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

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC - FORM 10-Q - November 13, 2014

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EXCEL - IDEA: XBRL DOCUMENT - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	Financial_Report.xls
EX-32.2 - EX-32.2 - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	d819267dex322.htm
EX-31.2 - EX-31.2 - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	d819267dex312.htm
EX-31.1 - EX-31.1 - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	d819267dex311.htm
EX-32.1 - EX-32.1 - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	d819267dex321.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, 2014

¨	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

incorporation or organization)

(IRS Employer

Identification No.)

213 Washington Street

Newark, New Jersey 07102

(973) 802-6000

(Address and Telephone Number of Registrant’s Principal Executive Offices)

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 the 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

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Registrant)

IN DEX


	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 – September 30, 2014 and December 31, 2013		4

Statements of Operations – Three and Nine Months Ended September 30, 2014 and 2013		4

Statements of Changes in Net Assets – Three and Nine Months Ended September 30, 2014 and 2013		4

Notes to the Financial Statements		5

B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

Consolidated Statements of Assets and Liabilities – September 30, 2014 and December 31, 2013		14

Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2014 and 2013		15

Consolidated Statements of Changes in Net Assets– Nine Months Ended September 30, 2014 and 2013		16

Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2014 and 2013		17

Consolidated Schedules of Investments – September 30, 2014 and December 31, 2013		18

Notes to Consolidated Financial Statements		20

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 Pruco Life Insurance Company of New Jersey, or the “Company”, or 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, longevity, 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 and value of business acquired; (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 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 accounting principles generally accepted in the United States of America, or “U.S. GAAP”, practices or policies; and (15) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems. 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 our Annual Report on Form 10-K for the year ended December 31, 2013, for discussion of certain risks relating to the operation of The Prudential Variable Contract Real Property Partnership or the “Partnership” and investment in our securities.

ITEM 1. Financial Statements (Unaudited)

UNAUDITED FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS

September 30, 2014 and December 31, 2013


	September 30, 2014		December 31, 2013
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	8,350,107	$	8,311,766

Net Assets	$	8,350,107	$	8,311,766

NET ASSETS, representing:

Equity of contract owners	$	6,824,290	$	6,692,300
Equity of Pruco Life Insurance Company of New Jersey		1,525,817		1,619,466

	$	8,350,107	$	8,311,766

Units outstanding		2,463,510		2,574,912

Portfolio shares held		209,632		220,019
Portfolio net asset value per share	$	39.83	$	37.78

STATEMENTS OF OPERATIONS

For the three and nine month periods ended September 30, 2014 and 2013


	1/1/2014-9/30/2014			1/1/2013-9/30/2013			7/1/2014-9/30/2014			7/1/2013-9/30/2013
INVESTMENT INCOME
Net investment income allocated from The Prudential Variable Contract Real Property Partnership	$	236,882		$	313,953		$	79,653		$	120,905

EXPENSES
Charges to contract owners for assuming mortality and expense risk and for administration		28,771			27,166			9,779			9,540

NET INVESTMENT INCOME		208,111			286,787			69,874			111,365

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net unrealized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		205,802			82,931			151,890			37,289
Net recognized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		—			16,689			—			37

NET GAIN (LOSS) ON INVESTMENTS		205,802			99,620			151,890			37,326

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	413,913		$	386,407		$	221,764		$	148,691


STATEMENTS OF CHANGES IN NET ASSETS For the three and nine month periods ended September 30, 2014 and 2013

	1/1/2014-9/30/2014			1/1/2013-9/30/2013			7/1/2014-9/30/2014			7/1/2013-9/30/2013
OPERATIONS
Net investment income	$	208,111		$	286,787		$	69,874		$	111,365
Net unrealized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		205,802			82,931			151,890			37,289
Net recognized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		—			16,689			—			37

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		413,913			386,407			221,764			148,691

CAPITAL TRANSACTIONS
Net contributions (withdrawals) by contract owners		(195,380	)		184			(48,516	)		(42,961	)
Net contributions (withdrawals) by Pruco Life Insurance Company of New Jersey		(180,192	)		(173,774	)		(148,466	)		52,500

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS		(375,572	)		(173,590	)		(196,982	)		9,539

TOTAL INCREASE (DECREASE) IN NET ASSETS		38,341			212,817			24,782			158,230

NET ASSETS
Beginning of period		8,311,766			7,966,460			8,325,325			8,021,047

End of period	$	8,350,107		$	8,179,277		$	8,350,107		$	8,179,277

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

September 30, 2014

(Unaudited)

Note 1: General

Pruco Life of New Jersey Variable Contract Real Property Account (the “Real Property Account” or the “Registrant”) 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”), as a separate investment account pursuant to New Jersey law and is registered under the Securities Act of 1933, as amended. Pruco Life of New Jersey is a wholly-owned subsidiary of Pruco Life Insurance Company (“Pruco Life”). Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential”), which is an indirect wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”). The assets of the Real Property Account are segregated from Pruco Life of New Jersey’s other assets. The Real Property 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 Real Property 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 Real Property Account, along with 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 consolidated 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

A. Basis of Accounting

The Unaudited Interim Financial Statements as of September 30, 2014 and the statement of net assets as of December 31, 2013, which has been derived from Audited Financial Statements, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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.

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 Real Property Account’s Audited Financial Statements included in the Real Property Account’s Annual Report on Form 10-K for the year ended December 31, 2013.

The Real Property 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 investment in the Partnership.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2014

(Unaudited)

Note 2: Summary of Significant Accounting Policies (continued)

B. Investment in Partnership Interest

The investment in the Partnership is based on the Real Property Account’s proportionate interest of the Partnership’s fair value. At September 30, 2014 and December 31, 2013, the Real Property Account’s interest in the General Partners Controlling Interest was 4.5% or 209,632 shares and 4.5% or 220,019 shares, respectively. Properties owned by the Partnership are illiquid and their fair value is based on estimated fair value as discussed in the notes to the unaudited consolidated financial statements of the Partnership.

C. Income Recognition

Net investment income or loss, recognized and unrealized gains and losses are allocated based upon the monthly average net assets for the investment in the Partnership. Amounts are based on the Real Property 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 Real Property 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.

For the period ended September 30, 2014 and the year ended December 31, 2013, there were no cash transactions at the Real Property Account level as all of the transactions are settled by Prudential on behalf of the Real Property Account through a redemption or an issuance of units. Therefore, no statement of cash flows is presented.

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 Real Property Account. The deductions for VAL and VLI are (1) state premium taxes; (2) sales charges, not to exceed 5% for VAL, 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.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2014

(Unaudited)

Note 3: Charges and Expenses (continued)

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 contracts 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.

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 Real Property Account form a part of Prudential Financial’s consolidated federal tax return. Under current federal, state and local law, no federal, state or local income taxes are payable by the Real Property Account. As such, no provision for the tax liability has been recorded in these financial statements.

Note 5: Net Contributions (Withdrawals) by Contract Owners

Net contributions (withdrawals) by contract owners for the Real Property Account by product for the three and nine months ended September 30, 2014 and 2013 were as follows:


	Three Months Ended September 30,
	2014			2013
VAL	$	(25,023	)	$	(31,908	)
VLI		(23,351	)		(10,921	)
SPVA		—			—
SPVL		(142	)		(132	)

TOTAL	$	(48,516	)	$	(42,961	)


	Nine Months Ended September 30,
	2014			2013
VAL	$	(98,049	)	$	9,152
VLI		(96,917	)		(8,583	)
SPVA		—			—
SPVL		(414	)		(385	)

TOTAL	$	(195,380	)	$	184

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2014

(Unaudited)

Note 6: Partnership Distributions

For the period ended September 30, 2014, the Partnership distributed a total of $10.0 million, which occurred on March 26, 2014 and September 26, 2014, for $5.0 million each. The Real Property Account’s share of these distributions was $0.2 million each or a total of $0.4 million. During the year ended December 31, 2013, the Partnership distributed $10.0 million, which occurred on March 26, 2013 and December 30, 2013, for $5.0 million each. The Real Property Account’s share of these distributions was $0.2 million each or a total of $0.4 million.

Note 7: Unit Information

All products referred to in Note 1 for outstanding units and unit values at September 30, 2014 and December 31, 2013 were as follows:

September 30, 2014

December 31, 2013

Units Outstanding:

2,463,510

2,574,912

Unit Value:

$2.81535 to $3.61404

$2.69505 to $ 3.43650

Note 8: Financial Highlights

The range of total return for the three and nine months ended September 30, 2014 and 2013 were as follows:


	Three Months Ended September 30,
	2014	2013
Total Return	2.46% to 2.69%	1.65% to 1.88%

	Nine Months Ended September 30,
	2014	2013
Total Return	4.46% to 5.17%	4.32% to 5.02%

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2014

(Unaudited)

Note 9: Fair Value Disclosure

Fair value represents 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 authoritative fair value guidance establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. 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 Real Property Account for identical assets or liabilities. These generally provide the most reliable evidence and should be used to measure fair value whenever available. The Real Property Account had no Level 1 assets or liabilities.

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. The Real Property Account had no Level 2 assets or liabilities.

Level 3 – Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the Real Property Account’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. The Real Property Account’s Level 3 assets consist of the investment in the Partnership which is based on the Real Property 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 consolidated financial statements. All of the Real Property Account’s assets were classified as Level 3.

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. The estimate of fair value of real estate 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 independent appraiser uses one or a combination of them, to come up with the approximate value for the type of real estate in the market.

During the nine months ended September 30, 2014 and 2013, there were no transfers between Level 1 and Level 2.

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2014

(Unaudited)

Note 9: Fair Value Disclosure (continued)

In general, the input values 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 table below summarizes the assets measured at fair value on a recurring basis and their respective level in the fair value hierarchy.


	($ in 000’s)
	Fair value measurements at September 30, 2014
	Amounts measured at fair value 9/30/2014		Level 1		Level 2		Level 3
Assets:
Investment in The Prudential Variable Contract Real Property Partnership	$	8,350	$	—	$	—	$	8,350


	($ in 000’s)
	Fair value measurements at December 31, 2013
	Amounts measured at fair value 12/31/2013		Level 1		Level 2		Level 3
Assets:
Investment in The Prudential Variable Contract Real Property Partnership	$	8,312	$	—	$	—	$	8,312

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2014

(Unaudited)

Note 9: Fair Value Disclosure (continued)

The table 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 nine months ended September 30, 2014 and 2013.


	($ in 000’s)
	Nine Months Ended September 30, 2014
Beginning balance @ 1/1/2014	$	8,312
Total gains or losses (recognized/unrealized) included in earnings (or changes in net assets) from Partnership operations		206
Net investment income from Partnership operations		237
Acquisitions, additions, and contributions		—
Equity income/(losses)		—
Dispositions/settlements		—
Distributions		(405	)

Ending balance @ 9/30/2014	$	8,350

Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	206


	($ in 000’s)
	Nine Months Ended September 30, 2013
Beginning balance @ 1/1/2013	$	7,966
Total gains or losses (recognized/unrealized) included in earnings (or changes in net assets) from Partnership operations		99
Net investment income from Partnership operations		314
Acquisitions, additions, and contributions		—
Equity income/(losses)		—
Dispositions/settlements		—
Distributions		(200	)

Ending balance @ 9/30/2013	$	8,179

Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	83

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2014

(Unaudited)

Note 9: Fair Value Disclosure (continued)


	($ in 000’s)
	Three Months Ended September 30, 2014
Beginning balance @ 7/1/2014	$	8,325
Total gains or losses (recognized/unrealized) included in earnings (or changes in net assets) from Partnership operations		152
Net investment income from Partnership operations		80
Acquisitions, additions, and contributions		—
Equity income/(losses)		—
Dispositions/settlements		—
Distributions		(207	)

Ending balance @ 9/30/2014	$	8,350

Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	152


	($ in 000’s)
	Three Months Ended September 30, 2013
Beginning balance @ 7/1/2013	$	8,021
Total gains or losses (recognized/unrealized) included in earnings (or changes in net assets) from Partnership operations		37
Net investment income from Partnership operations		121
Acquisitions, additions, and contributions		—
Equity income/(losses)		—
Dispositions/settlements		—
Distributions		—

Ending balance @ 9/30/2013	$	8,179

Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	37

Note 10: Subsequent Event

On October 29, 2014, the Partnership sold the Portland Crown Plaza investment. For further information, see note 8 of the Partnership financial statements.

[THIS PAGE INTENTIONALLY LEFT BLANK]

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES


	September 30, 2014 (Unaudited)		December 31, 2013
ASSETS
REAL ESTATE INVESTMENTS - At estimated fair value:
Real estate and improvements (cost: 9/30/2014 — $232,288,857; 12/31/2013 — $220,224,084)	$	227,409,298	$	210,100,000
CASH AND CASH EQUIVALENTS		30,488,250		43,962,922
OTHER ASSETS, NET		3,363,820		4,315,268

Total assets	$	261,261,368	$	258,378,190

LIABILITIES & PARTNERS’ EQUITY
INVESTMENT LEVEL DEBT (net of unamortized discount: 12/31/14 $0; 12/31/13 $0)	$	60,267,931	$	59,223,759
ACCOUNTS PAYABLE AND ACCRUED EXPENSES		4,528,818		3,008,619
DUE TO AFFILIATES		652,544		649,925
OTHER LIABILITIES		490,773		824,064

Total liabilities	$	65,940,066	$	63,706,367

COMMITMENTS AND CONTINGENCIES
NET ASSETS, REPRESENTING PARTNERS’ EQUITY:
GENERAL PARTNERS’ CONTROLLING INTEREST		185,254,469		185,407,870
NONCONTROLLING INTEREST		10,066,833		9,263,953

		195,321,302		194,671,823

Total liabilities and partners’ equity	$	261,261,368	$	258,378,190

NUMBER OF SHARES OUTSTANDING AT END OF PERIOD		4,650,878		4,907,883

SHARE VALUE AT END OF PERIOD	$	39.83	$	37.78

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,
	2014		2013		2014		2013
INVESTMENT INCOME:
Revenue from real estate and improvements	$	19,421,573	$	21,639,716	$	6,768,855	$	7,587,166
Interest income		14,853		8,778		5,375		2,338

Total investment income		19,436,426		21,648,494		6,774,230		7,589,504

INVESTMENT EXPENSES:
Operating		4,146,797		4,774,858		1,420,992		1,535,245
Investment management fee		1,914,432		1,879,107		652,543		647,298
Real estate taxes		2,046,914		1,988,845		674,392		679,532
Administrative		3,337,210		3,441,997		1,312,623		1,159,480
Interest expense		2,217,763		2,183,281		762,827		742,538

Total investment expenses		13,663,116		14,268,088		4,823,377		4,764,093

NET INVESTMENT INCOME		5,773,310		7,380,406		1,950,853		2,825,411

RECOGNIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net proceeds from real estate investments sold		—		22,806,448		—		—
Less: Cost of real estate investments sold		—		17,139,582		—		—

Gain (loss) realized from real estate investments sold		—		5,666,866		—		—

Less: Reversal of prior periods’ unrealized gain (loss) on real estate investments sold		—		5,293,512		—		—

Net gain (loss) recognized on real estate investments sold		—		373,354		—		—

Change in unrealized gain (loss) on real estate investments held		5,244,525		2,515,245		3,760,275		1,489,236

NET RECOGNIZED AND UNREALIZED GAIN (LOSS)		5,244,525		2,888,599		3,760,275		1,489,236

INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	11,017,835	$	10,269,005	$	5,711,128	$	4,314,647

Amounts attributable to noncontrolling interest:
Net investment income (loss) attributable to noncontrolling interest		502,241		356,845		181,535		130,285
Net unrealized gain (loss) attributable to noncontrolling interest		668,995		652,227		381,272		643,875

Net increase (decrease) in net assets resulting from operations attributable to noncontrolling interest	$	1,171,236	$	1,009,072	$	562,807	$	774,160

Amounts attributable to general partners’ controlling interest:
Net investment income attributable to general partners’ controlling interest		5,271,069		7,023,561		1,769,318		2,695,126
Net recognized gain (loss) attributable to general partners’ controlling interest		—		373,354		—		—
Net unrealized gain (loss) attributable to general partners’ controlling interest		4,575,530		1,863,018		3,379,003		845,361

Net increase (decrease) in net assets resulting from operations attributable to general partners’ controlling interest	$	9,846,599	$	9,259,933	$	5,148,321	$	3,540,487

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,
	2014									2013
	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)	$	5,271,069		$	502,241		$	5,773,310		$	7,023,561		$	356,845		$	7,380,406
Net recognized and unrealized gain (loss) from real estate investments		4,575,530			668,995			5,244,525			2,236,372			652,227			2,888,599

Increase (decrease) in net assets resulting from operations		9,846,599			1,171,236			11,017,835			9,259,933			1,009,072			10,269,005

INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Distributions to General Partners		(10,000,000	)		—			(10,000,000	)		(5,000,000	)		—			(5,000,000	)
Contributions from noncontrolling interest		—			—			—			—			1,113,456			1,113,456
Distributions to noncontrolling interest		—			(368,356	)		(368,356	)		—			(77,636	)		(77,636	)

Increase (decrease) in net assets resulting from capital transactions		(10,000,000	)		(368,356	)		(10,368,356	)		(5,000,000	)		1,035,820			(3,964,180	)

INCREASE (DECREASE) IN NET ASSETS		(153,401	)		802,880			649,479			4,259,933			2,044,892			6,304,825
NET ASSETS - Beginning of period		185,407,870			9,263,953			194,671,823			178,756,670			6,259,305			185,015,975

NET ASSETS - End of period	$	185,254,469		$	10,066,833		$	195,321,302		$	183,016,603		$	8,304,197		$	191,320,800

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,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Increase (decrease) in net assets resulting from operations	$	11,017,835		$	10,269,005
Adjustments to reconcile increase (decrease) in net assets to net cash provided by (used in) operating activities
Net recognized and unrealized loss (gain)		(5,244,525	)		(2,888,599	)
Amortization of discount on investment level debt		—			2,273
Amortization of deferred financing costs		37,220			31,628
Bad debt expense		52,056			7,221
(Increase) decrease in:
Other assets		862,172			(1,278,679	)
Increase (decrease) in:
Accounts payable and accrued expenses		181,952			604,345
Due to affiliates		2,619			(33,810	)
Other liabilities		(333,291	)		166,893

Net cash flows provided by (used in) operating activities		6,576,038			6,880,277

CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold		—			22,806,448
Acquisition of real estate and improvements		(8,295,624	)		(20,868,465	)
Additions to real estate and improvements		(2,430,902	)		(2,397,484	)

Net cash flows provided by (used in) investing activities		(10,726,526	)		(459,501	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions		(10,000,000	)		(5,000,000	)
Proceeds from investment level debt		1,800,000			12,400,000
Principal payments on investment level debt		(755,828	)		(9,708,861	)
Contributions from noncontrolling interest		—			1,113,456
Distributions to noncontrolling interest		(368,356	)		(77,636	)

Net cash flows provided by (used in) financing activities		(9,324,184	)		(1,273,041	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(13,474,672	)		5,147,735
CASH AND CASH EQUIVALENTS - Beginning of period		43,962,922			18,829,641

CASH AND CASH EQUIVALENTS - End of period	$	30,488,250		$	23,977,376

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULES OF REAL ESTATE INVESTMENTS


			2014 Total Rentable Square Feet Unless Otherwise	September 30, 2014 (Unaudited)				December 31, 2013
Property Name	September 30, 2014 Ownership	City, State	Indicated (Unaudited)	Cost		Estimated Fair Value		Cost		Estimated Fair Value
OFFICES
750 Warrenville Road	WO	Lisle, IL	92,209	$	27,968,168	$	6,200,000	$	27,311,648	$	6,400,000
Summit @ Cornell Oaks	WO	Beaverton , OR	72,109		13,879,262		11,200,000		13,848,773		10,300,000
		Offices % as of 9/30/14	9%		41,847,430		17,400,000		41,160,421		16,700,000

APARTMENTS
700 Broadway	CJV	Seattle, WA	59 Units		22,892,466		26,100,000		22,666,478		24,800,000
Broadstone Crossing	WO	Austin, TX	225 Units		22,999,216		27,200,000		22,984,775		27,300,000
Vantage Park	CJV	Seattle, WA	91 Units		21,593,986		25,600,000		21,156,575		24,200,000
The Reserve	WO	Charlotte, NC	140 Units		14,620,310		14,500,000		14,409,301		13,700,000
		Apartments % as of 9/30/14	50%		82,105,978		93,400,000		81,217,129		90,000,000

RETAIL
Hampton Towne Center	WO	Hampton, VA	174,540		18,669,261		19,900,000		18,562,779		18,900,000
White Marlin Mall	CJV	Ocean City, MD	197,098		25,474,269		32,600,000		25,430,335		31,900,000
Westminster Crossing East, LLC	CJV	Westminster, MD	89,849		15,220,419		18,400,000		15,156,172		17,700,000
Publix at Eagle Landing	WO	Various	57,840		8,373,124		8,400,000		—		—
Harnett Crossing	WO	Dunn, NC	189,143		8,595,490		4,959,298		6,756,713		3,500,000
Village Walk	WO	Roswell, GA	88,504		20,693,925		19,500,000		20,664,003		18,900,000
		Retail % as of 9/30/14	56%		97,026,488		103,759,298		86,570,002		90,900,000

HOTEL
Portland Crown Plaza	CJV	Lake Oswego, OR	161 Rooms		11,308,961		12,850,000		11,276,532		12,500,000
		Hotel % as of 9/30/14	7%		11,308,961		12,850,000		11,276,532		12,500,000

Total Real Estate Investments at Estimated Fair Values as a Percentage of General Partners’ Controlling Interest as of 9/30/14			123%	$	232,288,857	$	227,409,298	$	220,224,084	$	210,100,000

WO - Wholly Owned Investment

CJV - Consolidated Joint Venture

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF REAL ESTATE INVESTMENTS


	September 30, 2014 (Unaudited)								December 31, 2013
	Face Amount		Maturity Date	Cost		Estimated Fair Value			Cost		Estimated Fair Value
CASH AND CASH EQUIVALENTS - Percentage of General Partner’s Controlling Interest							16.5	%				23.7	%

Investments in Prudential Investment Liquidity Pool:
Federal Home Loan Bank, 0 coupon bond	$	8,000,000	November, 2014	$	8,000,000	$	8,000,000		$	18,600,000	$	18,600,000
Federal Home Loan Bank, 0 coupon bond		2,000,000	November, 2014		2,000,000		2,000,000			6,800,000		6,800,000
Federal Home Loan Bank, 0 coupon bond		16,600,000	November, 2014		16,600,000		16,600,000			9,998,911		9,998,911
Federal Home Loan Bank, 0 coupon bond		1,000,000	November, 2014		1,000,000		1,000,000			1,999,711		1,999,711
Federal Home Loan Bank, 0 coupon bond					—		—			2,699,707		2,699,707

Total Cash Equivalents					27,600,000		27,600,000			40,098,329		40,098,329

Cash					2,888,250		2,888,250			3,864,593		3,864,593

Total Cash and Cash Equivalents				$	30,488,250	$	30,488,250		$	43,962,922	$	43,962,922

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, 2014

(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 necessary for a fair statement of the financial position and results of operations have been made. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. For further information, refer to the audited consolidated financial statements and notes of the Partnership for the year ended December 31, 2013. The Partnership has evaluated subsequent events through November 13, 2014, the date these financial statements were available to be issued.

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, 2014 and 2013 was $2,180,543, and $2,104,732 respectively.

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 Financial Accounting Standards Board (“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 approximate value for the type of real estate in the market. The real estate investments, consisting of real estate and improvements, are therefore classified as Level 3.

Cash equivalents include short term investments. 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, 2014

(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 are 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, 2014 and 2013, 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, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

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

Table 1


			(in 000’s)
			Fair value measurements at September 30, 2014 using
Assets:	Cost at 09/30/2014		Amounts measured at fair value 09/30/2014		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	$	232,289	$	227,409	$	—	$	—	$	227,409
Cash equivalents		27,600		27,600		27,600		—		—

Total	$	259,889	$	255,009	$	27,600	$	—	$	227,409



			(in 000’s)
			Fair value measurements at December 31, 2013 using
Assets:	Cost at 12/31/2013		Amounts measured at fair value 12/31/2013		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	$	220,224	$	210,100	$	—	$	—	$	210,100
Cash equivalents		40,098		40,098		40,098		—		—

Total	$	260,322	$	250,198	$	40,098	$	—	$	210,100

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

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 month periods ended September 30, 2014 and September 30, 2013.

Table 2

(in 000’s)

Fair value measurements using significant unobservable inputs

for the nine months ended September 30, 2014

(Level 3)


	Real estate and improvements
Beginning balance @ 1/1/14	$	210,100
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		5,244
Acquisitions, issuances and contributions		12,065
Disposition, settlements and distributions		—

Ending balance @ 9/30/14	$	227,409

Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	5,244

(in 000’s)

Fair value measurements using significant unobservable inputs

for the nine months ended September 30, 2013

(Level 3)


	Real estate and improvements
Beginning balance @ 1/1/13	$	223,622
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		2,889
Acquisitions, issuances and contributions		23,317
Disposition, settlements and distributions		(22,806	)

Ending balance @ 9/30/13	$	227,022

Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	2,515

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

Table 2

(in 000’s)

Fair value measurements using significant unobservable inputs

for the three months ended September 30, 2014

(Level 3)


	Real estate and improvements
Beginning balance @ 7/1/14	$	221,861
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		3,760
Acquisitions, issuances and contributions		1,788
Disposition, settlements and distributions		—

Ending balance @ 9/30/14	$	227,409

Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	3,760

(in 000’s)

Fair value measurements using significant unobservable inputs

for the three months ended September 30, 2013

(Level 3)


	Real estate and improvements
Beginning balance @ 7/1/13	$	224,800
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		1,489
Acquisitions, issuances and contributions		733
Disposition, settlements and distributions		—

Ending balance @ 9/30/13	$	227,022

Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	1,489

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

Quantitative Information Regarding Level 3 Assets:

The table below represents quantitative information about the significant unobservable inputs used in the fair value measurement of Level 3 assets. Significant changes in any of those inputs in isolation would result in a significant change in fair value measurement.


	As of September 30, 2014
	Fair Value (in 000’s)		Number of property(ies) in this property type	Valuation Techniques	Unobservable Input	Range (Weighted Average)
Real estate and improvements:
Apartment	$	93,400	4	Discounted cash flow	Exit capitalization rate	5.00% - 6.25%(5.49%)
					Discount rate	6.75% - 7.75%(7.12%)
Hotel		12,850	1	Market value*
Office		17,400	2	Discounted cash flow	Exit capitalization rate	7.75% - 9.00%(8.20%)
					Discount rate	8.75% - 9.25%(8.93%)
Retail		103,759	6	Discounted cash flow	Exit capitalization rate	6.50% -10.00%(7.41%)
					Discount rate	7.00% - 10.50%(7.97%)

		$227,409

*	Under the market value approach, the fair value is determined using sales price based on existing purchase and sales agreement or letter of intent or comparable sales transactions. See Note 3 for further details on valuation methodology.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

Fair Value of Financial Instruments Carried at Cost:

As of September 30, 2014 and December 31, 2013, the Partnership’s mortgages on wholly owned properties and consolidated partnerships have an estimated fair value of approximately $61.2 million and $59.4 million, respectively, and a carrying value (amortized cost) of $60.3 million and $59.2 million, respectively. The estimated fair value is based on the amount at which the Partnership would pay to transfer the debt at the reporting date taking into consideration the effect of nonperformance risk, including the Partnership’s own credit risk. The fair value of debt is determined using the discounted cash flow method, which applies certain key assumptions including the contractual terms of the agreement, market interest rates, interest spreads, credit risk, liquidity and other factors. Different assumptions or changes in future market conditions could significantly affect the estimated fair value. The input values used in determining the fair value on investment level debt are unobservable, therefore would be considered as Level 3 under the fair value hierarchy.

Note 4: 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, 2014 and December 31, 2013.

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, 2014 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, management anticipates that the repayment of these obligations will be provided by operating cash flow, new debt refinancing, and real estate investment sales.

Note 5: 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 6: 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 nine month periods ended September 30, 2014 and September 30, 2013, management fees incurred by the Partnership were $1,914,432 and $1,879,107, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2014

(Unaudited)

Note 7: Financial Highlights


	For The Nine Months Ended September 30,
	2014			2013			2012			2011			2010
Per Share(Unit) Operating Performance:
Net Asset Value attributable to general partners’ controlling interest, beginning of period	$	37.78		$	34.49		$	32.27		$	28.38		$	25.88
Income From Investment Operations:

Net investment income attributable to general partners’ controlling interest, before management fee		1.49			1.75			1.53			1.38			1.24

Investment Management fee attributable to general partners’ controlling interest		(0.40	)		(0.38	)		(0.33	)		(0.31	)		(0.26	)
Net recognized and unrealized gain (loss) on investments attributable to general partners’ controlling interest		0.96			0.45			0.31			1.88			0.85

Net Increase (decrease) in Net Assets Resulting from Operations attributable to general partners’ controlling interest		2.05			1.82			1.51			2.95			1.83

Net Asset Value attributable to general partners’ controlling interest, end of period	$	39.83		$	36.31		$	33.78		$	31.33		$	27.71

Total Return attributable to general partners’ controlling interest, before Management Fee:		6.52	%		6.42	%		5.73	%		11.51	%		8.11	%
Total Return attributable to general partners’ controlling interest, after Management Fee (a):		5.43	%		5.32	%		4.65	%		10.39	%		7.09	%

Ratios/Supplemental Data:
Net Assets attributable to general partners’ controlling interest, end of period (in millions)	$	185		$	183		$	175		$	172		$	171

Ratios to average net assets for the period ended (b):
Management fees		1.04	%		1.06	%		1.04	%		1.06	%		1.04	%
Other portfolio level expense		0.16	%		0.17	%		0.20	%		0.20	%		0.18	%

Total Portfolio Level Expenses		1.20	%		1.23	%		1.24	%		1.26	%		1.22	%

Net Investment Income, before Management Fee		3.90	%		5.03	%		4.75	%		4.68	%		4.73	%
Net Investment Income, after Management Fee		2.86	%		3.99	%		3.65	%		3.59	%		3.71	%

(a)	Total Return, before/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.

Note 8: Subsequent Event

On October 29, 2014, the Partnership sold the Portland Crown Plaza investment for a gross sale price of $13,328,800. The Partnership will receive estimated net proceeds of $13,044,778, net of closing costs.

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

All of the assets of the Real Property Account are invested in the Partnership. Accordingly, the liquidity and capital resources and results of operations for the Real Property 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 financial statements of the Real Property 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, 2014, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $30.5 million, a decrease of approximately $13.5 million from $44.0 million as of December 31, 2013. The decrease was primarily due to the following activities (a) $10.0 million distribution to the general partners’ controlling interest; (b) $8.3 million for an acquisition of a grocery-anchored retail center located in North Fort Myers, Florida; (c) $2.4 million paid for capital improvements; and (d) $0.8 million of principal payments made on financed properties. The $2.4 million payment for capital improvements included the following items: (a) $0.8 million for space renovations at the office property in Lisle, Illinois; (b) $0.6 million for capital improvements and transaction costs associated with leasing expenses at various properties; (c) $0.4 million for unit upgrades at one of the apartment properties in Seattle, Washington; (d) $0.3 million for space renovations at the retail property in Dunn, North Carolina; and (e) $0.2 million for unit upgrades at the apartment property in Charlotte, North Carolina. Partially offsetting this decrease was an increase due to net cash flow generated from property operations of $6.6 million and $1.8 million of additional proceeds received on the loan secured by one of the properties in Seattle, Washington.

Sources of liquidity included net cash flow from property operations 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, 2014, approximately 11.7% 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, 2014 and September 30, 2013.

Net investment income overview

The Partnership’s net investment income attributable to the general partners’ controlling interest for the nine month period ended September 30, 2014 was approximately $5.3 million, a decrease of approximately $1.7 million from the prior year period. The decrease in net investment income attributable to the general partners’ controlling interest was primarily due to a decrease of $2.1 million in the office sector investments’ and a decrease of $0.2 million in the hotel property’s net investment income from the prior year period. Partially offsetting these decreases was an increase of approximately $0.4 million from the prior year period in net investment income attributable to the general partners’ controlling interest from the retail sector and an increase of approximately $0.2 million from the prior year period in net investment income attributable to the general partners’ controlling interest from the apartment sector.

The Partnership’s net investment income attributable to the general partners’ controlling interest for the three month period ended September 30, 2014 was approximately $1.8 million, a decrease of approximately $0.9 million from the prior year period. The decrease in net investment income attributable to the general partners’ controlling interest was primarily due to a decrease of $0.8 million in the office sector investments’ and a decrease of $0.2 million in the hotel property’s net investment income from the prior year period. Partially offsetting these decreases was an increase of approximately $0.1 million from the prior year period in net investment income attributable to the general partners’ controlling interest from the retail sector.

Valuation overview

The Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $4.6 million for the nine month period ended September 30, 2014. This is compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.9 million for the prior year period. The unrealized gains attributable to the general partners’ controlling interest for the nine month period ended September 30, 2014 were primarily due to valuation increases in the retail, apartment, and hotel sector investments.

The Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $3.4 million for the three month period ended September 30, 2014. This is compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.8 million for the prior year period. The unrealized gains attributable to the general partners’ controlling interest for the three month period ended September 30, 2014 were primarily due to valuation increases in the retail, apartment, and office, sector investments.

The following table presents a comparison of the Partnership’s sources of net investment income attributable to the general partners’ controlling interest and net recognized and unrealized gains or (losses) attributable to the general partners’ controlling interest for the nine and three month periods ended September 30, 2014 and 2013.


	Nine Months Ended September 30,						Three Months Ended September 30,
	2014			2013			2014			2013
*Net Investment Income:*

Office properties	$	926,376		$	3,067,675		$	160,048		$	955,408
Apartment properties		2,495,108			2,307,280			803,570			858,080
Retail properties		3,331,477			2,912,301			1,158,615			1,054,723
Hotel property		714,321			913,519			405,098			584,062
Other (including interest income, investment mgt fee, etc.)		(2,196,213	)		(2,177,215	)		(758,013	)		(757,147	)

Total Net Investment Income	$	5,271,069		$	7,023,560		$	1,769,318		$	2,695,126

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

Apartment Properties	$	—		$	373,354		$	—		$	—
Retail Properties		—			—			—			—

Net Recognized Gain (Loss) on Real Estate Investments	$	—		$	373,354		$	—		$	—

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

Office properties	$	12,989		$	(1,069,937	)	$	882,303		$	(857,034	)
Apartment properties		2,119,286			3,153,308			1,230,693			1,780,671
Retail properties		2,144,608			1,189,148			1,268,032			174,997
Hotel property		298,647			(1,409,501	)		(2,025	)		(253,273	)

Net Unrealized Gain (Loss) on Real Estate Investments	$	4,575,530		$	1,863,018		$	3,379,003		$	845,361

Net Recognized and Unrealized Gain (Loss) on Real Estate Investments	$	4,575,530		$	2,236,372		$	3,379,003		$	845,361

OFFICE PROPERTIES


Nine Months Ended September 30,	Net Investment Income/(Loss) 2014			Net Investment Income/(Loss) 2013		Unrealized Gain/(Loss) 2014			Unrealized Gain/(Loss) 2013			Occupancy 2014			Occupancy 2013
Property
Lisle, IL	$	354,435		$	599,437	$	(856,522	)	$	(879,315	)		38	%		61	%
Brentwood, TN #1		15,096			994,007		—			(203,812	)		N/A			100	%
Beaverton, OR		539,823			470,587		869,511			213,190			100	%		91	%
Brentwood, TN #2		17,022			1,003,645		—			(200,000	)		N/A			100	%

	$	926,376		$	3,067,676	$	12,989		$	(1,069,937	)


Three Months Ended September 30,
Property
Lisle, IL	$	(19,356	)	$	93,535	$	215,703		$	(51,730	)
Brentwood, TN #1		—			335,780		—			(403,812	)
Beaverton, OR		179,404			160,984		666,600			(1,492	)
Brentwood, TN #2		—			365,109		—			(400,000	)

	$	160,048		$	955,408	$	882,303		$	(857,034	)

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s office properties was approximately $0.9 million and $0.2 million for the nine and three month periods ended September 30, 2014, respectively, which represents a decrease of approximately $2.2 million and $0.8 million from the prior year periods, respectively, primarily due to the sale of the properties in Brentwood, Tennessee in December 2013. These properties’ results of operations from for the nine month period ended September 30, 2014 represents post-close expenses.

Unrealized gain/(loss)

The office properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of less than $0.1 million for the nine month period ended September 30, 2014, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $1.1 million from the prior year period. The net unrealized gain attributable to the general partners’ controlling interest for the nine month period ended September 30, 2014 was primarily due to gain at the property in Beaverton, Oregon due to higher occupancy. Partially offsetting the net unrealized gain was an unrealized loss due to lower occupancy at the property in Lisle, Illinois. The office properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.9 million for the three month period ended September 30, 2014, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.9 million from the prior year period. The unrealized gain attributable to the general partners’ controlling interest for the three month period ended September 30, 2014 was primarily due to a decrease in anticipated capital expenditures at the property in Lisle, Illinois and a valuation gain at the property in Beaverton, Oregon due to a renewal and expansion of the anchor tenant.

APARTMENT PROPERTIES


Nine Months Ended September 30,	Net Investment Income/(Loss) 2014			Net Investment Income/(Loss) 2013			Unrealized Gain/(Loss) 2014			Recognized/ Unrealized Gain/(Loss) 2013		Occupancy 2014			Occupancy 2013
Property
Raleigh, NC ⁽¹⁾	$	(64,926	)	$	(4,361	)	$	—		$	373,354		N/A			N/A
Austin, TX		1,086,982			1,095,167			(114,441	)		377,382		96	%		96	%
Charlotte, NC		639,493			601,598			588,991			498,347		97	%		98	%
Seattle, WA #1		396,246			289,788			912,734			671,208		81	%		79	%
Seattle, WA #2		437,313			325,088			732,002			1,606,371		99	%		97	%

	$	2,495,108		$	2,307,280		$	2,119,286		$	3,526,662


Three Months Ended September 30,
Property
Raleigh, NC ⁽¹⁾	$	—		$	1,565		$	—		$	—
Austin, TX		354,791			372,353			(195,890	)		285,564
Charlotte, NC		218,181			224,299			159,547			256,374
Seattle, WA #1		100,427			118,271			763,362			451,496
Seattle, WA #2		130,171			141,592			503,674			787,237

	$	803,570		$	858,080		$	1,230,693		$	1,780,671

⁽¹⁾	The Raleigh, North Carolina property was sold on February 25, 2013, which was reflected as a recognized gain.

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s apartment properties was approximately $2.5 million for the nine month period ended September 30, 2014, which represents an increase of approximately $0.2 million from the prior year period. This increase was primarily due to increased rents from unit renovations at the properties in Seattle, Washington and Charlotte, North Carolina. Net investment income attributable to general partners’ controlling interesting for the Partnership’s apartment properties was approximately $0.8 million for the three month period ended September 30, 2014, which is relatively unchanged from the prior year period.

Recognized and Unrealized gain/(loss)

The apartment properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $2.1 million and $1.2 million for the nine and three month periods ended September 30, 2014, respectively, compared with net recognized and unrealized gain attributable to the general partners’ controlling interest of approximately $3.5 million and $1.8 million from the prior year periods, respectively. These gains were due to favorable market leasing assumptions at the properties in Charlotte, North Carolina and Seattle, Washington. Partially offsetting the net unrealized gain was a net unrealized loss at the property in Austin, Texas due to an increase in real estate taxes.

RETAIL PROPERTIES


Nine Months Ended September 30,	Net Investment Income/(Loss) 2014			Net Investment Income/(Loss) 2013		Unrealized Gain/(Loss) 2014			Unrealized Gain/(Loss) 2013			Occupancy 2014			Occupancy 2013
Property
Hampton, VA	$	976,082		$	858,368	$	893,518		$	567,420			96	%		96	%
Ocean City, MD		646,574			599,225		397,861			140,549			96	%		96	%
Westminster, MD		992,172			969,561		635,753			1,432,113			100	%		100	%
Dunn, NC		49,986			217,787		(379,478	)		(16,287	)		48	%		35	%
Roswell, GA		381,154			267,360		570,078			(934,647	)		96	%		92	%
North Fort Myers, FL		285,509			—		26,876			—			88	%		N/A

	$	3,331,477		$	2,912,301	$	2,144,608		$	1,189,148


Three Months Ended September 30,
Property
Hampton, VA	$	377,642		$	298,890	$	284,356		$	586,765
Ocean City, MD		215,622			204,259		52,648			147,859
Westminster, MD		345,998			340,630		700,000			249,759
Dunn, NC		(18,515	)		92,554		39,592			(9,386	)
Roswell, GA		114,445			118,390		191,436			(800,000	)
North Fort Myers, FL		123,423			—		—			—

	$	1,158,615		$	1,054,723	$	1,268,032		$	174,997

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s retail properties was approximately $3.3 million and $1.2 million for the nine and three month periods ended September 30, 2014, respectively, which represents an increase of approximately $0.4 million and $0.1 million from the prior year periods, respectively. The increase in net investment income attributable to the general partners’ controlling interest for the nine and three month periods ended September 30, 2014 was largely due to the additional income provided by the property in North Fort Myers, Florida that was acquired in March 2014. In addition, an increase in net investment income was also attributable to increased rents at the property in Hampton, Virginia, and decreased operating expenses at the property in Roswell, Georgia.

Unrealized gain/(loss)

The retail properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $2.1 million for the nine month period ended September 30, 2014, compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.2 million from the prior year period. The net unrealized gain attributable to the general partners’ controlling interest for the nine month period ended September 30, 2014 was primarily due to unrealized gains at the properties in Hampton, Virginia, Westminster, Maryland, Roswell, Georgia, and Ocean City, Maryland due to lower investment rates. Investment rates include direct and terminal capitalization rates, and discount rates, which reflect investors’ yield requirements on investments. Partially offsetting the net unrealized gain was an unrealized loss at the property in Dunn, North Carolina due to an increase in anticipated capital expenditures. The retail properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.3 million for the three month period ended September 30, 2014, compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.2 million from the prior year period. The net unrealized gain attributable to the general partners’ controlling interest for the three month period ended September 30, 2014 was primarily due to lower investment rates at the properties in Hampton, Virginia and Westminster, MD and increased contract rents at the property in Roswell, Georgia.

HOTEL PROPERTY


Nine Months Ended September 30,	Net Investment Income/(Loss) 2014		Net Investment Income/(Loss) 2013		Unrealized Gain/(Loss) 2014			Unrealized Gain/(Loss) 2013			Occupancy 2014			Occupancy 2013
Property
Lake Oswego, OR	$	714,321	$	913,519	$	298,647		$	(1,409,501	)		83	%		91	%

Three Months Ended September 30,
Property
Lake Oswego, OR	$	405,098	$	548,062	$	(2,025	)	$	(253,273	)

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s hotel property was $0.7 million and $0.4 million for the nine and three month periods ended September 30, 2014, respectively, which represents a decrease of approximately $0.2 million from the prior year periods, respectively. The decrease at the property in Lake Oswego, Oregon was a result of slightly lower occupancy and increased expenses related to the pending sale.

Unrealized gain/(loss)

The Partnership’s hotel property recorded an unrealized gain attributable to the general partners’ controlling interest of approximately $0.3 million for the nine month period ended September 30, 2014, compared with an unrealized loss attributable to the general partners’ controlling interest of approximately $1.4 million for the prior year period. The gain was primarily due to the contractually agreed upon sale price of the asset. The property was sold on October 29, 2014.

Other

Other net investment expense mainly includes investment management fees, other portfolio level expenses and interest income. Other net investment expense attributable to the general partners’ controlling interest was approximately $2.2 million and $0.8 million for the nine and three month periods ended September 30, 2014, which remained relatively unchanged from the prior year periods.

(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 Real Property 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 Real Property Account and the unaudited consolidated financial statements of the Partnership that are most dependent on the application of estimates and assumptions.

Valuation of 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.

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, is responsible for assuring 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 Financial Accounting Standards Board (“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 three month period 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 determine the approximate value for the type of real estate in the market.

Cash equivalents include short term investments with maturities of three months or less when purchased.

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 Real Property 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 48.99% of its investment portfolio as of September 30, 2014, 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, cash equivalents and short term investments at September 30, 2014:


	Maturity		Estimated Market Value (millions)		Average Interest Rate
Cash and cash equivalents		0-3 months	$	30.5		0.04	%

The table below discloses the Partnership’s investment level debt as of September 30, 2014. The fair value of the Partnership’s long-term investment level 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	2014			2015			2016			2017			2018			Thereafter			Total			Estimated Fair Value
Weighted Average Fixed Interest Rate		5.46	%		5.46	%		5.46	%		5.46	%		5.46	%		5.46	%		5.46	%
Fixed Rate	$	261		$	1,084		$	1,153		$	1,327		$	2,408		$	41,534		$	47,767		$	48,700
Variable Rate					12,500															12,500			12,500
Premium (Discount) on Investment Level Debt		—															—			—			—

Total Investment Level Debt	$	261		$	13,584		$	1,153		$	1,327		$	2,408		$	41,534		$	60,267		$	61,200

Credit Risk – 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 Real Property Account that could adversely affect its operating results and liquidity.

ITEM 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission 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), as amended under the Securities Exchange Act of 1934 (“the Exchange Act”), as of September 30, 2014. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2014, 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, 2014, 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, 2013. 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.

101.DEF-XBRL Taxonomy Extension Definition Linkbase Document.

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: November 13, 2014


By:		/s/ Yanela C. Frias
Yanela C. Frias
Vice President and Chief Financial Officer
(Authorized Signatory and Principal Accounting and Financial Officer)

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