PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT - FORM 10-Q

PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT - FORM 10-Q - November 14, 2011

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file	filename
EXCEL - IDEA: XBRL DOCUMENT - PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT	Financial_Report.xls
EX-31.1 - CEO CERTIFICATION - PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT	d241387dex311.htm
EX-31.2 - CFO CERTIFICATION - PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT	d241387dex312.htm
EX-32.1 - CEO CERTIFICATION PURSUANT TO SECTION 906 - PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT	d241387dex321.htm
EX-32.2 - CFO CERTIFICATION PURSUANT TO SECTION 906 - PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT	d241387dex322.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 September 30, 2011

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

Commission file number 033-20083-01

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

in respect of

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Exact name of registrant as specified in its charter)

New Jersey

22-1211670

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

751 Broad 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 x 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):

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

PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Registrant)

INDEX


	Page

Forward Looking Statement Disclosure		3

Part I - Financial Information

Item 1. Financial Statements (Unaudited)

A. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

Statements of Net Assets – September 30, 2011 and December 31, 2010		4

Statements of Operations – Three and Nine Months Ended September 30, 2011 and 2010		4

Statements of Changes in Net Assets – Three and Nine Months Ended September 30, 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 – September 30, 2011 and December 31, 2010		13

Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2011 and 2010		14

Consolidated Statements of Changes in Net Assets – Nine Months Ended September 30, 2011 and 2010		15

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2011 and 2010		16

Consolidated Schedules of Investments – September 30, 2011 and December 31, 2010		17

Notes to Consolidated Financial Statements of the Partnership		19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3. Quantitative and Qualitative Disclosures About Market Risk		36

Item 4. Controls and Procedures		36

Part II - Other Information

Item 1A. Risk Factors		37

Item 6. Exhibits		37

Signatures		38

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 The Prudential Insurance Company of America, or the “Company”, or the Prudential 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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS

September 30, 2011 and December 31, 2010


	September 30, 2011 (unaudited)		December 31, 2010
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	70,767,167	$	67,547,308

Net Assets	$	70,767,167	$	67,547,308


NET ASSETS, representing:
Equity of contract owners	$	54,286,901	$	49,828,295
Equity of The Prudential Insurance Company of America		16,480,266		17,719,013

	$	70,767,167	$	67,547,308


Units outstanding		30,811,735		32,309,315


Portfolio shares held		2,258,567		2,380,253
Portfolio net asset value per share	$	31.33	$	28.38

STATEMENTS OF OPERATIONS

For the three and nine month periods ended September 30, 2011 and 2010


	1/1/2011-9/30/2011 (unaudited)		1/1/2010-9/30/2010 (unaudited)		7/1/2011-9/30/2011 (unaudited)		7/1/2010-9/30/2010 (unaudited)
INVESTMENT INCOME
Net investment income from Partnership operations	$	2,531,071	$	2,489,565	$	822,125	$	883,514


EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		305,397		275,238		105,454		94,377


NET INVESTMENT INCOME		2,225,674		2,214,327		716,671		789,137


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership		4,430,931		1,201,907		1,367,800		1,920,697
Net realized gain (loss) on sale of investments in Partnership		—		952,173		—		78,526

NET GAIN (LOSS) ON INVESTMENTS		4,430,931		2,154,080		1,367,800		1,999,223


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	6,656,605	$	4,368,407	$	2,084,471	$	2,788,360

STATEMENTS OF CHANGES IN NET ASSETS

For the three and nine month periods ended September 30, 2011 and 2010


	1/1/2011-9/30/2011 (unaudited)			1/1/2010-9/30/2010 (unaudited)			7/1/2011-9/30/2011 (unaudited)			7/1/2010-9/30/2010 (unaudited)
OPERATIONS
Net investment income	$	2,225,674		$	2,214,327		$	716,671		$	789,137
Net change in unrealized gain (loss) on investments in Partnership		4,430,931			1,201,907			1,367,800			1,920,697
Net realized gain (loss) on sale of investments in Partnership		—			952,173			—			78,526

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		6,656,605			4,368,407			2,084,471			2,788,360


CAPITAL TRANSACTIONS
Net (withdrawals) by contract owners		(394,678	)		(574,264	)		(211,006	)		(340,777	)
Net contributions (withdrawals) by The Prudential Insurance Company of America		(3,042,068	)		(2,019,854	)		(1,548,581	)		435,154


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS		(3,436,746	)		(2,594,118	)		(1,759,587	)		94,377


TOTAL INCREASE (DECREASE) IN NET ASSETS		3,219,859			1,774,289			324,884			2,882,737


NET ASSETS
Beginning of period		67,547,308			67,962,819			70,442,283			66,854,371

End of period	$	70,767,167		$	69,737,108		$	70,767,167		$	69,737,108

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

NOTES TO THE FINANCIAL STATEMENTS OF

PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2011

(Unaudited)

Note 1: General

The Prudential Variable Contract Real Property Account (the “Account”) was established on November 20, 1986 by resolution of the Board of Directors of The Prudential Insurance Company of America (“Prudential” or the “Company”), which is 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 Prudential’s other assets. The Account is used to fund benefits under certain variable life insurance and variable annuity contracts issued by Prudential. These products are Variable Appreciable Life (“PVAL and PVAL $100,000+ Face Value”), Discovery Plus (“PDISCO+”), and Variable Investment Plan (“VIP”).

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 variable annuity contracts. The Account, along with the Pruco Life Variable Contract Real Property Account and the Pruco Life of New Jersey 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 Unaudited Interim Financial Statements as of September 30, 2011 and the condensed balance sheet as of December 31, 2010, which has been derived from Audited Financial Statements, have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”).

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Account’s Audited Financial Statements included in the Account’s Annual Report on Form 10-K for the year ended December 31, 2010.

The Account has transactions and relationships with Prudential and other affiliates. Due to these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

Use of 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 and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates include valuation of Investments in the Prudential Variable Contract Real Property Partnership.

Adoption of Accounting Pronouncements

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 is 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 required disclosures are provided in Note 9.

Future Adoption of New Accounting Pronouncements

In May 2011, the FASB issued updated guidance regarding the fair value measurements and disclosure requirements. The updated guidance clarifies existing guidance related to the application of fair value measurement methods and requires expanded disclosures. This new guidance is effective for the first interim or annual reporting period beginning after December 15, 2011 and should be applied prospectively. The Account expects this guidance to have a significant impact on its financial statement disclosures but limited, if any, impact on the Account’s financial position or results of operations.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2011

(Unaudited)

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 September 30, 2011 and December 31, 2010 the Account’s interest in the General Partners Controlling Interest was 41.2% or 2,258,567 shares and 40.9% or 2,380,253 shares. Properties owned by the Partnership are illiquid and their value is based on estimated fair value as discussed in the notes to the Partnership’s audited financial statements.

C. Income Recognition

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

D. Equity of The Prudential Insurance Company of America

Prudential 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 1.2%, 0.9%, 0.6% and 1.2% for PDISCO+, PVAL, PVAL $100,000 + Face Value and VIP, respectively (for PDISCO+, the 1.2% includes a 0.20% administrative charge). 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 Prudential. The mortality risk and expense risk charges are assessed through reduction in unit values.

B. 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 PVAL and PVAL $100,000 + Face Value are (1) state premium taxes; (2) transaction costs 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 Prudential 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.

C. Deferred Sales Charge

A deferred sales charge, applicable to PVAL and PVAL $100,000 + Face Value, and not to exceed 50% of the first year’s primary annual premium for PVAL contracts, is imposed upon surrenders of certain variable life insurance contracts to compensate Prudential 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. No sales charge will be imposed after the tenth year of the contract. No sales charge will be imposed on death benefits. Also a deferred sales charge is imposed upon the withdrawals of certain purchase payments to compensate Prudential for sales and other marketing expenses for PDISCO+ and VIP. The amount of any sales charge will depend on the amount withdrawn and the number of contract years that have elapsed since the contract owner or annuitant made the purchase payments deemed to be withdrawn. As the amount of time that has elapsed since a given purchase payment made increases, the sales charge applicable to that purchase payment generally decreases. No sales charge is made against the withdrawal of investment income. No sales charge is imposed upon death benefit payments or upon transfers made between subaccounts. This deferred sales charge is assessed through the redemption of units.

D. Partial Withdrawal Charge

A charge is imposed by Prudential on partial withdrawals of the cash surrender value for PVAL and PVAL $100,000 + Face Value. 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.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2011

(Unaudited)

E. Annual Maintenance Charge

An annual maintenance charge, applicable to PDISCO+ and VIP, of $30 will be deducted if and only if the contract fund is less than $10,000 on a contract anniversary or at the time a full withdrawal is effected, including a withdrawal to effect an annuity. The charge is made by reducing accumulation units credited to a contract owner’s account.

Note 4: Taxes

Prudential 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, state, and local law, no federal, state or local 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 Prudential’s variable insurance and variable annuity products for the three and nine months ended September 30, 2011 and 2010, were as follows:


	Three Months Ended September 30,
	(Unaudited)
	2011			2010

PVAL/PVAL $100,000+ face value	$	(122,765	)	$	(299,338	)

PDISCO+/VIP		(88,241	)		(41,439	)


TOTAL	$	(211,006	)	$	(340,777	)


	Nine Months Ended September 30,
	(Unaudited)
	2011			2010

PVAL/PVAL $100,000+ face value	$	(210,801	)	$	(426,897	)

PDISCO+/VIP		(183,877	)		(147,367	)


TOTAL	$	(394,678	)	$	(574,264	)

NOTES TO THE FINANCIAL STATEMENTS OF

PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2011

(Unaudited)

Note 6: Partnership Distributions

For the nine months ended September 30, 2011, the Partnership made distributions of $5 million on May 31st and on September 26th. The Prudential Account’s share of these distributions was $1.9 million each. During the year ended December 31, 2010, the Partnership made distributions of $7.5 million on May 3, 2010 and $10 million on October 27, 2010. The Account’s share of these distributions was $2.9 and $3.8 million respectively.

Note 7: Unit Information

All products referred to in Note 1 for outstanding units and unit values at September 30, 2011 and December 31, 2010 were as follows:


	September 30, 2011		December 31, 2010
	(Unaudited)

Units Outstanding:		30,811,735		32,309,315

Unit Value:		2.12997 to 2.41141		1.94643 to 2.19385

Note 8: Financial Highlights

The range of total return for the three and nine month periods September 30, 2011 and 2010 were as follows:


	Three Months Ended September 30, (Unaudited)
	2011			2010
Total Return		2.80% to 2.95	%		4.00% to 4.16	%


	Nine Months Ended September 30, (Unaudited)
	2011			2010
Total Return		9.43% to 9.92	%		6.15% to 6.63	%

NOTES TO THE FINANCIAL STATEMENTS OF

PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2011

(Unaudited)

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.

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 securities are not an indication of the risk associated with investing in those securities.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2011

(Unaudited)

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 September 30, 2011
Assets:	Amounts measured at fair value 09/30/11		(Level 1)		(Level 2)		(Level 3)

Investment in The Prudential Variable Contract Real Property Partnership	$	70,767	$	—	$	—	$	70,767


	($ in 000’s)
	Fair Value Measurements at December 31, 2010
Assets:	Amounts measured at fair value 12/31/2010		(Level 1)		(Level 2)		(Level 3)

Investment in The Prudential Variable Contract Real Property Partnership	$	67,547	$	—	$	—	$	67,547

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 and nine months ended September 30, 2011 and September 30, 2010.

Table 2:


	($ in 000’s)
	Fair Value Measurements Using Significant Unobservable Inputs for the nine months ending September 30, 2011 (Level 3)

Beginning balance @ 01/01/11	$	67,547

Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations		4,431
Net Investment Income from Partnership operations		2,531
Acquisition/Additions		—
Equity Income		—
Contributions		—
Disposition/Settlements		—
Equity losses		—
Distributions		(3,742	)

Ending balance @ 09/30/2011	$	70,767


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




	$	4,431


	($ in 000’s)
	Fair Value Measurements Using Significant Unobservable Inputs for the nine months ending September 30, 2010 (Level 3)

Beginning balance @ 01/01/10	$	67,963

Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations		2,154
Net Investment Income from Partnership operations		2,489
Acquisition/Additions		—
Equity Income		—
Contributions		—
Disposition/Settlements		(2,869	)
Equity losses		—
Distributions		—

Ending balance @ 09/30/10	$	69,737


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




	$	1,202

Table 2:


	($ in 000’s)
	Fair Value Measurements Using Significant Unobservable Inputs for the three months ending September 30, 2011 (Level 3)

Beginning balance @ 07/01/11	$	70,442

Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations		1,368
Net Investment Income from Partnership operations		822
Acquisition/Additions		—
Equity Income		—
Contributions		—
Disposition/Settlements		—
Equity losses		—
Distributions		(1,865	)

Ending balance @ 09/30/2011	$	70,767


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




	$	1,368


	($ in 000’s)
	Fair Value Measurements Using Significant Unobservable Inputs for the three months ending September 30, 2010 (Level 3)

Beginning balance @ 07/01/10	$	66,854

Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations		1,999
Net Investment Income from Partnership operations		884
Acquisition/Additions		—
Equity Income		—
Contributions		—
Disposition/Settlements		—
Equity losses		—
Distributions		—

Ending balance @ 09/30/10	$	69,737


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




	$	1,921

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES


	September 30, 2011 (Unaudited)		December 31.2010
ASSETS

REAL ESTATE INVESTMENTS - At estimated fair value:
Real estate and improvements (cost: 09/30/2011 - $195,404,156; 12/31/2010 - $194,140,941)	$	170,600,000	$	158,900,000
Preferred equity investment (cost: 09/30/2011 - $8,551,028; 12/31/2010 - $14,166,536)		8,225,460		12,591,448


Total real estate investments		178,825,460		171,491,448

CASH AND CASH EQUIVALENTS		31,914,472		28,881,784

OTHER ASSETS, NET		2,844,876		2,416,157


Total assets	$	213,584,808	$	202,789,389


LIABILITIES & PARTNERS’ EQUITY

INVESTMENT LEVEL DEBT (net of unamortized discount: 9/30/11 $3,050; 12/31/10 $10,237)	$	33,681,754	$	30,565,616

ACCOUNTS PAYABLE AND ACCRUED EXPENSES		2,654,002		2,870,545

DUE TO AFFILIATES		617,704		597,136

OTHER LIABILITIES		1,005,602		1,028,318


Total liabilities		37,959,062		35,061,615


COMMITMENTS AND CONTINGENCIES

NET ASSETS, REPRESENTING PARTNERS’ EQUITY:

GENERAL PARTNERS’ CONTROLLING INTEREST		172,021,556		165,027,953

NONCONTROLLING INTEREST		3,604,190		2,699,821


		175,625,746		167,727,774


Total liabilities and partners’ equity	$	213,584,808	$	202,789,389


NUMBER OF SHARES OUTSTANDING AT END OF PERIOD		5,490,148		5,815,305


SHARE VALUE AT END OF PERIOD	$	31.33	$	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 Nine Months Ended September 30,					For the Three Months Ended September 30,
	2011		2010			2011		2010
INVESTMENT INCOME:

Revenue from real estate and improvements	$	17,350,103	$	18,269,329		$	6,135,420	$	6,294,246
Interest on preferred equity investment		923,815		755,630			183,477		254,645
Interest income		22,283		19,258			4,526		7,155


Total investment income		18,296,201		19,044,217			6,323,423		6,556,046


INVESTMENT EXPENSES:
Operating		4,553,048		4,685,582			1,588,940		1,597,825
Investment management fee		1,773,588		1,731,647			604,298		585,676
Real estate taxes		1,523,906		1,873,401			568,514		575,279
Administrative		3,032,161		3,566,912			1,094,623		1,219,705
Interest expense		973,182		753,613			391,415		249,563


Total investment expenses		11,855,885		12,611,155			4,247,790		4,228,048


NET INVESTMENT INCOME		6,440,316		6,433,062			2,075,633		2,327,998


REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net proceeds from real estate investments sold		—		16,981,750			—		16,981,750
Less: Cost of real estate investments sold		—		20,353,204			—		20,353,204

Gain (loss) realized from real estate investments sold		—		(3,371,454	)		—		(3,371,454	)
Less: Reversal of prior periods’ unrealized gain (loss) on real estate investments sold
		—		(5,710,830	)		—		(3,564,384	)

Net gain (loss) recognized on real estate investments sold		—		2,339,376			—		192,930

Change in unrealized gain (loss) on real estate investments held		11,686,305		3,268,807			3,719,468		4,759,439


NET REALIZED AND UNREALIZED GAIN (LOSS)		11,686,305		5,608,183			3,719,468		4,952,369


INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	18,126,621	$	12,041,245		$	5,795,101	$	7,280,367


Amounts attributable to noncontrolling interest:
Net investment income (loss) attributable to noncontrolling interest		265,734		316,497			73,346		159,665
Net realized and unrealized gain (loss) attributable to noncontrolling interest		867,284		328,410			384,592		47,879


Net increase (decrease) in net assets resulting from operations attributable to the noncontrolling interest	$	1,133,018	$	644,907		$	457,938	$	207,544


Amounts attributable to general partners’ controlling interest:
Net investment income attributable to general partners’ controlling interest		6,174,582		6,116,565			2,002,287		2,168,333
Net recognized gain (loss) attributable to general partners’ controlling interest		—		2,339,376			—		192,930
Net unrealized gain (loss) attributable to general partners’ controlling interest		10,819,021		2,940,397			3,334,876		4,711,560


Net increase (decrease) in net assets resulting from operations attributable to general partners’ controlling interest	$	16,993,603	$	11,396,338		$	5,337,163	$	7,072,823

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 Nine Months Ended September 30,
	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)	$	6,174,582		$	265,734		$	6,440,316		$	6,116,565		$	316,497		$	6,433,062
Net realized and unrealized gain (loss) from real estate investments		10,819,021			867,284			11,686,305			5,279,773			328,410			5,608,183


Increase (decrease) in net assets resulting from operations		16,993,603			1,133,018			18,126,621			11,396,338			644,907			12,041,245


INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Distributions		(10,000,000	)		—			(10,000,000	)		(7,500,000	)		—			(7,500,000	)
Distributions to noncontrolling interest		—			(228,649	)		(228,649	)		—			(340,443	)		(340,443	)


Increase (decrease) in net assets resulting from capital transactions		(10,000,000	)		(228,649	)		(10,228,649	)		(7,500,000	)		(340,443	)		(7,840,443	)


INCREASE (DECREASE) IN NET

ASSETS		6,993,603			904,369			7,897,972			3,896,338			304,464			4,200,802

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	$	172,021,556		$	3,604,190		$	175,625,746		$	171,100,610		$	2,402,373		$	173,502,983

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 Nine Months Ended September 30,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets from operations	$	18,126,621		$	12,041,245
Adjustments to reconcile net increase (decrease) in net assets to net cash provided by (used in) operating activities
Net realized and unrealized loss (gain)		(11,686,305	)		(5,608,183	)
Amortization of discount on investment level debt		7,187			(1,355	)
Amortization of deferred financing costs		25,785			35,173
(Increase) decrease in accrued interest included in preferred equity investment		(253,153	)		56,938
Bad debt expense		49,306			133,156
(Increase) decrease in:
Other assets		(503,809	)		(308,950	)
Increase (decrease) in:
Accounts payable and accrued expenses		233,585			(39,619	)
Due to affiliates		20,568			(4,019	)
Other liabilities		(22,716	)		43,283


Net cash flows provided by (used in) operating activities		5,997,069			6,347,669


CASH FLOWS PROVIDED FOR INVESTING ACTIVITIES:
Net proceeds from real estate investments sold		—			16,981,750
Additions to real estate and improvements		(1,713,343	)		(2,035,839	)
Return of investment in preferred equity investment		5,868,661			—


Net cash flows provided by (used in) investing activities		4,155,318			14,945,911


CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions		(10,000,000	)		(7,500,000	)
Proceeds from investment level debt		19,000,000			429,328
Principal payments on investment level debt		(15,891,050	)		(499,501	)
Distributions to noncontrolling interest		(228,649	)		(340,443	)


Net cash flows provided by (used in) financing activities		(7,119,699	)		(7,910,616	)


NET CHANGE IN CASH AND CASH EQUIVALENTS		3,032,688			13,382,964

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


CASH AND CASH EQUIVALENTS - End of period	$	31,914,472		$	37,905,123

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS


September 30, 2011 Ownership			2011 Total Rentable Square Feet Unless Otherwise			September 30,2011 (Unaudited)				December 31,2010
Property Name		City, State	Indicated (Unaudited)			Cost		Estimated Fair Value		Cost		Estimated Fair Value

OFFICES
750 Warrenville	WO	Lisle, IL		103,193		$	26,406,742	$	7,200,000	$	26,339,685	$	7,200,000
Summit @ Cornell Oaks	WO	Beaverton, OR		72,109			13,158,330		8,000,000		12,937,126		6,700,000
Westpark	WO	Brentwood, TN		97,199			14,879,780		12,900,000		14,585,669		10,400,000
Financial Plaza	WO	Brentwood, TN		98,049			12,835,638		10,700,000		12,854,615		9,500,000

Offices % as of 9/30/11				23	%		67,280,490		38,800,000		66,717,095		33,800,000

APARTMENTS
Dunhill Trace Apartments	WO	Raleigh, NC		250 Units			16,753,502		18,900,000		16,649,083		17,400,000
Broadstone Crossing	WO	Austin, TX		225 Units			22,866,888		24,500,000		22,854,377		23,500,000
The Reserve At Waterford
Lakes	WO	Charlotte, NC		140 Units			13,979,832		11,000,000		13,850,701		10,200,000

Apartments % as of 9/30/11				31	%		53,600,222		54,400,000		53,354,161		51,100,000

RETAIL
Hampton Towne Center	WO	Hampton, VA		174,540			18,205,909		17,200,000		18,197,093		16,300,000
White Marlin Mall	CJV	Ocean City, MD		197,098			23,865,639		27,800,000		23,707,485		26,200,000
Westminster Crossing East, LLC	CJV	Westminster, MD		89,890			15,071,362		15,200,000		15,068,438		14,600,000
CARS Preferred Equity	PE	Various		N/A			8,551,028		8,225,460		14,166,536		12,591,448
Harnett Crossing	WO	Dunn, NC		193,325			6,418,202		3,300,000		6,239,696		3,300,000

Retail % as of 9/30/11				42	%		72,112,140		71,725,460		77,379,248		72,991,448

HOTEL
Portland Crown Plaza	CJV	Portland, OR		161 Rooms			10,962,332		13,900,000		10,856,973		13,600,000

Hotel % as of 9/30/11				8	%		10,962,332		13,900,000		10,856,973		13,600,000

Total Real Estate Investments as a Percentage of General Partners’ Controlling Interest as of 9/30/11				104	%	$	203,955,184	$	178,825,460	$	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


			September 30, 2011 (Unaudited)						December 31, 2010
	Face Amount		Maturity Date	Cost		Estimated Fair Value			Cost		Estimated Fair Value

CASH AND CASH EQUIVALENTS - Percentage of General Partners’ Controlling Interest							18.6	%				17.5	%

Federal Home Loan Bank, 0 coupon bond	$	4,072,000	October, 2011	$	4,072,000	$	4,072,000		$	8,181,000	$	8,181,000
Federal Home Loan Bank, 0 coupon bond		12,000,000	January, 2012		11,997,090		11,997,090			4,999,740		4,999,740
Federal Home Loan Bank, 0 coupon bond		1,412,000	November, 2011		1,411,985		1,411,985			4,676,891		4,676,891
Federal Home Loan Bank, 0 coupon bond		10,000,000	December, 2011		9,998,355		9,998,355			9,997,022		9,997,022
Federal Home Loan Bank, 0 coupon bond		3,000,000	December, 2011		2,999,983		2,999,983			—		—


Total Cash Equivalents					30,479,413		30,479,413			27,854,653		27,854,653

Cash					1,435,059		1,435,059			1,027,131		1,027,131


Total Cash and Cash Equivalents				$	31,914,472	$	31,914,472		$	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

September 30, 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 accounting principles generally accepted in the United States of America that are applicable to 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 and nine months ended September 30, 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 November 10, 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.

New Accounting Pronouncement – In May 2011, the FASB issued updated guidance regarding the fair value measurements and disclosure requirements. The updated guidance clarifies existing guidance related to the application of fair value measurement methods and requires expanded disclosures. This new guidance is effective for the first interim or annual reporting period beginning after December 15, 2011 and should be applied prospectively. The Partnership expects this guidance to have a significant impact on its financial statement disclosures but limited, if any, impact on the Partnership’s consolidated financial position or results of operations.

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

Cash paid for interest during the nine months ended September 30, 2011 and September 30, 2010, was $947,396, and $718,440 respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 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 or 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. The real estate investments consisting of real estate and improvements, and preferred equity investments are therefore classified as Level 3. See below for a description of the levels of fair value hierarchy.

Cash equivalents include short term investments. Short term investments include investments with a maturity date less than one year. Short term investments are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. See below for a description of the levels of fair value hierarchy.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2011 and December 31, 2010

(Unaudited)

Note 3: Fair Value Measurements (continued)

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 nine months ended September 30, 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

September 30, 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 September 30, 2011 using
Assets:	Cost at 9/30/11		Amounts measured at fair value 9/30/2011		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	$	195,404	$	170,600	$	—	$	—	$	170,600
Preferred equity investments		8,551		8,225		—		—		8,225
Cash equivalents		30,479		30,479		30,479		—		—


Total	$	234,434	$	209,304	$	30,479	$	—	$	178,825


			(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
Preferred equity investments		14,167		12,591		—		—		12,591
Cash equivalents		27,855		27,855		27,855		—		—


Total	$	236,163	$	199,346	$	27,855	$	—	$	171,491

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 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 nine months ending September 30, 2011

(Level 3)


	Real estate and improvements		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)		10,437		1,249			11,686
Equity income (losses)/interest income		—		924			924
Acquisitions, issuances and contributions		1,263		—			1,263
Disposition, settlements and distributions		—		(6,539	)		(6,539	)

Ending balance @ 9/30/11	$	170,600	$	8,225		$	178,825


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	10,437	$	1,249		$	11,686

(in 000’s)

Fair value measurements using significant unobservable inputs

for the nine months ending September 30, 2010

(Level 3)


	Real estate and improvements			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)		3,227			2,381			5,608
Equity income (losses)/interest income		—			756			756
Acquisitions, issuances and contributions		2,455			—			2,455
Disposition, settlements and distributions		(16,982	)		(813	)		(17,795	)

Ending balance @ 9/30/10	$	155,800		$	12,369		$	168,169


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	887		$	2,381		$	3,268

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 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 September 30, 2011

(Level 3)


	Real estate and improvements		Preferred equity investments			Total
Beginning balance @ 7/1/11	$	166,550	$	8,130		$	174,680

Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		3,624		95			3,719
Equity income (losses)/interest income		—		183			183
Acquisitions, issuances and contributions		426		—			426
Disposition, settlements and distributions		—		(183	)		(183	)

Ending balance @ 9/30/11	$	170,600	$	8,225		$	178,825


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	3,624	$	95		$	3,719

(in 000’s)

Fair value measurements using significant unobservable inputs

for the three months ending September 30, 2010

(Level 3)


	Real estate and improvements			Preferred equity investments			Total
Beginning balance @ 7/1/10	$	168,018		$	11,863		$	179,881

Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		4,429			524			4,953
Equity income (losses)/interest income		—			255			255
Purchases/issuances/settlements		335			—			335
Dispositions/settlements/distributions		(16,982	)		(273	)		(17,255	)

Ending balance @ 9/30/10	$	155,800		$	12,369		$	168,169


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	4,235		$	524		$	4,759

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 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 September 30, 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 $32.7 million, and a carrying value (amortized cost) of $33.7 million. Different assumptions or changes in future market conditions could significantly affect estimated fair value.

Note 5: Risk

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 September 30, 2011 and December 31, 2010.

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 September 30, 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2011 and December 31, 2010

(Unaudited)

Note 5: Risk (continued)

In the event the Partnership’s current portfolio and investment obligations are not refinanced or extended when they become due, 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.

Note 7: Related Party Transactions

The Partnership has transactions and relationships with PFI and other affiliates. Due to these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

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 three and nine months ended September 30, 2011 and September 30, 2010, management fees incurred by the Partnership were $604,298 and $585,676, and $1,773,588 and $1,731,647, respectively. The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the three and nine months ended September 30, 2011 were $40,222 for both periods and are classified as administrative expenses in the Consolidated Statements of Operations.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2011 and December 31, 2010

(Unaudited)

Note 8: Financial Highlights


	For The Nine Months Ended September 30,
	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		1.38			1.24			1.09			1.55			1.71

Investment Management fee attributable to general partners’ controlling interest		(0.31	)		(0.26	)		(0.30	)		(0.39	)		(0.37	)
Net realized and unrealized gain (loss) on investments attributable to general partners’ controlling interest		1.88			0.85			(6.73	)		(1.31	)		0.89

Net Increase (decrease) in Net Assets Resulting from Operations attributable to general partners’ controlling interest		2.95			1.83			(5.94	)		(0.15	)		2.23


Net Asset Value attributable to general partners’ controlling interest, end of period	$	31.33		$	27.71		$	25.71		$	36.40		$	36.10


Total Return attributable to general partners’ controlling interest, before Management Fee:		11.51	%		8.11	%		-17.85	%		0.64	%		7.70	%
Total Return attributable to general partners’ controlling interest, after Management Fee (a):		10.39	%		7.09	%		-18.75	%		-0.41	%		6.58	%

Ratios/Supplemental Data:
Net Assets attributable to general partners’ controlling interest, end of period (in millions)	$	172		$	171		$	166		$	246		$	244
Ratios to average net assets for the period ended (b):
Total Portfolio Level Expenses		1.26	%		1.22	%		1.23	%		1.08	%		1.15	%
Net Investment Income, before Management Fee		4.68	%		4.73	%		3.76	%		4.20	%		5.02	%

(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 The Prudential Insurance Company of America, 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 Financial Statements of the Account and the unaudited Consolidated Financial Statements of the Partnership and the related Notes included in this filing.

(a) Liquidity and Capital Resources

As of September 30, 2011, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $31.9 million, an increase of approximately $3.0 million from $28.9 million at December 31, 2010. The increase was primarily due to the following activities: (1) net cash flow generated from property operations of $6.0 million; (2) the partial capital redemption of $5.9 million from the Capital Automotive Real Estate Services (or “CARS”) preferred equity investment, and (3) net cash proceeds of $3.3 million generated from the refinancing of the loan on a retail property in Ocean City, Maryland. Partially offsetting this increase is the $10.3 million distribution to all the investors, $0.2 million of principal payments made on financed properties and $1.7 million paid for capital improvements. The $1.7 million payment for capital improvements included the following items: (1) $0.8 million for tenant improvements and leasing costs at the office properties in Brentwood, Tennessee; (2) $0.2 million for property and roof improvements at the retail property in Dunn, North Carolina; (3) $0.4 million for tenant improvements and leasing costs at the office property in Beaverton, Oregon and Ocean City, Maryland, and (4) $0.3 million for minor capital improvements and transaction costs associated with leasing expenses at various properties.

Sources of liquidity included net cash flow from property operations, capital redemptions, loan refinancings, and interest from cash equivalents. The Partnership uses cash for its real estate investment activities and for its distributions to its partners. As of September 30, 2011, approximately 14.9% of the Partnership’s total assets consisted of cash and cash equivalents.

(b) Results of Operations

The following is a comparison of the Partnership’s results of operations for the nine and three month periods ended September 30, 2011 and 2010.

Net Investment Income Overview

The Partnership’s net investment income attributable to the general partners’ controlling interest for the nine months ended September 30, 2011 was approximately $6.2 million, an increase of approximately $0.1 million from the prior year period. The increase in net investment income attributable to the general partners’ controlling interest was primarily due to increases of $0.3 million and $0.2 million in the retail and office sector investments’ net investment incomes from the prior year period, respectively. Partially offsetting these increases was a decrease of approximately $0.4 million from the prior year period in net investment income attributable to the general partners’ controlling interest from the apartment sector due to sale of a property. The components of this net investment income and/or loss attributable to the general partners’ controlling interest are discussed below by investment type.

The Partnership’s net investment income attributable to the general partners’ controlling interest for the quarter ended September 30, 2011 was approximately $2.0 million, a decrease of approximately $0.2 million from the prior year period. The decrease in net investment income attributable to the general partners’ controlling interest was primarily due to decrease of $0.1 million in both the apartment and retail sector investments’ net investment incomes from the prior year period. 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 $10.8 million for the nine-month period ended September 30, 2011. This is compared with net unrealized gains 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 nine-month period ended September 30, 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 Partnership recorded net unrealized gains attributable to the general partners’ controlling interest of approximately $3.3 million for the three month period ended September 30, 2011. This is compared with net unrealized gains attributable to the general partners’ controlling interest of approximately $4.7 million for the prior year period. The net unrealized gains attributable to the general partners’ controlling interest for the three-month period ended September 30, 2011 were due to valuation increases in the apartment and office sectors. 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 nine and three month periods ended September 30, 2011 and 2010.


	Nine Months Ended September 30,						Three Months Ended September 30,
	2011			2010			2011			2010
*Net Investment Income:*

Office properties	$	1,795,162		$	1,613,076		$	583,520		$	552,283
Apartment properties		2,110,501			2,501,323			708,266			795,792
Retail properties		3,731,890			3,463,010			1,041,663			1,161,568
Hotel property		646,255			550,247			397,893			319,334
Other (including interest income, investment mgt fee, etc.)		(2,109,226	)		(2,011,091	)		(729,055	)		(660,644	)

Total Net Investment Income	$	6,174,582		$	6,116,565		$	2,002,287		$	2,168,333


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

Apartment properties		—			2,339,376			—			192,930
Retail properties		—			—			—			—

Net Realized Gain (Loss) on Real Estate Investments		—			2,339,376			—			192,930


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

Office properties		4,436,604			(1,836,857	)		2,503,212			(732,444	)
Apartment properties		3,053,940			3,786,674			1,263,906			3,465,762
Retail properties		3,158,682			1,029,209			(118,273	)		2,008,941
Hotel property		169,795			(38,629	)		(313,969	)		(30,699	)

Net Unrealized Gain (Loss) on Real Estate Investments		10,819,021			2,940,397			3,334,876			4,711,560


Net Realized and Unrealized Gain (Loss) on Real Estate Investments	$	10,819,021			5,279,773		$	3,334,876			4,904,490


Increase/(Decrease) in Net Assets	$	16,993,603		$	11,396,338		$	5,337,163		$	7,072,823

OFFICE PROPERTIES


Nine Months Ended September 30,	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	$	233,343	$	294,699		$	(67,058	)	$	314,207			55	%		53	%
Brentwood, TN		429,060		(219,304	)		2,205,889			(190,400	)		100	%		68	%
Beaverton, OR		297,168		691,108			1,078,796			(1,769,089	)		88	%		88	%
Brentwood, TN		835,591		846,573			1,218,977			(191,575	)		100	%		100	%

	$	1,795,162	$	1,613,076		$	4,436,604		$	(1,836,857	)


Three Months Ended
September 30,
Property
Lisle, IL	$	93,684	$	145,334		$	(20,298	)	$	(30,487	)
Brentwood, TN		203,397		4,814			512,206			(490,696	)
Beaverton, OR		27,329		143,139			856,298			(22,808	)
Brentwood, TN		259,110		258,996			1,155,006			(188,453	)

	$	583,520	$	552,283		$	2,503,212		$	(732,444	)

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s office properties was approximately $1.8 million and $0.6 million for the nine and three months ended September 30, 2011, respectively, which represents increases of approximately $0.2 million and relatively no change from the prior year periods, respectively. The increase in net investment income attributable to the general partners’ controlling interest for the nine month period was primarily attributable to actual occupancy and rental rate increases from new and existing leases at one of the properties in Brentwood, Tennessee. Partially offsetting this increase was a decrease in rental income at the property in Beaverton, Oregon due to a rent concession given to the building’s largest tenant.

Unrealized Gain/(Loss)

The office properties owned by the Partnership recorded net unrealized gains attributable to the general partners’ controlling interest of approximately $4.4 million and $2.5 million for the nine and three months ended September 30, 2011, respectively, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $1.8 million and $0.7 million, respectively, from prior year periods. The net unrealized gains attributable to the general partners’ controlling interest for the nine and three months ended September 30, 2011 were primarily due to valuation gains at the properties in Brentwood, Tennessee and in Beaverton, Oregon based on lower investment rates, increased revenue due to the higher occupancy and rental rates, and a significant three year lease renewal at one of the properties in Brentwood, Tennessee. Investment rates include direct and terminal capitalization rates, and discount rates, which reflect investors’ yield requirements on investments.

APARTMENT PROPERTIES


Nine Months Ended September 30,	Net Investment Income/(Loss) 2011			Net Investment Income/(Loss) 2010		Unrealized Gain/(Loss) 2011			Realized / Unrealized Gain/(Loss) 2010		Occupancy 2011			Occupancy 2010
Property
Atlanta, GA ⁽¹⁾	$	(5,515	)	$	610,210	$	—		$	2,339,376		N/A			N/A
Raleigh, NC		754,609			601,243		1,395,582			569,473		98	%		96	%
Austin, TX		933,254			874,775		987,489			2,297,268		98	%		97	%
Charlotte, NC		428,153			415,095		670,869			919,933		97	%		94	%

	$	2,110,501		$	2,501,323	$	3,053,940		$	6,126,050


Three Months Ended
September 30,
Property
Atlanta, GA ⁽¹⁾	$	(312	)	$	199,176	$	—		$	192,930
Raleigh, NC		253,151			211,151		789,849			686,599
Austin, TX		315,456			267,763		494,415			1,800,000
Charlotte, NC		139,971			117,702		(20,358	)		979,163

	$	708,266		$	795,792	$	1,263,906		$	3,658,692

⁽¹⁾	The Atlanta, Georgia property was sold on September 29, 2010. The 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 $2.1 million and $0.7 million for the nine and three months ended September 30, 2011, respectively, which represents decreases of approximately $0.4 million and $0.1 million, respectively, from the prior year periods. The decreases were primarily due to lost revenue as a result of the disposition of the property in Atlanta, Georgia on September 29, 2010.

Realized/Unrealized Gain/(Loss)

The apartment properties owned by the Partnership recorded net unrealized gains attributable to the general partners’ controlling interest of approximately $3.0 million and $1.3 million for the nine and three months ended September 30, 2011, respectively, compared with net realized/unrealized gains attributable to the general partners’ controlling interest of approximately $6.1 million and $3.7 million for the prior year periods, respectively. The net unrealized gains attributable to the general partners’ controlling interest for the nine and three month periods ended September 30, 2011 were generally due to valuation increases at each existing property as a result of decreased investment rates and more favorable market leasing assumptions. The realized gain for the nine and three months ended September 30, 2010 is due to the sale of the property in Atlanta, Georgia on September 29, 2010.

RETAIL PROPERTIES


Nine Months Ended September 30,	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⁾	$	72,833	$	—	$	—		$	—			N/A			N/A
Hampton, VA		771,687		736,320		891,184			(1,756,719	)		96	%		94	%
Ocean City, MD		698,284		893,049		599,409			197,525			98	%		99	%
Westminster, MD		1,000,351		933,402		597,074			177,748			100	%		100	%
Dunn, NC		265,641		150,631		(178,506	)		29,655			35	%		35	%
CARS Preferred Equity ⁽²⁾		923,094		749,608		1,249,521			2,381,000			N/A			N/A

	$	3,731,890	$	3,463,010	$	3,158,682		$	1,029,209


Three Months Ended
September 30,
Property
Roswell, GA⁽¹⁾	$	—	$	—	$	—		$	—
Hampton, VA		275,110		232,037		(6,456	)		554,250
Ocean City, MD		184,400		328,482		(181,529	)		(12,917	)
Westminster, MD		359,825		340,296		(599	)		897,940
Dunn, NC		39,572		8,109		(24,929	)		45,848
CARS Preferred Equity ⁽²⁾		182,756		252,644		95,240			523,820

	$	1,041,663	$	1,161,568	$	(118,273	)	$	2,008,941

⁽¹⁾	The Roswell, Georgia retail property was sold on May 1, 2009. The income 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 $3.7 million and $1.0 million for the nine and three months ended September 30, 2011, respectively, which represents an increase of approximately $0.3 million and a decrease of approximately $0.1 million, respectively, from the prior year periods. The increase in net investment income attributable to the general partners’ controlling interest for the nine month period ended September 30, 2011 was largely due to (a) the reconciliation of the interest rate at the CARS preferred equity investment resulting in a $0.3 million true up, (b) $0.1 million post-closing income from the sale of the property in Roswell, Georgia related to a tax reconciliation, and (c) increased interest expense as a result of refinancing at the property in Ocean City, Maryland. For the three month period ended September 30, 2011, the decrease in net investment income attributable to the general partners’ controlling interest was largely due to increased interest expense as a result of refinancing at the property in Ocean City, Maryland.

Unrealized Gain/(Loss)

The retail properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $3.2 million for the nine months ended September 30, 2011, compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.0 million for the prior year period. The net unrealized loss attributable to the general partners’ controlling interest of approximately $0.1 million for the three months ended September 30, 2011, compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $2.0 million for the prior year period. The net unrealized gains attributable to the general partners’ controlling interest for the nine month period ended September 30, 2011 were primarily due to (a) an increased valuation of the CARS preferred equity investment based on a reduction in the principal balance and expected remaining term of the investment, resulting in 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. The net unrealized loss attributable to the general partners’ controlling interest for the three month period ended September 30, 2011 was primarily due to a reconciliation of the internal rate of return calculation for the property located in Ocean City, Maryland.

HOTEL PROPERTY


Nine Months Ended September 30,	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	$	646,255	$	550,247	$	169,795		$	(38,629	)		80	%		77	%

Three Months Ended
September 30,
Property
Lake Oswego, OR	$	397,893	$	319,334	$	(313,969	)	$	(30,699	)

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s hotel property was approximately $0.6 million and $0.4 million for the nine and three months ended September 30, 2011, respectively, which has remained relatively unchanged from the prior periods due to a consistent level of occupancy and average daily rates at the hotel property.

Unrealized Gain/(Loss)

The Partnership’s hotel property recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.2 million for the nine months ended September 30, 2011 and a net unrealized loss of $0.3 million for the three months ended September 30, 2011, compared with losses during the prior year periods. The unrealized gain attributable to the general partners’ controlling interest for the nine month period ended September 30, 2011 was primarily due to a valuation increase 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. The unrealized loss attributable to the general partners’ controlling interest for the three month period ended September 30, 2011 was primarily due to increased investment rates as a result of a decline in investor interest in secondary and tertiary markets.

Other

Other net investment loss mainly includes investment management fees, other portfolio level expenses and interest income. Other net investment loss attributable to the general partners’ controlling interest was approximately $2.1 million and $0.7 million for the nine and three month periods ended September 30, 2011, which remained relatively unchanged from the prior year periods, respectively.

(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 Financial Statements of the Account and the unaudited Consolidated Financial Statements of the Partnership may change significantly.

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

Accounting Pronouncements Adopted

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

New Accounting Pronouncement

See Note 1C to the Consolidated Financial Statements for a discussion of new 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.

Cash equivalents include short term investments. Short term investments are generally valued using unadjusted quote prices in active markets that are accessible for identical assets and are primarily classified as Level 1. See below for a description of the levels of fair value hierarchy.

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 financial statements of the Account and the unaudited Consolidated Financial Statements of the Partnership 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 partners’ controlling interest exposure to market rate risk for changes in interest rates relates to approximately 37.30% of its investment portfolio as of September 30, 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 at September 30, 2011:


	Maturity		Estimated Market Value (millions)		Average Interest Rate
Cash equivalents		0-3 months	$	30.5		1.44	%

The table below discloses the Partnership’s debt as of September 30, 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		6.12	%		6.12	%		6.12	%		6.12	%		6.12	%		6.12	%		6.12	%
Fixed Rate	$	215		$	892		$	954		$	1,016		$	1,084		$	20,523		$	24,684		$	23,963
Variable Rate	$	0			—		$	9,000			—			—			—		$	9,000		$	8,706
Premium/(Discount) on Investment Level Debt	$	(3	)		—			—			—			—			—		$	(3	)		—

Total Investment Level Debt	$	212		$	892		$	9,954		$	1,016		$	1,084		$	20,523		$	33,681		$	32,669

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 September 30, 2011. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 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 September 30, 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.

101.INS -XBRL Instance Document.

101.SCH -XBRL Taxonomy Extension Schema Document.

101.CAL -XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB -XBRL Taxonomy Extension Label Linkbase Document.

101.PRE -XBRL Taxonomy Extension Presentation Linkbase Document.

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to the Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

in respect of

The Prudential Variable

Contract Real Property Account

(Registrant)


Date: November 14, 2011	By:	/s/ Richard J. Carbone
		Richard J. Carbone
		Executive Vice President and Chief Financial Officer
		(Authorized Signatory and Principal Financial Officer)

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