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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015

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

Commission file number 033-08698

PRUCO LIFE INSURANCE COMPANY

in respect of

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Exact name of registrant as specified in its charter)


Arizona		22-1944557
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		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 VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Registrant)

INDEX


		Page
Forward-Looking Statement Disclosure			3

Part I - Financial Information

Item 1.	Financial Statements (Unaudited)

A. PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

	Statements of Net Assets – March 31, 2015 and December 31, 2014		4

	Statements of Operations – Three Months Ended March 31, 2015 and 2014		4

	Statements of Changes in Net Assets – Three Months Ended March 31, 2015 and 2014		4

	Notes to the Financial Statements		5

B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

	Consolidated Statements of Assets and Liabilities – March 31, 2015 and December 31, 2014		12

	Consolidated Statements of Operations – Three Months Ended March 31, 2015 and 2014		13

	Consolidated Statements of Changes in Net Assets– Three Months Ended March 31, 2015 and 2014		14

	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2015 and 2014		15

	Consolidated Schedules of Investments – March 31, 2015 and December 31, 2014		16

	Notes to Consolidated Financial Statements		18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		33

Item 4.	Controls and Procedures		33

Part II - Other Information

Item 1A.	Risk Factors		34

Item 6.	Exhibits		34

Signatures			35

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, or the “Company”, or Pruco Life Variable Contract Real Property Account, or the “Real Property Account”. There can be no assurance that future developments affecting the Company and the Real Property Account will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and other financial markets; (2) interest rate fluctuations or prolonged periods of low interest rates; (3) reestimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, morbidity, persistency, utilization, 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, 2014, 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.

This report includes real estate market data. Market data is subject to change and there are limits on the availability and reliability of raw data and other limitations and uncertainties inherent in any survey of market data.

Part I. Financial Information

ITEM 1. Financial Statements (Unaudited)

UNAUDITED FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS

March 31, 2015 and December 31, 2014


	March 31, 2015		December 31, 2014
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	99,592,275	$	100,673,266

Net Assets	$	99,592,275	$	100,673,266

NET ASSETS, representing:

Equity of contract owners	$	77,956,199	$	77,231,201
Equity of Pruco Life Insurance Company		21,636,076		23,442,065

	$	99,592,275	$	100,673,266

Units outstanding		28,731,969		29,562,144

Portfolio shares held		2,414,615		2,487,198

Portfolio net asset value per share	$	41.25	$	40.48


STATEMENTS OF OPERATIONS
For the three month periods ended March 31, 2015 and 2014

	Three Months Ended
	March 31, 2015			March 31, 2014
INVESTMENT INCOME
Net investment income allocated from The Prudential Variable Contract Real Property Partnership	$	716,578		$	975,966

EXPENSES
Charges to contract owners for assuming mortality and expense risk and for administration		113,953			110,875

NET INVESTMENT INCOME		602,625			865,091

NET RECOGNIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net unrealized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		1,194,621			(266,613	)

NET GAIN (LOSS) ON INVESTMENTS		1,194,621			(266,613	)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	1,797,246		$	598,478


STATEMENTS OF CHANGES IN NET ASSETS
For the three month periods ended March 31, 2015 and 2014

	Three Months Ended
	March 31, 2015			March 31, 2014
OPERATIONS
Net investment income	$	602,625		$	865,091
Net unrealized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		1,194,621			(266,613	)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		1,797,246			598,478

CAPITAL TRANSACTIONS
Net contributions (withdrawals) by contract owners		(620,001	)		(597,257	)
Net contributions (withdrawals) by Pruco Life Insurance Company		(2,258,236	)		(2,299,683	)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS		(2,878,237	)		(2,896,940	)

TOTAL INCREASE (DECREASE) IN NET ASSETS		(1,080,991	)		(2,298,462	)

NET ASSETS
Beginning of period		100,673,266			99,791,032

End of period	$	99,592,275		$	97,492,570

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

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2015

Note 1: General

Pruco Life Variable Contract Real Property Account (the “Real Property Account” or the “Registrant”) was established on August 27, 1986 and commenced business September 5, 1986. Pursuant to Arizona law, the Real Property Account was established as a separate investment account of Pruco Life Insurance Company (“Pruco Life” or the “Company”), and is registered under the Securities Act of 1933, as amended. Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential”), which is a wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”). The assets of the Real Property Account are segregated from Pruco Life’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. 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 The Prudential Variable Contract Real Property Account and Pruco Life of New Jersey Variable Contract Real Property Account, are the sole investors in the Partnership. These financial statements should be read in conjunction with the accompanying 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 March 31, 2015 and the statement of net assets as of December 31, 2014, 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, 2014.

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 UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2015

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 March 31, 2015 and December 31, 2014, the Real Property Account’s interest in the General Partners’ Controlling Interest was 53.3% or 2,414,615 shares and 53.5% or 2,487,198 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 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

Pruco Life 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.

There were no cash transactions at the Real Property Account level for the three months ended March 31, 2015 and the year ended December 31, 2014 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 for the three month periods ended March 31, 2015 and 2014.

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 contracts may exceed related charges by Pruco Life. 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 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 for the risk that an insured may die at a time when the death benefit exceeds the benefit that would have been payable in the absence of a minimum guarantee. These charges are assessed through the redemption of units.

D.	Deferred Sales Charge

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 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 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. Prudential management will review periodically the status of the policy in the event of changes in the tax law.

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2015

Note 5: Net Contributions (Withdrawals) by Contract Owners

Net contributions (withdrawals) by contract owners for the Real Property Account by product for the three months ended March 31, 2015 and 2014 were as follows:


	Three Months Ended March 31,
	2015			2014
VAL	$	(481,497	)	$	(450,066	)
VLI		(70,696	)		(70,984	)
SPVA		(226	)		(5,866	)
SPVL		(67,582	)		(70,341	)

TOTAL	$	(620,001	)	$	(597,257	)

Note 6: Partnership Distributions

For the three months ended March 31, 2015, the Partnership distributed a total of $5.0 million, which occurred on March 30, 2015. The Real Property Account’s share of this distribution was $3.0 million. For the three months ended March 31, 2014, the Partnership distributed a total of $5.0 million, which occurred on March 26, 2014. The Real Property Account’s share of this distribution was $3.0 million.

For the three months ended March 31, 2015 and 2014, there were no purchases of the Partnership by the Real Property Account.

Note 7: Unit Information

All products referred to in Note 1 for outstanding units and unit values at March 31, 2015 and December 31, 2014 were as follows:

March 31, 2015

December 31, 2014

Units Outstanding:

28,731,969

29,562,144

Unit Value:

$2.89727 to $3.73578

$2.85193 to $3.66932

Note 8: Financial Highlights

The range of total return for the three months ended March 31, 2015 and 2014 were as follows:

Three Months Ended March 31,

2015

2014

Total Return

1.59% to 1.81%

0.41% to 0.63%

Note 9: Related Party

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.

Prudential and its affiliates perform various services on behalf of the Partnership in which the Real Property Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, postage, transfer agency and various other record keeping and customer service functions.

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2015

Note 10: Fair Value Measurements

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 three month period 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 three months ended March 31, 2015 and 2014, there were no transfers between Level 1, Level 2, and Level 3.

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2015

Note 10: Fair Value Measurements (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 inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

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

Table 1:


	($ in 000’s)
	Fair value measurements at March 31, 2015

	Total		Level 1		Level 2		Level 3
Assets:
Investment in The Prudential Variable Contract Real Property Partnership	$	99,592	$	—	$	—	$	99,592


	($ in 000’s)
	Fair value measurements at December 31, 2014

	Total		Level 1		Level 2		Level 3
Assets:
Investment in The Prudential Variable Contract Real Property Partnership	$	100,673	$	—	$	—	$	100,673

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2015

Note 10: 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 months ended March 31, 2015 and 2014.

Table 2:


	($ in 000’s)
	2015
Beginning balance, January 1, 2015	$	100,673
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations		1,195
Net investment income from Partnership operations		716
Acquisitions, issuances, and contributions		—
Dispositions, settlements, and distributions		(2,992	)

Ending balance, March 31, 2015	$	99,592

Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	1,195


	($ in 000’s)
	2014
Beginning balance, January 1, 2014	$	99,791
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations		(267	)
Net investment income from Partnership operations		976
Acquisitions, issuances, and contributions		—
Dispositions, settlements, and distributions		(3,007	)

Ending balance, March 31, 2014	$	97,493

Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	(267	)

Note 11: Subsequent Events

On April 2, 2015, the Partnership acquired the Station House Apartments in Maplewood, NJ. For further information, see Note 9 of the Partnership unaudited consolidated financial statements.

[THIS PAGE INTENTIONALLY LEFT BLANK]

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES


	March 31, 2015 (Unaudited)		December 31, 2014
ASSETS
REAL ESTATE INVESTMENTS - At estimated fair value:
Real estate and improvements (cost: 03/31/2015 — $240,986,882; 12/31/2014 — $240,778,075)	$	238,430,000	$	235,689,701
CASH AND CASH EQUIVALENTS		28,266,050		32,308,210
OTHER ASSETS, NET		3,569,292		2,947,752

Total assets	$	270,265,342	$	270,945,663

LIABILITIES & PARTNERS’ EQUITY
INVESTMENT LEVEL DEBT	$	69,738,932	$	70,006,898
ACCOUNTS PAYABLE AND ACCRUED EXPENSES		2,138,433		1,663,710
DUE TO AFFILIATES		690,905		666,963
OTHER LIABILITIES		1,036,919		934,145

Total liabilities		73,605,189		73,271,716

COMMITMENTS AND CONTINGENCIES
NET ASSETS, REPRESENTING PARTNERS’ EQUITY:
GENERAL PARTNERS’ CONTROLLING INTEREST		186,825,743		188,251,636
NONCONTROLLING INTEREST		9,834,410		9,422,311

Total partners’ equity		196,660,153		197,673,947

Total liabilities and partners’ equity	$	270,265,342	$	270,945,663

NUMBER OF SHARES OUTSTANDING AT END OF PERIOD		4,529,591		4,650,878

SHARE VALUE AT END OF PERIOD	$	41.25	$	40.48

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ended March 31,
	2015		2014
INVESTMENT INCOME:
Revenue from real estate and improvements	$	5,313,029	$	6,392,689
Interest income		4,801		5,264

Total investment income		5,317,830		6,397,953

INVESTMENT EXPENSES:
Operating		876,448		1,416,688
Investment management fee		677,496		632,545
Real estate taxes		674,066		643,891
Administrative		770,263		1,013,676
Interest expense		830,661		728,102

Total investment expenses		3,828,934		4,434,902

NET INVESTMENT INCOME		1,488,896		1,963,051

RECOGNIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Change in unrealized gain (loss) on real estate investments held		2,531,492		(367,257	)

NET RECOGNIZED AND UNREALIZED GAIN (LOSS)		2,531,492		(367,257	)

INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	4,020,388	$	1,595,794

Amounts attributable to noncontrolling interest:
Net investment income (loss) attributable to noncontrolling interest		147,994		148,313
Net unrealized gain (loss) attributable to noncontrolling interest		298,287		128,995

Increase (decrease) in net assets resulting from operations attributable to noncontrolling interest	$	446,281	$	277,308

Amounts attributable to general partners’ controlling interest:
Net investment income attributable to general partners’ controlling interest		1,340,902		1,814,738
Net unrealized gain (loss) attributable to general partners’ controlling interest		2,233,205		(496,252	)

Increase (decrease) in net assets resulting from operations attributable to general partners’ controlling interest	$	3,574,107	$	1,318,486

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)


	For the Three Months Ended March 31,
	2015									2014
	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)	$	1,340,902		$	147,994		$	1,488,896		$	1,814,738		$	148,313		$	1,963,051
Net recognized and unrealized gain (loss)		2,233,205			298,287			2,531,492			(496,252	)		128,995			(367,257	)

Increase (decrease) in net assets resulting from operations		3,574,107			446,281			4,020,388			1,318,486			277,308			1,595,794

INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Distributions to General Partners		(5,000,000	)		—			(5,000,000	)		(5,000,000	)		—			(5,000,000	)
Distributions to noncontrolling interest		—			(34,182	)		(34,182	)		—			(42,034	)		(42,034	)

Increase (decrease) in net assets resulting from capital transactions		(5,000,000	)		(34,182	)		(5,034,182	)		(5,000,000	)		(42,034	)		(5,042,034	)

INCREASE (DECREASE) IN NET ASSETS		(1,425,893	)		412,099			(1,013,794	)		(3,681,514	)		235,274			(3,446,240	)
NET ASSETS - Beginning of period		188,251,636			9,422,311			197,673,947			185,407,870			9,263,953			194,671,823

NET ASSETS - End of period	$	186,825,743		$	9,834,410		$	196,660,153		$	181,726,356		$	9,499,227		$	191,225,583

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Three Months Ended March 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Increase (decrease) in net assets resulting from operations	$	4,020,388		$	1,595,794
Adjustments to reconcile increase (decrease) in net assets to net cash provided by (used in) operating activities
Net recognized and unrealized loss (gain)		(2,531,492	)		367,257
Amortization of deferred financing costs		13,580			7,041
Bad debt expense		3,055			22,858
(Increase) decrease in:
Other assets		(638,175	)		616,045
Increase (decrease) in:
Accounts payable and accrued expenses		487,918			(5,657	)
Due to affiliates		23,942			(17,380	)
Other liabilities		102,774			(84,394	)

Net cash flows provided by (used in) operating activities		1,481,990			2,501,564

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate and improvements		—			(8,295,624	)
Additions to real estate and improvements		(222,002	)		(665,974	)

Net cash flows provided by (used in) investing activities		(222,002	)		(8,961,598	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on investment level debt		(267,966	)		(251,595	)
Distributions to general partners		(5,000,000	)		(5,000,000	)
Distributions to noncontrolling interest		(34,182	)		(42,034	)

Net cash flows provided by (used in) financing activities		(5,302,148	)		(5,293,629	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(4,042,160	)		(11,753,663	)
CASH AND CASH EQUIVALENTS - Beginning of period		32,308,210			43,962,922

CASH AND CASH EQUIVALENTS - End of period	$	28,266,050		$	32,209,259

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


			2015 Total Rentable Square Feet Unless Otherwise Indicated (Unaudited)	March 31, 2015 (Unaudited)				December 31, 2014
Property Name	March 31, 2015 Ownership	City, State		Cost		Estimated Fair Value		Cost		Estimated Fair Value
OFFICES
750 Warrenville	WO	Lisle, IL	92,209	$	27,969,059	$	6,000,000	$	27,964,168	$	6,200,000
Summit @ Cornell Oaks	WO	Beaverton , OR	72,109		14,072,787		12,600,000		14,072,787		12,500,000
		Offices % as of 3/31/15	10%		42,041,846		18,600,000		42,036,955		18,700,000

APARTMENTS
700 Broadway	CJV	Seattle, WA	59 Units		22,911,923		26,100,000		22,897,489		26,100,000
Broadstone Crossing	WO	Austin, TX	225 Units		23,082,989		27,300,000		23,070,315		27,426,986
Vantage Park	CJV	Seattle, WA	91 Units		21,668,660		26,900,000		21,640,623		25,900,000
The Reserve At Waterford Lakes	WO	Charlotte, NC	140 Units		14,711,856		15,200,000		14,676,752		15,000,000
		Apartments % as of 3/31/15	51%		82,375,428		95,500,000		82,285,179		94,426,986

RETAIL
Hampton Towne Center	WO	Hampton, VA	174,540		18,766,448		21,900,000		18,743,265		20,100,000
White Marlin Mall	CJV	Ocean City, MD	197,098		25,664,406		32,600,000		25,610,596		32,600,000
Westminster Crossing East, LLC	CJV	Westminster, MD	89,890		15,277,441		18,900,000		15,220,559		18,900,000
Village Walk	WO	Roswell, GA	88,504		20,749,324		19,400,000		20,749,324		19,300,000
Harnett Crossing	WO	Dunn, NC	189,143		8,449,001		3,430,000		8,469,209		3,980,000
Peachtree Corners Market	WO	Norcross, GA	42,185		19,282,716		19,400,000		19,282,716		19,282,715
Publix at Eagle Landing	WO	North Fort Myers, FL	57,840		8,380,272		8,700,000		8,380,272		8,400,000
		Retail % as of 3/31/15	67%		116,569,608		124,330,000		116,455,941		122,562,715

Total Real Estate Investments at Estimated Fair Values as a Percentage of General Partners’ Controlling Interest as of 3/31/15			128%	$	240,986,882	$	238,430,000	$	240,778,075	$	235,689,701

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 SCHEDULES OF REAL ESTATE INVESTMENTS


	March 31, 2015 (Unaudited)									December 31, 2014
	Face Amount		Maturity Date		Cost		Estimated Fair Value			Cost		Estimated Fair Value
CASH AND CASH EQUIVALENTS - Percentage of General Partners’ Controlling Interest								15.1	%				17.2	%
Investments in Prudential Investment Liquidity Pool:
Federal Home Loan Bank, 0 coupon bond	$	20,500,000		April, 2015	$	20,500,000	$	20,500,000		$	14,700,000	$	14,700,000
Federal Home Loan Bank, 0 coupon bond		3,140,000		April, 2015		5,000,000		5,000,000			5,000,000		5,000,000
Federal Home Loan Bank, 0 coupon bond						—		—			11,000,000		11,000,000

Total Cash Equivalents						25,500,000		25,500,000			30,700,000		30,700,000
Cash						2,766,050		2,766,050			1,608,210		1,608,210

Total Cash and Cash Equivalents					$	28,266,050	$	28,266,050		$	32,308,210	$	32,308,210

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2015

(Unaudited)

Note 1: Summary of Significant Accounting Policies

Basis of Presentation - The accompanying consolidated financial statements of The Prudential Variable Contract Real Property Partnership (the “Partnership”) included herein have been prepared in accordance with accounting principles generally accepted in the United States of America that are applicable to investment companies. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. For further information, refer to the audited consolidated financial statements and notes of the Partnership for the year ended December 31, 2014. The Partnership has evaluated subsequent events through May 14, 2015, the date these consolidated financial statements were available to be issued.

New Accounting Pronouncement - In February 2015, the Financial Accounting Standard Board (“FASB”) issued updated guidance in Accounting Standards Update (“ASU”) 2015-02 Consolidations (Topic 810) that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities, and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Partnership is currently assessing the impact of the guidance on the Partnership’s consolidated financial statements.

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

Cash paid for interest during the three months ended March 31, 2015 and March 31, 2014 was $822,043 and $721,061, 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. (“Prudential Financial”), 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 the 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 come up with the approximate value for the type of real estate in the market. The real estate investments consist of real estate and improvements and are therefore classified as Level 3.

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

March 31, 2015

(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.

During the three months ended March 31, 2015 and 2014, there were no transfers between Level 1, Level 2 and Level 3.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2015

(Unaudited)

Note 3: Fair Value Measurements (continued)

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

Table 1


			(in 000’s)
			Fair value measurements at March 31, 2015
Assets:	Cost at 3/31/15		Amounts measured at fair value 3/31/2015		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	$	240,987	$	238,430	$	—	$	—	$	238,430
Cash equivalents		25,500		25,500		25,500		—		—

Total	$	266,487	$	263,930	$	25,500	$	—	$	238,430


			(in 000’s)
			Fair value measurements at December 31, 2014
Assets:	Cost at 12/31/14		Amounts measured at fair value 12/31/2014		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	$	240,778	$	235,690	$	—	$	—	$	235,690
Cash equivalents		30,700		30,700		30,700		—		—

Total	$	271,478	$	266,390	$	30,700	$	—	$	235,690

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2015

(Unaudited)

Note 3: Fair Value Measurements (continued)

Table 2


	(in 000’s)
	Real estate and improvements
Beginning balance, January 1, 2015	$	235,690
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets)		2,531
Acquisitions, issuances and contributions		209

Ending balance, March 31, 2015	$	238,430

Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	2,531


	(in 000’s)
	Real estate and improvements
Beginning balance, January 1, 2014	$	210,100
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets)		(367	)
Acquisitions, issuances and contributions		8,813

Ending balance, March 31, 2014	$	218,546

Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	(367	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2015

(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 March 31, 2015
Category	Fair Value (in 000’s)		Number of properties in this property type	Valuation Techniques		Unobservable Input		Range (Weighted Average)
Real estate and improvements:
Apartment	$	95,500	4		Discounted cash flow		Exit capitalization rate	5.00% - 6.25% (5.48%)
							Discount rate	6.50% -7.75% (7.05%)
Office		18,600	2		Discounted cash flow		Exit capitalization rate	7.50% -8.00% (7.66%)
							Discount rate	8.25% -9.00% (8.49%)
Retail		124,330	7		Discounted cash flow		Exit capitalization rate	6.25% - 10.00% (7.22%)
							Discount rate	6.50% -11.00% (7.61%)

	$	238,430

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2015

(Unaudited)

Note 3: Fair Value Measurements (continued)

Fair Value of Financial Instruments Carried at Cost:

As of March 31, 2015 and December 31, 2014, the Partnership’s mortgages on wholly owned properties and consolidated partnerships have an estimated fair value of approximately $70.5 million and $70.7 million, respectively, and a carrying value (amortized cost) of $69.7 million and $70.0 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 and improvements are fairly presented as of March 31, 2015 and December 31, 2014.

Financing, Covenant, and Repayment Risks

In the normal course of business, the Partnership enters into loan agreements with certain lenders to finance its real estate investment transactions. Unfavorable economic conditions could increase related borrowing costs, limit access to the capital markets or result in a decision by lenders not to extend credit to the Partnership. There is no guarantee that the Partnership’s borrowing arrangements or ability to obtain leverage will continue to be available, or if available, will be available on terms and conditions acceptable to the Partnership. Further, these loan agreements contain, among other conditions, events of default and various covenants and representations. In the normal course of business, the Partnership may be in the process of renegotiating terms for loans outstanding that have passed their maturity dates. At March 31, 2015, 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 three month periods ended March 31, 2015 and March 31, 2014, management fees incurred by the Partnership were $677,496 and $632,545, respectively. The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the three months ended March 31, 2015 and March 31, 2014 were $13,407 and $0, respectively, and are classified as administrative expenses in the Consolidated Statements of Operations.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2015

(Unaudited)

Note 7: Share Values and Shares Outstanding

The share value and shares outstanding at March 31, 2015 and 2014 are as follows:


	3/31/2015		3/31/2014
Share Value	$	41.25	$	38.05
Shares Outstanding		4,529,591		4,776,348

The capital share transactions for the three months ended are as follows:


	3/31/2015			3/31/2014
Beginning of Period		4,650,878			4,907,883
Distributions		(121,287	)		(131,535	)

End of Period		4,529,591			4,776,348

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2015

(Unaudited)

Note 8: Financial Highlights


	For The Three Months Ended March 31,
	2015			2014			2013			2012			2011
Per Share(Unit) Operating Performance:
Net Asset Value attributable to general partners’ controlling interest, beginning of period	$	40.48		$	37.78		$	34.49		$	32.27		$	28.38
Income From Investment Operations:

Net investment income attributable to general partners’ controlling interest, before management fee		0.43			0.50			0.57			0.46			0.46

Investment Management fee attributable to general partners’ controlling interest		(0.14	)		(0.13	)		(0.12	)		(0.11	)		(0.09	)
Net recognized and unrealized gain (loss) on investments attributable to general partners’ controlling interest		0.48			(0.10	)		(0.27	)		0.26			0.94

Increase (decrease) in Net Assets Resulting from Operations attributable to general partners’ controlling interest		0.77			0.27			0.18			0.61			1.31

Net Asset Value attributable to general partners’ controlling interest, end of period	$	41.25		$	38.05		$	34.67		$	32.88		$	29.69

Total Return attributable to general partners’ controlling interest, before Management Fee (a):		2.26	%		1.05	%		0.88	%		2.25	%		4.96	%
Total Return attributable to general partners’ controlling interest, after Management Fee (a):		1.90	%		0.71	%		0.54	%		1.90	%		4.61	%

Ratios/Supplemental Data:
Net Assets attributable to general partners’ controlling interest, end of period (in millions)	$	187		$	182		$	175		$	170		$	173
Ratios to average net assets for the period ended (b):
Management fees		0.36	%		0.34	%		0.34	%		0.35	%		0.35	%
Other portfolio level expense		0.09	%		0.04	%		0.06	%		0.05	%		0.07	%

Total Portfolio Level Expenses		0.45	%		0.38	%		0.40	%		0.40	%		0.42	%

Net Investment Income, before Management Fee		1.07	%		1.32	%		1.65	%		1.44	%		1.63	%
Net Investment Income, after Management Fee		0.71	%		0.98	%		1.31	%		1.09	%		1.28	%

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

Net Investment Income before/after management fee + Net Recognized and Unrealized Gains/(Losses)

Beginning Net Asset Value + Time Weighted Contributions - Time Weighted Distributions

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

Note 9: Subsequent Event

On April 2, 2015, the Partnership acquired the Station House Apartments in Maplewood, NJ, for a gross purchase price of $20,350,000.

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 “General 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 March 31, 2015, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $28.3 million, a decrease of approximately $4.0 million from $32.3 million as of December 31, 2014. The decrease was primarily due to the following activities (a) $5.0 million distribution to the General Partners’ controlling interest; (b) $0.3 million of principal payments made on financed properties; and (c) $0.2 million paid for capital improvements and transaction costs associated with leasing expenses at various properties. Partially offsetting this decrease was an increase due to net cash flow generated from property operations of $1.5 million.

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 distributions to its partners. As of March 31, 2015, approximately 10.5% 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 three month periods ended March 31, 2015 and March 31, 2014.

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, 2015 was approximately $1.3 million, a decrease of approximately $0.5 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 $0.7 million in the office sector investments and an increase of approximately $0.2 million in the portfolio level expenses from the prior year period. Partially offsetting this decrease 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.

Valuation overview

The Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $2.2 million for the three month period ended March 31, 2015. This is compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.5 million for the prior year period. The unrealized gains attributable to the general partners’ controlling interest for the three month period ended March 31, 2015 were primarily due to valuation increases of $1.7 million in the retail sector and $0.6 million in the apartment sector. Partially offsetting the unrealized gains was an unrealized loss in the 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 (losses) attributable to the general partners’ controlling interest for the three month periods ended March 31, 2015 and March 31, 2014.


	Three Months Ended March 31,
	2015			2014
*Net Investment Income (Loss):*

Office properties	$	(103,625	)	$	633,291
Apartment properties		935,648			868,030
Retail properties		1,389,891			977,140
Hotel property		(25,584	)		42,635
Other (including interest income, investment management fee, etc.)		(855,428	)		(706,358	)

Total Net Investment Income	$	1,340,902		$	1,814,738

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

Office properties		(104,891	)		(678,741	)
Apartment properties		635,474			27,594
Retail properties		1,702,622			(155,630	)
Hotel property		—			310,525

Net Unrealized Gain (Loss) on Real Estate Investments	$	2,233,205		$	(496,252	)

OFFICE PROPERTIES


Quarter Ended March 31,	Net Investment Income/(Loss) 2015			Net Investment lncome/(Loss) 2014		Unrealized Gain/(Loss) 2015			Unrealized Gain/(Loss) 2014			Occupancy 2015			Occupancy 2014
Property
Lisle, L	$	(47,247	)	$	434,670	$	(204,891	)	$	(769,228	)		38	%		34	%
Brentwood, TN #1 ⁽¹⁾		—			15,096		—			—			N/A			N/A
Beaverton, OR		(56,378	)		166,503		100,000			90,487			100	%		100	%
Brentwood, TN #2 ⁽¹⁾		—			17,022		—			—			N/A			N/A

	$	(103,625	)	$	633,291	$	(104,891	)	$	(678,741	)

⁽¹⁾	The Brentwood, Tennessee properties were sold on December 12, 2013. 2014 net investment income represents post closing accrual write-offs.

Net investment income/(loss)

Net investment loss attributable to the general partners’ controlling interest for the Partnership’s office properties was approximately $0.1 million for the three month period ended March 31, 2015, which represents a decrease of approximately $0.7 million from the prior year period, primarily due to a one time lease termination fee from a tenant that vacated in 2014 at the property in Lisle, Illinois. In addition, a decrease in net investment income was also attributable to a rent credit as a result of the lease renewal and expansion for the anchor tenant at the property in Beaverton, Oregon.

Unrealized gain/(loss)

The office properties owned by the Partnership recorded a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.1 million for the three month period ended March 31, 2015, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.7 million from the prior year period. The net unrealized loss attributable to the general partners’ controlling interest for the three month period ended March 31, 2015 was primarily due to a loss on the property located in Lisle, Illinois from less favorable market rent assumptions. Partially offsetting the net unrealized loss was an unrealized gain due to a decrease in near term capital expenditures at the property in Beaverton, Oregon.

APARTMENT PROPERTIES


	Net Investment		Net Investment		Unrealized			Unrealized
Quarter Ended March 31,	lncome/(Loss) 2015		Income/(Loss) 2014		Gain/(Loss) 2015			Gain/(Loss) 2014			Occupancy 2015			Occupancy 2014
Property
Austin, TX		358,063		373,567		(139,660	)		(8,502	)		94	%		93	%
Charlotte, NC		221,528		202,882		164,896			210,041			97	%		94	%
Seattle, WA #1		155,445		139,543		(12,270	)	$	(54,623	)		90	%		93	%
Seattle, WA #2		200,612		152,038		622,508		$	(119,322	)		93	%		100	%

	$	935,648	$	868,030	$	635,474		$	27,594

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s apartment properties was approximately $0.9 million for the three month period ended March 31, 2015, which represents an increase of less than $0.1 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.

Unrealized gain/(loss)

The apartment properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.6 million for three month period ended March 31, 2015, compared with a net unrealized gain attributable to the general partners’ controlling interest of less than $0.1 million from the prior year period. These gains were due to favorable market leasing assumptions at the properties in Charlotte, North Carolina and Seattle, Washington. Partially offsetting the gain was a loss at the property in Austin, Texas due to an increase in near term capital expenditures.

RETAIL PROPERTIES


	Net Investment		Net Investment		Unrealized			Unrealized
Quarter Ended March 31,	lncome/(Loss) 2015		lncome/(Loss) 2014		Gainl(Loss) 2015			Gain/(Loss) 2014			Occupancy 2015			Occupancy 2014
Property
Hampton, VA	$	349,831	$	267,629	$	1,776,816		$	12,312			96	%		96	%
Ocean Cily, MD		212,518		204,099		(4,804	)		323,582			96	%		96	%
Westminster, MD		298,242		308,620		(56,882	)		(64,247	)		100	%		100	%
Dunn, NC		88,973		25,735		(529,792	)		(714,419	)		48	%		33	%
Roswell, CA		132,330		133,204		100,000			207,142			94	%		96	%
North Fort Myers, FL		123,338		34,773		300,000			—			85	%		88	%
Norcross, GA		184,659		—		117,284			—			100	%		N/A

	$	1,389,891	$	977,140	$	1,702,622		$	(155,630	)

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s retail properties was approximately $1.4 million for the three month period ended March 31, 2015, which represents an increase of approximately $0.4 million from the prior year period. The increase in net investment income attributable to the general partners’ controlling interest for the three month period ended March 31, 2015 was largely due to the additional income provided by the properties in North Fort Myers, Florida and Norcross, Georgia that were acquired in March, 2014 and December, 2014, respectively. In addition, an increase in net investment income was also attributable to increased occupancy at the property in Dunn, North Carolina and increased contract rents at the property in Hampton, Virginia.

Unrealized gain/(loss)

The retail properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.7 million for the three month period ended March 31, 2015, compared with a net unrealized loss 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 March 31, 2015 was primarily due to lower investment rates at the properties in Hampton, Virginia, and North Fort Myers, Florida. Investment rates include direct and terminal capitalization rates, and discount rates, which reflect investors’ yield requirements on investments. Additional gains were attributable to favorable market leasing assumptions at the property in Hampton, Virginia. Partially offsetting the net unrealized gain was an unrealized loss at the property in Dunn, North Carolina due to less favorable market leasing assumptions and increased operating expenses.

HOTEL PROPERTY


Quarter Ended March 31,	Net Investment lncome/(Loss) 2015			Net Investment lncome/(Loss) 2014		Recognized Gain/(Loss) 2015		Unrealized Gain/(Loss) 2014		Occupancy 2015		Occupancy 2014
Property
Lake Oswego, OR⁽¹⁾	$	(25,584	)	$	42,635	$	—	$	310,525		N/A		60	%

⁽¹⁾	The Lake Oswego, Oregon property was sold on October 29, 2014. 2015 net investment post closing expenses.

Net investment income/(loss)

Net investment loss attributable to the general partners’ controlling interest for the Partnership’s hotel property was less than $0.1 million for the three month period ended March 31, 2015, which represents a decrease of $0.1 million from the prior year period. The decrease at the property in Lake Oswego, Oregon was a result of the property being sold on October 29, 2014.

Recognized and Unrealized gain/(loss)

The Partnership sold the hotel property on October 29, 2014 and did not record a net unrealized or recognized gain/loss attributable to the general partners’ controlling interest for three month period ended March 31, 2015, compared with an unrealized gain attributable to the general partners’ controlling interest of approximately $0.3 million for the prior year period.

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 $0.9 million for three month period ended March 31, 2015, which represents an increase of $0.2 million from the prior year period. The increase in net investment expense is due to increased appraisal and management fees.

(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 50.98% of its investment portfolio as of March 31, 2015, 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 and cash equivalents at March 31, 2015:


	Maturity		Estimated Market Value (millions)		Average Interest Rate
Cash and cash equivalents		0-3 months	$	28.3		0.06	%

The table below discloses the Partnership’s investment level debt as of March 31, 2015. 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 $ 000s), including current portion	2015			2016			2017			2018			2019			Thereafter			Total			Estimated Fair Value
Weighted Average Fixed Interest Rate		4.84	%		4.72	%		4.67	%		4.61	%		4.58	%		4.32	%		4.62	%
Future Annual Principal Payments	$	13,316		$	1,153		$	1,327		$	2,408		$	1,680		$	49,855		$	69,739		$	70,500

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 March 31, 2015. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2015, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(e) occurred during the quarter ended March 31, 2015, 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, 2014. 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

in respect of

Pruco Life Variable Contract Real Property Account

(Registrant)

Date: May 14, 2015

By:

/s/ Yanela C. Frias

Yanela C. Frias

Vice President and Chief Financial Officer

(Authorized Signatory and Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT 10-Q