners' controlling interest, end of period (in millions)	$	173		$ 166		$ 191	$	250		$ 234
Ratios to average net assets for the period ended (b):
Total Portfolio Level Expenses		0.42%		0.39%		0.32%		0.35%		0.38%
Net Investment Income, before Management Fee		1.63%		1.38%		1.25%		1.66%		1.53%

(a) Total Return, after management fee is calculated by geometrically linking quarterly returns which are calculated using the formula below:


				Net Investment Income + Net Realized and Unrealized Gains/(Losses)
		Beg. Net Asset Value + Time Weighted Contributions - Time Weighted Distributions

(b) Average net assets are based on beginning of quarter net assets.

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

All of the assets of the Real Property Account, or the “Account,” are invested in the Partnership. Accordingly, the liquidity and capital resources and results of operations for the Account are contingent upon those of the Partnership. Therefore, this management’s discussion and analysis addresses these items at the Partnership level. The general partners in the Partnership are Prudential, Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey, or collectively, the “Partners”.

The following discussion and analysis of the liquidity and capital resources and results of operations of the Partnership should be read in conjunction with the unaudited Consolidated Financial Statements of the Account and the Partnership and the related Notes included in this filing.

(a) Liquidity and Capital Resources

As of March 31, 2011, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $35.9 million, an increase of approximately $7.0 million from $28.9 million at December 31, 2010. The increase was primarily due to the partial capital redemption of $5.9 million from the Capital Automotive Real Estate Services (or “CARS”) preferred equity investment. Partially offsetting this increase is the funding of capital expenditures to existing properties. Sources of liquidity included net cash flow from property operations, capital redemptions, and interest from short-term investments. The Partnership uses cash for its real estate investment activities and for its distributions to its partners. As of March 31, 2011, approximately 17.1% of the Partnership’s total assets consisted of cash and cash equivalents.

During the three months ended March 31, 2011, the Partnership extended the maturity of the $15.3 million loan at the retail property in Ocean City, Maryland from April 1, 2011 to June 1, 2011.

During the three months ended March 31, 2011, the Partnership spent approximately $0.2 million on capital improvements. The $0.2 million funded minor capital improvements and transaction costs associated with leasing expenses at various properties.

(b) Results of Operations

The following is a comparison of the Partnership’s results of operations for the three-month periods ended March 31, 2011 and 2010.

Net Investment Income Overview

The Partnership’s net investment income attributable to the general partners’ controlling interest for the three months ended March 31, 2011 was approximately $2.1 million, an increase of approximately $0.3 million from the prior year period. The increase in net investment income attributable to the general partners’ controlling interest was primarily due to a $0.4 million increase in the retail sector investments’ net investment income from the prior year period. Partially offsetting these increases was a decrease of approximately $0.1 million from the prior year period in net investment income attributable to the general partners’ controlling interest from the apartment sector. The components of this net investment income and/or loss attributable to the general partners’ controlling interest are discussed below by investment type.

Valuation Overview

The Partnership recorded net unrealized gains attributable to the general partners’ controlling interest of approximately $5.5 million for the three-month period ended March 31, 2011. This is compared with net unrealized losses attributable to the general partners’ controlling interest of approximately $2.9 million for the prior year period. The net unrealized gains attributable to the general partners’ controlling interest for the three-month period ended March 31, 2011 were due to valuation increases in all property sector investments. The components of these valuation gains and/or losses attributable to the general partners’ controlling interest are discussed below by property type.

The following table presents a comparison of the Partnership’s sources of net investment income attributable to the general partners’ controlling interest, and unrealized gains or losses attributable to the general partners’ controlling interest by investment type for the three-month periods ended March 31, 2011 and 2010.


	Three Months Ended March 31,
	2011		2010
*Net Investment Income:*

Office properties	$	574,722	$	566,455
Apartment properties		689,046		833,305
Retail properties		1,496,120		1,075,752
Hotel property		36,947		29,730
Other (including interest income, investment mgt fee, etc.)		(676,954)		(669,878)

Total Net Investment Income	$	2,119,881	$	1,835,364


*Net Unrealized Gain (Loss) on Real Estate Investments:*

Office properties	$	965,004	$	(1,130,237)
Apartment properties		1,350,634		(131,805)
Retail properties		2,747,073		(1,623,544)
Hotel property		424,097		(2,515)


Net Unrealized Gain (Loss) on Real Estate Investments	$	5,486,808	$	(2,888,101)

OFFICE PROPERTIES


Three Months Ended March 31,	Net Investment Income/(Loss) 2011		Net Investment Income/(Loss) 2010		Unrealized Gain/(Loss) 2011		Unrealized Gain/(Loss) 2010		Occupancy 2011		Occupancy 2010

Property
Lisle, IL	$	61,386	$	53,025	$	(22,647)	$	349,559		49%		48%
Brentwood, TN		92,586		(117,634)		1,017,698		(489,575)		97%		70%
Beaverton, OR		135,240		317,433		2,482		(987,100)		85%		88%
Brentwood, TN		285,510		313,631		(32,529)		(3,121)		100%		100%

	$	574,722	$	566,455	$	965,004	$	(1,130,237)

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s office properties was approximately $0.6 million for the three months ended March 31, 2011, which is relatively unchanged from the prior year period.

Unrealized Gain/(Loss)

The office properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.0 million during the three months ended March 31, 2011, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $1.1 million for the prior year period. The net unrealized gain attributable to the general partner’s controlling interest for the three months ended March 31, 2011 was primarily due to a $1.0 million valuation gain at one of the properties in Brentwood, Tennessee based on lower investment rates and increased revenue due to higher occupancy. Investment rates include direct and terminal capitalization rates, and discount rates, which reflect investors’ yield requirements on investments.

APARTMENT PROPERTIES


Three Months Ended March 31,	Net Investment Income/(Loss) 2011		Net Investment Income/(Loss) 2010		Unrealized Gain/(Loss) 2011		Unrealized Gain/(Loss) 2010		Occupancy 2011		Occupancy 2010

Property
Atlanta, GA ⁽¹⁾	$	(6,664)	$	202,511	$	-	$	112,262		N/A		95%
Raleigh, NC		234,851		190,010		638,442		(214,388)		98%		96%
Austin, TX		317,691		310,978		195,979		(640)		98%		94%
Charlotte, NC		143,168		129,806		516,213		(29,039)		97%		91%

	$	689,046	$	833,305	$	1,350,634	$	(131,805)

⁽¹⁾	The Atlanta, Georgia property was sold on September 29, 2010. The income (loss) in 2011 is a result of post-closing adjustments.

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s apartment properties was approximately $0.7 million for the three months ended March 31, 2011, a decrease of approximately $0.1 million from the prior year period. The decrease was primarily due to lost revenue as a result of the disposition of the property in Atlanta, Georgia on September 29, 2010.

Unrealized Gain/(Loss)

The apartment properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.4 million for the three months ended March 31, 2011, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.1 million for the prior year period. The net unrealized gain attributable to the general partners’ controlling interest for the three month period ended March 31, 2011 was due to valuation increases at each existing property as a result of decreased investment rates and more favorable market leasing assumptions.

RETAIL PROPERTIES


Three Months Ended March 31,	Net Investment Income/ (Loss) 2011		Net Investment Income/(Loss) 2010		Unrealized Gain/(Loss) 2011			Unrealized Gain/(Loss) 2010		Occupancy 2011		Occupancy 2010

Property
Roswell, GA⁽¹⁾	$	74,293	$	-	$	-		$	-		N/A		N/A
Hampton, VA		244,335		232,579		700,000			(1,910,800)		94%		94%
Ocean City, MD		289,314		243,174		624,870			110,955		98%		96%
Westminster, MD		305,802		281,771		500,000			(100,634)		100%		100%
Dunn, NC		131,073		71,119		(41,598	)		(8,784)		35%		36%
CARS Preferred Equity ⁽²⁾		451,303		247,109		963,801			285,719		N/A		N/A

	$	1,496,120	$	1,075,752	$	2,747,073		$	(1,623,544)

⁽¹⁾	The Rosw ell, Georgia retail property was sold on May 1, 2009. The Income (loss) in 2011 is a result of post-closing adjustments.

⁽²⁾	A portion of the CARS Preferred Equity position was redeemed on March 11, 2011.

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s retail properties was approximately $1.5 million for the three months ended March 31, 2011, an increase of approximately $0.4 million from the prior year period. The increase in net investment income attributable to the general partners’ controlling interest for the three month period ended March 31, 2011 was largely due to (a) the reconciliation of the interest rate at the CARS preferred equity investment resulting in a $0.2 million true up; and (b) post-closing income from the sale of the property in Roswell, Georgia related to a tax reconciliation.

Unrealized Gain/(Loss)

The retail properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $2.7 million for the three months ended March 31, 2011, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $1.6 million for the prior year period. The unrealized gain attributable to the general partners’ controlling interest for the three month period ended March 31, 2011 was primarily due to (a) an increased valuation of the CARS preferred equity investment based on a reduction in the expected remaining term of the investment, resulting in an increased present value of principal repayment, as well as decreased risk and applied market investment rate; and (b) increased valuations of the properties in Hampton, Virginia; Ocean City, Maryland; and Westminster, Maryland, generally due to improved market leasing conditions and decreased investment rates.

HOTEL PROPERTY


Three Months Ended March 31,	Net Investment Income/(Loss) 2011		Net Investment Income/(Loss) 2010		Unrealized Gain/(Loss) 2011		Unrealized Gain/(Loss) 2010			Occupancy 2011			Occupancy 2010

Property
Lake Oswego, OR	$	36,947	$	29,730	$	424,097	$	(2,515	)		52	%		48	%

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s hotel property was under $0.1 million for the three months ended March 31, 2011, which is relatively unchanged from the prior year period.

Unrealized Gain/(Loss)

The Partnership’s hotel property recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.4 million for the three months ended March 31, 2011, compared with a slight loss the prior year period. The unrealized gain attributable to the general partners’ controlling interest for the three month period ended March 31, 2011 was primarily due to a valuation gain caused by an increase in projected occupancy, revenue per available room, and average daily rate at the property reflecting improvements in the overall hotel market.

Other

Other net investment loss attributable to the general partners’ controlling interest was approximately $0.7 million for the three month period ended March 31, 2011, which remained relatively unchanged from the prior year period. Other net investment includes interest income from short-term investments and expenses including investment management fees and portfolio level expenses.

(c) Inflation

A majority of the Partnership’s leases with its commercial tenants provide for recoveries of expenses based upon the tenant’s proportionate share of, and/or increases in, real estate taxes and certain operating costs, which may partially reduce the Partnership’s exposure to increases in operating costs resulting from inflation.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or “U.S. GAAP”, requires the application of accounting policies that often involve a significant degree of judgment. Management reviews critical estimates and assumptions on an ongoing basis. If management determines, as a result of its consideration of facts and circumstances, that modifications in assumptions and estimates are appropriate, results of operations and financial position as reported in the unaudited Consolidated Financial Statements of the Account and the Partnership may change significantly.

The following sections discuss those critical accounting policies applied in preparing the unaudited Consolidated Financial Statements of the Account and the Partnership that are most dependent on the application of estimates and assumptions.

Accounting Pronouncements Adopted

See Note 1B to our Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements.

Valuation of Investments

Real Estate Investments - Real estate investments are carried at fair value. Properties owned are initially recorded at the purchase price plus closing costs. Development costs and major renovations are capitalized as a component of cost, and routine maintenance and repairs are charged to expense as incurred. Real estate costs include the cost of acquired property, including all the tangible and intangible assets. Tangible assets include the value of all land, building and tenant improvements at the time of acquisition. Intangible assets include the value of any above and below market leases, in-place leases, and tenant relationships at the time of acquisition.

Other Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

ITEM 3. Quantitative

and Qualitative Disclosures about Market Risk

Interest Rate Risk – The general partner’s controlling interest exposure to market rate risk for changes in interest rates relates to approximately 38.37% of its investment portfolio as of March 31, 2011, which consists primarily of short-term commercial paper and fixed and variable interest rate debt. The Partnership does not use derivative financial instruments. As a matter of policy, the Partnership places its investments with high quality debt security issuers, limits the amount of credit exposure to any one issuer, limits duration by restricting the term, and holds investments to maturity except under unusual circumstances.

The table below presents the amounts and related weighted interest rates of the Partnership’s cash equivalents and short-term investments at March 31, 2011:


	Maturity	Estimated Market Value (millions)	Average Interest Rate

Cash and Cash equivalents	0-3 months	$35.9	1.39%

The table below discloses the Partnership’s debt as of March 31, 2011. The fair value of the Partnership’s long-term debt is affected by changes in market interest rates. The following table presents principal cash flows based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the debt.


Investment level debt (in $ thousands), including current portion	2011			2012		2013		2014		2015		Thereafter		Total			Estimated Fair Value
Weighted Average Fixed Interest Rate		6.75%			6.75%		6.75%		6.75%		6.75%		6.75%		6.75%
Fixed Rate		$ 457			$646		$691		$740		$791		$2,719		$6,044			$6,206
Variable Rate		$15,349			-		$9,000		-		-		-		$24,349			$24,184
Premium/(Discount) on Investment Level Debt		($4	)		-		-		-		-		-		($4	)		-

Total Investment Level Debt		$15,802			$646		$9,691		$740		$791		$2,719		$30,389			$30,390

The Partnership is exposed to market risk from tenants. While the Partnership has not experienced any significant credit losses, in the event of significant increases in interest rates and/or an economic downturn, tenant delinquencies could increase and result in losses to the Partnership, and the Account’s operating results and liquidity could be adversely affected.

ITEM 4. Controls

and Procedures

In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission, or “SEC,” is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e), under the Securities Exchange Act of 1934, as amended, as of March 31, 2011. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2011, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(e), occurred during the quarter ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010. These risks could materially affect our business, results of operations or financial condition, or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” above and the risks of our business described elsewhere in this Quarterly Report on Form 10-Q.

Item 6. Exhibits


		31.1		Section 302 Certification of the Chief Executive Officer.

		31.2		Section 302 Certification of the Chief Financial Officer.

		32.1		Section 906 Certification of the Chief Executive Officer.

		32.2		Section 906 Certification of the Chief Financial Officer.

SIGNATURES

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

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

in respect of

Pruco Life of New Jersey Variable

Contract Real Property Account

(Registrant)

Date: May 13, 2011


By:		/s/ Scott D. Kaplan
		Scott D. Kaplan
		President and Director
		(Principal Executive Officer)

Attached files

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC Reports

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