PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC – 10-Q – 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 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 Consolidated Financial Statements of the Real Property Account and the Partnership and the related Notes included in this filing.  

(a) Liquidity and Capital Resources

  As of March 31, 2013, the Partnership's liquid assets, consisting of cash and cash equivalents, were approximately $20.0 million, an increase of approximately $1.2 million from $18.8 million as of December 31, 2012. The increase was primarily due to the following activities: (a) net cash flow generated from property operations of $1.1 million; (b) $22.8 million of proceeds from the sale of the apartment building in Raleigh, North Carolina; (c) $12.4 million of loan proceeds associated with the apartment building acquisition in Seattle, Washington; and (d) net contributions from noncontrolling interest of $1.1 million. Partially offsetting this increase was (a) $20.9 million for an acquisition of a 91-unit apartment property located in Seattle, Washington; (b) $9.0 million loan payoff associated with the apartment sale in Raleigh, North Carolina; (c) $5.0 million distribution to the general partners' controlling interest; (d) $0.2 million of principal payments made on financed properties; and (e) $1.1 million paid for capital improvements. The $1.1 million payment for capital improvements included the following items: (a) $0.7 million for tenant improvements at the retail property in Ocean City, Maryland; and (b) $0.4 million for capital improvements and transaction costs associated with leasing expenses at various properties.  Sources of liquidity included net cash flow from property operations, capital redemptions, the loan on the new investment, and interest from cash equivalents. The Partnership uses cash for its real estate investment activities and for its distributions to its partners. As of March 31, 2013, approximately 8.1% 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 three month periods ended March 31, 2013 and 2012.

                         Net investment income overview  The Partnership's net investment income attributable to the general partners' controlling interest for the three month period ended March 31, 2013 was approximately $2.3 million, an increase of approximately $0.4 million from the prior year period. The increase in net investment income attributable to the general partners' controlling interest was primarily due to increases of $0.5 million in the office sector investments' net investment income from the prior year period. Partially offsetting these increases was a decrease of approximately $0.1 million from the prior year period in net investment income attributable to the general partners' controlling interest from the apartment sector. The components of this net investment income attributable to the general partners' controlling interest are discussed below by investment type.                                 Valuation overview  The Partnership recorded a net recognized gain attributable to the general partner's controlling interest of $0.4 million for the three month period ended March 31, 2013, compared with $0.3 million of recognized gain for the prior year period. The net recognized gain attributable to the partner's controlling interest was due to the sale of the apartment property in Raleigh, North Carolina. The Partnership recorded net unrealized losses attributable to the general partners' controlling interest of approximately $1.8 million for the three month period ended March 31, 2013. This is compared with net unrealized gains attributable to the general partners' controlling interest of approximately $1.0 million for the prior year. The net unrealized losses attributable to the general partners' controlling interest for the three month period ended March 31, 2013 were primarily due to valuation decreases in each investment sector. The components of these valuation gains and losses are discussed below by investment type.                                           25

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  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 three month periods ended March 31, 2013 and 2012.                                                               Three Months Ended March 31,                                                               2013                2012 Net Investment Income:  Office properties                                        $     1,283,041$   788,244 Apartment properties                                             696,785           752,111 Retail properties                                                993,146           950,970 Hotel property                                                    79,485            81,000 Other (including interest income, investment mgt fee, etc.)                                                           (713,704 )        (693,651 )  Total Net Investment Income                              $     2,338,753$ 1,878,674

Net Recognized Gain (Loss) on Real Estate Investments:

 Apartment Properties                                             373,354               - Retail properties                                                    -             348,760  Net Recognized Gain (Loss) on Real Estate Investments            373,354    

348,760

Net Unrealized Gain (Loss) on Real Estate Investments:

 Office properties                                               (606,412 )        (112,585 ) Apartment properties                                            (170,994 )       1,024,245 Retail properties                                               (249,450 )        (443,343 ) Hotel property                                                  (723,360 )         575,306 

Net Unrealized Gain (Loss) on Real Estate Investments (1,750,216 )

1,043,623

   Net Recognized and Unrealized Gain (Loss) on Real Estate Investments                                       $    (1,376,862 )$ 1,392,383                                             26 

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  Table of Contents  OFFICE PROPERTIES                           Net Investment       Net Investment       Unrealized         Unrealized

Quarter Ended          Income/(Loss)        Income/(Loss)        Gain/(Loss)        Gain/(Loss)        Occupancy       Occupancy March 31,                   2013                 2012               2013               2012              2013            2012 Property Lisle, IL             $        462,230     $         83,427     $    (581,254 )$      47,631              57%             55% Brentwood, TN #1               331,912              299,627           100,000            336,498             100%            100% Beaverton, OR                  141,775               83,468           (25,158 )         (396,714 )            91%             91% Brentwood, TN #2               347,124              321,722          (100,000 )         (100,000 )           100%            100%                        $      1,283,041$        788,244$    (606,412 )$    (112,585 )                                 Net investment income  Net investment income attributable to the general partners' controlling interest for the Partnership's office properties was approximately $1.3 million for the three month period ended March 31, 2013, which represents an increase of approximately $0.5 million from the prior year period. The increase in net investment income attributable to the general partners' controlling interest for the three month period ended March 31, 2013 was primarily due to a lease termination fee from a tenant at the property in Lisle, Illinois.                               Unrealized gain/(loss)  The office properties owned by the Partnership recorded net unrealized losses attributable to the general partners' controlling interest of approximately $0.6 million for the three month period ended March 31, 2013, compared with net unrealized losses attributable to the general partners' controlling interest of approximately $0.1 million from the prior year period. The net unrealized losses attributable to the general partners' controlling interest for the three month period ended March 31, 2013 were primarily due to (a) valuation loss at property in Lisle, Illinois due to a lease termination; and (b) valuation loss at Brentwood, Tennessee property #2 due to a decrease in projected income as the tenant plans to vacate at the end of their lease term. Partially offsetting these decreases was an increase at Brentwood, Tennessee property #1 due to more favorable market leasing assumptions.                                           27

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   Table of Contents  APARTMENT PROPERTIES                                                                    Recognized/                      Net Investment        Net Investment       Unrealized         Unrealized Quarter Ended        Income/(Loss)         Income/(Loss)        Gain/(Loss)       Gain/(Loss)        Occupancy       Occupancy March 31,                 2013                  2012               2013               2012             2013            2012 Property

Raleigh, NC (1) $ (5,927 ) $ 248,898$ 373,354$ 348,823

              N/A             97% Austin, TX                   381,167               329,279          (203,750 )         690,251              96%             94% Charlotte, NC                181,808               173,934          (115,845 )         (14,829 )            98%             99% Seattle, WA #1                74,008                   -             148,601               -                92%             N/A Seattle, WA #2                65,729                   -                 -                 -                97%             N/A                      $        696,785$        752,111$     202,360$  1,024,245

(1)The Raleigh, North Carolina property was sold on February 25, 2013, which is 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 $0.7 million for the three month period ended March 31, 2013, which represents a decrease of approximately $0.1 million from the prior year period. The decrease in net investment income attributable to the general partners' controlling interest for the three month period ended March 31, 2013 was primarily due to the sale of the property in Raleigh, North Carolina. Partially offsetting the decrease were increases from the acquisition of two properties in Seattle, Washington.                       Recognized and Unrealized gain/(loss)  The apartment properties owned by the Partnership recorded a net recognized gain and unrealized gains attributable to the general partners' controlling interest of approximately $0.2 million for the three month period ended March 31, 2013, compared with net unrealized gains attributable to the general partners' controlling interest of approximately $1.0 million for the prior year period. The net recognized gain and unrealized gains attributable to the general partners' controlling interest for the three month period ended March 31, 2013 were due to a recognized gain from the sale of the property in Raleigh, North Carolina and more favorable market leasing assumptions at Seattle, Washington property #1. Partially offsetting the unrealized gains were unrealized losses at the properties in Austin, Texas and Charlotte, North Carolina due to increased operating expenses and increased capital expenditures, respectively.                                           28

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   Table of Contents  RETAIL PROPERTIES                                        Net                 Net                             Recognized/                                 Investment          Investment         Unrealized        Unrealized Quarter Ended                  Income/(Loss)       Income/(Loss)      Gain/(Loss)       Gain/(Loss)        Occupancy       Occupancy March 31,                          2013                2012               2013              2012             2013            2012 Property Hampton, VA                   $       273,408$       234,666$   (218,473 )$    290,046              84%             81% Ocean City, MD                        198,253             195,219           79,134          (647,042 )            96%             96% Westminster, MD                       319,210             327,258         (105,998 )         199,693             100%            100% Dunn, NC                               80,686              66,539           (4,113 )        (286,040 )            36%             36% CARS Preferred Equity (1)                 -               127,288              -             348,760              N/A             N/A Roswell, GA                           121,589                 -                -                 -                96%             N/A                                $       993,146$       950,970$   (249,450 )$    (94,583 )

(1) On March 5, 2012, the Partnership received final payment on the CARS preferred equity position which is reflected as a recognized gain.

                             Net investment income  Net investment income attributable to the general partners' controlling interest for the Partnership's retail properties was approximately $1.0 for the three month period ended March 31, 2013, which is relatively unchanged from the prior year period. The increase in net investment income attributable to the general partners' controlling interest for the three month period ended March 31, 2013 was largely due to (a) decreased operating expenses at the property in Hampton, Virginia and (b) an increase due to the acquisition of the Roswell, Georgia property. Partially offsetting the increases was a decrease due to the payoff of the CARS Preferred Equity position.                               Unrealized gain/(loss)  The retail properties owned by the Partnership recorded an unrealized loss attributable to the general partners' controlling interest of approximately $0.2 million for the three month period ended March 31, 2013, compared with net recognized and unrealized losses attributable to the general partners' controlling interest of approximately $0.1 million for the prior year period. The net unrealized losses attributable to the general partners' controlling interest for the three month period ended March 31, 2013 were primarily due to (a) less favorable market leasing assumptions for the property in Hampton, Virginia and increased operating expenses at the property in Westminster, Maryland. Partially offsetting the unrealized losses was an unrealized gain at the property in Ocean City, Maryland due to a reduction in required tenant improvements.                                           29 

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   Table of Contents  HOTEL PROPERTY                        Net Investment      Net Investment       Unrealized         Unrealized Quarter Ended        Income/(Loss)       Income/(Loss)       Gain/(Loss)        Gain/(Loss)       Occupancy       Occupancy March 31,                2013                2012               2013               2012             2013            2012 Property Lake Oswego, OR     $        79,485$        81,000$    (723,360 )$     575,306             56%             55%                                Net investment income  Net investment income attributable to the general partners' controlling interest for the Partnership's hotel property was approximately $0.1 million for the three month period ended March 31, 2013, which is relatively unchanged from the prior year period.                               Unrealized gain/(loss)  The Partnership's hotel property recorded a net unrealized loss attributable to the general partners' controlling interest of approximately $0.7 million for the three month period ended March 31, 2013, compared with a net unrealized gain attributable to the general partners' controlling interest of approximately $0.6 million for the prior year period. The unrealized loss attributable to the general partners' controlling interest for the three month period ended March 31, 2013 was primarily due to a decrease in the average daily rate and occupancy to better reflect recent property performance and market conditions.  

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 $0.7 million for the three month period ended March 31, 2013, which remained relatively unchanged from the prior year.                                           30

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(c) Inflation

  A majority of the Partnership's leases with its commercial tenants provide for recoveries of expenses based upon the tenant's proportionate share of, and/or increases in, real estate taxes and certain operating costs, which may partially reduce the Partnership's exposure to increases in operating costs resulting from inflation.  Critical Accounting Policies  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or "U.S. GAAP", requires the application of accounting policies that often involve a significant degree of judgment. Management reviews critical estimates and assumptions on an ongoing basis. If management determines, as a result of its consideration of facts and circumstances, that modifications in assumptions and estimates are appropriate, results of operations and financial position as reported in the unaudited Consolidated Financial Statements of the Real Property Account and the Partnership may change significantly.  The following sections discuss those critical accounting policies applied in preparing the unaudited Consolidated Financial Statements of the Real Property Account and the Partnership that are most dependent on the application of estimates and assumptions.  

Accounting Pronouncements Adopted

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

Valuation of Investments

  Real Estate Investments - Real estate investments are carried at fair value. Properties owned are initially recorded at the purchase price plus closing costs. Development costs and major renovations are capitalized as a component of cost, and routine maintenance and repairs are charged to expense as incurred. Real estate costs include the cost of acquired property, including all the tangible and intangible assets. Tangible assets include the value of all land, building and tenant improvements at the time of acquisition. Intangible assets include the value of any above and below market leases, in-place leases, and tenant relationships at the time of acquisition.  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 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 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 determine the approximated value for the type of real estate in the market. The real estate investments consisting of real estate, improvements, and preferred equity investments 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 primarily are classified as Level 1.

Other Estimates

  The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited Consolidated Financial Statements of the Real Property Account and the Partnership and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.                                           31

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