-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OYfVajELW/ENwp0+hBax9NjT/ow3LKDd7fyNpAQxnaRhO7SFlg7HBC+AmYhhxLOh Ui8HxVufQJgagDg8SSyzjw== 0000731245-06-000034.txt : 20060515 0000731245-06-000034.hdr.sgml : 20060515 20060515105118 ACCESSION NUMBER: 0000731245-06-000034 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060515 DATE AS OF CHANGE: 20060515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRESIDENTIAL REALTY CORP/DE/ CENTRAL INDEX KEY: 0000731245 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 131954619 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-08594 FILM NUMBER: 06837649 BUSINESS ADDRESS: STREET 1: 180 S BROADWAY CITY: WHITE PLAINS STATE: NY ZIP: 10605 BUSINESS PHONE: 9149481300 MAIL ADDRESS: STREET 1: 180 SOUTH BROADWAY CITY: WHITE PLAINS STATE: NY ZIP: 10605 10QSB 1 mar0610qsb.txt PRESIDENTIAL REALTY CORP. 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (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, 2006 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to Commission file number 1-8594 ------ PRESIDENTIAL REALTY CORPORATION --------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 13-1954619 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 180 South Broadway, White Plains, New York 10605 - ------------------------------------------------- (Address of principal executive offices) Issuer's telephone number, including area code 914-948-1300 ------------ Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x ----- ----- The number of shares outstanding of each of the issuer's classes of common stock as of the close of business on May 10, 2006 was 478,840 shares of Class A common and 3,427,449 shares of Class B common. Transitional Small Business Disclosure Format (check one): Yes No x ----- ------ PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES ------------------------------------------------- Index to Form 10-QSB For the Three Months Ended March 31, 2006 Part I Financial Information (Unaudited) Item 1. Financial Statements Consolidated Balance Sheets (Unaudited) Consolidated Statements of Operations (Unaudited) Consolidated Statements of Stockholders' Equity (Unaudited) Consolidated Statements of Cash Flows (Unaudited) Notes to Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis or Plan of Operation Quantitative and Qualitative Disclosures about Market Risk Item 3. Controls and Procedures Part II Other Information Item 5. Other Information Item 6. Exhibits PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 2006 2005 ------------- -------------- Assets Investments in and advances to joint ventures (Note 2) $21,861,433 $23,291,133 ------------- -------------- Mortgage portfolio (Note 3): Notes receivable - net 7,347,267 9,889,459 Notes receivable - related parties - net 168,405 209,287 ------------- -------------- Net mortgage portfolio (of which $473,485 in 2006 and $246,662 in 2005 are due within one year) 7,515,672 10,098,746 ------------- -------------- Real estate (Note 4) 6,136,711 6,124,665 Less: accumulated depreciation 4,257,004 4,225,223 ------------- -------------- Net real estate 1,879,707 1,899,442 ------------- -------------- Assets related to discontinued operations (Note 5) 2,880,770 2,850,245 Other investments (Note 6) 1,675,000 1,495,000 Prepaid expenses and deposits in escrow 753,507 635,550 Prepaid defined benefit plan costs 1,866,724 1,771,852 Other receivables (net of valuation allowance of $120,379 in 2006 and $104,305 in 2005) 163,876 422,353 Cash and cash equivalents 4,749,598 2,878,237 Other assets 168,903 172,194 ------------- -------------- Total Assets $43,515,190 $45,514,752 ============= ============== Liabilities and Stockholders' Equity Liabilities: Mortgage debt (of which $134,250 in 2006 and $132,082 in 2005 are due within one year) $3,615,383 $3,647,603 Liabilities related to discontinued operations (Note 5) 2,980,618 2,996,423 Contractual pension and postretirement benefits liabilities 3,477,148 3,456,666 Accrued liabilities 860,280 1,142,789 Accounts payable 184,468 280,365 Distributions from partnership in excess of investment and earnings (Note 7) 2,242,288 2,208,990 Other liabilities 239,527 200,336 ------------- -------------- Total Liabilities 13,599,712 13,933,172 ------------- -------------- Minority Interest in Consolidated Partnership (Note 8) 45,719 46,905 ------------- -------------- Stockholders' Equity: Common stock: par value $.10 per share Class A, authorized 700,000 shares, issued 478,940 shares and 100 shares held in treasury 47,894 47,894 Class B March 31, 2006 December 31, 2005 342,945 339,696 ----------- --------------------------- ----------------------------- Authorized: 10,000,000 10,000,000 Issued: 3,429,449 3,396,961 Treasury: 2,000 2,000 Additional paid-in capital 4,080,332 3,848,899 Retained earnings 26,931,492 28,833,713 Accumulated other comprehensive loss (Note 10) (1,510,741) (1,513,364) Treasury stock (at cost) (22,163) (22,163) ------------- -------------- Total Stockholders' Equity 29,869,759 31,534,675 ------------- -------------- Total Liabilities and Stockholders' Equity $43,515,190 $45,514,752 ============= ============== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------------------ 2006 2005 ----------- ----------- Revenues: Rental $527,389 $476,415 Interest on mortgages - notes receivable 321,459 471,248 Interest on mortgages - notes receivable - related parties 41,158 89,742 Other revenues 46,494 349,180 ----------- ----------- Total 936,500 1,386,585 ----------- ----------- Costs and Expenses: General and administrative 1,060,806 967,449 Depreciation on non-rental property 3,770 4,234 Rental property: Operating expenses 310,746 295,045 Interest on mortgage debt 58,667 59,884 Real estate taxes 82,096 76,363 Depreciation on real estate 31,980 30,355 Amortization of mortgage costs 2,849 2,758 ----------- ----------- Total 1,550,914 1,436,088 ----------- ----------- Other Income (Loss): Investment income 48,009 21,445 Equity in the (loss) income of joint ventures (Note 2) (644,288) 230,302 Equity in the (loss) income of partnership (Note 7) (33,298) 66,727 ----------- ----------- Income (loss) before minority interest and net gain from sales of properties (1,243,991) 268,971 Minority interest (2,564) (2,069) ----------- ----------- Income (loss) before net gain from sales of properties (1,246,555) 266,902 Recognition of deferred gain on sales of properties (includes a provision for Federal taxes of $1,941,661 in 2005) - 1,299,879 ----------- ----------- Income (loss) from continuing operations (1,246,555) 1,566,781 ----------- ----------- Discontinued Operations (Note 5): Loss from discontinued operations (31,779) (166,198) Net loss from sales of discontinued operations - (11,580) ----------- ----------- Total loss from discontinued operations (31,779) (177,778) ----------- ----------- Net Income (Loss) ($1,278,334) $1,389,003 =========== =========== Earnings per Common Share (basic and diluted): Income (loss) before net gain from sales of properties ($0.32) $0.07 Recognition of deferred gain on sales of properties - 0.34 ----------- ----------- Income (loss) from continuing operations (0.32) 0.41 ----------- ----------- Discontinued Operations: Loss from discontinued operations (0.01) (0.05) Net loss from sales of discontinued operations - - ----------- ----------- Total loss from discontinued operations (0.01) (0.05) ----------- ----------- Net Income (Loss) per Common Share - basic and diluted ($0.33) $0.36 =========== =========== Cash Distributions per Common Share $0.16 $0.16 =========== =========== Weighted Average Number of Shares Outstanding - basic 3,895,599 3,820,244 =========== =========== - diluted 3,895,599 3,834,244 =========== =========== See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
Accumulated Additional Other Total Common Paid-in Retained Comprehensive Treasury Comprehensive Stockholders' Stock Capital Earnings (Loss) Income Stock (Loss) Income Equity --------- --------- ---------- --------------- ------- -------------- ------------ Balance at January 1, 2006 $387,590 $3,848,899 $28,833,713 ($1,513,364) ($22,163) $31,534,675 Net proceeds from dividend reinvestment plan 699 44,563 - - - 45,262 Cash distributions ($.16 per share) - - (623,887) - - (623,887) Issuance of stock 2,550 186,870 - - - 189,420 Comprehensive loss: Net loss - - (1,278,334) - ($1,278,334) (1,278,334) Other comprehensive income- Net unrealized gain on securities available for sale - - - 2,623 - 2,623 2,623 ------------ Comprehensive loss ($1,275,711) ============ -------- ---------- ----------- ----------- -------- ------------ Balance at March 31, 2006 $390,839 $4,080,332 $26,931,492 ($1,510,741) ($22,163) $29,869,759 ======== ========== =========== =========== ======== ============ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------------------------------ 2006 2005 ----------------- ---------------- Cash Flows from Operating Activities: Cash received from rental properties $853,349 $1,165,751 Interest received 639,013 823,005 Distributions received from partnership - 19,200 Distributions received from joint ventures 785,412 807,144 Miscellaneous income 46,728 352,634 Interest paid on rental property mortgage debt (107,251) (246,218) Cash disbursed for rental property operations (867,492) (616,950) Cash disbursed for general and administrative costs (1,209,726) (914,924) ----------------- ---------------- Net cash provided by operating activities 140,033 1,389,642 ----------------- ---------------- Cash Flows from Investing Activities: Payments received on notes receivable 2,630,872 8,586,827 Net proceeds received from fire insurance settlement - 707,588 Payments disbursed for additions and improvements (92,307) (138,928) Proceeds from sales of properties - 1,592,580 Deposit received on contract of sale of property - 500,000 Purchase of other investments (180,000) - Purchase of additional interest in partnership - (65,000) ----------------- ---------------- Net cash provided by investing activities 2,358,565 11,183,067 ----------------- ---------------- Cash Flows from Financing Activities: Principal payments on mortgage debt (44,862) (56,312) Principal payment on mortgage debt from insurance proceeds - (707,588) Distributions to minority partners (3,750) (3,750) Cash distributions on common stock (623,887) (611,131) Proceeds from dividend reinvestment plan 45,262 29,100 ----------------- ---------------- Net cash used in financing activities (627,237) (1,349,681) ----------------- ---------------- Net Increase in Cash and Cash Equivalents 1,871,361 11,223,028 Cash and Cash Equivalents, Beginning of Period 2,878,237 2,085,767 ----------------- ---------------- Cash and Cash Equivalents, End of Period $4,749,598 $13,308,795 ================= ================ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31, --------------------------------------------- 2006 2005 ---------------- ---------------- Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities Net Income (Loss) ($1,278,334) $1,389,003 ---------------- ---------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Recognition of deferred gain on sales of properties - (1,299,879) Net loss from sales of discontinued operations - 11,580 Equity in the loss (income) of partnership 33,298 (66,727) Equity in the loss (income) of joint ventures 644,288 (230,302) Depreciation and amortization 38,599 72,229 Issuance of stock to directors and officers 172,230 - Amortization of discounts on notes and fees (47,798) (39,464) Minority interest 2,564 2,069 Distributions received from partnership - 19,200 Distributions received from joint ventures 785,412 807,144 Changes in assets and liabilities: Decrease in other receivables 258,477 454,922 Decrease in accounts payable and accrued liabilities (321,629) (154,409) Increase in other liabilities 48,193 63,174 Decrease (increase) in prepaid expenses, deposits in escrow and deferred charges (195,639) 361,726 Other 372 (624) ---------------- ---------------- Total adjustments 1,418,367 639 ---------------- ---------------- Net cash provided by operating activities $140,033 $1,389,642 ================ ================ SUPPLEMENTAL NONCASH DISCLOSURE: Satisfaction of mortgage debt as a result of assumption of the mortgage debt by the purchaser $7,605,966 ================ See notes to consolidated financial statements.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED) Presidential Realty Corporation ("Presidential" or the "Company"), is operated as a self-administrated, self-managed Real Estate Investment Trust ("REIT"). The Company is engaged principally in the ownership of income producing real estate and in the holding of notes and mortgages secured by real estate. Presidential operates in a single business segment, investments in real estate related assets. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Principles of Consolidation - The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, the consolidated financial statements include 100% of the account balances of UTB Associates, a partnership in which Presidential is the general partner and owns a 75% interest. All significant intercompany balances and transactions have been eliminated. B. Net Income Per Share - Basic net income per share data is computed by dividing net income by the weighted average number of shares of Class A and Class B common stock outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of stock options outstanding. The dilutive effect of stock options is calculated using the treasury stock method. As of November 10, 2005, all outstanding stock options were either exercised or expired. C. Basis of Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The results for such interim periods are not necessarily indicative of the results to be expected for the year. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results for the respective periods have been reflected. These consolidated financial statements and accompanying notes should be read in conjunction with the Company's Form 10-KSB for the year ended December 31, 2005. D. Management Estimates - In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required 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 consolidated balance sheets and the reported amounts of income and expense for the reporting period. Actual results could differ from those estimates. E. Discontinued Operations - The Company complies with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement requires that the results of operations, including impairment, gains and losses related to the properties that have been sold or properties that are intended to be sold be presented as discontinued operations in the statements of operations for all periods presented and the assets and liabilities of properties intended to be sold are to be separately classified on the balance sheet. Properties designated as held for sale are carried at the lower of cost or fair value less costs to sell and are not depreciated. F. Equity Method - The Company accounts for its investments in joint ventures and partnerships using the equity method of accounting because it exercises significant influence, but not control over these investments. G. Adoption of Recent Accounting Pronouncements - In December of 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123, (Revised 2004) - "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R replaces SFAS No. 123, which the Company previously adopted. SFAS No. 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements and be measured based on the fair value of the equity or liability instruments issued. SFAS No. 123R was effective for the Company beginning January 1, 2006. The adoption of SFAS No. 123R did not have a material effect on the Company's consolidated financial statements. In May of 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections - A Replacement of APB Opinion No. 20 and SFAS No. 3". SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle by requiring retrospective application to prior periods' financial statements of the change in accounting principle, unless it is impracticable to do so. SFAS No. 154 also requires that a change in depreciation or amortization for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The initial adoption of SFAS No. 154 on January 1, 2006 had no effect on the Company's consolidated financial statements. In June of 2005, the FASB ratified the Emerging Issues Task Force ("EITF") consensus on EITF Issue No. 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights". EITF Issue No. 04-5 provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership or a similar entity. It became effective for all newly formed limited partnerships and for any pre-existing limited partnerships that modify their partnership agreements after June 29, 2005. General partners of all other limited partnerships will apply the consensus no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The initial adoption of EITF Issue No. 04-5 had no effect on the Company's consolidated financial statements. In February of 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - An Amendment of FASB Statements No. 133 and 140". The purpose of SFAS No. 155 is to simplify the accounting for certain hybrid financial instruments by permitting fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS No. 155 also eliminates the restriction on passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year beginning after September 15, 2006. The Company does not believe that the adoption of this standard on January 1, 2007 will have a material effect on the Company's consolidated financial statements. In March of 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets - Amendment of FASB Statement No. 140". SFAS No. 156 requires separate recognition of a servicing asset and a servicing liability each time an entity undertakes an obligation to service a financial asset by entering into a servicing contract. This statement also requires that servicing assets and liabilities be initially recorded at fair value and subsequently adjusted to the fair value at the end of each reporting period. This statement is effective in fiscal years beginning after September 15, 2006. The Company does not believe that the adoption of this standard on January 1, 2007 will have a material effect on the Company's consolidated financial statements. 2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES During 2004 and 2005, the Company made investments in and loans to four joint ventures which own and operate nine shopping malls located in seven states. These investments in and advances to joint ventures were made to entities controlled by David Lichtenstein, who also controls The Lightstone Group ("Lightstone"). The Company accounts for these investments using the equity method. The first investment, the Martinsburg Mall, was purchased by the Company in 2004 and, subsequent to closing, the Company obtained a mezzanine loan from Lightstone in the amount of $2,600,000, which is secured by ownership interests in the entity that owns the Martinsburg Mall. The loan matures on September 27, 2014, and the interest rate on the loan is 11% per annum. Lightstone will manage the Martinsburg Mall and David Lichtenstein received a 71% ownership interest in the entity owning the Martinsburg Mall, leaving the Company with a 29% ownership interest. During 2004 and 2005, the Company made three mezzanine loans in the aggregate principal amount of $25,600,000 to joint ventures controlled by David Lichtenstein. These loans are secured by the ownership interests in the entities that own the properties and the Company received a 29% ownership interest in these entities. These loans mature in 2014 and 2015 and the interest rate on the loans is 11% per annum. The following table summarizes information on the shopping mall properties and the mezzanine loans with respect thereto:
Nonrecourse First Mortgage Owning Gross and Mezzanine Loans Entity and Mezzanine Loans Leasable March 31, 2006 Property Advanced by Area Maturity Interest Owned (1) the Company (Sq. Ft.) Balance Date Rate - ---------- --------------- --------- --------- --------- -------- PRC Member LLC Martinsburg Mall 552,000 $22,961,590 Oct., 2006 (2) - ---------------- Martinsburg, WV Lightstone I Four Malls $ 8,600,000 82,038,410 Oct., 2006 (2) - ---------- Bradley Square Mall 385,000 Cleveland, TN Mount Berry Square Mall 475,000 Rome, GA Shenango Valley Mall 508,000 Hermitage, PA West Manchester Mall 733,000 York, PA Lightstone II Shawnee/Brazos Malls 7,500,000 39,500,000 Jan., 2007 (3) - -------------------- Brazos Outlets Center Mall 587,966 Lake Jackson, TX Shawnee Mall 445,657 Shawnee, OK Lightstone III Macon/Burlington Malls 9,500,000 158,850,000 June, 2015 5.78% - ---------------------- Burlington Mall 416,442 Burlington, NC Macon Mall 764,208 Macon, GA ----------- $25,600,000 ===========
(1) Each individual owning entity is a single purpose entity that is prohibited by its organizational documents from owning any assets other than the specified shopping mall properties listed above. (2) The first mortgage loans of $22,961,590 and $82,038,410 comprise a $105,000,000 nonrecourse first mortgage loan secured by the Martinsburg Mall and the Four Malls. The interest rate is at the 30 day LIBOR rate plus 360 basis points (approximately 8.17% at March 31, 2006). The loan matures in October, 2006, with three one-year options to extend the loan for an extension fee of ..125% of the outstanding principal balance. Lightstone expects to refinance this mortgage with new fixed-rate debt. (3) The interest rate is at the 30 day LIBOR rate plus 280 basis points (approximately 7.37% at March 31, 2006). The loan matures in January, 2007, with three one-year options to extend the loan for an extension fee of .125% of the outstanding principal. Investment in and advances to joint ventures are as follows:
March 31, December 31, 2006 2005 ---------- ------------ Martinsburg Mall $ 760,563 $ 919,549 Four Malls 6,001,857 6,694,235 Shawnee/Brazos Malls 6,448,477 6,800,268 Macon/Burlington Malls 8,650,536 8,877,081 ----------- ----------- $21,861,433 $23,291,133 =========== ===========
Equity in the (loss) income of joint ventures for the three months ended March 31, 2006 and 2005 is as follows:
Three Months Ended March 31, 2006 2005 -------- ---------- Martinsburg Mall (1) $(158,986) $(39,607) Four Malls (2) (374,417) 53,524 Shawnee/Brazos Malls (3) (145,540) 216,385 Macon/Burlington Malls (4) 34,655 - --------- -------- $(644,288) $230,302 ========= ========
(1) The Company's share of the loss of joint ventures for the Martinsburg Mall is determined after the deduction for the interest expense at the rate of 11% per annum on the outstanding $2,600,000 loan from Lightstone. (2) Interest income earned by the Company at the rate of 11% per annum on the outstanding $8,600,000 loan from the Company to Lightstone I is included in the calculation of the Company's share of the loss (income) of joint ventures for the Four Malls. (3) Interest income earned by the Company at the rate of 11% per annum on the outstanding $7,500,000 loan from the Company to Lightstone II is included in the calculation of the Company's share of the loss (income) of joint ventures for the Shawnee/Brazos Malls. (4) The Company's share of the income of joint ventures for the Macon/Burlington Malls is determined after interest income at the rate of 11% per annum on the outstanding $9,500,000 loan to Lightstone III. The Company prepares the summary of the condensed combined financial information for the Martinsburg Mall, the Four Malls, the Shawnee/Brazos Malls and the Macon/Burlington Malls based on information provided by The Lightstone Group. The summary financial information below includes information for all of the joint ventures, but only from their respective inception dates. The condensed combined information is as follows:
March 31, December 31, 2006 2005 ------------- ------------ Condensed Combined Balance Sheets Net real estate $300,049,418 $302,087,000 In place lease values and acquired lease rights 20,729,162 22,299,000 Prepaid expenses and deposits in escrow 16,861,114 16,140,000 Cash and cash equivalents 4,106,216 3,488,000 Deferred financing costs 1,826,825 2,202,000 Other assets 4,718,475 5,466,000 ------------ ------------ Total Assets $348,291,210 $351,682,000 ============ ============ Nonrecourse mortgage debt $303,350,000 $303,350,000 Mezzanine notes payable 28,200,000 28,200,000 Other liabilities 21,624,680 21,138,000 ------------ ------------ Total Liabilities 353,174,680 352,688,000 Members' Deficit (4,883,470) (1,006,000) ------------ ------------ Total Liabilities and Members' Deficit $348,291,210 $351,682,000 ============ ============
Three Months Ended March 31, 2006 2005 ------------ ----------- Condensed Combined Statements of Operations Revenues $ 14,657,466 $ 8,909,498 Interest on mortgage debt and other debt (5,996,402) (2,606,881) Depreciation and amortization (4,151,923) (2,555,135) Other expenses (8,382,911) (3,965,813) ------------ ----------- Net Loss $ (3,873,770) $ (218,331) ============ ===========
As a result of the Company's use of the equity method of accounting with respect to its investments in and advances to the joint ventures, the Company's consolidated statements of operations reflect 29% of the income (loss) of the joint ventures. The equity in the loss of joint ventures of $644,288 for the three months ended March 31, 2006, is after deductions in the aggregate amount of $1,204,058 for the Company's 29% of noncash charges (depreciation of $777,825 and amortization of deferred financing costs and in-place lease values of $426,233). Notwithstanding the income (loss) from the joint ventures, the Company is entitled to receive its interest at the rate of 11% per annum on its $25,600,000 of loans to the joint ventures. For the three months ended March 31, 2006, the Company received distributions from the joint ventures in the amount of $785,412, all of which were interest payments received on the outstanding loans to the joint ventures. The equity in the income of joint ventures of $230,302 for the three months ended March 31, 2005, is after deductions in the aggregate amount of $740,989 for the Company's 29% of noncash charges (depreciation of $377,120 and amortization of deferred financing costs and in-place lease values of $363,869). For the three months ended March 31, 2005, the Company received distributions from joint ventures in the amount of $807,144, which included payments of interest in the amount of $473,794 and return on investment in the amount of $333,350. The Lightstone Group is controlled by David Lichtenstein. At March 31, 2006, in addition to Presidential's investments of $21,861,433 in these joint ventures with entities controlled by Mr. Lichtenstein, Presidential has three loans that are due from entities that are controlled by Mr. Lichtenstein in the aggregate outstanding principal amount of $7,449,994 with a net carrying value of $6,744,798. Two of the loans in the outstanding principal amount of $5,375,000, with a net carrying value of $4,669,804, are secured by interests in five apartment properties and are also personally guaranteed by Mr. Lichtenstein up to a maximum amount of $3,137,500. The Company believes that Mr. Lichtenstein has sufficient net worth and liquidity to satisfy his obligations under these personal guarantees. However, because of the substantial equity in the properties securing the loans, it is unlikely that Presidential will have to call upon these personal guarantees. The third loan in the outstanding principal amount of $2,074,994 is secured by interests in nine apartment properties. All of these loans are in good standing but, while the Company believes that all of these loans are adequately secured, a default on some or all of these loans could have a material adverse effect on Presidential's business and operating results. The $28,606,231 net carrying value of investments in and advances to joint ventures with entities controlled by Mr. Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein constitute 66% of the Company's total assets at March 31, 2006. 3. MORTGAGE PORTFOLIO The components of the net mortgage portfolio are as follows:
Notes Receivable- Notes Related March 31, 2006 Receivable Parties Total - ------------------ ----------- ----------- ----------- Notes receivable $ 8,058,302 $229,613 $ 8,287,915 Less: Discounts 711,035 61,208 772,243 ----------- -------- ----------- Net mortgage portfolio $ 7,347,267 $168,405 $ 7,515,672 =========== ======== =========== December 31, 2005 - ----------------- Notes receivable $10,647,847 $271,073 $10,918,920 Less: Discounts 758,388 61,786 820,174 ----------- -------- ----------- Net mortgage portfolio $ 9,889,459 $209,287 $10,098,746 =========== ======== ===========
At March 31, 2006, all of the notes in the Company's mortgage portfolio are current in accordance with their terms, as modified. On March 8, 2006, the Company received a partial prepayment on one of the loans outstanding to entities controlled by Mr. Lichtenstein. The Company has a $4,500,000 loan secured by ownership interests in entities owning nine apartment properties in the Commonwealth of Virginia. The first mortgages on these properties were refinanced and Presidential received $2,425,006 of net refinancing proceeds in repayment of a portion of its loan principal and $215,750 in payment of the deferred interest to date, leaving an outstanding principal balance of $2,074,994. 4. REAL ESTATE Real estate is comprised of the following: March 31, December 31, 2006 2005 ----------- ------------ Land $ 403,969 $ 403,969 Buildings 5,622,255 5,611,211 Furniture and equipment 110,487 109,485 ---------- ---------- Total real estate $6,136,711 $6,124,665 ========== ========== 5. DISCONTINUED OPERATIONS For the three months ended March 31, 2006 and 2005, loss from discontinued operations includes the Cambridge Green property which was designated as held for sale during the three months ended December 31, 2005. In addition, loss from discontinued operations for the three months ended March 31, 2005 included the Farrington Apartments property and the Fairlawn Gardens property, which were sold during the year ended December 31, 2005. The following table summarizes loss for the properties sold or held for sale: Three Months Ended March 31, 2006 2005 ---- ---- Revenues: Rental $ 298,038 $ 515,503 --------- ---------- Rental property expenses: Operating expenses 241,539 453,688 Interest on mortgage debt 48,360 132,002 Real estate taxes 42,226 60,273 Depreciation on real estate - 34,310 Amortization of mortgage costs - 572 --------- ---------- Total 332,125 680,845 --------- ---------- Other income: Investment income 2,308 (856) --------- ---------- Loss from discontinued operations (31,779) (166,198) Net loss from sales of discontinued operations - (11,580) ---------- ---------- Total loss from discontinued operations $ (31,779) $ (177,778) ========== ========== On January 26, 2005, the Company completed the sale of its Farrington Apartments property in Clearwater, Florida for a sales price of $9,325,966, of which $1,720,000 was paid in cash and the $7,605,966 balance was paid by the assumption by the purchaser of the first mortgage on the property. The loss from the sale for financial reporting purposes was $11,580. On April 4, 2005, the Company consummated the sale of its Fairlawn Gardens property in Martinsburg, West Virginia for a sales price of $3,500,000. The net cash proceeds of sale, after repayment of the $1,411,670 outstanding principal balance of the first mortgage, prepayment fees and other closing expenses, were $1,906,896. In March, 2005, prior to closing, the Company received $707,588 of insurance proceeds resulting from fire damage to sixteen apartments at the property and applied those proceeds to pay down a portion of the outstanding balance of the first mortgage on March 29, 2005. The gain from the sale for financial reporting purposes was $2,266,944 which was reported during the quarter ended June 30, 2005. The assets and liabilities of the Cambridge Green property are segregated in the consolidated balance sheets. The components are as follows:
March 31, December 31, 2006 2005 ----------- ------------ Assets related to discontinued operations: Land $ 200,000 $ 200,000 Buildings 4,154,756 4,117,679 Furniture and equipment 38,856 35,119 Less: accumulated depreciation (1,634,161) (1,634,554) ----------- ----------- Net real estate 2,759,451 2,718,244 Other assets 121,319 132,001 ----------- ----------- Total $ 2,880,770 $ 2,850,245 =========== =========== Liabilities related to discontinued operations: Mortgage debt $ 2,904,643 $ 2,917,285 Other liabilities 75,975 79,138 ----------- ----------- Total $ 2,980,618 $ 2,996,423 =========== ===========
6. OTHER INVESTMENTS On May 24, 2005, the Company advanced $1,000,000 to Broadway Real Estate Partners, LLC ("Broadway Partners"), which money is being held in escrow by Broadway Partners and will be utilized from time to time to make advances to the Broadway Partners Funds below. The escrowed funds bear interest at a rate of 11.43% per annum. The Company earned interest income of $28,575 during the three months ended March 31, 2006, of which $9,525 was accrued at March 31, 2006. In 2005, Presidential agreed to invest $1,000,000 in Broadway Partners Parallel Fund A, a blind pool of investment capital sponsored by Broadway Partners. Presidential's commitment will be called on from time to time by Broadway Partners as it requires funds to make real estate investments. At March 31, 2006, Presidential had advanced $495,000 of its commitment with funds other than the escrowed funds and the balance of Presidential's commitment was $505,000. Subsequent to March 31, 2006, the Company advanced an additional $85,000 of its commitment. The Company accounts for this investment at cost. In March, 2006, Presidential agreed to invest $1,000,000 in Broadway Partners Feeder Fund A II, another blind pool of investment capital sponsored by Broadway Partners. Presidential's commitment will be called on from time to time by Broadway Partners as it requires funds to make real estate investments. Presidential will fund this obligation from its own funds or from the $1,000,000 escrow account held by Broadway Partners. At March 31, 2006, Presidential had advanced $180,000 of its commitment with funds other than the escrowed funds and the balance of Presidential's commitment is $820,000. Presidential accounts for this investment at cost. 7. DISTRIBUTIONS FROM PARTNERSHIP IN EXCESS OF INVESTMENT AND EARNINGS PDL, Inc. (a wholly owned subsidiary of Presidential) is the general partner of PDL, Inc. and Associates Limited Co-Partnership (the "Hato Rey Partnership"). The Hato Rey Partnership owns and operates an office building in Hato Rey, Puerto Rico ("The Hato Rey Center"). Presidential and PDL, Inc. have an aggregate 33% general and limited partner interest in the Hato Rey Partnership at March 31, 2006. The Company accounts for its investment in this partnership under the equity method because it exercises significant influence, but not control, over the partnership's affairs. The Company's interest in the Hato Rey Partnership has a negative basis and therefore is classified as a liability on the Company's consolidated balance sheets, under the caption "distributions from partnership in excess of investment and earnings". The negative basis was primarily due to the refinancing of the mortgage on the property owned by the partnership and the distribution of the proceeds to the partners in excess of their investment in prior years. Summary financial information for the Hato Rey Partnership is as follows:
March 31, December 31, 2006 2005 ------------- ------------ Condensed Balance Sheets Net real estate $ 4,013,181 $ 3,905,347 Prepaid expenses and deposits in escrow 780,830 790,331 Cash and cash equivalents 447,039 950,269 Receivables and other assets 700,361 446,570 ------------ ------------ Total Assets $ 5,941,411 $ 6,092,517 ============ ============ Nonrecourse mortgage debt $ 16,008,534 $ 16,075,068 Other liabilities 689,013 672,681 ------------ ------------ Total Liabilities 16,697,547 16,747,749 Partners' Deficiency (10,756,136) (10,655,232) ------------ ------------ Total Liabilities and Partners' Deficiency $ 5,941,411 $ 6,092,517 ============ ============ On the Company's Consolidated Balance Sheets: Distributions from partnership in excess of investment and earnings $ 2,242,288 $ 2,208,990 ============ ============
Three Months Ended March 31, 2006 2005 ----------- ----------- Condensed Statements of Operations Revenues $ 827,636 $1,121,972 Interest on mortgage debt (295,963) (300,411) Depreciation and amortization (95,690) (91,879) Other expenses (543,866) (526,464) Investment income 6,979 5,302 --------- ---------- Net (Loss) Income $(100,904) $ 208,520 ========= ========== On the Company's Consolidated Statement of Operations: Equity in the (loss) income of partnership $ (33,298) $ 66,727 ========= ========== Net income of the Hato Rey Partnership decreased during the year ended December 31, 2005 as a result of two tenants vacating a total of 52,088 square feet of office space at the expiration of their leases. In March, 2006, another tenant vacated 30,299 square feet of office space. In addition, the Hato Rey Partnership has decided to undertake a program of repairs and improvements to the building that is expected to cost approximately $1,255,000. The Company has agreed to lend up to $1,000,000 to the Hato Rey Partnership (and has the right to lend an additional $1,000,000) to pay for the cost of improvements to the building and fund any negative cash flows from the operation of the property. The loan, which will be advanced from time to time as funds are needed, will bear interest at the rate of 11% per annum, with interest and principal to be paid out of the first positive cash flow from the property or upon a refinancing of the first mortgage on the property. At March 31, 2006, the Company had not advanced any portion of the loan to the Hato Rey Partnership. On April 12, 2006, the Company acquired an additional 25% limited partnership interest in the Hato Rey Partnership for a purchase price of $957,027. The acquisition was closed in escrow pending approval of certain legal issues by the holder of the first mortgage on the property. When the acquisition of the additional 25% limited partnership interest is released from escrow, Presidential will own a 1% general and a 57% limited partnership interest in the Hato Rey Partnership. At that time, the Company will exercise effective control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business. As a result, upon completion of the purchase, the Company will consolidate the Hato Rey Partnership in the Company's consolidated financial statements. 8. MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP Presidential is the general partner of UTB Associates, a partnership in which Presidential has a 75% interest. As the general partner of UTB Associates, Presidential exercises effective control over this partnership through its ability to manage the affairs of the partnership in the ordinary course of business, including the ability to approve the partnership's budgets, and through its significant equity interest. Accordingly, Presidential consolidates this partnership in the accompanying consolidated financial statements. The minority interest reflects the minority partners' equity in the partnership. 9. INCOME TAXES Presidential has elected to qualify as a Real Estate Investment Trust under the Internal Revenue Code. A REIT which distributes at least 90% of its real estate investment trust taxable income to its shareholders each year by the end of the following year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. For the year ended December 31, 2005, the Company had taxable income (before distributions to stockholders) of approximately $4,035,000 ($1.04 per share), which is comprised of capital gains of $6,151,000 ($1.59 per share) and an ordinary loss of $2,116,000 ($.55 per share). This taxable income will be reduced by the $2,331,000 ($.60 per share) of its 2005 distributions that were not utilized in reducing the Company's 2004 taxable income. In addition, the Company may elect to apply any eligible year 2006 distributions to reduce its 2005 taxable income. As previously stated, in order to maintain REIT status, Presidential is required to distribute 90% of its REIT taxable income (exclusive of capital gains). As a result of the ordinary tax loss of $.55 per share for 2005, the Company will not be required to make a distribution in 2006 in order to maintain its qualification as a REIT. In addition, although no assurances can be given, the Company currently expects that it will not have to pay Federal income taxes for 2005 because its present intention is to distribute all of its 2005 taxable income (including capital gain) during 2005 and 2006. Therefore, no provision for income taxes was made at December 31, 2005. For the three months ended March 31, 2006, the Company had a tax loss of approximately $1,009,000 ($0.26 per share), which is comprised of capital gains of approximately $90,000 ($0.02 per share) and an ordinary loss of approximately $1,099,000 ($0.28 per share). Presidential has, for tax purposes, reported the gain from the sale of certain of its properties using the installment method. 10. ACCUMULATED OTHER COMPREHENSIVE LOSS The components of accumulated other comprehensive loss are as follows: March 31, December 31, 2006 2005 ------------- ------------ Minimum pension liability $(1,522,794) $(1,522,794) Net unrealized gain on securities available for sale 12,053 9,430 ----------- ----------- Total accumulated other comprehensive loss $(1,510,741) $(1,513,364) =========== =========== The Company's other comprehensive income consists of the changes in the net unrealized gain on securities available for sale and the minimum pension liability adjustments, if any. Thus, comprehensive income (loss), which consists of net income (loss) plus or minus other comprehensive income, is as follows: Three Months Ended March 31, 2006 2005 ----------- -------- Net income (loss) $(1,278,334) $1,389,003 Other comprehensive income- Net unrealized gain (loss) on securities available for sale 2,623 (850) ----------- ---------- Comprehensive income (loss) $(1,275,711) $1,388,153 =========== ========== 11. COMMITMENTS AND CONTINGENCIES Presidential has a commitment to invest $505,000 in Broadway Partners Parallel Fund A and a commitment to invest $820,000 in Broadway Partners Parallel Fund B II (see Note 6). In addition, Presidential has a commitment to lend up to $1,000,000 to the Hato Rey Partnership (see Note 7). Presidential is not a party to any material legal proceedings. The Company may from time to time be a party to routine litigation incidental to the ordinary course of its business. In the opinion of management, all of the Company's properties are adequately covered by insurance in accordance with normal insurance practices. The Company is not aware of any environmental issues at any of its properties. The presence of hazardous substances at any of its properties could have an adverse effect on the Company's operating results and financial condition. 12. CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS The following table sets forth the components of net periodic benefit costs:
Contractual Contractual Pension Benefits Postretirement Benefits Three Months Ended Three Months Ended March 31, March 31, 2006 2005 2006 2005 -------- -------- -------- -------- Service cost $ 4,120 $ 7,523 $ 5,184 $ 5,184 Interest cost 31,948 33,305 12,151 12,151 Amortization of prior service cost (11,594) (6,173) (2,403) (2,403) Recognized actuarial loss 96,085 73,447 22,801 22,801 -------- -------- ------- ------- Net periodic benefit cost $120,559 $108,102 $37,733 $37,733 ======== ======== ======= =======
During the three months ended March 31, 2006, the Company made contributions of $120,769 and $17,042 for contractual pension benefits and postretirement benefits, respectively. The Company anticipates additional contributions of $364,319 and $57,450 for contractual pension benefits and postretirement benefits, respectively, for the remainder of 2006. 13. DEFINED BENEFIT PLAN The following table sets forth the components of net periodic benefit costs: Three Months Ended March 31, 2006 2005 --------- -------- Service cost $ 94,993 $ 122,508 Interest cost 99,774 93,021 Expected return on plan assets (132,970) (122,565) Amortization of prior service cost 3,154 3,154 Amortization of accumulated loss 16,792 20,173 --------- --------- Net periodic benefit cost $ 81,743 $ 116,291 ========= ========= The Company's funding policy for the defined benefit plan is based on contributions at the minimum and maximum amounts required by law. During the three months ended March 31, 2006, the Company did not make a contribution to the defined benefit plan for the 2006 plan year. The Company is not required to make any contributions in 2006, but may make the maximum tax deductible contribution for 2006 of approximately $389,000. In February, 2006, the Company made a maximum tax deductible contribution of $165,906 for the 2005 tax year. PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005 Forward-Looking Statements Certain statements made in this report may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements regarding the intent, belief or current expectations of the Company and its management and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: o general economic and business conditions, which will, among other things, affect the demand for apartments, mall space or other commercial space, availability and credit worthiness of prospective tenants, lease rents and the terms and availability of financing; o adverse changes in the real estate markets including, among other things, competition with other companies; o risks of real estate development, acquisition, ownership and operation; o governmental actions and initiatives; and o environment and safety requirements. Critical Accounting Policies In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"), management is required to make estimates and assumptions that affect the financial statements and disclosures. These estimates require management's most difficult, complex or subjective judgments. The Company's critical accounting policies are described in its Form 10-KSB for the year ended December 31, 2005. There have been no significant changes in the Company's critical accounting policies since December 31, 2005. Results of Operations Financial Information for the three months ended March 31, 2006 and 2005: - --------------------------------------------------------------------------- Continuing Operations: Revenues decreased by $450,085 primarily as a result of decreases in interest income on mortgages-notes receivable, interest income on mortgages-notes receivable-related parties and other revenues, partially offset by increases in rental revenues. Rental revenues increased by $50,974. As a result of increases in occupancy rates at the Mapletree Industrial Center property, rental revenues increased by $36,270. In addition, rental revenues increased at all of the other rental properties. Interest on mortgages-notes receivable decreased by $149,789. As a result of $8,550,000 and $2,425,006 in repayments on notes receivable in the first quarters of 2005 and 2006, respectively, interest income decreased by $158,320 in the first quarter of 2006. Interest on mortgages-notes receivable-related parties decreased by $48,584 primarily as a result of a decrease of $47,500 in payments of interest income received on the Consolidated Loans (see Liquidity and Capital Resources - Consolidated Loans below). Other revenues decreased by $302,686 primarily because the 2005 period included a $256,500 prepayment fee received on the repayment of the Encore Apartments note receivable and an additional $25,000 fee in connection with the Encore repayment. In addition, other revenues decreased by $14,372 as a result of reduced fees earned by the Company's management company for third party owned properties. Costs and expenses increased by $114,826 primarily due to increases in general and administrative expenses and rental property operating expenses. General and administrative expenses increased by $93,357 primarily as a result of increases in salary expense of $118,136 and bad debt expense of $15,477, partially offset by a decrease in professional fees of $41,179. Salary expense increased primarily due to the award in 2006 of an aggregate of 22,500 restricted shares of the Company's Class B common stock to three executive officers of the Company as discussed further below, which resulted in salary expense of $166,500. This increase in salary expense was offset by a decrease in contractual executive bonuses of $60,718. Rental property operating expenses increased by $15,701 primarily as a result of increases of $32,371 in repairs and maintenance expenses, partially offset by a decrease of $18,845 in snow removal expenses. Other income decreased by $948,051 primarily as a result of the $874,590 increase in the equity in the loss of joint ventures. The Company purchased these investments in joint ventures in 2004 and in the third quarter of 2005 (see Liquidity and Capital Resources - Investments in and Advances to Joint Ventures below). In addition, equity in the loss of partnership increased by $100,025 due to lower earnings of the Hato Rey Partnership, as a result of a higher vacancy rate at its property (see Liquidity and Capital Resources - Hato Rey Partnership below). These decreases were partially offset by a $26,564 increase in investment income attributable to higher interest rates and higher cash balances. Income from continuing operations before net gain from sales of properties decreased by $1,513,457 from income of $266,902 in 2005 to a loss of $1,246,555 in 2006. This decrease was primarily a result of the increase in the equity in the loss of joint ventures of $874,590, the increase in the equity in the loss of partnership of $100,025, increases in general and administrative expenses of $93,357 and the decrease in revenues of $450,085. Net gain from sales of properties consists of recognition of deferred gains from sales in prior years. The recognition of deferred gains from sales in prior years depends on the receipt of installments or prepayments of purchase money notes. In 2005, the net gain from sales of properties was $1,299,879 (net of a provision for Federal taxes of $1,941,661). This gain was attributable to the prepayment of the $8,550,000 Encore Apartments note receivable. Discontinued Operations: In 2006, the Company has one property that is classified as discontinued operations, the Cambridge Green property in Council Bluffs, Iowa, which was designated as held for sale during the quarter ended December 31, 2005. (See Liquidity and Capital Resources - Discontinued Operations below). The following table compares the total loss from discontinued operations for the three month periods ended March 31, for properties included in discontinued operations:
2006 2005 --------- --------- Income (loss) from discontinued operations: Cambridge Green, Council Bluffs, IA $(31,779) $ (77,071) Farrington Apartments, Clearwater, FL - (104,682) Fairlawn Gardens, Martinsburg, WV - 15,555 -------- --------- Loss from discontinued operations (31,779) (166,198) -------- --------- Net loss from sales of discontinued operations: Farrington Apartments - (11,580) -------- --------- Net loss from sales of discontinued operations - (11,580) -------- --------- Total loss from discontinued operations $(31,779) $(177,778) ======== =========
Funds from Operations Funds from operations ("FFO") represents net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of properties (including properties classified as discontinued operations), plus depreciation and amortization on real estate. FFO is calculated in accordance with the National Association of Real Estate Investment Trusts' ("NAREIT") definition. There are no material legal or functional restrictions on the use of FFO. FFO should not be considered as an alternative to net income as an indicator of the Company's operating performance. Management considers FFO, a non-GAAP measure, a supplemental measure of operating performance and uses FFO as a measure for comparing the Company's operating performance between periods and among other REITs. FFO is summarized in the following table: Three Months Ended March 31, 2006 2005 ------------ ----------- Net Income (Loss) $(1,278,334) $ 1,389,003 Net gain from sales of properties - (1,299,879) Net loss from sales of discontinued operations - 11,580 Depreciation and amortization on: Real estate 31,980 30,355 Real estate of discontinued operations - 34,310 Real estate of partnership 25,943 24,160 Real estate of joint ventures 777,825 377,120 ----------- ----------- Funds From (Used In) Operations $ (442,586) $ 566,649 =========== =========== Balance Sheet Investments in and advances to joint ventures decreased by $1,429,700 as a result of $785,412 of distributions received and $644,288 of equity in the loss from the joint ventures. Net mortgage portfolio decreased by $2,583,074 primarily as a result of a partial prepayment in March, 2006 on a $4,500,000 note receivable secured by ownership interests in entities owning nine apartment properties in the Commonwealth of Virginia. The first mortgages on these properties were refinanced and Presidential received $2,425,006 of net refinancing proceeds in repayment of a portion of its loan principal and $215,750 in payment of the deferred interest to date, leaving an outstanding principal balance of $2,074,994. Prepaid expenses and deposits in escrow increased by $117,957 primarily as a result of increases of $222,671 in prepaid expenses, partially offset by decreases of $104,714 in deposits in escrow. Other investments increased by $180,000 as a result of the Company's investment in Broadway Partners Feeder Fund A II (see Liquidity and Capital Resources - Investing Activities below). Other receivables decreased by $258,477 primarily as a result of a decrease in accrued interest receivable of $234,390, decreases in net tenant accounts receivable of $15,718 and decreases of $8,369 in miscellaneous receivables. Cash and cash equivalents increased by $1,871,361 primarily as a result of the $2,640,756 cash received from the prepayment and deferred interest on the $4,500,000 loan, partially offset by cash distributions on common stock to shareholders of $623,887. Accrued liabilities decreased by $282,509 primarily as a result of decreases in accrued contractual executive bonuses of $233,359 and accrued rental property expenses of $68,082. Other liabilities increased by $39,191 primarily as a result of a $38,584 increase in deferred interest income. In January, 2006, three independent directors of the Company each received 1,000 shares of the Company's Class B common stock as a partial payment of directors' fees for the 2006 year. The shares were valued at $7.64 per share, which was the market value of the Class B common stock at the grant date, and, accordingly, the Company recorded $22,920 in prepaid directors' fees (to be amortized during 2006) based on the market value of the stock. The Company recorded additions to the Company's Class B common stock of $300 at par value of $.10 per share and $22,620 to additional paid-in capital. Also in January, 2006, three executive officers of the Company were awarded an aggregate of 22,500 restricted shares of the Company's Class B common stock. The shares were valued at $7.40 per share, which was the market value of the Class B common stock at the grant date, and, accordingly, the Company recorded salary expense of $166,500. The Company recorded additions to the Company's Class B common stock of $2,250 at par value of $.10 per share and $164,250 to additional paid-in capital. Liquidity and Capital Resources Management believes that the Company has sufficient liquidity and capital resources to carry on its existing business and, barring any unforeseen circumstances, to pay the dividends required to maintain REIT status in the foreseeable future. Except as discussed herein, management is not aware of any other trends, events, commitments or uncertainties that will have a significant effect on liquidity. Presidential obtains funds for working capital and investment from its available cash and cash equivalents, from operating activities, from refinancing of mortgage loans on its real estate equities or from sales of such equities, and from repayments on its mortgage portfolio. The Company also has at its disposal a $250,000 unsecured line of credit from a lending institution. At March 31, 2006, there was no outstanding balance due under the line of credit. During the first quarter of 2006, the Company paid cash distributions to shareholders which exceeded cash flows from operating activities. Periodically the Company receives balloon payments on its mortgage portfolio and net proceeds from sales of discontinued operations and other properties. These payments are available to the Company for distribution to its shareholders or the Company may retain these payments for future investment. The Company may in the future, as it did in the first quarter of 2006, pay dividends in excess of its cash flow from operating activities if management believes that the Company's liquidity and capital resources are sufficient to pay such dividends. To the extent that payments received on its mortgage portfolio or payments received from sales are taxable as capital gains, the Company has the option to distribute the gain to its shareholders or to retain the gain and pay Federal income tax on it. The Company does not have a specific policy as to the retention or distribution of capital gains. The Company's dividend policy regarding capital gains for future periods will be based upon many factors including, but not limited to, the Company's present and projected liquidity, its desire to retain funds available for additional investment, its historical dividend rate and its ability to reduce taxes by paying dividends. While the Company expects to maintain the annual $.64 dividend rate in 2006, no assurances can be given that the present dividend rate will be maintained in the future. At March 31, 2006, Presidential had $4,749,598 in available cash and cash equivalents, an increase of $1,871,361 from the $2,878,237 at December 31, 2005. This increase in cash and cash equivalents was due to cash provided by operating activities of $140,033 and cash provided by investing activities of $2,358,565, offset by cash used in financing activities of $627,237. Operating Activities Cash from operating activities includes interest on the Company's mortgage portfolio, net cash received from rental property operations and distributions received from joint ventures and a partnership. In 2006, cash received from interest on the Company's mortgage portfolio was $639,013 and distributions received from the joint ventures were $785,412. Cash disbursed for rental property operations was $125,144. Net cash disbursed for rental property operations includes distributions to minority partners but does not include additions and improvements and mortgage amortization. Investing Activities Presidential holds a portfolio of mortgage notes receivable. During 2006, the Company received principal payments of $2,630,872 on its mortgage portfolio of which $2,618,928 represented prepayments and balloon payments. In March, 2006, the Company received a partial prepayment of $2,425,006 on its $4,500,000 loan secured by ownership interests in entities owning nine apartment properties in the Commonwealth of Virginia. Prepayments and balloon payments are sporadic and cannot be relied upon as a regular source of liquidity. During the first quarter of 2006, the Company invested $92,307 in additions and improvements to its properties. In March, 2006, Presidential agreed to invest $1,000,000 in Broadway Partners Feeder Fund A II, a blind pool of investment capital sponsored by Broadway Real Estate Partners, LLC ("Broadway Partners"). Presidential's commitment will be called on from time to time by Broadway Partners as it requires funds to make real estate investments. Presidential will fund this obligation from its own funds or from the $1,000,000 escrow account held by Broadway Partners. In 2005, Presidential advanced $1,000,000 to Broadway Partners which is being held in escrow by Broadway Partners and will be utilized to fund Presidential's commitments to the Broadway Partners Funds. While the money is being held in escrow, Presidential receives interest payments at the rate of 11.43% per annum. At March 31, 2006, Presidential had advanced $180,000 of its commitment with funds other than the escrowed funds and the balance of Presidential's commitment is $820,000. In addition, in 2005, the Company agreed to invest $1,000,000 in Broadway Partners Parallel Fund A. During 2005, the Company advanced $495,000 and the balance of its commitment at March 31, 2006 was $505,000. Subsequent to March 31, 2006, the Company advanced an additional $85,000 of its commitment. Financing Activities The Company's indebtedness at March 31, 2006, consisted of mortgage debt of $3,615,383 for continuing operations and $2,904,643 for discontinued operations. The mortgage debt is collateralized by individual properties. The $2,327,081 mortgage on the Crown Court property is nonrecourse to the Company, whereas the $1,148,152 Building Industries Center mortgage and the $140,150 Mapletree Industrial Center mortgage are recourse to Presidential. The $2,904,643 mortgage on the Cambridge Green property, which is classified as a discontinued operation, is nonrecourse to the Company. In addition, some of the Company's mortgages provide for Company liability for damages resulting from specified acts or circumstances, such as for environmental liabilities and fraud. Generally, mortgage debt repayment is serviced with cash flow from the operations of the individual properties. During the first quarter of 2006, the Company made $44,862 of principal payments on mortgage debt. The mortgages on the Company's properties are at fixed rates of interest and will fully amortize by periodic principal payments, with the exception of the Building Industries Center mortgage, which has a balloon payment of $1,072,906 due at maturity in January, 2009. During the first quarter of 2006, Presidential declared and paid cash distributions of $623,887 to its shareholders and received proceeds from its dividend reinvestment plan of $45,262. The Company had previously suspended the operation of its Share Purchase Plan because the Company was delinquent in its federal securities law filing obligations because it had not filed the required financial information as an Exhibit to the Company's Form 8-K with respect to its investment in five shopping mall properties in September, 2004. With the filing of its financial statements in its Form 10-KSB for the year ended December 31, 2005, the delinquency was cured. The Company decided to terminate the Share Purchase Plan in April of 2006. However, the Dividend Reinvestment Plan remains in effect. Discontinued Operations At March 31, 2006, assets related to discontinued operations were $2,880,770 and liabilities related to discontinued operations were $2,980,618. These assets and liabilities relate to the Cambridge Green property, which was designated as held for sale during the three months ended December 31, 2005. At March 31, 2006, the carrying value of the Cambridge Green property was $2,759,451 (net of accumulated depreciation of $1,634,161) and the outstanding mortgage balance was $2,904,643. For the three months ended March 31, 2006, gross revenues were $298,038 and loss from operations was $31,779. Investments in and Advances to Joint Ventures During 2004 and 2005, the Company made investments in and loans to joint ventures and received 29% ownership interests in these joint ventures. The Company purchased the Martinsburg Mall in Martinsburg, West Virginia for $27,000,000 in September, 2004 and subsequent to closing obtained a mezzanine loan from The Lightstone Group ("Lightstone") in the amount of $2,600,000, which is secured by a pledge of ownership interests in the entity that owns the Martinsburg Mall. The loan matures on September 27, 2014, and the interest rate on the loan is 11% per annum. Lightstone Member LLC ("Lightstone I") manages the property and David Lichtenstein received a 71% ownership interest in the entity owning the property, leaving the Company with a 29% ownership interest. In September, 2004, the Company made an $8,600,000 mezzanine loan to Lightstone I in connection with the acquisition by Lightstone I of four shopping malls, namely the Shenango Valley Mall in Hermitage, Pennsylvania; the West Manchester Mall in York, Pennsylvania; the Bradley Square Mall in Cleveland, Tennessee and the Mount Berry Square Mall in Rome, Georgia (the "Four Malls"). The loan is secured by the ownership interests in the entities that own the Four Malls and the Company received a 29% ownership interest in these entities. The loan matures on September 27, 2014 and the interest rate on the loan is 11% per annum. The Martinsburg Mall and the Four Malls are subject to a $105,000,000 nonrecourse first mortgage loan. In December, 2004, the Company made a $7,500,000 mezzanine loan to Lightstone Member II LLC ("Lightstone II") in connection with the acquisition by Lightstone II of the Brazos Outlets Center Mall in Lake Jackson, Texas and the Shawnee Mall in Shawnee, Oklahoma (the "Shawnee/Brazos Malls"). The loan is secured by the ownership interests in the entities that own the properties and the Company received a 29% ownership interest in these entities. The loan matures on December 23, 2014 and the interest rate on the loan is 11% per annum. The Shawnee/Brazos Malls are subject to a $39,500,000 nonrecourse first mortgage loan. In July, 2005, Presidential made a $9,500,000 mezzanine loan to Lightstone Member III LLC ("Lightstone III") in connection with the acquisition by Lightstone III of the Macon Mall in Macon, Georgia and the Burlington Mall in Burlington, North Carolina (the "Macon/Burlington Malls"). The loan is secured by the ownership interests in the entities that own the Macon/Burlington Malls and Presidential received a 29% ownership interest in these entities. The loan matures on June 30, 2015, and the interest rate on the loan is 11% per annum. The Macon/Burlington Malls are subject to a nonrecourse first mortgage loan and a mezzanine loan in the aggregate original principal amount of $158,850,000. Each individual owning entity is a single purpose entity that is prohibited by its organizational documents from owning any assets other than the specified shopping mall properties above. The Company accounts for these investments using the equity method. At March 31, 2006, investment in and advances to joint ventures are as follows: Martinsburg Mall $ 760,563 Four Malls 6,001,857 Shawnee/Brazos Malls 6,448,477 Macon/Burlington Malls 8,650,536 ----------- $21,861,433 =========== Equity in the (loss) income of joint ventures for the three months ended March 31, 2006 is as follows: Martinsburg Mall $(158,986) Four Malls (374,417) Shawnee/Brazos Malls (145,540) Macon/Burlington Malls 34,655 --------- $(644,288) ========= As a result of the Company's use of the equity method of accounting with respect to its investments in and advances to the joint ventures, the Company's consolidated statements of operations reflect 29% of the income (loss) of the joint ventures. The equity in the loss of joint ventures of $644,288 for the three months ended March 31, 2006 is after deductions in the aggregate amount of $1,204,058 for the Company's 29% of noncash charges (depreciation of $777,825 and amortization of deferred financing costs and in-place lease values of $426,233). Notwithstanding the income (loss) from the joint ventures, the Company is entitled to receive its interest at the rate of 11% per annum on its $25,600,000 of loans to the joint ventures. For the three months ended March 31, 2006, the Company received distributions from the joint ventures in the amount of $785,412, all of which were interest payments received on the outstanding loans to the joint ventures. The Lightstone Group is controlled by David Lichtenstein. At March 31, 2006, in addition to Presidential's investments of $21,861,433 in these joint ventures with entities controlled by Mr. Lichtenstein, Presidential has three loans that are due from entities that are controlled by Mr. Lichtenstein in the aggregate outstanding principal amount of $7,449,994 with a net carrying value of $6,744,798. Two of the loans in the outstanding principal amount of $5,375,000, with a net carrying value of $4,669,804, are secured by interests in five apartment properties and are also personally guaranteed by Mr. Lichtenstein up to a maximum amount of $3,137,500. The Company believes that Mr. Lichtenstein has sufficient net worth and liquidity to satisfy his obligations under these personal guarantees. However, because of the substantial equity in the properties securing the loans, it is unlikely that Presidential will have to call upon these personal guarantees. The third loan in the outstanding principal amount of $2,074,994 is secured by interests in nine apartment properties. All of these loans are in good standing but, while the Company believes that all of these loans are adequately secured, a default on some or all of these loans could have a material adverse effect on Presidential's business and operating results. The $28,606,231 net carrying value of investments in and advances to joint ventures with entities controlled by Mr. Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein constitute 66% of the Company's total assets at March 31, 2006. Hato Rey Partnership At March 31, 2006, the Company has an aggregate 33% general and limited partnership interest in the Hato Rey Partnership. The Hato Rey Partnership owns and operates an office building in Hato Rey, Puerto Rico. During the year ended December 31, 2005, two tenants at the building vacated a total of 52,088 square feet of office space at the expiration of their leases in order to take occupancy of their own newly constructed office buildings and in March, 2006, another tenant vacated 30,299 square feet of office space in order to take occupancy of its newly constructed office building. As a result, at December 31, 2005, the vacancy rate at the building was approximately 33% and at March 31, 2006, the vacancy rate was approximately 50%. The Company expects that it will take some time to find tenants for the vacant space and that until a substantial portion of the vacant space is rented, the property will operate at a loss. In addition, the Hato Rey Partnership has decided to undertake a program of repairs and improvements to the building that is expected to cost approximately $1,255,000. The Company has agreed to lend up to $1,000,000 to the Hato Rey Partnership (and has the right to lend an additional $1,000,000) to pay for the cost of improvements to the building and fund any negative cash flows from the operation of the property. The loan, which will be advanced from time to time as funds are needed, will bear interest at the rate of 11% per annum, with interest and principal to be paid out of the first positive cash flow from the property or upon a refinancing of the first mortgage on the property. At March 31, 2006, the Company had not advanced any money to the Hato Rey Partnership under the loan agreement. On April 12, 2006, the Company acquired an additional 25% limited partnership interest in the Hato Rey Partnership for a purchase price of $957,027. The acquisition was closed in escrow pending approval of certain legal issues by the holder of the first mortgage on the property. Presidential believes that the purchase price reflects the current high vacancy rate at the property and presents an opportunity to benefit from a potential increase in the value of the property if and when the capital improvement and leasing programs are successfully completed. When the acquisition of the additional 25% limited partnership interest is released from escrow, Presidential will own a 1% general and a 57% limited partnership interest in the Hato Rey Partnership. At that time, the Company will exercise effective control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business. As a result, upon completion of the purchase, the Company will consolidate the Hato Rey Partnership in the Company's consolidated financial statements. Consolidated Loans Presidential holds two nonrecourse loans (the "Consolidated Loans"), which were collateralized by substantially all of the remaining assets of Ivy Properties, Ltd. and its affiliates "(Ivy"). At March 31, 2006, the Consolidated Loans have an outstanding principal balance of $4,770,050 and a net carrying value of zero. Pursuant to existing agreements, the Company is entitled to receive, as payments of principal and interest on the Consolidated Loans, 25% of the cash flow of Scorpio Entertainment, Inc. ("Scorpio"), a company owned by two of the Ivy principals who are officers of Presidential (Messrs. Baruch and Viertel) to carry on theatrical productions. Amounts received by Presidential from Scorpio will be applied to unpaid and unaccrued interest on the Consolidated Loans and recognized as income. The Company anticipates that these amounts may continue to be significant over the next several years. However, the continued profitability of any theatrical production is by its nature uncertain and management believes that any estimate of payments from Scorpio on the Consolidated Loans for future periods is too speculative to project. During the quarters ended March 31, 2006 and 2005, the Company received payments of $34,000 and $81,500, respectively, from Scorpio. The Consolidated Loans bear interest at a rate equal to the Chase Prime rate, which was 7.25% at March 31, 2006. At March 31, 2006, the unpaid and unaccrued interest was $3,143,893 and such interest is not compounded. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's financial instruments consist primarily of notes receivable and mortgage notes payable. Substantially all of these instruments bear interest at fixed rates, so the Company's cash flows from them are not directly impacted by changes in market rates of interest. Changes in market rates of interest impact the fair values of these fixed rate assets and liabilities. However, because the Company generally holds its notes receivable until maturity and repays its notes payable at maturity or upon sale of the related properties, any fluctuations in values do not impact the Company's earnings, balance sheet or cash flows. Nevertheless, since some of the Company's mortgage notes payable are at fixed rates of interest and provide for yield maintenance payments upon prepayment prior to maturity, if market interest rates are lower than the interest rates on the mortgage notes payable, the Company's ability to sell the properties securing the notes may be adversely affected and the net proceeds of any sale may be reduced because of the yield maintenance requirements. The Company does not own any derivative financial instruments or engage in hedging activities. The $105,000,000 nonrecourse first mortgage loan secured by the Martinsburg Mall and the Four Malls, and the $39,500,000 nonrecourse first mortgage loan secured by the Shawnee/Brazos Malls (see Investments in and Advances to Joint Ventures above), carry interest rates which change monthly based on the London Interbank Offered Rate and mature in October, 2006 and January, 2007, respectively, subject to the borrower's right to extend the maturity dates for three additional one year terms. As a result, any material increase in interest rates could adversely affect the operating results of the joint ventures and their ability to make the required interest payments on the Company's $8,600,000 and $7,500,000 mezzanine loans to those entities. The interest rate on the first mortgages secured by the Martinsburg Mall and the Four Malls in fact increased from 7.98% per annum at December 31, 2005 to 8.17% per annum at March 31, 2006 and the interest rate on the first mortgages secured by the Shawnee/Brazos Malls increased from 7.18% per annum at December 31, 2005 to 7.37% per annum at March 31, 2006. The Company believes that these first mortgages will either be extended in accordance with their terms or refinanced prior to the maturity date of their initial terms. ITEM 3. CONTROLS AND PROCEDURES a) As of the end of the period covered by this quarterly report on Form 10-QSB, the Company carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in this report. b) There has been no change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting. PART II - OTHER INFORMATION Item 5. Other Information The Company was delinquent in its federal securities law filing obligations because it had not filed the required financial information as an Exhibit to the Company's Form 8-K with respect to its investment in five shopping mall properties in September, 2004. The financial information related to operations of the properties for calendar year 2003 and the nine months ended September, 2004 prior to the Company's investment in the properties. The Company was unable to obtain the financial information from the seller of the properties. This delinquency was cured with the filing of the Company's Form 10-KSB for the year ended December 31, 2005, which included audited financial statements for the properties for the period from the acquisition of the Company's interest in the properties until December 31, 2005. During the period of delinquency in its filing obligations, Presidential's dividend reinvestment plan for its Class B Common Stock continued pursuant to the terms of its Dividend Reinvestment and Share Purchase Plan but shareholders were not able to make optional cash payments to acquire shares under the Plan. With the filing of the Form 10-KSB, the delinquency was cured. However, on April 4, 2006, the Company terminated the Share Purchase Plan. The dividend reinvestment provisions of the Dividend Reinvestment and Share Purchase Plan remain effective. Item 6. Exhibits 31.1 Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 32.1 Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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. PRESIDENTIAL REALTY CORPORATION (Registrant) DATE: May 11, 2006 By: /s/ Jeffrey F. Joseph --------------------- Jeffrey F. Joseph President and Chief Executive Officer DATE: May 11, 2006 By: /s/ Elizabeth Delgado --------------------- Elizabeth Delgado Treasurer EX-31 2 exhibit31-1.txt EXHIBIT 31.1 CEO CERTIFICATION Exhibit 31.1 CERTIFICATION I, Jeffrey F. Joseph, Chief Executive Officer of Presidential Realty Corporation (the "Company") certify that: 1. I have reviewed this quarterly report on Form 10-QSB of the Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report; 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the Audit Committee of the Company's Board of Directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. DATE: May 11, 2006 By: /s/ Jeffrey F. Joseph -------------------------- Jeffrey F. Joseph Chief Executive Officer EX-31 3 exhibit31-2.txt EXHIBIT 31.2 CFO CERTIFICATION Exhibit 31.2 CERTIFICATION I, Thomas Viertel, Chief Financial Officer of Presidential Realty Corporation (the "Company") certify that: 1. I have reviewed this quarterly report on Form 10-QSB of the Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report; 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the Audit Committee of the Company's Board of Directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. DATE: May 11, 2006 By: /s/ Thomas Viertel -------------------------- Thomas Viertel Chief Financial Officer EX-32 4 exhibit32-1.txt EXHIBIT 32.1 CEO CERTIFICATION Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-QSB of Presidential Realty Corporation (the "Company") for the period ending March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey F. Joseph, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934: and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company. Presidential Realty Corporation By:/s/ Jeffrey F. Joseph -------------------------- Jeffrey F. Joseph Chief Executive Officer Date: May 11, 2006 EX-32 5 exhibit32-2.txt EXHIBIT 32.2 CFO CERTIFICATION Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-QSB of Presidential Realty Corporation (the "Company") for the period ending March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas Viertel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934: and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company. Presidential Realty Corporation By:/s/ Thomas Viertel ---------------------- Thomas Viertel Chief Financial Officer Date: May 11, 2006 -----END PRIVACY-ENHANCED MESSAGE-----