10KSB

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

(MARK ONE)	x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2006
	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
		OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-8594

PRESIDENTIAL REALTY CORPORATION

(Exact name of registrant 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)	(Zip Code)

Registrant’s telephone number, including area code 914-948-1300

Securities registered pursuant to Section 12(b) of the Act:

	Name of each exchange on
Title of each class	which registered
Class A Common Stock	American Stock Exchange
Class B Common Stock	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

                Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. x

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

                The registrant’s revenues for the year ended December 31, 2006 were $3,919,621.

                The aggregate market value of voting stock held by non-affiliates of the registrant based on the closing price of the stock at February 2, 2007 was $24,975,000. The registrant has no non-voting stock.

                The number of shares outstanding of each of the registrant’s classes of common stock on March 12, 2007 was 478,066 shares of Class A common and 3,459,446 shares of Class B common.

                Documents Incorporated by Reference: The Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held on June 15, 2007, which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated by reference into Part III of this Form 10-KSB.

Transitional Small Business Disclosure Format (check one): Yes o     No x

PRESIDENTIAL REALTY CORPORATION
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS			1
PART I
	Item 1.	Description of Business	1
	Item 2.	Description of Property	16
	Item 3.	Legal Proceedings	21
	Item 4.	Submission of Matters to a Vote of Security Holders	21
PART II
	Item 5.	Market for Common Equity and Related Stockholder Matters	21
	Item 6.	Management’s Discussion and Analysis or Plan of Operation	24
	Item 7.	Financial Statements	55
	Item 8.	Changes in and Disagreements with Accountants on Accounting and     Financial Disclosure	55
	Item 8A.	Controls and Procedures	55
	Item 8B.	Other Information	55
PART III
	Item 9.	Directors, Executive Officers, Promoters, Control Persons and Corporate     Governance; Compliance with Section 16(a) of the Exchange Act	55
	Item 10.	Executive Compensation	56
	Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related     Stockholder Matters	56
	Item 12.	Certain Relationships and Related Transactions, and Director Independence	56
	Item 13.	Exhibits	56
	Item 14.	Principal Accountant Fees and Services	60
Table of Contents to Consolidated Financial Statements			63

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 that 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: 

• general economic and business conditions, which will, among other things, affect the demand for apartments, mall space or other commercial space, availability and creditworthiness of prospective tenants, rental rates and the terms and availability of financing;

• adverse changes in the real estate markets including, among other things, competition with other companies;

• risks of real estate development, acquisition, ownership and operation;

• governmental actions and initiatives; and

• environmental and safety requirements.

PART I

ITEM I. DESCRIPTION OF BUSINESS

(a)           General

Presidential Realty Corporation is a Delaware corporation organized in 1983 to succeed to the business of a company of the same name that was organized in 1961 to succeed to the business of a closely held real estate business founded in 1911. The terms “Presidential” or the “Company” refer to the present Presidential Realty Corporation or its predecessor company of the same name and to any subsidiaries. Since 1982 the Company has elected to be treated as a real estate investment trust (“REIT”) for Federal and State income tax purposes. See Qualification as a REIT. The Company invests in joint ventures that own shopping malls, owns real estate and interests in real estate and makes loans secured by interests in real estate.

Presidential self-manages the properties that it owns and the property owned by PDL, Inc. and Associates Limited Co-Partnership

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(the “Hato Rey Partnership”) in which the Company is the general partner and has a 59% partnership interest. At December 31, 2006, the Company employed 26 people, of which 14 are employed at the Company’s home office and 12 are employed at the individual property sites. The Company does not manage the shopping mall properties owned by the joint ventures in which it has invested. Those properties are managed by an affiliate of the Company’s partner in the joint ventures.

During 2006, the Company purchased the 25% partnership interest held by one of its partners in the Hato Rey Partnership for a purchase price of $950,000 (plus additional costs of purchase of $54,439). Management believes that the purchase price reflects the current high vacancy rate at the property and represents an opportunity for the Company to benefit from any subsequent improvement in the operations of the property. As a result of the purchase of the additional 25% partnership interest, the Company owns a 59% partnership interest, and, accordingly, the Company has consolidated the Hato Rey Partnership on the Company’s consolidated balance sheet at December 31, 2006. The Company did not consolidate the Hato Rey Partnership’s results of operations on its consolidated statement of operations because for the year ended December 31, 2006, the Company only had a 33% and 34% ownership interest in the partnership, and accordingly, the Company recorded its share of the loss from the partnership for the year ended December 31, 2006, in Equity in the (loss) income of partnership, under the equity method of accounting. The Company allocated the transaction’s value, the negative basis of the minority partners and the Company’s negative basis, to the tangible and intangible assets acquired and liabilities assumed based on the increase in their estimated fair values over historical costs in a partial step acquisition in accordance with the provisions of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements” and the Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, as follows:

Land	$	1,899,170
Building and improvements		12,085,690
Intangible assets (in other assets)		570,596
Mortgage payable		15,660,265
Other liabilities		167,865

The Company’s assets fall into the following categories:

(i)   Joint ventures.  Approximately 35% of the Company’s assets consists of investments in and advances to joint ventures. The Company accounts for these investments using the equity method.

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At December 31, 2006, investments in and advances to joint ventures were $18,059,749. See Management’s Discussion and Analysis or Plan of Operation and Note 2 of Notes to Consolidated Financial Statements.

(ii)   Equity interests in rental properties. Approximately 31% of the Company’s assets are equity interests in commercial and residential rental properties. These properties have a carrying value of $20,333,180, less accumulated depreciation of $4,363,886, resulting in a net carrying value of $15,969,294 at December 31, 2006. See Description of Property below.

(iii)   Notes receivable. Approximately 14% of the Company’s assets consists of notes receivable, which are reflected on the Company’s Consolidated Balance Sheet at December 31, 2006 as “Mortgage portfolio: notes receivable – net”. The $7,803,444 aggregate principal amount of these notes has been reduced by $569,205 of discounts (which reflect the difference between the stated interest rates on the notes and the market interest rates at the time the notes were made). See Notes 1-B, 1-C, 1-D and 4 of Notes to Consolidated Financial Statements. Accordingly, the net carrying value of the Company’s “Mortgage portfolio: notes receivable” was $7,234,239 at December 31, 2006.

All of the loans included in this category of assets were current at December 31, 2006.

Notes reflected under “Mortgage portfolio: notes receivable - net” consist of notes received from sales of real properties previously owned by the Company in the aggregate principal amount of $4,170,000, loans originated by the Company in the aggregate principal amount of $3,574,994 and notes in the aggregate principal amount of $58,450 that relate to sold cooperative apartments.

(iv)   Assets related to discontinued operations. Approximately 6% of the Company’s assets are classified as “Assets related to discontinued operations”. This category of assets relates to one operating property, Cambridge Green Apartments in Council Bluffs, Iowa, that is being held for sale. The Company entered into a contract for the sale of the property in September, 2006 and consummated the sale in March, 2007. These assets are carried at the lower of cost (net of accumulated depreciation and amortization) or fair value less costs to sell. Depreciation and amortization are discontinued when the property is classified as a discontinued operation. At December 31, 2006, assets related to discontinued

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operations were $2,922,493. See Management’s Discussion and Analysis or Plan of Operation and Note 27 of Notes to Consolidated Financial Statements.

(v)   Other investments. Approximately 4% of the Company’s assets are other investments. These investments are with Broadway Real Estate Partners LLC, a private real estate investment and management firm, which invests in high quality office properties. At December 31, 2006, other investments were $2,000,000. See Management’s Discussion and Analysis or Plan of Operation and Note 6 of Notes to Consolidated Financial Statements.

(vi)   Notes receivable - related parties. A small portion of the Company’s assets consists of notes receivable in the aggregate principal amount of $195,001 resulting from loans made to Ivy Properties, Ltd. (“Ivy”) in connection with the conversion of apartment buildings to cooperative ownership or the sale in 1981 by the Company to Ivy of an apartment project. These loans are reflected on the Company’s Consolidated Balance Sheet at December 31, 2006 as “Mortgage portfolio: notes receivable - related parties - net”. The principal amounts of these notes have been reduced by discounts and valuation reserves of $46,785 and these notes have a net carrying value at December 31, 2006 of $148,216. Management believes that it holds sufficient collateral to protect its interests in these outstanding loans to Ivy. At December 31, 2006, all of the loans due from related parties were current. See Relationship with Ivy Properties, Ltd.  and Notes 4 and 23 of Notes to Consolidated Financial Statements.

The Company’s investments in and advances to joint ventures in the amount of $18,059,749 were made to joint ventures controlled by affiliates of David Lichtenstein. At December 31, 2006, in addition to Presidential’s investments 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 $6,886,161. Two of the loans in the aggregate outstanding principal amount of $5,375,000, with a net carrying value of $4,811,167, 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

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$2,074,994 is secured by interests in nine apartment properties. All of these loans are in good standing and the Company believes that all of these loans are adequately secured; however, a default on any or all of these loans could have a material adverse effect on Presidential’s business and operating results. The $24,945,910 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 48% of the Company’s total assets at December 31, 2006.

Presidential first met Mr. Lichtenstein, the principal owner of The Lightstone Group (“Lightstone”), in 1999 when it sold him its first and second mortgage notes secured by the Fairfield Towers apartment property in Brooklyn, New York. In connection with that transaction, Mr. Lichtenstein assumed the obligation to repay a $4,000,000 note that is still held by the Company. Over the next four years, the Company made four new loans to Mr. Lichtenstein secured by various apartment properties. As Mr. Lichtenstein expanded his business into shopping center properties with the acquisition in 2003 of Prime Retail, Inc., the owner of 36 shopping malls throughout the United States, Presidential saw an opportunity to participate in this new investment area, and in 2004 and 2005 made the joint venture investments referenced above. Presidential may make additional loans to or investments with Mr. Lichtenstein in the future, although there are no commitments to do so at the present time. Lightstone currently owns and manages a diverse portfolio of approximately 20,000 apartment units and 27,000,000 square feet of office, industrial and commercial space in 28 states and Puerto Rico.

Under the Internal Revenue Code of 1986, as amended (the “Code”), a REIT that meets certain requirements is not subject to Federal income tax on that portion of its taxable income that is distributed to its shareholders, if at least 90% of its “real estate investment trust taxable income” (exclusive of capital gains) is so distributed. Since January 1, 1982, the Company has elected to be taxed as a REIT and has paid regular quarterly cash distributions. Total dividends paid by the Company in 2006 were $.64 per share of which $.52 per share was a taxable capital gain dividend and $.12 per share was a return of capital.

While the Company intends to operate in such a manner as to enable it to be taxed as a REIT, and to pay dividends in an amount sufficient to maintain REIT status, no assurance can be given that the Company will, in fact, continue to be taxed as a REIT, that distributions will be maintained at the current rate or that the Company will have cash available to pay sufficient dividends in order to maintain REIT

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status.  See Qualification as a REIT, Market for Common Equity and Related Stockholder Matters and Note 15 of Notes to Consolidated Financial Statements.

(b)           Investment Strategies

The Company’s current general investment strategy is to make investments in real property that offer attractive current yields with, in some cases, potential for capital appreciation. The Company’s investment policy is not contained in or subject to restrictions included in the Company’s Certificate of Incorporation or Bylaws, and there are no limits in the Company’s Certificate of Incorporation or Bylaws on the percentage of assets that it may invest in any one type of asset or the percentage of securities of any one issuer that it may acquire. The investment policy may, therefore, be changed by the Board of Directors of the Company without the concurrence of the holders of its outstanding stock. However, to continue to qualify as a REIT, the Company must restrict its activities to those permitted under the Code. See Qualification as a REIT.

The Company’s current primary investment strategies are as follows:

               (i)   Loans and Investments in Joint Ventures

The Company has in the last five years utilized a substantial portion of its funds available for investment to make loans secured by interests in real property. These loans have been “mezzanine” type loans, which are secured by subordinate security interests in real property or by ownership interests in entities that own real property. These loans carry interest rates in excess of rates usually obtainable on first priority loans. See notes to the Mortgage Portfolio: Notes Receivable table under Loans and Investments. In some cases, the Company has, in connection with a loan, obtained an ownership interest in the borrowing entity and, as a result, is entitled to share in the earnings of the borrower. These loans are reflected on the Company’s consolidated financial statements as “Investments in and advances to joint ventures”. The Company expects to make additional loans of this type if the opportunity to do so arises. To date, all of these loans have been made to entities controlled by David Lichtenstein. See Investments in and Advances to Joint Ventures.

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The Company has over the years held long term mortgage notes which provide for balloon principal payments at varying times. The Company may in appropriate circumstances agree to extend and modify these notes. See the table set forth below under Loans and Investments. It should be noted that there can be no assurance that the balloon principal payments due in accordance with these notes will actually be made when due.

The Company has in the past and may in the future receive mortgage notes from the sales of its properties. As a result, the capital gains from sales of real properties are recognized for income tax purposes on the installment method as principal payments are received. To the extent that any such gain is recognized by Presidential, or to the extent that Presidential incurs a capital gain from the sale of a property, it may, as a REIT, either (i) elect to retain such gain, in which event it will be required to pay Federal and State income tax on such gain, (ii) distribute all or a portion of such gain to shareholders, in which event Presidential will not be required to pay taxes on the gain to the extent that it is distributed to shareholders or (iii) elect to retain such gain and designate it as a retained capital gain dividend, in which event the Company would pay the Federal tax on such gain, the shareholders would be taxed on their share of the undistributed long-term capital gain and the shareholders would receive a tax credit for their share of the Federal tax that the Company paid and increase the tax basis of their stock for the difference between the long-term capital gain and the tax credit. To the extent that Presidential retains any principal payments on notes or proceeds of sale, the proceeds, after payment of any taxes, will be available for investment. Presidential has not adopted a specific policy with respect to the distribution or retention of capital gains, and its decision as to any such gain will be made in connection with all of the circumstances existing at the time the gain is recognized. The Company did not designate any capital gain in 2006 as a retained capital gain dividend.

(ii)   Equity Properties

For many years the Company’s investment policy was focused on acquiring equity interests in income producing real estate, principally moderate income apartment properties located in the eastern United States. However, in recent years the Company has not found any such investments that offer rates of return satisfactory to the Company or otherwise meet the Company’s investment criteria. As described in subparagraph (i) above, in

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recent years the Company has focused its investment activities in making loans secured by interests in real property or by ownership interests in entities that own real property; and in some instances the Company has obtained ownership interests in the properties in connection with its loans. While the Company’s present intention is to continue to seek opportunities to make loans as described above, the Company may in the future acquire equity interests in real estate, including residential properties and commercial properties such as office buildings, shopping centers and light industrial properties.

While it has been Presidential’s policy to acquire properties for long term investment, it has from time to time sold its equity interests in such properties and may do so in the future. Over the past five years, the Company has sold or otherwise disposed of six of its apartment properties and sold one additional apartment property in March of 2007. See Management’s Discussion and Analysis or Plan of Operation – Discontinued Operations.

(iii)   Funding of Investments

The Company typically obtains funds to make loans and investments from excess cash from operations, from refinancing of mortgage loans on its real estate equities or from sales of such equities, and from repayments on its mortgage portfolio. In the past, the Company also obtained loans from financial institutions secured by specific real property or from general corporate borrowings. Such loans have in the past been, and may in the future be, secured by real property and provide for recourse to Presidential. However, funds may not be readily available from these sources and such unavailability may limit the Company’s ability to make new investments. In addition, the Company may face competition for investment properties from other potential purchasers with greater financial resources. See Management’s Discussion and Analysis or Plan of Operation – Liquidity and Capital Resources.

(c)          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 accounts for these investments and loans under the equity method because it exercises significant influence over, but does not control, these entities. These investments are recorded at cost, as investments in and advances to joint ventures, and

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adjusted for the Company’s share of each venture’s income or loss and increased for cash contributions and decreased for distributions received. Real estate held by such entities is regularly reviewed for impairment, and would be written down to its estimated fair value if impairment were determined to exist. In 2006, no impairments were recorded for this real estate.

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 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, and the Company owns the remaining 29% ownership interest.

In September, 2004, the Company made a $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.

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 Shawnee/Brazos Malls 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. In June, 2006, the Company made an additional $335,000 mezzanine loan to Lightstone II. The loan was added to the original $7,500,000 loan and has the same interest rate and maturity date as the original loan.

In July, 2005, the Company 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

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interests in the entities that own the Macon/Burlington Malls and the Company 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 following table sets forth information as of December 31, 2006 with respect to the investments in and advances to joint ventures.

Name of Property	Joint Venture Partner	Presidential’s Ownership Interest		Investments in and Advances to Joint Ventures
Martinsburg Mall     Martinsburg, WV	David Lichtenstein	29%	$	162,821
Four Malls Bradley Square Mall     Cleveland, TN	David Lichtenstein	29%		4,534,578
Mount Berry Square Mall     Rome, GA
Shenango Valley Mall     Hermitage, PA
West Manchester Mall     York, PA
Shawnee/Brazos Malls Brazos Outlets     Center Mall     Lake Jackson, TX	David Lichtenstein	29%		6,007,924
Shawnee Mall     Shawnee, OK
Macon/Burlington Malls	David Lichtenstein	29%		7,354,426
Burlington Mall     Burlington, NC
Macon Mall     Macon, GA
			$	18,059,749

(d)           Loans and Investments

The following table sets forth information as of December 31, 2006 with respect to the mortgage loan portfolio resulting from the sale of properties or loans originated by the Company.

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MORTGAGE PORTFOLIO: NOTES RECEIVABLE

DECEMBER 31, 2006
Name of Property			Note Receivable			Discount		Net Carrying Value		Maturity Date		Interest Rate December 31, 2006
Chelsea Village Apartments     Atlantic City, NJ	(a)	(1)	$	3,875,000	(b)	$	563,833	$	3,311,167		2009		10.75	%
Pinewood Chase Apartments     Suitland, MD	(a)
Plaza Village Apartments     Morrisville, PA	(a)
Town Oaks Apartments     South Bound Brook, NJ	(a)
Reisterstown Apartments     Baltimore, MD	(a)	(2)		1,500,000	(b)		—		1,500,000		2008		13.80	%
Mark Terrace Associates     Bronx, NY		(3)		195,000			—		195,000		2008		9.16	%
Pinewood I & II     Des Moines, IA				100,000			—		100,000		2008		12.00	%
Virginia Apartment Properties		(4)		2,074,994	(b)		—		2,074,994		2013		13.50	%
Various Sold Co-op Apartments				58,450	(c)		5,372		53,078		Various		Various
Total Notes Receivable			$	7,803,444		$	569,205	$	7,234,239

(a)	These properties collateralize both the $3,875,000 loan and the $1,500,000 loan.
(b)	These loans were made to various companies that are controlled by David Lichtenstein. Some, but not all, of these loans are guaranteed in whole or in part by Mr. Lichtenstein.
(c)	Notes received from the sales of cooperative apartments. Interest rates and maturity dates vary in accordance with the terms of each individual note.

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(1)

This note, which was received by the Company in connection with the sale of the Fairfield Towers mortgages in 1999, is collateralized by security interests in the ownership interests in entities that own various properties located in Maryland, New Jersey and Pennsylvania. The discount on this note was computed at a rate of 18%.

(2)

In February, 2003, the Company made a $1,500,000 loan collateralized by ownership interests in Reisterstown Square Associates, LLC, which owns Reisterstown Apartments in Baltimore, Maryland, and by a personal guarantee from the borrower. The loan matures on January 31, 2008. The loan had an annual interest rate of 10.50% until January 31, 2005 and thereafter, the interest rate changes every six months to a rate equal to 800 basis points (825 basis points since July 1, 2005) above the six month LIBOR rate, with a minimum rate of 10.50% per annum. At December 31, 2006, the annual interest rate was 13.80%.

(3)

Under the terms of the Mark Terrace note, the borrower has annual options to extend the maturity date from November 29, 2005 to November 29, 2008 at the interest rate of 9.16% per annum until maturity. In October, 2005, the borrower exercised its first annual option to extend the maturity date to November 29, 2006, and, as a result, the Company received a principal payment of $100,000 in 2006. In October, 2006, the borrower exercised its second annual option to extend the maturity date to November 29, 2007. As a result, the Company received a $50,000 principal payment and will receive another $50,000 principal payment in 2007. If the borrower exercises its remaining option to extend the note, the Company will receive an additional principal payment of $100,000 on November 30, 2007. As of December 31, 2006, the note is collateralized by 76 unsold cooperative apartments at the Mark Terrace property. As apartments are sold, the Company receives principal payments ranging from $20,000 to $35,000 per unit depending upon the size of the unit. In 2006, the Company received principal payments of $395,000 on the Mark Terrace note.

(4)

In October, 2003, the Company made a $4,500,000 loan which matures on October 23, 2013 and is collateralized by ownership interests in entities owning nine apartment properties located in the Commonwealth of Virginia. The first mortgages on these properties were refinanced and in March, 2006, Presidential received $2,425,006 of net

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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. Under the original terms of the note, upon a refinancing and principal prepayment on the note, the interest rate on the unpaid balance of the note was to be recalculated pursuant to a specific formula. In order to resolve a disagreement over the recalculation of this interest rate, in July, 2006, the Company and the borrower modified the terms of this note. Under the terms of the modification, effective January 1, 2006, the interest rate on the note was increased from 11.50% per annum to 13.50% per annum until October 24, 2007 and 13% per annum thereafter until maturity (2% of such interest will be deferred and payable on October 23, 2008, as per the original terms of the note). In addition, the Company will receive additional interest in an amount equal to 27% of any operating cash flow distributed to the borrower and 27% (increased from 25%) of any net proceeds resulting from sales or refinancing of the properties.

(e)          Qualification as a REIT

Since 1982, the Company has operated in a manner intended to permit it to qualify as a REIT under Sections 856 to 860 of the Code. The Company intends to continue to operate in a manner to permit it to qualify as a REIT. However, no assurance can be given that it will be able to continue to operate in such a manner or to remain qualified.

In any year that the Company qualifies as a REIT and meets other conditions, including the distribution to stockholders of at least 90% of its “real estate investment trust taxable income” (excluding long-term capital gains but before a deduction for dividends paid), the Company will be entitled to deduct the distributions that it pays to its stockholders in determining its ordinary income and capital gains that are subject to federal income taxation (see Note 11 of Notes to Consolidated Financial Statements). Income not distributed is subject to tax at rates applicable to a domestic corporation. In addition, the Company is subject to an excise tax (at a rate of 4%) if the amounts actually or deemed distributed during the year do not meet certain distribution requirements. In order to receive this favorable tax treatment, the Company must restrict its operations to those activities that are permitted under the Code and to restrict itself to the holding of assets that a REIT is permitted to hold.

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No assurance can be given that the Company will, in fact, continue to be taxed as a REIT; that distributions will be maintained at the current rate; that the Company will have sufficient cash to pay dividends in order to maintain REIT status or that it will be able to make cash distributions in the future. In addition, even if the Company continues to qualify as a REIT, the Board of Directors has the discretion to determine whether or not to distribute long-term capital gains and other types of income not required to be distributed in order to maintain REIT tax treatment.

(f)          Relationship with Ivy Properties, Ltd.

The Company holds nonrecourse purchase money notes receivable from Ivy Properties, Ltd. and its affiliates (“Ivy”) relating to properties sold to Ivy, as well as nonrecourse notes receivable relating to loans made to Ivy in connection with Ivy’s former cooperative conversion business, or as a result of a settlement of disputes between Ivy and the Company, all of which transactions and settlement negotiations occurred between 1989 and 1996. In the aggregate, the notes receivable from Ivy had a carrying amount of $195,001 as of December 31, 2006, and a net carrying amount of $148,216, after deducting discounts. Two of the notes have an outstanding principal balance of $4,770,050 at December 31, 2006 (the “Consolidated Loans”). These notes were received by the Company in 1991 in exchange for nonrecourse loans that had been previously written off by the Company. Accordingly, these notes were recorded at zero except for a small portion of the notes that was adequately secured and was repaid in 2002. Presidential received interest of $210,785 and $385,476 from Ivy during 2006 and 2005, respectively, on all of the notes receivable from Ivy.

Ivy is owned by Thomas Viertel, Steven Baruch and Jeffrey Joseph (the “Ivy Principals”), who are the sole partners of Pdl Partnership, which owns 198,735 shares of the Company’s Class A common stock. As a result of the ownership of these shares and 27,601 aggregate additional shares of Class A common stock owned individually by the Ivy Principals, Pdl Partnership and the Ivy Principals have beneficial ownership of an aggregate of approximately 47% of the outstanding shares of Class A common stock of the Company, which class of stock is entitled to elect two-thirds of the Board of Directors of the Company. By reason of such beneficial ownership, the Ivy Principals are in a position substantially to control elections of the Board of Directors of the Company. In addition, these three officers own

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an aggregate of 191,219 shares of the Company’s Class B common stock.

Jeffrey Joseph is the Chief Executive Officer, the President and a Director of Presidential. Thomas Viertel, an Executive Vice President and the Chief Financial Officer of Presidential, is the son of Joseph Viertel, a Director and a former President of Presidential, and the nephew of Robert E. Shapiro, Chairman of the Board of Directors and a former President of Presidential. Steven Baruch, an Executive Vice President of Presidential, is the cousin of Robert E. Shapiro and Joseph Viertel.

Since 1996, the Ivy Principals have made payments on the Consolidated Loans in an amount equal to 25% of the operating cash flow (after provision for certain reserves) of Scorpio Entertainment, Inc. (“Scorpio”), a company owned by two of the Ivy Principals to carry on theatrical productions. Amounts received by Presidential from Scorpio are applied to unpaid and unaccrued interest on the Consolidated Loans and recognized as income. The Company anticipates that these amounts may be material from time to time. However, the profitability of theatrical productions 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 2006, Presidential received $186,500 of interest payments on the Consolidated Loans. The Consolidated Loans bear interest at a rate equal to the JP Morgan Chase Prime rate, which was 8.25% at December 31, 2006. At December 31, 2006, the unpaid and unaccrued interest was $3,287,265 and such interest is not compounded.

Any transactions relating to or otherwise involving Ivy and the Ivy Principals were and remain subject to the approval by a committee of three members of the Board of Directors with no affiliations with the owners of Ivy.

See Note 4 and 23 of Notes to the Consolidated Financial Statements for additional information on transactions with related parties. For further historical information about the loan transactions with Ivy, reference is made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

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(g)          Competition

The real estate business is highly competitive in all respects. In attempting to expand its portfolio of owned properties, the Company will be in competition with other potential purchasers for properties and sources of financing, most of whom will be larger and have greater financial resources than the Company. In addition, in attempting to make loans secured by interests in real estate, the Company may be competing with other real estate lenders who may be willing to make loans at more favorable rates. As a result of such competition, there can be no assurance that the Company will be able to obtain opportunities for new investments at attractive rates of return.

ITEM 2.    DESCRIPTION OF PROPERTY

As of December 31, 2006, the Company had an ownership interest in 155 apartment units and 620,500 square feet of commercial, industrial and professional space, all of which are carried on its balance sheet at $15,969,294 (net of accumulated depreciation of $4,363,886). The Company has mortgage debt on the majority of these properties in the aggregate principal amount of $19,334,054, all of which is nonrecourse to Presidential with the exception of $1,128,733 secured by the mortgage on the Building Industries Center property and $123,266 secured by the mortgage on the Mapletree Industrial Center property. At December 31, 2006, mortgage debt on the consolidated balance sheet was $19,176,330, which has been discounted by $157,724 to reflect the fair value of the Hato Rey Partnership mortgage as a result of the consolidation of the partnership.

The Company is the general partner of PDL, Inc. and Associates Limited Co-Partnership (the “Hato Rey Partnership”) and had an aggregate 33% general and limited partner interest in the Hato Rey Partnership at December 31, 2005. On June 30, 2006, the Company purchased an additional 1% limited partnership interest for a purchase price of $45,000. Prior to the purchase of an additional 25% limited partnership interest, as discussed below, the Company accounted for its investment in this partnership under the equity method. The Hato Rey Partnership owns and operates an office building, with 210,000 square feet of commercial space, located in Hato Rey, Puerto Rico (the “Hato Rey Center”).

On April 12, 2006, the Company closed in escrow on its contract to acquire an additional 25% limited partnership interest in the

16

Hato Rey Partnership for a purchase price of $950,000. Additional costs of purchase were $54,439 for a total purchase price of $1,004,439. The closing documents and the purchase price were released from escrow in October, 2006. Pursuant to the closing documents, the transfer of the 25% limited partnership interest will not be effective until January 1, 2007 and the seller will receive his 25% share of the income/loss from the partnership through December 31, 2006. As of the date of the release of the escrowed purchase price, Presidential effectively owned a 59% interest (1% general and 58% limited) in the Hato Rey Partnership. As a result, at December 31, 2006, the Company owns the majority of the partnership interests in the Hato Rey Partnership, is the general partner of the partnership, and exercises effective control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business. Accordingly, at December 31, 2006, the Company consolidated the Hato Rey Partnership on the Company’s consolidated balance sheet. The Company did not consolidate the Hato Rey Partnership’s results of operations on its consolidated statement of operations because for the year ended December 31, 2006, the Company only had a 33% and 34% ownership interest in the partnership, and accordingly, the Company recorded its share of the loss from the partnership for the year ended December 31, 2006, in Equity in the (loss) income of partnership, under the equity method of accounting. The Company accounted for the consolidation under the provisions of the Accounting Research Bulletin (“ARB”) No. 51 and the Statement of Financial Accounting Standards (“SFAS”) No. 141 as a partial step acquisition. See Management’s Discussion and Analysis or Plan of Operation – Hato Rey Partnership and Note 8 of Notes to Consolidated Financial Statements.

Included in the 155 apartment units owned by Presidential are 50 cooperative apartment units. Although it may from time to time sell individual or groups of these apartments, Presidential intends to continue to hold them as rental apartments.

As of December 31, 2006, the Company also has an ownership interest in one apartment property that is subject to a contract of sale and is classified as assets related to discontinued operations. At December 31, 2006, the carrying value of this property was $2,820,678 (net of accumulated depreciation of $1,634,161) and the mortgage debt, which is nonrecourse to Presidential, was $2,865,433.

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The chart below lists the Company’s properties as of December 31, 2006.

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REAL ESTATE

		Rentable Space (approx.)		Average Vacancy Rate Percent 2006			Gross Amount of Real Estate At December 31, 2006						Accumulated Depreciation December 31, 2006		Net Amount of Real Estate At December 31, 2006		Mortgage Balance December 31, 2006		Maturity Date	Interest Rate
							Land		Buildings and Improvements		Total
Property
Residential
Apartment Building
Crown Court, New Haven, CT	(1)	105 Apt. Units & 2,000 sq.ft. of comml. space	(3)	(Net Lease)		$	168,000	$	3,135,926	$	3,303,926	$	2,848,504	$	455,422	$	2,264,066		November, 2021	7.00	%
Individual Cooperative Apartments
Towne House, New Rochelle, NY		42 Apt. Units	(3)	3.08	%		81,204		635,929		717,133		178,875		538,258		—
Various Cooperative Apartments, NY & CT		8 Apt. Units	(3)	1.81	%		15,207		129,562		144,769		32,287		112,482		—
Commercial Buildings
Building Industries Center, White Plains, NY		23,500 sq.ft.		0.77	%		61,328		1,309,202		1,370,530		1,101,788		268,742		1,128,733	(5)	January, 2009	5.45	%
Mapletree Industrial Center, Palmer, MA		385,000 sq.ft.		10.92	%		79,100		726,487		805,587		198,542		607,045		123,266		June, 2011	8.00	%
The Hato Rey Center, Hato Rey, PR		210,000 sq.ft.	(4)	41.03	%		1,899,170		12,092,065		13,991,235		3,890		13,987,345		15,660,265	(5)	May, 2008	7.38	%
						$	2,304,009	$	18,029,171	$	20,333,180	$	4,363,886	$	15,969,294	$	19,176,330
Real Estate of Discontinued Operations Residential
Apartment Building
Cambridge Green, Council Bluffs, IA	(2)	201 Apt. Units	(3)	33.31	%	$	200,000	$	4,254,839	$	4,454,839	$	1,634,161	$	2,820,678	$	2,865,433		October, 2029	6.65	%

(1)	The Crown Court property is subject to a long-term net lease containing an option to purchase in 2009.
(2)	The Cambridge Green property is currently subject to a contract for sale. The sale was subsequently consummated in March, 2007. See Management’s Discussion and Analysis or Plan of Operation.
(3)	Typically apartment units range from one bedroom/bath units to two bedroom/two bath units and rentable areas range from 517 square feet to 930 square feet. The Cambridge Green apartment property is a garden-style apartment complex.
(4)	The Hato Rey Center property and its related mortgage have been recorded at fair value for the 25% partial step acquisition in accordance with ARB No. 51 and SFAS No. 141 (see above).
(5)	This mortgage amortizes monthly with a balloon payment due at maturity.

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Mapletree Industrial Center – Palmer, Massachusetts

The Company is involved in an environmental remediation process for contaminated soil found on its property. In the fourth quarter of 2006, the Company accrued a $1,000,000 liability which was discounted by $145,546 and charged $854,454 to expense. In addition to the $854,454 charged to operations for environmental expense, the Company incurred costs of $225,857 for environmental site testing and removal of soil. The total amounts charged to operations for environmental expense for 2006 were $1,080,311. See Management’s Discussion and Analysis or Plan of Operation – Environmental Matters and Note 12 of Notes to Consolidated Financial Statements.

The Hato Rey Center – Hato Rey, Puerto Rico

At December 31, 2005, the vacancy rate at the Hato Rey Center was approximately 33%, which was primarily the result of two tenants who had 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. In March, 2006, another tenant vacated 30,299 square feet of office space in order to take occupancy of its newly constructed office building. At December 31, 2006, the vacancy rate was approximately 45% and at March 15, 2007 the vacancy rate was approximately 36%. The Company expects that it will take some time to find tenants for the remainder of the vacant space and that until a substantial portion of the vacant space is rented, the property will operate at a loss. In addition, in 2006, the Hato Rey Partnership undertook a program of repairs and improvements to the building which is estimated to cost approximately $1,255,000, and the renovations are expected to be completed in 2007. The Company 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. At December 31, 2006, the Company had advanced $1,058,716 of the loan to the Hato Rey Partnership and subsequent to December 31, 2006, the Company advanced an additional $437,559.

In the opinion of management, all of the Company’s properties are adequately covered by insurance in accordance with normal insurance practices. All real estate owned by the Company is owned in fee simple with title generally insured for the benefit of the Company by reputable title insurance companies.

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The mortgages on the Company’s properties have fixed rates of interest and amortize monthly with the exception of the Hato Rey Center mortgage and the Building Industries Center mortgage, which have balloon payments of $15,445,099 and $1,072,906, respectively, due at maturity.

During 2004 and 2005, Presidential invested in and made loans to various entities that own and operate shopping center malls throughout the United States. In addition to interest payable on the loans at the rate of 11% per annum, the Company also received a 29% ownership interest in these various entities (see Description of Business – Investments in and Advances to Joint Ventures above). Presidential accounts for these investments in and advances to joint ventures under the equity method. At December 31, 2006, investments in and advances to joint ventures was $18,059,749.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) The principal market for the Company’s Class A and Class B Common Stock is the American Stock Exchange (ticker symbols PDL A and PDL B). The high and low prices for the stock on such principal exchange for each quarterly period during the past two years, and the per share dividends declared per quarter, are as follows:

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	Stock Prices								Dividends Paid Per Share on Class A and Class B
	Class A				Class B
	High		Low		High		Low
Calendar 2005
First Quarter	$	11.10	$	9.10	$	10.33	$	8.70	$	.16
Second Quarter		10.65		9.55		9.15		7.70		.16
Third Quarter		9.35		8.00		8.67		7.60		.16
Fourth Quarter		8.36		7.70		8.20		7.25		.16
Calendar 2006
First Quarter	$	8.30	$	7.94	$	7.80	$	6.45	$	.16
Second Quarter		8.00		7.05		7.35		6.20		.16
Third Quarter		7.25		6.80		7.38		6.60		.16
Fourth Quarter		7.15		6.90		7.20		6.51		.16

(b)	The number of record holders for the Company’s Common Stock at December 31, 2006 was 102 for Class A and 558 for Class B.
(c)	Under the Code, a REIT which meets certain requirements is not subject to Federal income tax on that portion of its taxable income which is distributed to its shareholders, if at least 90% of its “real estate investment trust taxable income” (exclusive of capital gains) is so distributed. Since January 1, 1982, the Company has elected to be taxed as a REIT and has paid regular quarterly cash distributions. No assurance can be given that the Company will, in fact, continue to be taxed as a REIT, or that the Company will have sufficient cash to pay dividends in order to maintain REIT status. See Qualification as a REIT above.
(d)	The following table sets forth certain information as of December 31, 2006, relating to the Company’s 2005 Restricted Stock Plan, which was approved by security holders:

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Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(a)	(b)	(c)
None	None	69,000

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ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

Presidential Realty Corporation is taxed for federal income tax purposes as a real estate investment trust. Presidential owns real estate directly and through partnerships and joint ventures and makes loans secured by interests in real estate.

Investments in and Advances to Joint Ventures

In June, 2006, Presidential made an additional $335,000 mezzanine loan to Lightstone Member II (“Lightstone II”) The loan was added to the original $7,500,000 loan made to Lightstone II and has the same interest rate and maturity date as the original loan.

                Hato Rey Partnership

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”).

On April 12, 2006, the Company closed in escrow on its contract to acquire an additional 25% limited partnership interest in the Hato Rey Partnership for a purchase price of $1,004,439 (a purchase price of $950,000 plus additional costs of purchase of $54,439). The acquisition was closed in escrow pending approval of certain legal issues by the holder of the first mortgage on the property, which approval was obtained, and the closing documents and the purchase price were released from escrow in October, 2006. Pursuant to the closing documents, the transfer of the 25% limited partnership interest was not effective until January 1, 2007 and the seller received his 25% share of the income/loss from the partnership through December 31, 2006. As a result of this transaction, Presidential effectively owned a 59% interest (1% general and 58% limited) in the Hato Rey Partnership as of the date of the release of the escrowed purchase price. The Company owns the majority of the partnership interests in the partnership and exercises effective control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business. Accordingly, at December 31, 2006, the Company consolidated the Hato Rey Partnership on the

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Company’s consolidated balance sheet. The Company did not consolidate the Hato Rey Partnership’s results of operations on its consolidated statement of operations because for the year ended December 31, 2006, the Company only had a 33% and 34% ownership interest in the partnership, and accordingly, the Company recorded its share of the loss from the partnership for the year ended December 31, 2006, in Equity in the (loss) income of partnership, under the equity method of accounting. The Company allocated the transaction’s value, the negative basis of the minority partners and the Company’s negative basis, to the tangible and intangible assets acquired and liabilities assumed based on the increase in their estimated fair values over historical costs in a partial step acquisition in accordance with the provisions of Accounting Research Bulletin (“ARB”) No. 51 and the Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, as follows:

Land	$	1,899,170
Building and improvements		12,085,690
Intangible assets (in other assets)		570,596
Mortgage payable		15,660,265
Other liabilities		167,865

Prior to the purchase of the additional 25% limited partnership interest, the Company accounted for its investment in this partnership under the equity method. The Company’s interest in the Hato Rey Partnership had a negative basis and therefore was classified as a liability on the Company’s consolidated balance sheet, 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.

                Other Investments

During 2006, the Company invested another $505,000 with Broadway Real Estate Partners, LLC (“Broadway Partners”) in connection with two investment opportunities, increasing its total investment from $1,495,000 at December 31, 2005 to $2,000,000 at December 31, 2006. These investments are accounted for by the Company under the cost method.

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Real Estate Loans

During 2006, the Company received principal repayments on its mortgage portfolio of $2,907,164, of which $2,425,006 was a partial prepayment received by the Company in March, 2006 on its $4,500,000 loan secured by ownership interests in entities owning nine apartment properties in the Commonwealth of Virginia.

Discontinued Operations

The Cambridge Green property located in Council Bluffs, Iowa is currently subject to a contract of sale and is classified as a discontinued operation. The sale was consummated in March, 2007.

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. Management has discussed with the Company’s Audit Committee the implementation of the critical accounting policies described below and the estimates required with respect to such policies.

Real Estate

Real estate is carried at cost, net of accumulated depreciation and amortization. Additions and improvements are capitalized and repairs and maintenance are charged to rental property operating expenses as incurred. Depreciation is generally provided on the straight-line method over the estimated useful life of the asset. The useful life of each property, as well as the allocation of the costs associated with a property to its various components, requires estimates by management. If management incorrectly estimates the allocation of those costs or incorrectly estimates the useful lives of its real estate, depreciation expense may be miscalculated.

The Company reviews each of its properties for impairment at least annually or more often if events or changes in circumstances warrant. If impairment were to occur, the property would be written down to its estimated fair value. The Company assesses impairment based on undiscounted cash flow estimates that utilize appropriate capitalization rates. The future

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estimated cash flows of a property are based on current rental revenues and operating expenses, as well as the current local economic climate of the property. Considerable judgment is required in making these estimates and changes in these estimates could cause the estimated cash flows to change and impairment could occur. As of December 31, 2006, the Company’s net real estate was carried at $15,969,294. During 2006, no impairments were recorded on any of these properties.

Purchase Accounting

In 2006, the Company acquired an additional 25% limited partnership interest in the Hato Rey Partnership, which increased the ownership interest to 59% as of December 31, 2006, and, as a result, consolidated the Hato Rey Partnership on the Company’s consolidated balance sheet. The Company did not consolidate the Hato Rey Partnership’s results of operations on its consolidated statement of operations because for the year ended December 31, 2006, the Company only had a 33% and 34% ownership interest in the partnership, and accordingly, the Company recorded its share of the loss from the partnership for the year ended December 31, 2006, in Equity in the (loss) income of partnership, under the equity method of accounting.

The Company allocated the fair value of acquired tangible and intangible assets and assumed liabilities based on their estimated fair values in accordance with the provisions of ARB No. 51 and SFAS No. 141, as a partial step acquisition. The Company assessed fair value based on third party appraisals and cash flow projections that utilized appropriate discount rates and/or capitalization rates. Tangible assets, land, buildings and tenant improvements are fair valued as if vacant (replacement cost). Intangible assets, which are above and below market leases, were recorded at fair value, which was determined by calculating the present value of the rental income of each tenant at the contractual lease rent rate and at the market rent rate. The present value of the difference between these two rates represents the fair value of the above or below market leases. The present value was determined using a discount rate of 9.0%. The above or below market lease values are amortized as a reduction of, or an increase to, rental income over the remaining term of each lease.

The fair value of the leases in place was determined by calculating the estimated downtime costs for each tenant. Downtime costs represent the value of the lost revenue including

27

all rents and reimbursements during the downtime as if the property was purchased with 100% of the in-line space vacant and was then leased to the existing tenants using lease-up assumptions, and includes estimated nonrecoverable operating costs incurred during the lease up period. In place lease values are amortized to expense over the terms of the related tenant leases.

No gain or goodwill was recognized on the recording of the acquisition of the 25% interest in the Hato Rey Partnership.

                Assets and Liabilities Related to Discontinued Operations

Assets related to discontinued operations are carried at the lower of cost(net of accumulated depreciation and amortization) or fair value less costs to sell. An operating property is classified as held for sale and, accordingly, as a discontinued operation when, in the judgment of management, a sale that will close within one year is probable. The Company discontinues depreciation and amortization when a property is classified as a discontinued operation. At December 31, 2006, assets related to discontinued operations were $2,922,493. The Company estimates the value of a property held for sale to its estimated fair value less costs to sell. During 2006, no impairment charges have been recorded for the property held for sale.

Liabilities related to assets held for sale consist primarily of the $2,865,433 nonrecourse mortgage debt on the property, which will be assumed by the purchaser upon completion of the sale. At December 31, 2006, total liabilities related to discontinued operations were $2,911,677 (see Liquidity and Capital Resources - Discontinued Operations below).

Mortgage Portfolio

The Company evaluates the collectibility of both accrued interest and principal on its $7,998,445 mortgage portfolio to determine whether there are any impaired loans. If a mortgage loan were considered to be impaired, the Company would establish a valuation allowance equal to the difference between a) the carrying value of the loan, and b) the present value of the expected cash flows from the loan at its effective interest rate, or at the estimated fair value of the real estate collateralizing the loan. Although a loan modification could be an indicator of a possible impairment, the Company has in the past, and may in the future, modify loans for business purposes and not as a result of

28

debtor financial difficulties. Income on impaired loans is recognized only as cash is received. All loans are current as to payment of principal and interest according to their terms, as modified, and no loans have been classified as impaired.

Rental Revenue Recognition

The Company recognizes rental revenue on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. Certain leases require the tenants to reimburse a pro rata share of real estate taxes, utilities and maintenance costs.

Allowance for Doubtful Accounts

Management assesses the collectibility of amounts due from tenants and other receivables, using indicators such as past-due accounts, the nature and age of the receivable, the payment history and the ability of the tenant or debtor to meet its payment obligations. Management’s estimate of allowances for doubtful accounts is subject to revision as these factors change. Rental revenue is recorded on the accrual method and rental revenue recognition is generally discontinued when the tenant in occupancy is delinquent for ninety days or more. Bad debt expense is charged for vacated tenant accounts and subsequent receipts collected for those receivables will reduce bad debt expense. At December 31, 2006, other receivables, net of an allowance for doubtful accounts of $274,303, were $382,393. For the years ended December 31, 2006 and 2005, bad debt expense for continuing operations relating to tenant obligations was $6,598 and $7,200, respectively.

                Pension Plans

The Company maintains a qualified Defined Benefit Pension Plan, which covers substantially all of its employees. The plan provides for monthly retirement benefits commencing at age 65. The Company makes annual contributions that meet the minimum funding requirements and the maximum contribution levels under the Internal Revenue Code. The Company was not required to make any contributions to the plan in 2006 for the 2006 tax year, but did make the maximum tax deductible contribution of $165,906 in February of 2006 for the 2005 tax year. There are no required contributions for 2007. Net periodic benefit costs for the years ended December 31, 2006 and 2005 were $326,972 and $465,162,

29

respectively.  The projected benefit obligation at December 31, 2006 was $7,539,315 and the fair value of the plan assets was $8,121,709. At December 31, 2006 and 2005, the discount rate used in computing the projected benefit obligation was 5.72% and 5.41%, respectively. The expected rate of return on plan assets was 7% for both years. Management regularly reviews the plan assets, the actuarial assumptions and the expected rate of return. Changes in actuarial assumptions, interest rates or changes in the fair value of the plan assets can materially affect the benefit obligation, the required funding and the benefit costs.

In addition, the Company has contractual retirement agreements with certain active and retired officers providing for unfunded pension benefits. The Company accrues on an actuarial basis the estimated costs of these benefits during the years the employee provides services. The benefits generally provide for annual payments in specified amounts for each participant for life, commencing upon retirement, with an annual cost of living increase. Benefits paid for the years ended December 31, 2006 and 2005 were $480,402 and $473,837, respectively. Benefit costs for the years ended December 31, 2006 and 2005 were $481,879 and $416,539, respectively. The projected contractual pension benefit obligation at December 31, 2006 was $2,574,747. At December 31, 2006 and 2005, the discount rate used in computing the projected benefit obligation was 5.72% and 5.41%, respectively. Changes in interest rates and actuarial assumptions, amendments to the plan and life expectancies could materially affect benefit costs and the contractual accumulated pension benefit obligation.

Fourth Floor Management Corp. Profit Sharing Plan

In 2006, Fourth Floor Management Corp., a 100% owned subsidiary of Presidential Realty Corporation that manages the Company’s properties, adopted a profit sharing plan for substantially all of its employees. The profit sharing plan became effective as of January 1, 2006, and the plan provides for annual contributions up to a maximum of 5% of the employees annual compensation. The Company made a $10,937 contribution to the plan in January, 2007 for the 2006 plan year and charged the contribution to general and administrative expense.

Income Taxes

The Company operates in a manner intended to enable it to continue to qualify as a Real Estate Investment Trust (“REIT”)

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under Sections 856 to 860 of the Code. Under those sections, a REIT which meets certain requirements is not subject to Federal income tax on that portion of its taxable income which is distributed to its shareholders, if at least 90% of its REIT taxable income (exclusive of capital gains) is so distributed. As a result of its ordinary tax loss for 2006, there is no requirement to make a distribution in 2007. In addition, no provision for income taxes was required at December 31, 2006. If the Company failed to distribute the required amounts of income to its shareholders, or otherwise fails to meet the REIT requirements, it would fail to qualify as a REIT and substantial adverse tax consequences could result.

Results of Operations

      2006 vs 2005

Financial Highlights from Consolidated Statements Of Operations:

	Year Ended December 31,
	2006			2005
Revenues	$	3,919,621		$	4,414,864
Income (loss) before net gain   from sales of properties	$	(4,562,814	)	$	(1,881,834	)
Recognition of deferred gain  on sales of properties		—			3,241,540
Income (loss) from continuing operations		(4,562,814	)		1,359,706
Discontinued Operations:
Loss from discontinued operations		(314,143	)		(588,484	)
Net gain from sales of     discontinued operations		—			2,423,209
Total income (loss) from   discontinued operations		(314,143	)		1,834,725
Net Income (Loss)	$	(4,876,957	)	$	3,194,431

Revenues decreased by $495,243 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.

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Rental revenues increased by $197,046. Rental revenues increased at all of the rental properties, including a $140,342 increase at the Mapletree Industrial Center property as a result of increased occupancy rates.

Interest on mortgages - notes receivable decreased by $201,977. As a result of repayments of $8,550,000 and $2,425,006 on notes receivable in the first quarters of 2005 and 2006, respectively, interest income on those notes decreased by $233,744 in the 2006 period.

Interest on mortgages - notes receivable - related parties decreased by $179,098 primarily as a result of a decrease of $167,500 in payments of interest received on the Consolidated Loans (see Liquidity and Capital Resources – Consolidated Loans below).

Other revenues decreased by $311,214 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 $23,531 as a result of reduced fees earned by the Company’s management company for third party owned properties.

Costs and expenses increased by $891,003 primarily due to increases in rental property operating expenses, partially offset by decreases in general and administrative expenses.

General and administrative expenses decreased by $278,817 primarily as a result of decreases in salary expense of $192,703, defined benefit plan expenses of $138,190 and contractual benefits of $33,146. Salary expense decreased primarily as a result of a decrease in contractual executive bonuses of $233,359. These decreases were partially offset by increases in travel and entertainment expenses of $64,731. Travel and entertainment expenses increased as a result of increased travel for rental property supervisors to the Cambridge Green property and the Hato Rey Center property.

Rental property operating expenses increased by $1,144,238 primarily as a result of environmental expenses of $1,080,311 relating to the Mapletree Industrial Center property that were charged to repairs and maintenance (see Liquidity and Capital Resources – Environmental Matters below).

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Other income decreased by $1,295,816 primarily as a result of the $1,202,428 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 $240,385 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 – The Hato Rey Center below). These amounts were partially offset by an increase in investment income of $146,997 primarily due to a $145,076 distribution received from Broadway Partners Parallel Fund A (see Liquidity and Capital Resources – Investing Activities below).

Loss from continuing operations before net gain from sales of properties increased by $2,680,980 from $1,881,834 in 2005 to $4,562,814 in 2006. This increase was primarily a result of the increase in the equity in the loss of joint ventures of $1,202,428, environmental expenses of $1,080,311 for the Mapletree Industrial Center property and a $311,214 decrease in other revenues.

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 $3,241,540. 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 was 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. In September, 2006, the Company entered into a contract for the sale of the property and the sale was consummated in March, 2007 (see Liquidity and Capital Resources – Discontinued Operations below).

The following table compares the total income or loss from discontinued operations for the years ended December 31, for properties included in discontinued operations:

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	2006			2005
Income (loss) from discontinued operations:
Cambridge Green, Council Bluffs, IA	$	(314,143	)	$	(472,997	)
Fairlawn Gardens, Martinsburg, WV		—			26,889
Farrington Apartments, Clearwater, FL		—			(142,376	)
Loss from discontinued operations		(314,143	)		(588,484	)
Net gain (loss) from sales of   discontinued operations:
Fairlawn Gardens		—			2,434,789
Farrington Apartments		—			(11,580	)
Net gain from sales of   discontinued operations		—			2,423,209
Total income (loss) from   discontinued operations	$	(314,143	)	$	1,834,725

Balance Sheet

Investments in and advances to joint ventures decreased by $5,231,384 as a result of $3,483,271 of distributions received and $2,083,113 of equity in the loss from the joint ventures. These decreases were partially offset by an additional $335,000 loan made by the Company to Lightstone II. The $335,000 loan was added to the original $7,500,000 loan to Lightstone II and has the same interest rate and maturity date as the original loan.

Net real estate increased by $14,069,852 primarily as a result of the $13,987,345 consolidation of the Hato Rey Partnership property. In addition, in 2006 the Company purchased additions and improvements to its other properties of $218,476 and recorded depreciation on its other properties of $134,972.

Net mortgage portfolio decreased by $2,716,291 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. In addition, the Company received principal payments of $395,000 on the Mark Terrace note.

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Other investments increased by $505,000 as a result of the Company’s investments of $395,000 and $590,000 in Broadway Partners Parallel Fund A (“Broadway Fund A”) and Broadway Partners Feeder Fund A II (“Broadway Fund A II”), respectively, partially offset by the $480,000 reduction in the funds held by Broadway Real Estate Partners, LLC (“Broadway Partners”), which funds were utilized to fund the Company’s investments in Broadway Funds A and A II (see Liquidity and Capital Resources – Investing Activities below).

Prepaid expenses and deposits in escrow increased by $687,682 primarily as a result of the $781,963 of prepaid expenses and deposit in escrow from the consolidation of the Hato Rey Partnership. Excluding the Hato Rey Partnership, there were decreases of $84,775 in deposits in escrow and decreases of $9,506 in prepaid expenses.

Prepaid defined benefit plan costs decreased by $1,189,458 primarily due to the initial adoption of SFAS No. 158, which resulted in the reclassification of $1,039,101 to accumulated other comprehensive loss (see Recent Accounting Pronouncements below). In addition, there were $326,972 of net periodic benefit costs for 2006, partially offset by a Company contribution to the plan of $165,906.

Other receivables decreased by $39,960 primarily as a result of a decrease in accrued interest receivable of $105,119 resulting from a $215,750 deferred interest payment received in March, 2006. This decrease was partially offset by the $86,029 increase in tenants accounts receivable as a result of the consolidation of the Hato Rey Partnership.

Cash and cash equivalents decreased by $614,703 primarily as a result of cash distributions on common stock to shareholders of $2,502,948. In addition, the Company purchased an additional 26% limited partnership interest in the Hato Rey Partnership for a cost of $1,049,439. These decreases were partially offset by the $2,640,756 cash received from the prepayment and deferred interest on the $4,500,000 loan.

Other assets increased by $1,040,647 primarily as a result of the $989,385 of other assets from the consolidation of the Hato Rey Partnership and additions of $52,731 to home office furniture and equipment.

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Mortgage debt increased by $15,528,727 primarily as a result of the consolidation of the Hato Rey Partnership.

Accrued liabilities increased by $709,164 primarily as a result of an increase of $854,454 for accrued environmental costs and the $148,774 of accrued liabilities attributable to the consolidation of the Hato Rey Partnership. These increases were partially offset by decreases in accrued contractual executive bonuses of $233,359 and decreases in accrued commissions of $75,000.

Accounts payable increased by $244,664 primarily as a result of the consolidation of the Hato Rey Partnership.

Distributions from partnership in excess of investment and earnings decreased by $2,208,990 as a result of the consolidation of the Hato Rey Partnership.

Other liabilities increased by $557,611 primarily as a result of the consolidation of the Hato Rey Partnership.

During 2006, the Company awarded 32,000 shares of the Company’s Class B common stock to directors, officers and an employee of the Company. These shares were issued from the Company’s 2005 Restricted Stock Plan (the “2005 Plan”). Stock granted to directors were fully vested on the grant date and stock granted to officers and employees will vest at the rate of 20% per year. Notwithstanding the vesting schedule, the officers and employees are entitled to receive distributions on the total number of shares awarded. The issued shares are valued at the market value of the Class B common stock at the grant date. The following is a summary of the shares issued in 2006.

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							2006
Date of Issuance	Unvested Shares at December 31, 2005 (1)		Shares Issued in 2006		Market Value at Date of Grant		Vested Shares		Unvested Shares		Class B Common Stock - Par Value $.10 Per Share		Additional Paid-in Capital			Directors’ Fees		Salary Expense
Aug., 2005		10,000			$	7.51		2,000		8,000
Aug., 2005		1,000				9.04		200		800
Jan., 2006				3,000		7.64		3,000			$	300	$	22,620		$	22,920
Jan., 2006				22,500		7.40		4,500		18,000		2,250		31,050				$	33,300
Dec., 2006				6,500		7.05				6,500		650		(650	)
		11,000		32,000				9,700		33,300	$	3,200	$	53,020		$	22,920	$	33,300

(1) These shares were granted in 2004 and 2005 and issued in 2005. The Company recorded salary expense of $9,040 in 2005 and $75,100 in 2004. In 2005, when the shares were issued, the Company recorded additions to Class B common stock of $1,100 and $83,040 to additional paid-in capital.

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Accumulated other comprehensive loss increased by $845,463 primarily as a result of an adjustment of $1,039,101 for the defined benefit plan and an adjustment of $73,419 for contractual postretirement benefits due to the initial adoption of SFAS No. 158. These increases were partially offset by an adjustment of $262,693 for contractual pension benefits.

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 December 31, 2006, there was no outstanding balance under the line of credit.

At December 31, 2006, Presidential had $2,263,534 in available cash and cash equivalents, a decrease of $614,703 from the $2,878,237 at December 31, 2005. This decrease in cash and cash equivalents was due to cash provided by operating activities of $1,770,550 and cash provided by investing activities of $102,092, offset by cash used in financing activities of $2,487,345.

During 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 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.

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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 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 maintained the $.64 dividend rate in 2006, no assurances can be given that the present dividend rate will be maintained in the future.

Insurance

The Company carries comprehensive liability, fire, flood (where necessary), extended coverage, rental loss and acts of terrorism insurance on all of its properties. Management believes that all of its properties are adequately covered by insurance. In 2006, the cost for this insurance was approximately $207,000. The Company has renewed its insurance coverage for 2007 and the Company estimates that the premium costs will be approximately $291,000 for 2007. Although the Company has been able to obtain terrorism coverage on its properties in the past, this coverage may not be available in the future.

                Consolidated Loans

Presidential holds two nonrecourse notes (the “Consolidated Loans”) from Ivy Properties, Ltd. and its affiliates (“Ivy”). At December 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 between the Company and the Ivy principals, 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 (Steven Baruch, Executive Vice President of Presidential, and Thomas Viertel, Executive Vice President and Chief Financial Officer of Presidential) to carry on theatrical productions. Amounts received by Presidential from Ivy will be applied to unpaid and unaccrued interest on the Consolidated Loans and recognized as income. The Company anticipates that these amounts may be material from time to time.

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However, the profitability of 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. Presidential received payments of $186,500 in 2006 and $354,000 in 2005 of interest income on the Consolidated Loans. The Consolidated Loans bear interest at a rate equal to the JP Morgan Chase Prime rate, which was 8.25% at December 31, 2006. At December 31, 2006, the unpaid and unaccrued interest was $3,287,265 and such interest is not compounded.

                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 other investments. In 2006, cash received from interest on the Company’s mortgage portfolio was $1,620,721 and distributions received from joint ventures and other investments were $3,628,347. Net cash disbursed for rental property operations was $2,168. Net cash disbursed for rental property operations includes distributions from partnership operations 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 $2,907,164 on its mortgage portfolio, of which $2,864,742 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. Under the original terms of the note, upon a refinancing and principal prepayment on the note, the interest rate on the unpaid balance of the note was to be recalculated pursuant to a specific formula. In order to resolve a disagreement over the recalculation of this interest rate, in July, 2006, the Company and the borrower modified the terms of this note. Under the terms of the modification, effective January 1, 2006, the interest rate on the note was increased from 11.50% per annum to 13.50% per annum until October 24, 2007 and 13% per annum thereafter until maturity (2% of such interest will be deferred and payable on October 23, 2008, in accordance with

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the original terms of the note). In addition, the Company will receive additional interest in an amount equal to 27% of any operating cash flow distributed to the borrower and 27% (increased from 25%) of any net proceeds resulting from sales or refinancing of the properties.

Prepayments and balloon payments are sporadic and cannot be relied upon as a regular source of liquidity.

In June, 2006, the Company advanced an additional loan in the amount of $335,000 to Lightstone II (see Investments in and Advances to Joint Ventures below).

During 2006, the Company advanced $1,058,716 to the Hato Rey Partnership, pursuant to a loan agreement with the partnership (see The Hato Rey Center below).

During 2006, the Company invested $412,126 in additions and improvements to its properties, of which approximately $102,434 pertains to discontinued operations. It is projected that additions and improvements in 2007 will be approximately $1,207,000 of which $1,042,000 is projected for additions and improvements at the Hato Rey Center.

In 2005, the Company agreed to advance $1,000,000 from time to time to Broadway Fund A, a blind pool of investment capital sponsored by Broadway Partners. In connection with such agreement, the Company advanced $1,000,000 to Broadway Partners and received interest on these funds at the rate of 11.43% per annum through September 30, 2006 and 5% per annum thereafter until such funds were used to fund the Company’s commitment to Broadway Fund A. In 2006, the Company made an additional commitment to fund an additional $1,000,000 to Broadway Fund A II, another blind pool of investment capital sponsored by Broadway Partners. The Company retained the right to fund its commitments to Broadway Fund A and Broadway Fund A II with the $1,000,000 advanced to Broadway Partners or with other funds available to the Company.

At December 31, 2006, Presidential had advanced $890,000 (including $395,000 advanced during 2006) of its $1,000,000 commitment to Broadway Fund A and the balance of Presidential’s commitment to Broadway Fund A at December 31, 2006 was $110,000. Also in 2006, Presidential advanced $590,000 of its $1,000,000 commitment to Broadway Fund A II and the balance of Presidential’s commitment to Broadway Fund A II at December 31,

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2006 was $410,000.  At December 31, 2006, Broadway Partners continued to hold $520,000 of the funds previously advanced to it by Presidential. In January, 2007, the balance of the $410,000 commitment to Broadway Fund A II was funded from the Broadway Partners Fund.

In September, 2006, the Company received a $145,076 distribution from Broadway Fund A resulting from the proceeds of sales and recorded the distribution to investment income.

On April 12, 2006, the Company closed in escrow on its contract to acquire an additional 25% limited partnership interest in the Hato Rey Partnership for a purchase price of $950,000. Additional costs of purchase were $54,439 for a total purchase price of $1,004,439. The closing documents and the purchase price were released from escrow in October, 2006 (see Hato Rey Partnership above).

In connection with this acquisition and the resulting consolidation of the Hato Rey Partnership balance sheet at December 31, 2006, the Company recorded $555,209 of cash.

On June 30, 2006, the Company purchased an additional 1% limited partnership interest in the Hato Rey Partnership for a purchase price of $45,000.

                Financing Activities

The Company’s indebtedness at December 31, 2006, consisted of mortgage debt of $19,176,330 for continuing operations and $2,865,433 for discontinued operations. The $15,817,989 mortgage debt on the Hato Rey Center property was recorded at its fair value of $15,660,265 at December 31, 2006 (see Hato Rey Partnership above). The mortgage debt is collateralized by individual properties. The $15,817,989 mortgage on the Hato Rey Center property and the $2,264,066 mortgage on the Crown Court property are nonrecourse to the Company, whereas the $1,128,733 Building Industries Center mortgage and the $123,266 Mapletree Industrial Center mortgage are recourse to Presidential. The $2,865,433 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

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2006, the Company made $183,390 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 Hato Rey Center mortgage, which has a balloon payment of $15,445,099 due at maturity in May, 2008, and the Building Industries Center mortgage, which has a balloon payment of $1,072,906 due at maturity in January, 2009. The Company intends to refinance the Hato Rey Center mortgage prior to its maturity date.

During 2006, Presidential declared and paid cash distributions of $2,502,948 to its shareholders and received proceeds from its dividend reinvestment plan of $217,743.

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. In April of 2006, the Company decided to terminate the Share Purchase Plan. However, the Dividend Reinvestment Plan remains in effect.

Discontinued Operations

For the years ended December 31, 2006 and 2005, income (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 September, 2006, the Company entered into a contract for the sale of the property (see below). In addition, income (loss) from discontinued operations for the year ended December 31, 2005 included the Farrington Apartments property and the Fairlawn Gardens property, which were sold during the year ended December 31, 2005.

In September, 2006, the Company entered into a contract for the sale of the Cambridge Green property in Council Bluffs, Iowa for a sales price of $3,700,000 to be paid by (i) the buyer’s assumption of the first mortgage loan on the property, (the outstanding principal balance of which was $2,865,433 at December 31, 2006), (ii) a $200,000 secured note receivable, which will mature one year from the date of the closing and have an interest

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rate of 7% per annum and (iii) the balance of the purchase price to be paid in cash. The closing of the contract of sale is subject to the approval of the US Department of Housing and Urban Development (“HUD”), which insures the first mortgage loan on the property and subsequent to year end this approval was received from HUD. The gain from the sale for financial reporting purposes is estimated to be approximately $650,000 and the estimated net proceeds will be approximately $665,000, which includes the proceeds of the $200,000 note receivable. The sale was consummated in March, 2007.

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 prior to the sale. In November, 2005, the Company received $167,846 of additional insurance proceeds related to the same fire and these proceeds were included in the gain on the sale of the property. The gain from sale for financial reporting purposes was $2,434,789. The gain for Federal income tax purposes resulting from this transaction was $2,436,859 and was treated by the Company as a gain resulting from an involuntary conversion of property under Section 1033 of the Internal Revenue Code. Accordingly, the gain has been deferred pursuant to the provisions of Section 1033.

The following table summarizes income or loss for the properties sold or held for sale.

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	Year Ended December 31,
	2006			2005
Revenues:
Rental	$	879,228		$	1,328,831
Rental property expenses:
Operating expenses		838,364			1,288,824
Interest on mortgage debt		192,151			277,655
Real estate taxes		168,934			192,499
Depreciation on real estate		—			160,257
Amortization of mortgage costs		—			2,309
Total		1,199,449			1,921,544
Other income:
Investment income		6,078			4,229
Loss from discontinued operations		(314,143	)		(588,484	)
Net gain from sales of  discontinued operations		—			2,423,209
Total income (loss)   from discontinued operations	$	(314,143	)	$	1,834,725

At December 31, 2006 assets related to discontinued operations were $2,922,493 and liabilities related to discontinued operations were $2,911,677.

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 the 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

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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 $110,500,000 nonrecourse first mortgage and mezzanine loans. During the quarter ended June 30, 2006, the original $105,000,000 nonrecourse first mortgage loan was refinanced with the following mortgage loans: a $73,900,000 nonrecourse first mortgage loan with an interest rate of 5.93% per annum maturing on July 1, 2016, a $7,000,000 mezzanine loan with an interest rate of 12% per annum maturing on July 1, 2016 and a $29,600,000 nonrecourse first mortgage loan with an adjustable interest rate based on the London Interbank Offered Rates, with a minimum rate of 7.89%, maturing on June 8, 2008. The $73,900,000 first mortgage loan and the $7,000,000 mezzanine loan are secured by the Martinsburg Mall and three of the Four Malls. The $29,600,000 first mortgage loan is secured by the West Manchester Mall.

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. In June, 2006, the Company made an additional $335,000 mezzanine loan to Lightstone II. The loan was added to the original $7,500,000 loan and has the same interest rate and maturity date as the original loan. The Shawnee/Brazos Malls are subject to a $39,500,000 nonrecourse first mortgage loan.

In July, 2005, the Company 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 properties and the Company received a 29% ownership interest in these entities.

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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 December 31, 2006, investments in and advances to joint ventures are as follows:

Martinsburg Mall	$	162,821
Four Malls		4,534,578
Shawnee/Brazos Malls		6,007,924
Macon/Burlington Malls		7,354,426
	$	18,059,749

Equity in the loss of joint ventures for the year ended December 31, 2006 is as follows:

Martinsburg Mall	(1)	$	(480,159	)
Four Malls	(2)		(1,200,518	)
Shawnee/Brazos Malls	(3)		(274,406	)
Macon/Burlington Malls	(4)		(128,030	)
		$	(2,083,113	)

(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 of joint ventures for the Four Malls.

(3)  Interest income earned by the Company at the rate of 11% per annum on the outstanding $7,835,000 loan from the Company to Lightstone II is included in the calculation of the Company’s share of the loss of joint ventures for the Shawnee/Brazos Malls.

(4)   Interest income earned by the Company at the rate of 11% per annum on the outstanding $9,500,000 loan from the Company to Lightstone III is included in the calculation of the Company’s

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share of the loss of joint ventures for the Macon/Burlington Malls.

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 statement of operations for the year ended December 31, 2006 reflects 29% of the loss of the joint ventures. The equity in the loss of joint ventures of $2,083,113 for the year ended December 31, 2006 is after deductions in the aggregate amount of $4,669,588 for the Company’s 29% of noncash charges (depreciation of $2,878,024, amortization of deferred financing costs and other costs of $578,549 and amortization of in-place lease values of $1,213,015). Notwithstanding the loss from the joint ventures, the Company is entitled to receive its interest at the rate of 11% per annum on its $25,935,000 of loans to the joint ventures. For the year ended December 31, 2006, the Company received distributions from the joint ventures in the amount of $3,483,271, which included payments of interest in the amount of $2,871,592 and return on investment in the amount of $611,679. The return on investment of $611,679 includes a distribution of $335,110 from Lightstone III and this distribution was utilized to fund the additional $335,000 mezzanine loan to Lightstone II.

The Lightstone Group is controlled by David Lichtenstein. At December 31, 2006, in addition to Presidential’s investments of $18,059,749 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 $6,886,161. Two of the loans in the outstanding principal amount of $5,375,000, with a net carrying value of 4,811,167, 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 and the Company believes that all of these loans are adequately secured; however, a default on any or all of these loans could have a material adverse effect on Presidential’s business and operating results.

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The $24,945,910 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 48% of the Company’s total assets at December 31, 2006.

                The Hato Rey Center

At December 31, 2005, the vacancy rate at the Hato Rey Center was approximately 33%, which was primarily the result of two tenants who had 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. In March, 2006, another tenant vacated 30,299 square feet of office space in order to take occupancy of its newly constructed office building. At December 31, 2006, the vacancy rate was approximately 45% and at March 15, 2007 the vacancy rate was approximately 36%. The Company expects that it will take some time to find tenants for the remainder of the vacant space and that until a substantial portion of the vacant space is rented, the property will operate at a loss. In addition, in 2006, the Hato Rey Partnership undertook a program of repairs and improvements to the building that is expected to cost approximately $1,255,000 and it is anticipated to be completed in 2007. The Company 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. At December 31, 2006, the Company had advanced $1,058,716 of the loan to the Hato Rey Partnership and subsequent to December 31, 2006, the Company advanced an additional $437,559.

                Contractual Commitments

The Company’s significant contractual commitments are its liabilities under mortgage debt and employment agreements, which are payable as follows:

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	Mortgage Debt		Employment Agreements			Total
Year ending December 31 :
2007	$	417,167	$	921,740		$	1,338,907
2008		15,691,120		921,740			16,612,860
2009		1,203,408		776,750			1,980,158
2010		140,233		776,750			916,983
2011		134,065		400,020			534,085
Thereafter		1,748,061		836,420	(1)		2,584,481
TOTAL	$	19,334,054	$	4,633,420		$	23,967,474

(1)   Employment agreements will expire in 2011 and contain provisions for three years of consulting fees thereafter.

The Company also has contractual commitments for pension and postretirement benefits. The contractual pension benefits generally provide for annual payments in specified amounts for each participant for life, commencing upon retirement, with an annual adjustment for an increase in the consumer price index. The contractual benefit plans are not funded. For the year ended December 31, 2006, the Company paid $480,402 for pension benefits and $64,449 for postretirement benefits. The Company expects that payments for these contractual benefits will be $531,000 in 2007.

In addition, the Company has a contractual commitment to invest $110,000 in Broadway Fund A and a commitment to invest $410,000 in Broadway Fund A II.

                Environmental Matters

Mapletree Industrial Center – Palmer, Massachusetts

The Company is involved in an environmental remediation process for contaminated soil found on this property. The land area involved is approximately 1.25 acres and the depth of the contamination is at this time undetermined. Since the most serious identified threat on the site is to songbirds, the proposed remediation will consist of removing all exposed metals and a layer of soil (the depth of which is yet to be determined). The Company estimates that the costs of the cleanup will not exceed $1,000,000. The remediation will comply with the requirements of the Massachusetts Department of Environmental Protection (“MADEP”). The MADEP has agreed that the Company may complete the remediation over the next fifteen years, but the Company expects to complete the project over the next ten years.

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In accordance with the provisions of SFAS No. 5, “Accounting for Contingencies”, in the fourth quarter of 2006, the Company accrued a $1,000,000 liability which was discounted by $145,546 and charged $854,454 to expense. The discount rate used was 4.625%, which was the interest rate on 10 year Treasury Bonds. The expected cash payments and undiscounted amount to be recognized in the Company’s consolidated financial statements are as follows:

Year	Estimated Cash Payments			Estimated Undiscounted Amount to be Recognized as Expense
2007		$	200,000		$	8,841
2008			200,000			16,934
2009			150,000			18,277
2010			100,000			15,612
2011			100,000			18,781
2012-2016			250,000			67,101

Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. The Company believes that any additional liability in excess of amounts provided which may result from the resolution of this matter will not have a material adverse effect on the financial condition, liquidity or the cash flow of the Company.

In addition to the $854,454 charged to operations for environmental expense, the Company incurred costs in 2006 of $225,857 for environmental site testing and removal of soil. The total amounts charged to operations for environmental expense for 2006 were $1,080,311.

                Recent Accounting Pronouncements

During 2006, the Company was required to implement the new Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004) – “Share-Based Payment” (“SFAS No. 123R”), issued by the Financial Accounting Standards Board (“FASB”), which did not have a significant impact on the Company’s consolidated financial statements.

In addition, in 2006, the Company was required to implement the Emerging Issues Task Force (“EITF”) consensus on EITF Issue No. 04-5, “Determining Whether a General Partner, or the General

51

Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” as ratified by the FASB, which had no effect on the Company’s consolidated financial statements.

In February, 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 adoption of this standard on January 1, 2007 did not have a material effect on the Company’s consolidated financial statements.

In March, 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 adoption of this standard on January 1, 2007 did not have a material effect on the Company’s consolidated financial statements.

In July, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 establishes new evaluation and measurement processes for all income tax positions taken. FIN 48 also requires expanded disclosures of income tax matters. The Company is in the process of evaluating the impact, if any, that the adoption of this standard on January 1, 2007 will have on the Company’s consolidated financial statements.

In September, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 clarifies the definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This

52

statement is effective in fiscal years beginning after November 15, 2007. The Company believes that the adoption of this statement on January 1, 2008 will not have a material effect on the Company’s consolidated financial statements.

In September, 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of SFAS No. 87, 88, 106 and 132R”. SFAS No. 158 requires an employer to (i) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (ii) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (iii) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The adoption of the requirement to recognize the funded status of a benefit plan and the disclosure requirements as of December 31, 2006 resulted in a $1,112,520 increase in accumulated other comprehensive loss on the Company’s consolidated balance sheet. The requirement to measure plan assets and benefit obligations to determine the funded status as of the end of the fiscal year and to recognize changes in the funded status in the year in which the changes occur is effective for fiscal years ending after December 15, 2008. The adoption of the measurement date provisions of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

In September, 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”), which becomes effective for the first fiscal period ending after November 15, 2006. SAB 108 provides guidance on the consideration of the effects of prior period misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 provides for the quantification of the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The adoption of SAB 108 on December 31, 2006 did not have a material effect on the Company’s consolidated financial statements.

In February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected

53

are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 159 on the Company’s financial position or results of operations.

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 or prepayment 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 as a result of the yield maintenance requirements. The Company does not own any derivative financial instruments or engage in hedging activities.

The $29,600,000 nonrecourse first mortgage loan secured by the West Manchester Mall 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 that change monthly based on the London Interbank Offered Rate and mature in June, 2008 and January, 2008, respectively. The borrower has the right to extend the maturity date of the Shawnee/Brazos Malls first mortgage for two additional one year terms. A 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 $7,835,000 mezzanine loans to those entities. The interest rate on the first mortgage secured by the West Manchester Mall in fact decreased from 8.125% per annum at September 30, 2006 to 7.89% per annum at December 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 7.93% per annum at December 31, 2006. The Company believes that these first mortgages will either be extended in

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accordance with their terms or refinanced prior to the maturity date.

ITEM 7.        FINANCIAL STATEMENTS

See Table of Contents to Consolidated Financial Statements.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 8A.     CONTROLS AND PROCEDURES

(a) As of the end of the period covered by this Annual Report on Form 10-KSB, 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.

ITEM 8B.      OTHER INFORMATION

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Reference is made to the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held June 15, 2007, which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A and which is incorporated herein by reference.

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ITEM 10. EXECUTIVE COMPENSATION

Reference is made to the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held June 15, 2007, which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A and which is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Reference is made to the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held June 15, 2007, which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A and which is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Reference is made to the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held June 15, 2007, which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A and which is incorporated herein by reference.

ITEM 13. EXHIBITS

3.1   Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.5 to Post-effective Amendment No. 1 to the Company’s Registration Statement on Form S-14, Registration No. 2-83073).

3.2   Certificate of Amendment to Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1987, Commission File No. 1-8594).

3.3   Certificate of Amendment to Certificate of Incorporation of the Company, filed July 21, 1988 with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No. 1-8594).

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3.4   Certificate of Amendment to Certificate of Incorporation of the Company, filed on September 12, 1989 with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1989, Commission File No. 1-8594).

3.5  By-laws of the Company (incorporated herein by reference to Exhibit 3.7 to Post-effective Amendment No. 1 to the Company’s Registration Statement on Form S-14, Registration No. 2-83073).

10.1   Employment Agreement dated as of November 1, 1982 between the Company and Robert E. Shapiro, as amended by Amendments dated March 1, 1983, November 25, 1985, February 23, 1987 and January 4, 1988 (incorporated herein by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No. 1-8594).

10.2   Employment Agreement dated as of November 1, 1982 between the Company and Joseph Viertel, as amended by Amendments dated March 1, 1983, November 22, 1985, February 23, 1987 (incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-8594).

10.3   Settlement Agreement dated November 14, 1991 between the Company and Steven Baruch, Jeffrey F. Joseph and Thomas Viertel, (incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-8594).

10.4   First Amendment dated August 1, 1996 to Settlement Agreement dated November 14, 1991 between the Company and Steven Baruch, Jeffrey F. Joseph and Thomas Viertel (incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission File No. 1-8594).

10.5   Employment Agreement dated January 1, 2006 between the Company and Elizabeth Delgado (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB for the period ended June 30, 2006, Commission File No. 1-8594).

10.6   Amended and Restated Presidential Realty Corporation Defined Benefit Plan, dated September 10, 2003 (incorporated herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form

57

10-K for the year ended December 31, 2003, Commission File No. 1-8594).

10.7   Amended and Restated Operating Agreement of PRC Member LLC dated September 27, 2004 (incorporated herein by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-QSB for the period ended September 30, 2004, Commission File No. 1-8594).

10.8   Loan Agreement dated September 27, 2004 in the amount of $2,600,000 between David Lichtenstein and PRC Member LLC (incorporated herein by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-QSB for the period ended September 30, 2004, Commission File No. 1-8594).

10.9   Amended and Restated Operating Agreement of Lightstone Member LLC dated September 27, 2004 (incorporated herein by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-QSB for the period ended September 30, 2004, Commission File No. 1-8594).

10.10   Loan Agreement dated September 27, 2004 in the amount of $8,600,000 between Presidential Realty Corporation and Lightstone Member LLC (incorporated herein by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-QSB for the period ended September 30, 2004, Commission File No. 1-8594).

10.11   Amended and Restated Employment and Consulting Agreement, made January 31, 2005 as of January 1, 2004, between the Company and Jeffrey F. Joseph (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K as filed on February 3, 2005, Commission File No. 1-8594).

10.12   Amended and Restated Employment and Consulting Agreement, made January 31, 2005 as of January 1, 2004, between the Company and Thomas Viertel (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K as filed on February 3, 2005, Commission File No. 1-8594).

10.13    Amended and Restated Employment and Consulting Agreement, made January 31, 2005 as of January 1, 2004, between the Company and Steven Baruch (incorporated herein by reference to Exhibit 10.3 to the Company’s Form 8-K as filed on February 3, 2005, Commission File No. 1-8594).

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10.14   2005 Restricted Stock Plan for 115,000 shares of Class B common stock (incorporated herein by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10—KSB for the year ended December 31, 2005, Commission File No. 1-8594).

10.15   Loan Agreement dated December 23, 2004 in the amount of $7,500,000 between Presidential Realty Corporation and Lightstone Member II (incorporated herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10—KSB for the year ended December 31, 2005, Commission File No. 1-8594).

10.16   Amended and Restated Operating Agreement of Lightstone Member II LLC dated December 23, 2004 (incorporated herein by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10—KSB for the year ended December 31, 2005, Commission File No. 1-8594).

10.17   Loan Agreement dated June 30, 2005 in the amount of $9,500,000 between Presidential Realty Corporation and Lightstone Member III (incorporated herein by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10—KSB for the year ended December 31, 2005, Commission File No. 1-8594).

10.18   Operating Agreement of Lightstone Member III, LLC dated June 30, 2005 (incorporated herein by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10—KSB for the year ended December 31, 2005, Commission File No. 1-8594).

10.19   Letter Agreement dated September 16, 2005 between PDL, Inc., the General Partner, and the Limited Partners of the partnership PDL, Inc. and Associates Limited Co-Partnership, for PDL, Inc. to lend $1,000,000 to the partnership (incorporated herein by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10—KSB for the year ended December 31, 2005, Commission File No. 1-8594).

10.20   Amendment, dated as of January 1, 2007 between the Company and Steven Baruch, to the Amended and Restated Employment and Consulting Agreement made January 31, 2005 between the Company and Steven Baruch (incorporated herein by reference to Exhibit 99.1 to the Company’s Form 8-K as filed on January 23, 2007, Commission File No. 1-8594).

21.   List of Subsidiaries of Registrant (incorporated herein by reference to Exhibit 21 to the Company’s Annual Report on Form

59

10—KSB for the year ended December 31, 2005, Commission File No. 1-8594).

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.

99.1   Combined Financial Statements of Lightstone Member LLC, PRC Member LLC, Lightstone Member II LLC, and Lightstone Member III LLC for the years ended December 31, 2006 and 2005 pursuant to Rule 3-09 of Regulation S-X.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Reference is made to the Company’s definitive Proxy Statement for its Annual Meeting to Shareholders to be held June 15, 2007, which Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A and which is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of Section 13 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
By:	THOMAS VIERTEL
	Thomas Viertel
	Chief Financial Officer
	March 30, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature and Title Date

By:	ROBERT E. SHAPIRO	March 30, 2007
	Robert E. Shapiro
	Chairman of the Board of
	Directors and Director

By:	JEFFREY F. JOSEPH	March 30, 2007
	Jeffrey F. Joseph
	President and Director
	(Chief Executive Officer)

By:	THOMAS VIERTEL	March 30, 2007
	Thomas Viertel
	Executive Vice President
	(Chief Financial Officer)

By:	ELIZABETH DELGADO	March 30, 2007
	Elizabeth Delgado
	Treasurer
	(Principal Accounting Officer)

By:	RICHARD BRANDT	March 30, 2007
	Richard Brandt
	Director

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SIGNATURES (Continued)

Signature and Title Date

By:	MORTIMER M. CAPLIN	March 30, 2007
	Mortimer M. Caplin
	Director

By:	ROBERT FEDER	March 30, 2007
	Robert Feder
	Director

By:	JOSEPH VIERTEL	March 30, 2007
	Joseph Viertel
	Director

62

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	64
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets – December 31, 2006 and 2005	65
Consolidated Statements of Operations for the Years Ended December 31, 2006 and 2005	66
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2006 and 2005	67
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006 and 2005	68
Notes to Consolidated Financial Statements	70

63

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of
Presidential Realty Corporation
White Plains, New York

We have audited the accompanying consolidated balance sheets of Presidential Realty Corporation and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Presidential Realty Corporation and subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP
Stamford, Connecticut
April 2, 2007

64

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	December 31, 2006		December 31, 2005
Assets
Investments in and advances to joint ventures (Note 2)	$	18,059,749	$	23,291,133
Real estate (Note 3)		20,333,180		6,124,665
Less: accumulated depreciation		4,363,886		4,225,223
Net real estate		15,969,294		1,899,442
Mortgage portfolio (Note 4):
Notes receivable - net		7,234,239		9,889,459
Notes receivable - related parties - net		148,216		209,287
Net mortgage portfolio		7,382,455		10,098,746
Assets related to discontinued operations (Note 5)		2,922,493		2,850,245
Other investments (Note 6)		2,000,000		1,495,000
Prepaid expenses and deposits in escrow		1,323,232		635,550
Prepaid defined benefit plan costs (Note 19)		582,394		1,771,852
Other receivables (net of valuation allowance of     $274,303 in 2006 and $104,305 in 2005)		382,393		422,353
Cash and cash equivalents		2,263,534		2,878,237
Other assets		1,212,841		172,194
Total Assets	$	52,098,385	$	45,514,752
Liabilities and Stockholders’ Equity
Liabilities:
Mortgage debt (Note 7)	$	19,176,330	$	3,647,603
Liabilities related to discontinued operations (Note 5)		2,911,677		2,996,423
Contractual pension and postretirement benefits liabilities (Note 18)		3,256,861		3,456,666
Accrued liabilities		1,851,953		1,142,789
Accounts payable		525,029		280,365
Distributions from partnership in excess of investment and earnings (Note 8)		—		2,208,990
Other liabilities		757,947		200,336
Total Liabilities		28,479,797		13,933,172
Minority Interest in Consolidated Partnership (Note 9)		35,318		46,905
Stockholders’ Equity:
Common stock: par value $.10 per share (Note 14)        Class A, authorized 700,000 shares, issued 478,940 shares           and 100 shares held in treasury		47,894		47,894

Class B	December 31, 2006	December 31, 2005	346,232	339,696
Authorized:	10,000,000	10,000,000
Issued:	3,462,316	3,396,961
Treasury:	2,000	2,000

Additional paid-in capital		4,116,326			3,848,899
Retained earnings		21,453,808			28,833,713
Accumulated other comprehensive loss (Note 20)		(2,358,827	)		(1,513,364	)
Treasury stock (at cost)		(22,163	)		(22,163	)
Total Stockholders’ Equity		23,583,270			31,534,675
Total Liabilities and Stockholders’ Equity	$	52,098,385		$	45,514,752

See notes to consolidated financial statements.

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PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

	YEAR ENDED DECEMBER 31,
	2006			2005
Revenues:
Rental	$	2,253,861		$	2,056,815
Interest on mortgages - notes receivable		1,295,040			1,497,017
Interest on mortgages - notes receivable - related parties		207,875			386,973
Other revenues		162,845			474,059
Total		3,919,621			4,414,864
Costs and Expenses:
General and administrative		3,494,920			3,773,737
Depreciation on non-rental property		19,814			18,359
Rental property:
Operating expenses		2,289,344			1,145,106
Interest on mortgage debt		232,802			238,230
Real estate taxes		335,702			317,138
Depreciation on real estate		134,972			125,183
Amortization of mortgage costs		11,525			10,323
Total		6,519,079			5,628,076
Other Income (Loss):
Investment income		354,430			207,433
Equity in the loss of joint ventures (Note 2)		(2,083,113	)		(880,685	)
Equity in the (loss) income of partnership (Note 8)		(227,510	)		12,875
Loss before minority interest and net gain   from sales of properties		(4,555,651	)		(1,873,589	)
Minority interest share of partnership income		(7,163	)		(8,245	)
Loss before net gain from sales of properties		(4,562,814	)		(1,881,834	)
Recognition of deferred gain on sales of properties (Note 4)		—			3,241,540
Income (loss) from continuing operations		(4,562,814	)		1,359,706
Discontinued Operations (Note 5):
Loss from discontinued operations		(314,143	)		(588,484	)
Net gain from sales of discontinued operations		—			2,423,209
Total income (loss) from discontinued operations		(314,143	)		1,834,725
Net Income (Loss)		($4,876,957	)	$	3,194,431
Earnings per Common Share (basic and diluted):
Loss before net gain from sales of properties		($ 1.17	)		($ 0.49	)
Recognition of deferred gain on sales of properties		—			0.84
Income (loss) from continuing operations		(1.17	)		0.35
Discontinued Operations:
Loss from discontinued operations		(0.08	)		(0.15	)
Net gain from sales of discontinued operations		—			0.63
Total income (loss) from discontinued operations		(0.08	)		0.48
Net Income (Loss) per Common Share - basic and diluted		($ 1.25	)	$	0.83
Cash Distributions per Common Share (Note 15)	$	0.64		$	0.64
Weighted Average Number of Shares Outstanding - basic and diluted		3,911,405			3,836,728

See notes to consolidated financial statements.

66

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at January 1, 2005	$	382,167	$	3,464,670	$	28,095,586			($ 1,433,861	)		($ 22,138	)				$	30,486,424
Net proceeds from dividend   reinvestment plan		1,623		125,839		—			—			—						127,462
Cash distributions ($.64 per share)		—		—		(2,456,304	)		—			—						(2,456,304	)
Issuance of stock (Note 16)		1,400		107,790		—			—			—						109,190
Exercise of stock options (Note 17)		2,400		150,600		—			—			—						153,000
Purchase of treasury stock		—		—		—			—			(25	)					(25	)
Comprehensive income:
Net income		—		—		3,194,431			—			—		$	3,194,431			3,194,431
Other comprehensive income-
Net unrealized gain on securities         available for sale		—		—		—			754			—			754			754
Minimum pension liability adjustment		—		—		—			(80,257	)		—			(80,257	)		(80,257	)
Comprehensive income														$	3,114,928
Balance at December 31, 2005		387,590		3,848,899		28,833,713			(1,513,364	)		(22,163	)					31,534,675
Net proceeds from dividend   reinvestment plan		3,336		214,407		—			—			—						217,743
Cash distributions ($.64 per share)		—		—		(2,502,948	)		—			—						(2,502,948	)
Issuance of stock (Note 16)		3,200		53,020		—			—									56,220
Comprehensive loss:
Net loss		—		—		(4,876,957	)		—			—			($4,876,957	)		(4,876,957	)
Other comprehensive income-
Net unrealized gain on securities         available for sale		—		—		—			4,364			—			4,364			4,364
Minimum pension liability adjustment		—		—		—			262,693			—			262,693			262,693
Comprehensive loss															($4,609,900	)
Adjustment for initial adoption   of SFAS No. 158 (Note 18)		—		—		—			(73,419	)		—						(73,419	)
Adjustment for initial adoption   of SFAS No. 158 (Note 19)		—		—		—			(1,039,101	)		—						(1,039,101	)
Balance at December 31, 2006	$	394,126	$	4,116,326	$	21,453,808			($ 2,358,827	)		($ 22,163	)				$	23,583,270

See notes to consolidated financial statements.

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PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	YEAR ENDED DECEMBER 31,
	2006			2005
Cash Flows from Operating Activities:
Cash received from rental properties	$	3,161,533		$	3,490,301
Interest received		1,620,721			2,122,593
Distributions received from joint ventures		3,483,271			2,505,239
Distributions received from other investments		145,076			—
Distributions received from partnership		—			26,922
Miscellaneous income		163,262			484,988
Interest paid on rental property mortgage debt		(425,822	)		(583,720	)
Cash disbursed for rental property operations		(2,719,129	)		(2,468,992	)
Cash disbursed for general and administrative costs		(3,658,362	)		(3,106,521	)
Net cash provided by operating activities		1,770,550			2,470,810
Cash Flows from Investing Activities:
Payments received on notes receivable		2,907,164			8,755,093
Loan advanced to joint venture		(335,000	)		(9,500,000	)
Loan advanced to partnership		(1,058,716	)		—
Net proceeds received from fire insurance settlement		—			875,434
Payments disbursed for additions and improvements		(412,126	)		(664,854	)
Proceeds from sales of properties		—			4,911,146
Purchase of other investments		(505,000	)		(1,495,000	)
Cash received from purchase of additional interest in partnership		555,209			—
Purchase of additional interest in partnership		(1,049,439	)		(65,000	)
Other		—			1,878
Net cash provided by investing activities		102,092			2,818,697
Cash Flows from Financing Activities:
Principal payments on mortgage debt		(183,390	)		(189,437	)
Principal payments on mortgage debt from insurance proceeds		—			(707,588	)
Repayment of mortgage debt from sale of property		—			(1,411,670	)
Distributions to minority partners		(18,750	)		(12,500	)
Cash distributions on common stock		(2,502,948	)		(2,456,304	)
Cash received from exercise of stock options		—			153,000
Proceeds from dividend reinvestment plan		217,743			127,462
Net cash used in financing activities		(2,487,345	)		(4,497,037	)
Net (Decrease) Increase in Cash and Cash Equivalents		(614,703	)		792,470
Cash and Cash Equivalents, Beginning of Year		2,878,237			2,085,767
Cash and Cash Equivalents, End of Year	$	2,263,534		$	2,878,237

See notes to consolidated financial statements.

68

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	YEAR ENDED DECEMBER 31,
	2006			2005
Reconciliation of Net Income (Loss) to Net Cash   Provided by Operating Activities
Net Income (Loss)		($ 4,876,957	)	$	3,194,431
Adjustments to reconcile net income (loss) to net   cash provided by operating activities:
Recognition of deferred gain on sales of properties		—			(3,241,540	)
Net gain from sales of discontinued operations		—			(2,423,209	)
Equity in the loss (income) of partnership		227,510			(12,875	)
Equity in the loss of joint ventures		2,083,113			880,685
Depreciation and amortization		166,311			316,431
Issuance of stock to directors and officers		56,220			34,090
Amortization of discounts on notes and fees		(190,873	)		(159,287	)
Minority interest share of partnership income		7,163			8,245
Distributions received from partnership		—			26,922
Distributions received from joint ventures		3,483,271			2,505,239
Changes in assets and liabilities:
Decrease in other receivables		84,883			355,644
Increase (decrease) in accounts payable and accrued liabilities		474,514			(5,394	)
Increase in other liabilities		29,496			22,080
Decrease (increase) in prepaid expenses, deposits in escrow       and deferred charges		240,578			957,980
Other		(14,679	)		11,368
Total adjustments		6,647,507			(723,621	)
Net cash provided by operating activities	$	1,770,550		$	2,470,810
SUPPLEMENTAL NONCASH DISCLOSURES:
Satisfaction of mortgage debt as a result of assumption     of the mortgage debt by the purchaser				$	7,605,966
Real estate, intangible assets and liabilities recorded on the Company’s     consolidated balance sheet as a result of the purchase of an additional       25% partnership interest in the Hato Rey Partnership:
Real estate	$	13,984,860
Intangible assets	$	570,596
Mortgage payable	$	15,660,265
Other liabilities	$	167,865

See notes to consolidated financial statements.

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PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.  Real Estate – Real estate is stated at cost. Generally, depreciation is provided on the straight-line method over the assets’ estimated useful lives, which range from twenty to fifty years for buildings and from three to ten years for furniture and equipment. Maintenance and repairs are charged to operations as incurred and renewals and replacements are capitalized. The Company reviews each of its property investments for possible impairment at least annually, and more frequently if circumstances warrant. Impairment of properties is determined to exist when estimated amounts recoverable through future operations on an undiscounted basis are below the properties’ carrying value. If a property is determined to be impaired, it is written down to its estimated fair value.

Purchase Accounting

In 2006, the Company acquired an additional 25% limited partnership interest in PDL, Inc. and Associates Limited Co-Partnership (the “Hato Rey Partnership”), which increased the ownership interest to 59% as of December 31, 2006, and, as a result, consolidated the Hato Rey Partnership on the Company’s consolidated balance sheet. The Company did not consolidate the Hato Rey Partnership’s results of operations on its consolidated statement of operations because for the year ended December 31, 2006, the Company only had a 33% and 34% ownership interest in the partnership, and accordingly, the Company recorded its share of the loss from the partnership for the year ended December 31, 2006, in Equity in the (loss) income of partnership, under the equity method of accounting.

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The Company allocated the fair value of acquired tangible and intangible assets and assumed liabilities based on their estimated fair values in accordance with the provisions of Accounting Research Bulletin (“ARB”) No. 51 “Consolidated Financial Statements”, and the Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, as a partial step acquisition. The Company assessed fair value based on third party appraisals and cash flow projections that utilized appropriate discount rates and/or capitalization rates. Tangible assets, land, buildings and tenant improvements are fair valued as if vacant (replacement cost). Intangible assets, above and below market leases, were recorded at their estimated present value. The present value was determined by calculating the present value of the difference between the rental income of each tenant at the contractual lease rent rate and at the market rent rate. The present value of the difference between these two rates represents the value of the above or below market leases. The present value was determined using a discount rate of 9.0%. The above or below market lease values are amortized as a reduction of, or an increase to, rental income over the remaining term of each lease.

The value of the leases in place was determined by calculating the estimated downtime costs for each tenant. The value of the downtime costs represents the value of the lost revenue including all rents and reimbursements during the downtime as if the property was purchased with 100% of the in-line space vacant and was then leased to the existing tenants using lease-up assumptions, and includes estimated nonrecoverable operating costs incurred during the lease up period. In place lease values are amortized to expense over the terms of the related tenant leases.

No gain or goodwill was recognized on the recording of the acquisition of the 25% interest in the Hato Rey Partnership.

B.   Mortgage Portfolio – Net mortgage portfolio represents the outstanding principal amounts of notes receivable reduced by discounts. The primary forms of collateral on all notes receivable are real estate and ownership interests in entities that own real property, and may include borrower personal guarantees. The Company periodically evaluates the collectibility of both accrued interest on and principal of its notes receivable to determine whether they are impaired. A mortgage loan is considered to be impaired when, based on current information and events, it is probable that the Company will be

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unable to collect all amounts due according to the existing contractual terms of the loan. The Company also considers loan modifications as possible indicators of impairment, although all modifications during the two years ended December 31, 2006 have been at the Company’s request for business purposes and not as a result of debtor financial difficulties. When a mortgage loan is considered to be impaired, the Company establishes a valuation allowance equal to the difference between a) the carrying value of the loan, and b) the present value of the expected cash flows from the loan at its effective interest rate, or at the estimated fair value of the real estate collateralizing the loan. Income on impaired loans, including interest, and the recognition of deferred gains and unamortized discounts, is recognized only as cash is received. The Company currently has no loans that are impaired according to their terms as modified.

C.   Sale of Real Estate – Presidential complies with the provisions of SFAS No. 66, “Accounting for Sales of Real Estate”. Accordingly, the gains on certain transactions have been deferred and are being recognized on the installment method until such transactions have complied with the criteria for full profit recognition. At December 31, 2005, all deferred gains were recognized and the Company had no deferred gains at December 31, 2006.

D.   Discounts on Notes Receivable – Presidential assigned discounted values to long-term notes received from the sales of properties to reflect the difference between the stated interest rates on the notes and market interest rates at the time the notes were made. Such discounts are being amortized using the interest method.

E.   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 (see Note 9). At December 31, 2006, the consolidated balance sheet also includes 100% of the account balances of the Hato Rey Partnership. PDL, Inc. (a wholly owned subsidiary of Presidential and the general partner of the Hato Rey Partnership) and Presidential own an aggregate 59% general and limited partnership interest in the Hato Rey Partnership at December 31, 2006 (see Note 8).

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All significant intercompany balances and transactions have been eliminated.

F.   Investments in Joint Ventures – The Company has equity investments in joint ventures and accounts for these investments using the equity method of accounting. These investments are recorded at cost and adjusted for the Company’s share of each entity’s income or loss and adjusted for cash contributions or distributions. Real estate held by such entities is regularly reviewed for impairment, and would be written down to its estimated fair value if impairment were determined to exist. See Notes 2 and 8.

G.   Rental Revenue Recognition – The Company acts as lessor under operating leases. Rental revenue is recorded on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. Certain leases require the tenants to reimburse a pro rata share of real estate taxes, utilities and maintenance costs. Recognition of rental revenue is generally discontinued when the rental is delinquent for ninety days or more, or earlier if management determines that collection is doubtful.

H.   Net Income (Loss) Per Share – Basic net income (loss) per share data is computed by dividing net income (loss) by the weighted average number of shares of Class A and Class B common stock outstanding during each year. Diluted net income (loss) per share is computed by dividing net income (loss) 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 (see Note 17).

I.   Cash and Cash Equivalents – Cash and cash equivalents includes cash on hand, cash in banks and money market funds.

J.   Benefits – The Company follows SFAS Nos. 87, 106, 132 and 158 in accounting for pension and postretirement benefits (see Notes 18 and 19).

K.   Management Estimates – The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to

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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.

L.   Accounting for Stock Options and Stock Awards – The Company adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, and elected to continue to account for employee stock-based compensation as prescribed by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees”. The Company has not granted any stock options in the last two years and all existing options were either exercised or expired during the year ended December 31, 2005 (see Note 17). For the year ended December 31, 2005, there would have been no additional compensation expense if the Company had applied the fair value based method of accounting to its existing options because all options were vested.

The Company adopted SFAS No. 123R on January 1, 2006, and applied the provisions of this statement for stock awards granted in 2006. During 2006, the Company granted 32,000 shares of Class B common stock to directors, officers and employees. The shares granted to the directors were fully vested upon the grant date and the shares granted to the officers and employees will vest at the rate of 20% per year, with full distribution rights at the date of the grants. The Company recorded the market value of the grants that vested in 2006 to expense in 2006.

M.   Discontinued Operations – The Company complies with the provisions of 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.

N.   Recent Accounting Pronouncements – In June, 2005, the Financial Accounting Standards Board (“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

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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, 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 adoption of this standard on January 1, 2007 did not have a material effect on the Company’s consolidated financial statements.

In March, 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 adoption of this standard on January 1, 2007 did not have a material effect on the Company’s consolidated financial statements.

In July, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 establishes new evaluation and measurement processes for all income tax positions taken. FIN 48 also requires expanded disclosures of income tax matters. The Company is in the process of evaluating the impact, if any, that the adoption of this standard on January 1, 2007 will have

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on the Company’s consolidated financial statements.

In September, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 clarifies the definition of fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement is effective in fiscal years beginning after November 15, 2007. The Company does not believe that the adoption of this standard on January 1, 2008 will have a material effect on the Company’s consolidated financial statements.

In September, 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statements No. 87, 88, 106 and 132(R)”. SFAS No. 158 requires an employer to (i) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (ii) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (iii) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The adoption of the requirement to recognize the funded status of a benefit plan and the disclosure requirements as of December 31, 2006 resulted in a $1,112,520 increase in accumulated other comprehensive loss on the Company’s consolidated balance sheet. The requirement to measure plan assets and benefit obligations to determine the funded status as of the end of the fiscal year and to recognize changes in the funded status in the year in which the changes occur is effective for fiscal years ending after December 15, 2008. The adoption of the measurement date provisions of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

In September, 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”), which becomes effective for the first fiscal period ending after November 15, 2006. SAB 108 provides guidance on the consideration of the effects of prior period misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 provides for the quantification of the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The adoption of SAB 108 on December 31,

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2006 did not have a material effect on the Company’s consolidated financial statements.

In February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 159 on the Company’s financial position and results of operations.

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.

In June, 2006, the Company made an additional $335,000 mezzanine loan to Lightstone II (see below). The loan was added to the original $7,500,000 loan made to Lightstone II and has the same interest rate and maturity date as the original loan. At

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December 31, 2006, the aggregate principal amount of loans to joint ventures controlled by David Lichtenstein was $25,935,000.

The following table summarizes information on the shopping mall properties and the mezzanine loans with respect thereto (amounts in thousands):

					Nonrecourse First Mortgage and Mezzanine Loans December 31, 2006
Owning Entity and Property Owned (1)	Mezzanine Loans Advanced by the Company		Approximate Square Feet		Balance		Maturity Date	Interest Rate
PRC Member LLC Martinsburg Mall   Martinsburg, WV				552	$	29,864	July, 2016		(2)
Lightstone I Four Malls	$	8,600
Bradley Square Mall				385		13,804	July, 2016		(2)
Cleveland, TN
Mount Berry Square Mall   Rome, GA				478		22,479	July, 2016		(2)
Shenango Valley Mall				508		14,749	July, 2016		(2)
Hermitage, PA
West Manchester Mall   York, PA				733		29,600	June, 2008		(2)
Lightstone II
Shawnee/Brazos Malls		7,835				39,500	Jan., 2008		(2)
Brazos Outlets
Center Mall				698
Lake Jackson, TX
Shawnee Mall   Shawnee, OK				444
Lightstone III
Macon/Burlington Malls		9,500				158,096	June, 2015		5.78%
Burlington Mall				412
Burlington, NC
Macon Mall   Macon, GA				1,446
	$	25,935		5,656	$	308,092

(1)   Each individual owning entity is a single purpose entity that is prohibited by its organizational documents from owning any

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assets other than the specified shopping mall properties listed above.

(2)   On June 8, 2006, the original $105,000,000 nonrecourse first mortgage loan secured by the Martinsburg Mall and the Four Malls was refinanced with the following mortgage loans: a $73,900,000 nonrecourse first mortgage loan with an interest rate of 5.93% per annum, maturing on July 1, 2016, a $7,000,000 mezzanine loan with an interest rate of 12% per annum maturing on July 1, 2016 and a $29,600,000 nonrecourse first mortgage loan with an adjustable interest rate based on the London Interbank Offered Rates plus 232 basis points (approximately 7.45% at December 31, 2006), with a minimum interest rate of 7.89%, maturing on June 8, 2008. The $73,900,000 first mortgage loan and the $7,000,000 mezzanine loan are secured by the Martinsburg Mall and three of the Four Malls. The $29,600,000 first mortgage loan is secured by the West Manchester Mall.

(3)   The interest rate is at the 30 day LIBOR rate plus 280 basis points (approximately 7.93% at December 31, 2006). The loan matures in January, 2008, with two one-year options to extend the loan for an extension fee of .125% of the outstanding principal.

Investments in and advances to joint ventures are as follows:

	December 31, 2005		Net Distributions Received			Equity in the Loss of Joint Ventures			December 31, 2006
Martinsburg Mall	$	919,549	$	(276,569	)	$	(480,159	)	$	162,821
Four Malls		6,694,235		(959,139	)		(1,200,518	)		4,534,578
Shawnee/Brazos Malls (1)		6,800,268		(517,938	)		(274,406	)		6,007,924
Macon/Burlington Malls		8,877,081		(1,394,625	)		(128,030	)		7,354,426
	$	23,291,133	$	(3,148,271	)	$	(2,083,113	)	$	18,059,749

(1)   The distributions received for the Shawnee/Brazos Malls of $517,938 is net of a loan advanced to Lightstone II in the amount of $335,000.

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Equity in the (loss) income of joint ventures is as follows:

		Year Ended December 31,
		2006			2005
Martinsburg Mall	(1)	$	(480,159	)	$	(343,134	)
Four Malls	(2)		(1,200,518	)		(548,327	)
Shawnee/Brazos Malls	(3)		(274,406	)		169,680
Macon/Burlington Malls	(4)		(128,030	)		(158,904	)
		$	(2,083,113	)	$	(880,685	)

(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 of joint ventures for the Four Malls.

(3)   Interest income earned by the Company at the rate of 11% per annum on the outstanding $7,835,000 loan from the Company to Lightstone II is included in the calculation of the Company’s share of the loss of joint ventures for the Shawnee/Brazos Malls.

(4)   Interest income earned by the Company at the rate of 11% per annum on the outstanding $9,500,000 loan from the Company to Lightstone III is included in the calculation of the Company’s share of the loss of joint ventures for the Macon/Burlington Malls.

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:

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	December 31,
	2006			2005
Condensed Combined Balance Sheets
Net real estate	$	304,358,000		$	302,087,000
In place lease values and acquired    lease rights		16,147,000			22,299,000
Prepaid expenses and    deposits in escrow		14,844,000			16,140,000
Cash and cash equivalents		2,695,000			3,488,000
Deferred financing costs		1,766,000			2,202,000
Other assets		7,255,000			5,466,000
Total Assets	$	347,065,000		$	351,682,000
Nonrecourse mortgage debt	$	308,092,000		$	303,350,000
Mezzanine notes payable		31,670,000			28,200,000
Other liabilities		24,610,000			21,138,000
Total Liabilities		364,372,000			352,688,000
Members’ Deficit		(17,307,000	)		(1,006,000	)
Total Liabilities and Members’ Deficit	$	347,065,000		$	351,682,000

	Year Ended December 31,
	2006			2005
Condensed Combined Statements  of Operations
Revenues	$	58,585,000		$	46,353,000
Interest on mortgage debt and other debt		(25,112,000	)		(17,396,000	)
Other expenses		(31,302,000	)		(23,685,000	)
Income before depreciation     and amortization		2,171,000			5,272,000
Depreciation and amortization		(16,102,000	)		(13,680,000	)
Net Loss	$	(13,931,000	)	$	(8,408,000	)

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 statement of operations reflect 29% of the loss of the joint ventures. The Company’s equity in the loss of joint ventures of $2,083,113 for the year ended December 31, 2006, is after deductions in the aggregate amount of $4,669,588 for the Company’s 29% of noncash charges (depreciation of $2,878,024, amortization of deferred financing costs and other costs of $578,549 and amortization of in-place lease values of $1,213,015). Notwithstanding the loss from the joint ventures, the Company is entitled to receive its interest at the rate of 11% per annum on its $25,935,000 of loans to the joint ventures. For the year ended December 31, 2006, the Company received distributions from the joint ventures in the amount of $3,483,271, which included payments of interest in the

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amount of $2,871,592 and return on investment in the amount of $611,679. The return on investment of $611,679 includes a distribution of $335,110 from Lightstone III and this distribution was utilized to fund the additional $335,000 mezzanine loan to Lightstone II.

The equity in the loss of joint ventures of $880,685 for the year ended December 31, 2005, is after deductions in the aggregate amount of $3,967,231 for the Company’s 29% of noncash charges (depreciation of $2,256,368, amortization of deferred financing costs and other costs of $463,513 and amortization of in-place lease values of $1,247,350). For the year ended December 31, 2005, the Company received distributions from joint ventures in the amount of $2,505,239, which included payments of interest in the amount of $2,171,889 and return on investment in the amount of $333,350.

The Lightstone Group is controlled by David Lichtenstein. At December 31, 2006, in addition to Presidential’s investments of $18,059,749 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 $6,886,161. Two of the loans in the outstanding principal amount of $5,375,000, with a net carrying value of 4,811,167, 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 and the Company believes that all of these loans are adequately secured; however, a default on any or all of these loans could have a material adverse effect on Presidential’s business and operating results.

The $24,945,910 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 48% of the Company’s total assets at December 31, 2006.

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3. REAL ESTATE

Real estate is comprised of the following:

	December 31,
	2006		2005
Land	$	2,304,009	$	403,969
Buildings		17,907,264		5,611,211
Furniture and equipment		121,907		109,485
Total real estate	$	20,333,180	$	6,124,665

At December 31, 2006, real estate includes the real estate of the Hato Rey Partnership as a result of the consolidation of this partnership on the Company’s consolidated balance sheet in December, 2006 (see Note 8).

Two of the properties owned by the Company represented 37% and 23% of total rental revenue in 2006 and 33% and 24% of total rental revenue in 2005.

4. MORTGAGE PORTFOLIO

The Company’s mortgage portfolio includes notes receivable and notes receivable – related parties.

Notes receivable consist of:

(1)	Long-term purchase money notes from sales of properties previously owned by the Company and loans and mortgages originated by the Company. These notes receivable have varying interest rates with balloon payments due at maturity.
(2)	Notes receivable from sales of cooperative apartment units. These notes generally have market interest rates and the majority of these notes amortize monthly with balloon payments due at maturity.

Notes receivable – related parties are all due from Ivy Properties, Ltd. or its affiliates (collectively “Ivy”) and consist of:

(1) Purchase money notes resulting from sales of property to Ivy.

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(2) Notes receivable relating to loans made by the Company to Ivy in connection with Ivy’s cooperative conversion business.

At December 31, 2006, all of the notes in the Company’s mortgage portfolio are current in accordance with their terms, as modified.

The following table summarizes the components of the mortgage portfolio:

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MORTGAGE PORTFOLIO

	Notes Receivable								Notes Receivable - Related Parties
	Properties previously owned		Originated loans		Cooperative apartment units		Total		Properties previously owned		Cooperative conversion loans		Total		Total mortgage portfolio
December 31, 2006
Notes receivable	$	4,170,000	$	3,574,994	$	58,450	$	7,803,444	$	155,232	$	39,769	$	195,001	$	7,998,445
Less: Discounts		563,833		—		5,372		569,205		14,216		32,569		46,785		615,990
Net	$	3,606,167	$	3,574,994	$	53,078	$	7,234,239	$	141,016	$	7,200	$	148,216	$	7,382,455
Due within one year	$	195,000	$	—	$	18,157	$	213,157	$	20,974	$	6,402	$	27,376	$	240,533
Long-term		3,411,167		3,574,994		34,921		7,021,082		120,042		798		120,840		7,141,922
Net	$	3,606,167	$	3,574,994	$	53,078	$	7,234,239	$	141,016	$	7,200	$	148,216	$	7,382,455
December 31, 2005
Notes receivable	$	4,565,000	$	6,000,000	$	82,847	$	10,647,847	$	202,592	$	68,481	$	271,073	$	10,918,920
Less: Discounts		752,317		—		6,071		758,388		14,583		47,203		61,786		820,174
Net	$	3,812,683	$	6,000,000	$	76,776	$	9,889,459	$	188,009	$	21,278	$	209,287	$	10,098,746
Due within one year	$	200,000	$	—	$	21,004	$	221,004	$	17,872	$	7,786	$	25,658	$	246,662
Long-term		3,612,683		6,000,000		55,772		9,668,455		170,137		13,492		183,629		9,852,084
Net	$	3,812,683	$	6,000,000	$	76,776	$	9,889,459	$	188,009	$	21,278	$	209,287	$	10,098,746

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Prepayments, Payoffs and Modifications

On March 8, 2006, the Company received a partial prepayment on one of the loans outstanding to entities controlled by Mr. Lichtenstein. The Company had 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. Under the original terms of the note, upon a refinancing and principal prepayment on the note, the interest rate on the unpaid balance of the note was to be recalculated pursuant to a specific formula. In order to resolve a disagreement over the recalculation of this interest rate, in July, 2006, the Company and the borrower modified the terms of this note. Under the terms of the modification, effective January 1, 2006, the interest rate on the note was increased from 11.50% per annum to 13.50% per annum until October 24, 2007 and 13% per annum thereafter until maturity (2% of such interest will be deferred and payable on October 23, 2008, in accordance with the original terms of the note). In addition, the Company will receive additional interest in an amount equal to 27% of any operating cash flow distributed to the borrower and 27% (increased from 25%) of any net proceeds resulting from sales or refinancing of the properties.

In March, 2005, the Company received prepayment of its $8,550,000 Encore Apartments note receivable which was due to mature on April 30, 2009. As a result of the prepayment of this note, the Company recognized a $3,241,540 gain from the sale of the property, which had previously been deferred. The long-term capital gain for tax purposes, which was being recognized on the installment method, was approximately $5,548,000.

In connection with the prepayment, the Company received an additional interest payment of $171,000, a prepayment fee of $256,500 and other fees of $25,000.

Under the terms of the Mark Terrace note, the borrower has annual options to extend the maturity date from November 29, 2005 to November 29, 2008 at an interest rate of 9.16% per annum until maturity. In October, 2005, the borrower exercised its first annual option to extend the maturity date of the note to November 29, 2006 and, as a result, the Company received a principal

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payment of $100,000 in 2006. In October, 2006, the borrower exercised its second annual option to extend the maturity date to November 29, 2007. As a result, the Company received a $50,000 principal payment and will receive another $50,000 principal payment in 2007. If the borrower exercises its remaining option to extend the note, the Company will receive an additional principal payment of $100,000 on November 30, 2007. As of December 31, 2006, the note is collateralized by 76 unsold cooperative apartments at the Mark Terrace property. As apartments are sold, the Company receives principal payments ranging from $20,000 to $35,000 per unit depending upon the size of the unit. During 2006 and 2005, the Company received $395,000 and $110,000, respectively, in principal payments on the Mark Terrace note and the balance of the note at December 31, 2006 was $195,000.

The $3,875,000 outstanding principal amount of the Fairfield Towers loan is collateralized by two New Jersey properties and by the borrower’s personal guarantee up to the maximum amount of $1,647,500. In November, 2005, this loan was further collateralized by ownership interests in the entities owning Pinewood Chase Apartments in Suitland, Maryland, Reisterstown Apartments in Baltimore, Maryland and Plaza Village Apartments in Morrisville, Pennsylvania. In addition, these ownership interests further collateralize a $1,500,000 loan. The additional collateral was added in exchange for permitting the borrower to refinance the existing first mortgages on the original collateral properties.

5.   DISCONTINUED OPERATIONS

For the years ended December 31, 2006 and 2005, income (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 September, 2006, the Company entered into a contract for the sale of the property, which sale was consummated in March, 2007 (see below). In addition, income (loss) from discontinued operations for the year ended December 31, 2005 included the Farrington Apartments property and the Fairlawn Gardens property, which were sold during the year ended December 31, 2005.

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The following table summarizes income or loss for the properties sold or held for sale.

	Year ended December 31,
	2006			2005
Revenues:
Rental	$	879,228		$	1,328,831
Rental property expenses:
Operating expenses		838,364			1,288,824
Interest on mortgage debt		192,151			277,655
Real estate taxes		168,934			192,499
Depreciation on real estate		—			160,257
Amortization of mortgage costs		—			2,309
Total		1,199,449			1,921,544
Other income:
Investment income		6,078			4,229
Loss from   discontinued operations		(314,143	)		(588,484	)
Net gain from sales of   discontinued operations		—			2,423,209
Total income (loss) from   discontinued operations	$	(314,143	)	$	1,834,725

In September, 2006, the Company entered into a contract for the sale of the Cambridge Green property in Council Bluffs, Iowa for a sales price of $3,700,000 to be paid by (i) the buyer’s assumption of the first mortgage loan on the property, (the outstanding principal balance of which was $2,865,433 at December 31, 2006), (ii) a $200,000 secured note receivable, which will mature one year from the date of the closing and have an interest rate of 7% per annum, and (iii) the balance of the purchase price to be paid in cash. The closing of the contract of sale is subject to the approval of the US Department of Housing and Urban Development (“HUD”), which insures the first mortgage loan on the property and subsequent to year end this approval was received from HUD. The sale was consummated in March, 2007.

The gain from the sale for financial reporting purposes is estimated to be approximately $650,000 and the estimated net proceeds will be approximately $665,000, which includes the proceeds of the $200,000 note receivable.

On January 26, 2005, the Company completed the sale of its Farrington Apartments property in Clearwater, Florida for a sales

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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 prior to the sale. In November, 2005, the Company received $167,846 of additional insurance proceeds related to the same fire and these proceeds were included in the gain on the sale of the property. The gain from sale for financial reporting purposes was $2,434,789. The gain for Federal income tax purposes resulting from this transaction was $2,436,859 and was treated by the Company as a gain resulting from an involuntary conversion of property under Section 1033 of the Internal Revenue Code. Accordingly, the gain has been deferred pursuant to the provisions of Section 1033.

The assets and liabilities of the Cambridge Green property are segregated in the consolidated balance sheets. The components are as follows:

	December 31,
	2006			2005
Assets related to     discontinued operations:
Land	$	200,000		$	200,000
Buildings		4,214,988			4,117,679
Furniture and equipment		39,851			35,119
Less: accumulated depreciation		(1,634,161	)		(1,634,554	)
Net real estate		2,820,678			2,718,244
Other assets		101,815			132,001
Total	$	2,922,493		$	2,850,245
Liabilities related to     discontinued operations:
Mortgage debt	$	2,865,433		$	2,917,285
Other liabilities		46,244			79,138
Total	$	2,911,677		$	2,996,423

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6.             OTHER INVESTMENTS

In 2005, the Company agreed to advance $1,000,000 from time to time to Broadway Partners Parallel Fund A (“Broadway Fund A”), a blind pool of investment capital sponsored by Broadway Real Estate Partners, LLC (“Broadway Partners”). In connection with such agreement, the Company advanced $1,000,000 to Broadway Partners and received interest on these funds at the rate of 11.43% per annum through September 30, 2006 and 5% per annum thereafter until such funds were used to fund the Company’s commitment to Broadway Fund A. In 2006, the Company made an additional commitment to fund an additional $1,000,000 to Broadway Partners Feeder Fund A II (“Broadway Fund A II”), another blind pool of investment capital sponsored by Broadway Partners. The Company retained the right to fund its commitments to Broadway Fund A and Broadway Fund A II with the $1,000,000 advanced to Broadway Partners or with other funds available to the Company.

At December 31, 2006, Presidential had advanced $890,000 (including $395,000 advanced during 2006) of its $1,000,000 commitment to Broadway Fund A and the balance of Presidential’s commitment to Broadway Fund A at December 31, 2006 was $110,000. Also in 2006, Presidential advanced $590,000 of its $1,000,000 commitment to Broadway Fund A II and the balance of Presidential’s commitment to Broadway Fund A II at December 31, 2006 was $410,000. At December 31, 2006, Broadway Partners continued to hold $520,000 of the funds previously advanced to it by Presidential. In January, 2007, the balance of the $410,000 commitment to Broadway Fund A II was funded from the Broadway Partners Fund.

In September, 2006, the Company received a $145,076 distribution from Broadway Fund A resulting from the proceeds of sales and recorded the distribution to investment income. In addition, for the years ended December 31, 2006 and 2005, the Company earned interest income of $94,097 and $68,395, respectively, on the funds held by Broadway Partners. At December 31, 2006 and 2005, accrued interest was $6,022 and $9,525, respectively.

The Company accounts for these investments under the cost method.

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Other investments are composed of:
	December 31,
	2006		2005
Broadway Partners	$	520,000	$	1,000,000
Broadway Fund A		890,000		495,000
Broadway Fund A II		590,000		—
Total	$	2,000,000	$	1,495,000

7.             MORTGAGE DEBT

At December 31, 2006, mortgage debt on the consolidated balance sheet was $19,176,330, which has been discounted by $157,724 to reflect the fair value of the Hato Rey Partnership mortgage as a result of the consolidation of the partnership. The aggregate outstanding mortgage debt at December 31, 2006 is $19,334,054.

All mortgage debt is secured by individual properties. The $15,817,989 mortgage on the Hato Rey Center property in Hato Rey, Puerto Rico and the $2,264,066 mortgage on the Crown Court property in New Haven, Connecticut are nonrecourse to the Company, whereas the $1,128,733 mortgage on the Building Industries Center property in White Plains, New York and the $123,266 mortgage on the Mapletree Industrial Center property in Palmer, Massachusetts are recourse to Presidential.

Amortization requirements of all mortgage debt as of December 31, 2006 are summarized as follows:

Year ending December 31:
2007	$	417,167
2008		15,691,120
2009		1,203,408
2010		140,233
2011		134,065
Thereafter		1,748,061
TOTAL	$	19,334,054

Interest on mortgages is payable at fixed rates, summarized as follows:

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Interest rates:
5.45%	$	1,128,733
7% - 7.38%		18,082,055
8%		123,266
TOTAL	$	19,334,054

The $15,817,989 mortgage on the Hato Rey Center property has a balloon payment of $15,445,099 due at maturity in May, 2008. The Company intends to refinance this mortgage prior to its maturity date.

8.  ACQUISITION OF PARTNERSHIP INTEREST

PDL, Inc. (a wholly owned subsidiary of Presidential) is the general partner of the Hato Rey Partnership. Presidential and PDL, Inc. had an aggregate 33% general and limited partner interest in the Hato Rey Partnership at December 31, 2005. On June 30, 2006, the Company purchased an additional 1% limited partnership interest for a purchase price of $45,000. Prior to the purchase of an additional 25% limited partnership interest, as discussed below, the Company accounted for its investment in this partnership under the equity method. The Hato Rey Partnership owns and operates an office building, with 210,000 square feet of commercial space, located in Hato Rey, Puerto Rico (the “Hato Rey Center”).

On April 12, 2006, the Company closed in escrow on its contract to acquire an additional 25% limited partnership interest in the Hato Rey Partnership for a purchase price of $950,000. Additional costs of purchase were $54,439 for a total purchase price of $1,004,439. The closing documents and the purchase price were released from escrow in October, 2006. Pursuant to the closing documents, the transfer of the 25% limited partnership interest will not be effective until January 1, 2007 and the seller will receive his 25% share of the income/loss from the partnership through December 31, 2006. As of the date of the release of the escrowed purchase price, Presidential effectively owned a 59% interest (1% general and 58% limited) in the Hato Rey Partnership. As a result, at December 31, 2006, the Company owns the majority of the partnership interests in the partnership, is the general partner of the partnership, and exercises effective control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business.

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Accordingly, at December 31, 2006, the Company consolidated the Hato Rey Partnership on the Company’s consolidated balance sheet. The Company did not consolidate the Hato Rey Partnership’s results of operations on its consolidated statement of operations because for the year ended December 31, 2006, the Company only had a 33% and 34% ownership interest in the partnership, and accordingly, the Company recorded its share of the loss from the partnership for the year ended December 31, 2006, in Equity in the (loss) income of partnership, under the equity method of accounting.

The Company allocated the transaction’s value, the negative basis of the minority partners and the Company’s negative basis, to the tangible and intangible assets acquired and liabilities assumed based on the increase in their estimated fair values over historical costs in a partial step acquisition in accordance with the provisions of ARB No. 51 and SFAS No. 141, as follows:

Land	$	1,899,170
Building and improvements		12,085,690
Intangible assets (in other assets)		570,596
Mortgage payable		15,660,265
Other liabilities		167,865

As previously mentioned, prior to the purchase of the additional 25% limited partnership interest, the Company accounted for its investment in this partnership under the equity method. The Company’s interest in the Hato Rey Partnership had a negative basis and therefore was classified as a liability on the Company’s consolidated balance sheet, 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.

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Summary balance sheet information for the Hato Rey Partnership for 2005 is as follows:

	December 31, 2005
Condensed Balance Sheet
Net real estate	$	3,905,347
Prepaid expenses and deposits in escrow		790,331
Cash and cash equivalents		950,269
Receivables and other assets		446,570
Total Assets	$	6,092,517
Nonrecourse mortgage debt	$	16,075,068
Other liabilities		672,681
Total Liabilities		16,747,749
Partners’ Deficiency		(10,655,232	)
Total Liabilities and         Partners’ Deficiency	$	6,092,517
On the Company’s Consolidated     Balance Sheet:
Distributions from partnership in     excess of investment and earnings	$	2,208,990

Summary statements of operations information is as follows:

	Year Ended December 31, 2006			Year Ended December 31, 2005
Condensed Statements of Operations
Revenues	$	3,046,533		$	3,758,704
Interest on mortgage debt		(1,192,948	)		(1,211,506	)
Depreciation and amortization		(382,753	)		(358,480	)
Other expenses		(2,174,568	)		(2,170,703	)
Investment income		25,108			27,318
Net Income (Loss)	$	(678,628	)	$	45,333
On the Company’s Consolidated
Statements of Operations:
Equity in the (loss)       income of partnership	$	(227,510	)	$	12,875

Net income of the Hato Rey Partnership decreased during 2005 and 2006 as a result of two tenants vacating a total of 52,088 square feet of office space at the expiration of their leases in 2005 and another tenant vacating 30,299 square feet of office space in March, 2006. In addition, in 2006, the Hato Rey Partnership undertook a program of repairs and improvements to the building

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that is estimated to cost approximately $1,255,000 and these renovations are expected to be completed in 2007. The Company 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 is advanced from time to time as funds are needed, bears 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 December 31, 2006, the Company had advanced $1,058,716 of the loan to the Hato Rey Partnership and subsequent to December 31, 2006, the Company advanced an additional $437,559.

9.   MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP

Presidential is the general partner of UTB Associates, a partnership, which holds notes receivable and in which Presidential has a 75% interest. As the general partner of UTB Associates, Presidential exercises 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.

10.   LINE OF CREDIT

The Company has an unsecured $250,000 line of credit from a lending institution. The interest rate on the line of credit is 1% above the prime rate. There were no borrowings under this line of credit during 2006 and there are no amounts outstanding under the line of credit at December 31, 2006.

11.   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.

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Upon filing the Company’s income tax return for the year ended December 31, 2005, Presidential applied all of its available 2005 stockholders’ distributions and further elected to apply (under Section 858 of the Internal Revenue Code) approximately $2,018,000 of its year 2006 stockholders’ distributions to reduce its taxable income for 2005 to zero.

For the year ended December 31, 2006, the Company had a tax loss of approximately $1,709,000 ($0.43 per share), which is comprised of capital gains of $217,000 ($0.06 per share) and an ordinary loss of $1,926,000 ($0.49 per share).

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 for 2006, there is no requirement to make a distribution in 2007. In addition, no provision for income taxes was required at December 31, 2006.

Presidential has, for tax purposes, reported the gain from the sale of certain of its properties using the installment method.

12.   COMMITMENTS AND CONTINGENCIES

Presidential has a commitment to invest $110,000 in Broadway Fund A and a commitment to invest $410,000 in Broadway Fund A II (see Note 6).

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 involved in an environmental remediation process for contaminated soil found on its Mapletree Industrial Center property in Palmer, Massachusetts. The land area involved is approximately 1.25 acres and the depth of the contamination is at this time undetermined. Since the most serious identified threat on the site is to songbirds, the proposed remediation will consist of removing all exposed metals and a layer of soil (the depth of which is yet to be determined). The Company estimates that the costs of the cleanup will not exceed $1,000,000. The remediation will comply with the requirements of the

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Massachusetts Department of Environmental Protection (“MADEP”). The MADEP has agreed that the Company may complete the remediation over the next fifteen years, but the Company expects to complete the project over the next ten years.

In accordance with the provisions of SFAS No. 5, “Accounting for Contingencies”, in the fourth quarter of 2006, the Company accrued a $1,000,000 liability which was discounted by $145,546 and charged $854,454 to expense. The discount rate used was 4.625%, which was the interest rate on 10 year Treasury Bonds. The expected cash payments and undiscounted amount to be recognized in the Company’s consolidated financial statements are as follows:

Year	Estimated Cash Payments		Estimated Undiscounted Amount to be Recognized as Expense
2007	$	200,000	$	8,841
2008		200,000		16,934
2009		150,000		18,277
2010		100,000		15,612
2011		100,000		18,781
2012-2016		250,000		67,101

Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. The Company believes that any additional liability in excess of amounts provided which may result from the resolution of this matter will not have a material adverse effect on the financial condition, liquidity or the cash flow of the Company.

In addition to the $854,454 charged to operations for environmental expense, the Company incurred costs in 2006 of $225,857 for environmental site testing and removal of soil. The total amounts charged to operations for environmental expense for 2006 were $1,080,311.

13.   CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of its mortgage portfolio and cash and cash equivalents.

The Company’s mortgage portfolio consists of long-term notes receivable collateralized by real estate located in seven states

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(primarily Virginia, New Jersey and Maryland). The real estate collateralizing these notes, consisting primarily of moderate income apartment properties and, to a lesser extent, cooperative apartment units, has at a minimum an estimated fair value equal to the net carrying value of the notes.

Included in the mortgage portfolio at December 31, 2006 are three collateralized loans made to different companies, all of which are controlled by the same individual, David Lichtenstein. Some, but not all, of these loans, are guaranteed in whole or in part by Mr. Lichtenstein. The aggregate net carrying value of all of the outstanding loans made by Presidential to companies controlled by Mr. Lichtenstein is approximately $6,886,000 and all of such loans are in good standing. In addition, the Company has invested a total of $27,373,410 with entities controlled by Mr. Lichtenstein in transactions relating to nine shopping mall properties.

Furthermore, the $29,600,000 nonrecourse first mortgage loan secured by one of the shopping mall properties and the $39,500,000 nonrecourse first mortgage loan secured by two of the shopping mall properties carry interest rates which change monthly based on the London Interbank Offered Rate and mature in June, 2008 and January, 2008, respectively, subject to the borrower’s right to extend the maturity date of the $39,500,000 loan for two 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 $7,835,000 mezzanine loans to those entities. The interest rate on the first mortgage secured by the West Manchester Mall in fact decreased from 8.125% per annum at September 30, 2006 to 7.89% per annum at December 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 7.93% per annum at December 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.

The Company generally maintains its cash in money market funds with high credit quality financial institutions. Periodically, the Company may invest in time deposits with such institutions. Although the Company may maintain balances at these institutions in excess of the FDIC insurance limit, the Company does not anticipate and has not experienced any losses.

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14.   COMMON STOCK

The Class A and Class B common stock of Presidential have identical rights except that the holders of Class A common stock are entitled to elect two-thirds of the Board of Directors and the holders of the Class B common stock are entitled to elect one-third of the Board of Directors.

Other than as described in Note 16 and Note 17, no shares of common stock of Presidential are reserved.

15.   DISTRIBUTIONS ON COMMON STOCK (UNAUDITED)

For income tax purposes, distributions paid on common stock are allocated as follows:

Year	Total Distribution		Taxable Ordinary Income		Taxable Capital Gain		Non- Taxable
2006	$	0.64	$	0.00	$	0.52	$	0.12	(1)
2005	$	0.64	$	0.00	$	0.64	$	0.00

(1)    The non-taxable distribution of $0.12 per share in 2006 is a return of capital.

16.   STOCK COMPENSATION

On June 15, 2005, shareholders approved the adoption of the Company’s 2005 Restricted Stock Plan (the “2005 Plan”). The 2005 Plan provides that a total of 115,000 shares of the Company’s Class B common stock may be issued to employees, directors and consultants of the Company, to provide incentive compensation. The 2005 Plan is administered by the Compensation and Pension Committees of the Company’s Board of Directors, which have the authority, among other things, to determine the terms and conditions of any award under the 2005 Plan (including the vesting schedule applicable to the award, if any). The Board of Directors may at any time amend, suspend or terminate the 2005 Plan. The 2005 Plan will terminate on June 15, 2015, unless terminated earlier by the Board of Directors.

In 2005 and 2006, stock granted to directors were fully vested upon the grant date. Stock granted to officers and employees will vest at the rate of 20% per year. Notwithstanding the vesting schedule, the officers and employees are entitled to

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receive all distributions on the total number of shares granted. Shares granted under the 2005 Plan are issued at market value on the date of the grant. The following is a summary of the Company’s activity for the 2005 Plan:

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Date of Issuance	Shares Issued			Market Value at Date of Grant		Vested Shares		Unvested Shares		Class B Common Stock - Par Value $.10 Per Share		Additional Paid-in Capital			Directors’ Fees		Salary Expense
Activity for 2005
Shares issued in 2005
July, 2005		3,000		$	8.35		3,000			$	300	$	24,750		$	25,050
Aug., 2005		10,000	(1)		7.51				10,000		1,000		74,100
Aug., 2005		1,000			9.04				1,000		100		8,940				$	9,040
		14,000					3,000		11,000	$	1,400	$	107,790		$	25,050	$	9,040
Activity for 2006
Unvested shares as of December 31, 2005
		11,000					2,200		8,800
Shares issued in 2006
Jan., 2006		3,000			7.64		3,000			$	300	$	22,620		$	22,920
Jan., 2006		22,500			7.40		4,500		18,000		2,250		31,050				$	33,300
Dec., 2006		6,500			7.05				6,500		650		(650	)
		32,000
		43,000					9,700		33,300	$	3,200	$	53,020		$	22,920	$	33,300

(1) These shares were granted in 2004 and issued in 2005. The Company recorded salary expense of $75,100 in 2004. In 2005, when the shares were issued, the Company recorded $1,000 to Class B common stock and $74,100 was added to additional paid-in capital.

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17.   STOCK OPTION PLAN

In 1999, the Company adopted a Nonqualified Stock Option Plan (the “1999 Stock Option Plan”). The 1999 Stock Option Plan provided that options to purchase up to 150,000 shares of the Company’s Class B common stock may be issued prior to December 31, 2003 to the Company’s key employees at exercise prices equal to the market value on the date the option was granted. On November 10, 1999, options to purchase a total of 60,000 shares were granted to three of the Company’s officers at an exercise price of $6.375 per share. On November 9, 2005, 24,000 of the options were exercised and the Company received $153,000. The Company recorded additions to the Company’s Class B common stock of $2,400 at par value of $.10 per share and $150,600 was added to additional paid-in capital. The remaining 36,000 options were not exercised and expired on November 10, 2005. No other options have been granted, exercised or cancelled under this plan and no further options can be granted under this plan.

18.   CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS

Presidential has employment contracts with several active and retired officers and employees. These contracts provide for annual pension benefits and other postretirement benefits such as health care benefits. The pension benefits generally provide for annual payments in specified amounts for each participant for life, commencing upon retirement, with an annual adjustment for an increase in the consumer price index. The Company accrues on an actuarial basis the estimated costs of these benefits during the years the employee provides services. Periodic benefit costs are reflected in general and administrative expenses. The contractual benefit plans are not funded. The Company uses a December 31 measurement date for the contractual benefit plans.

The assumed health care cost trend rate at December 31, 2006 was 10% for medical and 13% for prescription drugs and 10.50% for medical and 14% for prescription drugs at December 31, 2005. The trend rate decreases gradually each successive year until it reaches 5% by the year 2017.

Effective December 31, 2006, the Company adopted SFAS No. 158, which required employers to recognize the overfunded and underfunded status for contractual pension benefit and postretirement benefit plans, measured as the difference between the fair value of plan assets and the benefit obligation, as an asset or liability in its statement of financial condition. The

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benefit obligation is defined as the accumulated benefit obligation for the contractual benefit plans. Upon adoption, SFAS No. 158 requires an entity to recognize previously unrecognized actuarial gains and losses and prior service costs within accumulated other comprehensive loss. The final net minimum pension liability adjustments are recognized prior to adoption of SFAS No. 158. SFAS No. 158 also requires the contractual benefit plan assets and the contractual benefit obligations to be measured as of the date of the entity’s fiscal year end. The Company has historically used a December 31 measurement date, which coincides with its fiscal year end, so this provision, which becomes effective for fiscal years ending after December 15, 2008, will not have any impact on the Company’s consolidated financial statements.

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CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS

The following table illustrates the incremental effect of the application of SFAS No. 158 at December 31, 2006:

	Contractual Pension Benefit			Contractual Postretirement Benefits
Liability balance before net minimum pension    liability and SFAS No. 158 adjustment	$	2,837,440		$	608,695
Final net minimum pension liability adjustment		(262,693	)		—
SFAS No. 158 adjustment		—			73,419
Ending balance	$	2,574,747		$	682,114
Balance accumulated other comprehensive loss    before net minimum pension liability adjustment      and SFAS No. 158 adjustment	$	1,522,794		$	—
Final net minimum pension liability adjustment		(262,693	)		—
SFAS No. 158 adjustment		—			73,419
Ending balance	$	1,260,101		$	73,419
The following tables summarize the actuarial costs of the contractual pension and postretirement benefits:

	Contractual Pension Benefit Year Ended December 31,						Contractual Postretirement Benefits Year Ended December 31,
	2006			2005			2006			2005
Components of net periodic benefit cost:
Service cost	$	16,479		$	30,091		$	12,827		$	20,734
Interest cost		127,436			132,397			37,309			48,602
Amortization of prior service cost		(46,376	)		(39,740	)		(50,848	)		(9,612	)
Recognized actuarial loss		384,340			293,791			53,153			91,203
Net periodic benefit cost	$	481,879		$	416,539		$	52,441		$	150,927
The recorded contractual pension and postretirement benefits liability of $3,256,861 at December 31, 2006 is comprised of $2,574,747 for pension benefits and $682,114 for postretirement benefits. The accumulated pension and postretirement benefit obligations and recorded liabilities, none of which has been funded, were as follows:

	Contractual Pension Benefit December 31,						Contractual Postretirement Benefits December 31,
	2006			2005			2006			2005
Change in benefit obligation:
Benefit obligation at beginning of year	$	2,835,963		$	2,813,005		$	890,896		$	665,648
Service cost		16,479			30,091			12,827			20,734
Interest cost		127,436			132,397			37,309			48,602
Amendments		—			—			(61,523	)		—
Actuarial loss (gain)		75,271			334,307			(132,946	)		222,769
Benefits paid		(480,402	)		(473,837	)		(64,449	)		(66,857	)
Benefit obligation at end of year	$	2,574,747		$	2,835,963		$	682,114		$	890,896
Change in plan assets:
Employer contributions	$	480,402		$	473,837		$	64,449		$	66,857
Benefits paid		(480,402	)		(473,837	)		(64,449	)		(66,857	)
Fair value of plan assets at end of year	$	—		$	—		$	—		$	—
Funded status		($2,574,747	)		($2,835,963	)		($ 682,114	)		($ 890,896	)
Unrecognized net actuarial loss					1,692,843			88,900			274,999
Unrecognized prior service cost					(170,049	)		(15,481	)		(4,806	)
Net amount recognized					($1,313,169	)					($ 620,703	)
Transitional adjustment to accumulated     other comprehensive loss								(73,419	)
Funded status		($2,574,747	)					($ 682,114	)

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	Contractual Pension Benefit Year Ended December 31,						Contractual Postretirement Benefits Year Ended December 31,
	2006			2005			2006			2005
Net amount recognized in the consolidated       balance sheet:
Accrued benefit liability		($2,574,747	)		($2,835,963	)		($ 682,114	)		($ 620,703	)
Amounts recognized in accumulated other comprehensive loss:
Net loss	$	1,383,774					$	88,900		$	—
Prior service cost		(123,673	)					(15,481	)	—
	$	1,260,101		$	1,522,794		$	73,419		$	—
Additional disclosure items for the plans at December 31,

	2006			2005		2006		2005
Accumulated benefit obligation	$	2,574,747		$	2,835,963	$	682,114	$	890,896
Projected benefit obligation		2,574,747			2,835,963		682,114		890,896
Fair value of plan assets		N/A			N/A		N/A		N/A
Increase (decrease) in minimum liability    included in other comprehensive income or loss		($ 262,693	)	$	80,257		N/A		N/A

Unrecognized amounts and amortization amounts following year:	2006	2005		2006		2005
Unrecognized amounts:
Prior year service cost	N/A	N/A		($15,481	)	N/A
Net actuarial loss	N/A	N/A		88,900		N/A
Total	N/A	N/A	$	73,419		N/A

Amortization amounts in the following year (estimate):	2006			2005	2006			2005
Prior year service cost		($ 46,376	)	N/A	$	15,481		N/A
Net actuarial loss		422,362		N/A		20,689		N/A
Total	$	375,986		N/A	$	36,170		N/A
Transitional adjustment to accumulated other comprehensive loss					($73,419		)
Weighted-average assumptions used to determine benefit obligations at December 31:

	2006		2005		2006		2005
Discount rate	5.72	%	5.41	%	5.72	%	5.41	%
Expected return on plan assets	N/A		N/A		N/A		N/A
Rate of compensation increase	N/A		N/A		N/A		N/A
Weighted-average assumptions used to determine the net periodic benefit costs for year ended December 31,

	2006		2005		2006		2005
Discount rate	5.41	%	5.66	%	5.41	%	5.66	%
Expected return on plan assets	N/A		N/A		N/A		N/A
Rate of compensation increase	N/A		N/A		N/A		N/A
Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefits plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	1-Percentage- Point Increase		1-Percentage- Point Decrease
Effect on total service and interest cost components	$	4,017		($ 3,498	)
Effect on postretirement benefit obligation	$	50,089		($43,927	)

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All measures of the accumulated postretirement benefit obligation and the net periodic postretirement benefit cost included in this footnote do not reflect the effect of the Medicare Prescription Drug Improvement and Modernization Act of 2003. As a result of contractual commitments for benefits under the plan, there will be no impact on plan benefits, costs or obligations from this recently passed legislation.

Cash Flows

The contractual pension and postretirement benefit plans are non-funded plans, employer contributions equal benefit payments. The Company estimates that the contractual payments for 2007 will be as follows:

Contractual pension benefit payments	$  464,600
Contractual postretirement benefit payments	66,400

Estimated Future Benefit Payments

The following benefit payments (including expected future service and net of employee contributions) are expected to be paid:

Year Ending December 31,	Contractual Pension Benefit		Contractual Postretirement Benefits
2007	$	464,600	$	66,400
2008		345,204		63,784
2009		293,642		60,992
2010		245,797		132,193
2011		202,439		55,145
2012 – 2016		972,511		235,127

19.   DEFINED BENEFIT PLAN

The Company has a noncontributory defined benefit pension plan, which covers substantially all of its employees. The plan provides monthly retirement benefits commencing at age 65. The monthly benefit is equal to the sum of (1) 7.15% of average monthly compensation multiplied by the total number of plan years of service (up to a maximum of 10 years), plus (2) .62% of such average monthly compensation in excess of one-twelfth of covered compensation multiplied by the total number of plan years of service (up to a maximum of 10 years). The Company makes annual contributions that meet the minimum funding requirements and the maximum contribution limitations under the Internal Revenue Code.

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Effective December 31, 2006, the Company adopted SFAS No. 158, which required employers to recognize the overfunded and underfunded status of a defined benefit pension, measured as the difference between the fair value of plan assets and the benefit obligation, as an asset or liability in its statement of financial condition. The benefit obligation is defined as the projected benefit obligation for defined benefit pension plans. Upon adoption, SFAS No. 158 requires an entity to recognize previously unrecognized actuarial gains and losses and prior service costs within accumulated other comprehensive loss. SFAS No. 158 also requires defined benefit plan assets and defined benefit obligations to be measured as of the date of the entity’s fiscal year end. The Company has historically used a December 31 measurement date, which coincides with its fiscal year end, so this provision, which becomes effective for fiscal years ending after December 15, 2008, will not have any impact on the Company’s consolidated financial statements.

The following table illustrates the incremental effect of the application of SFAS No. 158 at December 31, 2006:

	Prepaid Defined Benefit Plan Costs			Accumulated Other Comprehensive Loss
Balance before SFAS   No. 158 adjustment	$	1,621,495		$	—
SFAS No. 158 adjustment		(1,039,101	)		1,039,101
	$	582,394		$	1,039,101

Periodic pension costs are reflected in general and administrative expenses.

	Year Ended December 31,
	2006			2005
Components of net periodic   benefit cost:
Service cost	$	379,970		$	490,030
Interest cost		399,096			372,084
Expected return on plan assets		(531,879	)		(490,260	)
Amortization of prior service cost		12,616			12,616
Amortization of accumulated loss		67,169			80,692
Net periodic benefit cost	$	326,972		$	465,162

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The following sets forth the plan’s funded status and amount recognized in the Company’s consolidated balance sheets:

	December 31,
	2006			2005
Change in benefit obligation:
Benefit obligation at beginning of year	$	7,377,008		$	6,573,921
Service cost		379,970			490,030
Interest cost		399,096			372,084
Actuarial (gain) loss		(56,966	)		(59,027	)
Benefits paid		(559,793	)		—
Benefit obligation at end of year	$	7,539,315		$	7,377,008
Change in plan assets:
Fair value of plan assets at   beginning of year	$	7,453,100		$	7,003,714
Actual return on plan assets		1,062,496			449,386
Employer contributions		165,906			—
Benefits paid		(559,793	)		—
Fair value of plan assets at   end of year	$	8,121,709		$	7,453,100
Funded status	$	582,394		$	76,092
Unrecognized net actuarial loss		933,127			1,577,170
Unrecognized prior service cost		105,974			118,500
Net amount recognized				$	1,771,762
Transitional adjustment to accumulated  other comprehensive loss		(1,039,101	)
Funded status	$	582,394
Net amount recognized in the consolidated   balance sheet:
Prepaid benefit cost	$	582,394		$	1,771,852
Amounts recognized in accumulated   other comprehensive loss:
Net loss	$	933,127		$	—
Prior service cost		105,974			—
	$	1,039,101		$	—

Additional disclosure items for the plan at December 31

	2006		2005
Accumulated benefit obligation	$	7,509,168	$	7,358,465
Projected benefit obligation		7,539,315		7,377,008
Fair value of plan assets		8,121,709		7,453,100
Increase (decrease) in minimum  liability in accumulated other  comprehensive loss		1,039,101

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The estimated net loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic cost over the next year are $9,612 and $12,616, respectively.

Assumptions

Weighted-average assumptions used to determine benefit obligations at

	December 31,
	2006			2005
Discount rate		5.72	%		5.41	%
Rate of compensation increase		5	%		5	%

Weighted-average assumptions used to determine net periodic benefit costs for year ended

	December 31,
	2006			2005
Discount rate		5.41	%		5.66	%
Expected return on plan assets		7	%		7	%
Rate of compensation increase		5	%		5	%

The Company periodically reviews its assumptions for the rate of return on the plan’s assets. The assumptions are based primarily on the long-term historical performance of the assets of the plan. Differences in the rates of return in the near term are recognized as gains or losses in the period that they occur.

	December 31,
	2006		2005
Plan Assets:
Cash and cash equivalents	$	200,158	$	317,276
Securities available for sale		7,921,551		7,135,824
Total plan assets	$	8,121,709	$	7,453,100
The plan’s weighted-average      allocations at December 31, by      asset category are as follows:

	December 31,
	2006			2005
Equities		60	%		55	%
Fixed income		28	%		31	%
Professionally managed futures   contracts portfolio		10	%		10	%
Cash and money market funds		2	%		4	%
Total		100	%		100	%

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The Company has consistently applied what it believes to be an appropriate investment strategy for the defined benefit plan.

The Company invests primarily in a) equities of listed corporations, b) fixed income funds consisting of corporate bonds, United States treasury bonds and government mortgage backed securities, c) a professionally managed futures contract portfolio and d) cash and money market funds.

Cash Flows

The Company’s funding policy for the plan is based on contributions at the minimum and maximum amounts required by law. The Company is not required to make any contributions in 2007.

Estimated Future Benefit Payments

The following benefit payments (including expected future service) are expected to be paid:

Year Ending December 31,	Pension Benefits
2007	$	522,430
2008		522,430
2009		619,163
2010		638,047
2011		655,638
2012 – 2016		3,317,124

20.   ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows:

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	December 31, 2006			December 31, 2005
Minimum contractual pension    benefit liability	$	(1,260,101	)	$	(1,522,794	)
Net unrealized gain on    securities available    for sale		13,794			9,430
Adjustments for initial    adoption of SFAS No. 158:
Defined benefit plan		(1,039,101	)		—
Contractual postretirement     benefits		(73,419	)		__
Total accumulated other    comprehensive loss	$	(2,358,827	)	$	(1,513,364	)

21.   DIVIDEND REINVESTMENT PLAN

Presidential maintains a Dividend Reinvestment Plan (formerly a Dividend Reinvestment and Share Purchase Plan) (the “Plan”). Under the Plan, stockholders may reinvest cash dividends to purchase Class B common stock without incurring any brokerage commission or service charge. Additionally, the price of Class B common stock purchased with reinvested cash dividends will be discounted by 5% from the average of the high and low market prices of the five days immediately prior to the dividend payment date, as reported on the American Stock Exchange.

During 2005, 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 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

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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. In April, 2006, the Company terminated the Share Purchase Plan. However, the Dividend Reinvestment Plan remains in effect.

Class B Common Shares issued under the Plan are summarized below:

	Shares		Net Proceeds Received
Total shares issued at January 1, 2005		481,707	$	3,292,204
Shares issued during 2005		16,235		127,462
Total shares issued at December 31, 2005		497,942		3,419,666
Shares issued during 2006		33,355		217,743
Total shares issued at December 31, 2006		531,297	$	3,637,409

22.   PROFIT SHARING PLAN

In 2006, Fourth Floor Management Corp., a 100% owned subsidiary of Presidential Realty Corporation that manages the Company’s properties, adopted a profit sharing plan for substantially all of its employees. The profit sharing plan became effective as of January 1, 2006, and the plan provides for annual contributions up to a maximum of 5% of the employees annual compensation. The Company made a $10,937 contribution to the plan in January, 2007 for the 2006 plan year and charged the contribution to general and administrative expense.

23.   RELATED PARTY TRANSACTIONS

As shown in Note 3, the Company holds nonrecourse purchase money notes receivable from Ivy, relating to properties sold to Ivy in prior years, as well as nonrecourse notes receivable relating to loans made to Ivy in connection with Ivy’s former cooperative conversion business. In the aggregate, the loans receivable from Ivy had a carrying amount of $195,001 as of December 31, 2006, and a net carrying amount of $148,216, after deducting discounts. Presidential received interest of $210,785 and $385,476 from Ivy during 2006 and 2005, respectively, on these loans.

Two of the notes have an aggregate outstanding principal balance of $4,770,050 at December 31, 2006. These notes were received by the Company in 1991 for nonrecourse loans that had been previously written off by the Company. Accordingly, these notes were recorded at zero except for a $155,584 portion of the notes

112

that was adequately secured and which was repaid in 2002. In 1996, the Company and Ivy agreed that the only payments required under the terms of the note would be in an amount equal to 25% of the operating cash flow (after provision for certain reserves) of Scorpio Entertainment, Inc. (“Scorpio”), a company owned by two of the owners of Ivy to carry on theatrical productions. The Company received interest payments on these notes of $186,500 and $354,000 during 2006 and 2005, respectively. The Company does not expect to recover any material principal amounts on these notes; amounts received from Scorpio will be applied to unpaid, unaccrued interest and recognized as income when received. At December 31, 2006, the unpaid and unaccrued interest was $3,287,265.

All outstanding loans to Ivy at December 31, 2006 are current in accordance with their modified terms. Management believes that Presidential holds sufficient collateral to protect its interests in the loans that remain outstanding from Ivy to the extent of the net carrying value of these loans.

The loans to Ivy were subject to various settlement agreements and modifications in previous years. Ivy is owned by three officers of the Company, who also hold beneficial ownership of an aggregate of approximately 47% of the outstanding shares of Class A common stock of the Company, which class of stock is entitled to elect two-thirds of the Board of Directors of the Company. Because of the relationship between the owners of Ivy and the Company, all transactions with Ivy are negotiated on behalf of the Company, and subject to approval, by a committee of three members of the Board of Directors with no affiliations with the owners of Ivy.

24.   ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimated fair values of the Company’s financial instruments as of December 31, 2006 and 2005 have been determined using available market information and various valuation estimation methodologies. Considerable judgment is required to interpret the effects on fair value of such items as future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. Also, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values.

113

The following table summarizes the estimated fair values of financial instruments:

	December 31, 2006				December 31, 2005
	(Amounts in thousands)
	Net Carrying Value (1)		Estimated Fair Value		Net Carrying Value (1)		Estimated Fair Value
Assets:
Cash and cash equivalents	$	2,264	$	2,264	$	2,878	$	2,878
Notes receivable		7,234		8,137		9,889		11,512
Notes receivable-      related parties		148		168		209		300
Liabilities:    Mortgage debt		19,176		18,509		3,648		3,508

(1) Net carrying value is net of discounts where applicable.

The fair value estimates presented above are based on pertinent information available to management as of December 31, 2006 and 2005. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since December 31, 2006 and, therefore, current estimates of fair value may differ significantly from the amounts presented above.

Fair value methods and assumptions are as follows:

Cash and Cash Equivalents – The estimated fair value approximates carrying value, due to the short maturity of these investments.

Notes Receivable – The fair value of notes receivable has been estimated by discounting projected cash flows using current rates for similar notes receivable.

Mortgage Debt – The fair value of mortgage debt has been estimated by discounting projected cash flows using current rates for similar debt.

25.   FUTURE MINIMUM ANNUAL BASE RENTS

Future minimum annual base rental revenue for the next five years for commercial real estate owned at December 31, 2006, and subject to non-cancelable operating leases is as follows:

114

Year Ending December 31,
2007	$	2,994,954
2008		1,883,845
2009		946,555
2010		542,695
2011		226,596
Total	$	6,594,645

The above table assumes that all leases which expire are not renewed and tenant renewal options are not exercised, therefore neither renewal rentals nor rentals from replacement tenants are included. The above table does not reflect the annual base rental revenue for residential apartments owned, as the leases for residential apartment units are usually for one year terms.

26.   QUARTERLY FINANCIAL INFORMATION – UNAUDITED

        (Amounts in thousands, except earnings per common share)

Year Ended December 31	Revenues		Net Income (Loss)			Earnings Per Common Share (3)
2006
First	$	937	$	(1,278	)	$	(0.33	)
Second		952		(916	)		(0.23	)
Third		1,016		(480	)		(0.12	)
Fourth		1,015		(2,203	)  (1)		(0.56	)  (1)
2005
First	$	1,387	$	1,389	(2)	$	0.36	(2)
Second		1,035		1,614			0.42
Third		1,018		758	(2)		0.20	(2)
Fourth		975		(567	)		(0.15	)

(1)	Net loss for the fourth quarter of 2006 includes $854,454 charged to expense as a result of an accrued liability established for an environmental remediation process at the Company’s Mapletree Industrial Center property.
(2)	Net income for the first quarter of 2005 included a provision for income taxes of $1,941,661, which reduced the recognition of the deferred gain on sale of properties. In March, 2005, the Company received payment on its $8,550,000 Encore Apartment notes receivable and recognized a $3,241,540 gain from the sale of property, which had previously been deferred. The tax accrual of

115

$1,941,661 was based on management’s intention, at that time, to retain all of the $5,548,000 taxable long-term capital gain from the sale and declare an undistributed capital gain dividend. During the quarter ended September 30, 2005, the Company made the decision not to designate and retain this gain, thereby reversing the tax accrual, which increased the recognition of deferred gain on sales of properties from $1,299,879 to $3,241,540. This increase was offset by an increase of $986,165 in loss from continuing operations before recognition of deferred gains on sales and a $197,238 increase in the loss from discontinued operations.

(3) Earnings per common share are computed independently for each of the quarters presented. Therefore, the sum of quarterly earnings per share may not equal the total computed for the year, as is the case in 2006.

27.   SUBSEQUENT EVENT

On March 21, 2007, the Company closed on the sale of the Cambridge Green property, a 201-unit apartment property in Council Bluffs, Iowa for a sales price of $3,700,000. As part of the sales price, (i) the $2,856,452 outstanding principal balance of the first mortgage debt was assumed by the buyer, (ii) the Company received a $200,000 secured note receivable from the buyer, which matures in one year and has an interest rate of 7% per annum, and (iii) the balance of the sales price was paid in cash. The net proceeds of sale were approximately $665,000 which includes the $200,000 note receivable. The Company will recognize a gain for financial reporting purposes of approximately $650,000.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jeffrey F. Joseph, Chief Executive Officer of Presidential Realty Corporation (the “Company”), certify that:

1.	I have reviewed this annual report on Form 10-KSB of the Company;
2.	Based on my knowledge, this annual 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 annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 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:	March 30, 2007	By:	/s/ Jeffrey F. Joseph
			Jeffrey F. Joseph
			Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Thomas Viertel, Chief Financial Officer of Presidential Realty Corporation (the “Company”), certify that:

1.	I have reviewed this annual report on Form 10-KSB of the Company;
2.	Based on my knowledge, this annual 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 annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 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:	March 30, 2007	By:	/s/ Thomas Viertel
			Thomas Viertel
			Chief Financial Officer

EX-32.1

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 Annual Report on Form 10-KSB of Presidential Realty Corporation (the “Company”) for the period ending December 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: March 30, 2007

EX-32.2

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 Annual Report on Form 10-KSB of Presidential Realty Corporation (the “Company”) for the period ending December 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: March 30, 2007

EX-99.1

EXHIBIT 99.1

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

COMBINED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006 AND 2005

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

COMBINED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006 AND 2005

TABLE OF CONTENTS

 Page No.

Independent Auditors’ Report 1

Combined Balance Sheets 2

Combined Statements of Operations 3

Combined Statements of Changes in Members’ Equity Deficit 4

Combined Statements of Cash Flows 5

Notes to Combined Financial Statements 6 – 19

INDEPENDENT AUDITORS’ REPORT

To the Members

Lightstone Member LLC, PRC Member LLC,

Lightstone Member II LLC and Lightstone Member III LLC

Lakewood, NJ 08701

We have audited the accompanying combined balance sheets of Lightstone Member LLC, PRC Member LLC, Lightstone Member II LLC and Lightstone Member III LLC (the “Companies”) as of December 31, 2006 and 2005, and the related combined statements of operations, changes in members’ equity deficit and cash flows for the years then ended. These financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Companies as of December 31, 2006 and 2005 and the combined results of operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The Schonbraun McCann Group, LLP

Roseland, New Jersey

March 29, 2007

LIGHTSTONE MEMBER LLC
PRC MEMBER LLC
LIGHTSTONE MEMBER II LLC
LIGHTSTONE MEMBER III LLC
COMBINED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
(Dollar amounts in thousands)

ASSETS

	2006			2005
Investments in Real Estate, at cost, net of
accumulated depreciation of $18,698 (2006) and	$	304,358		$	302,087
$8,765 (2005)
Other Assets
Cash and cash equivalents		2,695			3,488
Escrow deposits		13,863			15,245
Rents and other receivables, net of allowance
of $1,043 (2006) and $450 (2005)		7,255			5,466
In place lease value, net of accumulated amortization
of $9,320 (2006) and $5,137 (2005)		9,256			13,438
Acquired lease rights, net of accumulated amortization
of $3,816 (2006) and $1,847 (2005)		6,891			8,861
Deferred financing costs, net of accumulated amortization
of $1,120 (2006) and $1,884 (2005)		1,766			2,202
Prepaid expenses		981			895
	$	347,065		$	351,682
LIABILITIES AND MEMBERS’ EQUITY DEFICIT
Liabilities
Mortgage and other notes payable	$	308,092		$	303,350
Notes payable - related party		31,670			28,200
Interest payable		1,288			1,497
Deferred revenue		1,465			1,629
Accounts payable, accrued expenses and other liabilities		6,817			5,185
Acquired lease obligation, net of accumulated amortization
of $6,105 (2006) and $3,127 (2005)		5,534			8,512
Due to affiliates		9,506			4,315
		364,372			352,688
Commitment and Contingencies
Members’ Deficit		(17,307	)		(1,006	)
	$	347,065		$	351,682

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

2

LIGHTSTONE MEMBER LLC
PRC MEMBER LLC
LIGHTSTONE MEMBER II LLC
LIGHTSTONE MEMBER III LLC
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006 and 2005
(Dollar amounts in thousands)

	2006			2005
Revenues
Rental	$	40,959		$	32,478
Tenant reimbursements		16,587			13,515
Interest and other income		1,039			360
		58,585			46,353
Expenses
Rental property operating and maintenance expenses		23,311			17,035
Real estate taxes		4,974			3,959
Interest, including amortization
of $329 in 2006 and $1,429 in 2005 and prepayment penalty
of $1,050 in 2006		25,112			18,825
Depreciation and amortization		16,102			12,229
General and administrative		3,017			2,713
		72,516			54,761
Net Loss	$	(13,931	)	$	(8,408	)

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

3

LIGHTSTONE MEMBER LLC
PRC MEMBER LLC
LIGHTSTONE MEMBER II LLC
LIGHTSTONE MEMBER III LLC
COMBINED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY DEFICIT
YEARS ENDED DECEMBER 31, 2006 AND 2005
(Dollar amounts in thousands)

	Presidential Realty Corp.			David Lichtenstein			Cedar Asset Management, LLC			Harold Rubin			Total
Balance at January 1, 2005	$	1,174		$	2,578		$	2		$	—		$	3,754
Contributions		—			4,579			—			150			4,729
Distributions		(334	)		(723	)		(7	)		(17	)		(1,081	)
Net loss		(2,438	)		(5,901	)		(50	)		(19	)		(8,408	)
Balance at December 31, 2005		(1,598	)		533			(55	)		114			(1,006	)
Distributions		(652	)		(1,705	)		(2	)		(12	)		(2,370	)
Net loss		(4,040	)		(9,782	)		(79	)		(30	)		(13,931	)
Balance at December 31, 2006	$	(6,290	)	$	(10,954	)	$	(136	)	$	72		$	(17,307	)

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

4

LIGHTSTONE MEMBER LLC
PRC MEMBER LLC
LIGHTSTONE MEMBER II LLC
LIGHTSTONE MEMBER III LLC
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006 and 2005
Increase (decrease) in cash and cash equivalents
(Dollar amounts in thousands)

	2006			2005
Cash Flows From Operating Activities:
Net loss	$	(13,931	)	$	(8,408	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization		16,432			13,658
Net change in revenue related to acquired lease
rights/obligations and deferred rent receivable		(1,007	)		(1,568	)
Bad debt allowance		725			450
Rents and other receivables		(2,393	)		(4,375	)
Prepaid expenses		(86	)		(244	)
Accounts payable, accrued expenses and other liabilities		1,632			3,686
Interest expense payable		(209	)		1,474
Due to affiliates, net		5,191			2,379
Deferred revenue		(164	)		865
Net cash provided by operating activities		6,190			7,917
Cash Flows Used In Investing Activities:
Real estate acquisition		—			(167,006	)
Escrow deposits, net		1,382			(6,517	)
Additions to properties		(12,203	)		(4,389	)
Net cash used in investing activities		(10,821	)		(177,912	)
Cash Flows From Financing Activities:
Proceeds from mortgage notes payable		110,500			158,850
Repayment of mortgage note payable		(105,758	)		—
Proceeds from notes payable - related party		3,470			9,500
Deferred financing costs		(2,004	)		(178	)
Capital contributions		—			4,729
Capital distributions		(2,370	)		(1,081	)
Net cash provided by financing activities		3,838			171,820
Net change in cash and cash equivalents		(793	)		1,825
Cash and cash equivalents, beginning of year		3,488			1,663
Cash and cash equivalents, end of year	$	2,695		$	3,488
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year ended for:
Interest	$	23,942		$	15,810
Prepayment penalty	$	1,050		$	—

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

5

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

1. ORGANIZATION AND DESCRPTION OF BUSINESS

a. Formation

Lightstone Member LLC (“Lightstone”) and PRC Member LLC (“PRC”) were both organized under the laws of the Commonwealth of Delaware on September 10, 2004. Lightstone Member II LLC (“Lightstone II”) and Lightstone Member III LLC (“Lightstone III”) were formed under the laws of Commonwealth of Delaware on December 1, 2004 and June 30, 2005, respectively. They are collectively the “Entities” or the “Companies”. The purpose of the Companies is to acquire, own, develop and manage retail malls. The Companies own the following retail malls as of December 31, 2006:

Property Name	Location	Approximate Square Feet		Ownership		Occupancy at Dec. 31, 2006
Martinsburg Mall	Martinsburg, WV		552,000		Fee		94	%
Mt. Berry Square Mall	Rome, GA		478,000		Fee		87	%
Bradley Square Mall	Cleveland, TN		385,000		Fee		87	%
W. Manchester Mall	York, PA		733,000		Fee		80	%
Shenango Valley Mall	Hermitage, PA		508,000		Leasehold		90	%
Shawnee Mall	Shawnee, OK		444,000		Fee		63	%
Brazos Outlet Center	Lake Jackson, TX		698,000		Fee		78	%
Burlington Mall	Burlington, NC		412,000		Fee		79	%
Macon Mall	Macon, GA		1,446,000		Fee/Leasehold		84	%
			5,656,000

As of December 31, 2006, members of the Companies and their respective percentage interests are as follow:

Lightstone and PRC	Ownership Interests
Presidential Realty Corp.		29	%
David Lichtenstein (Managing Member)		70	%
Cedar Asset Management, LLC		1	%

Lightstone II	Ownership Interests
Presidential Realty Corp.		29	%
David Lichtenstein (Managing Member)		70	%
Harold Rubin		1	%

6

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

1. ORGANIZATION AND DESCRPTION OF BUSINESS (Continued)

a. Formation (continued)

Lightstone III	Ownership Interests
Presidential Realty Corp.		29	%
David Lichtenstein (Managing Member)		71	%

b. Cash Distribution, Profit and Loss Allocations

The Companies shall continue to operate until dissolved per the operating agreements. The liability of each of the members is limited to the amount of capital contributed.

Distributions of proceeds shall be distributed to the members at the discretion of the Managing Member, subject to the terms and conditions of all indebtedness of the Companies; provided that cash flow shall be distributed not less than annually and capital proceeds shall be distributed not later than forty-five days from the closing of the transaction giving rise to such capital proceeds.

Distributions of cash flow shall be made to the members as follows:

(a) First, to the Managing Member and its affiliate, Cedar Asset Management, LLC (or Harold Rubin), until the Managing Member and its affiliate (or Harold Rubin) have received an aggregate amount equal to an accrued return of 11% per annum (“Preferred Return”) on the Managing Member’s and affiliate’s unreturned capital contribution.

(b) Then, to the members in accordance with their respective ownership interests.

Capital proceeds shall be distributed to the members as follows:

(a) First, to the Managing Member and its affiliates, until the Managing Member and its affiliates have received an aggregate amount equal to an accrued return of 11% per annum on the Managing Member’s and its affiliates’ unreturned capital contribution.

7

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

1. ORGANIZATION AND DESCRPTION OF BUSINESS (Continued)

b. Cash Distribution, Profit and Loss Allocations (continued)

(b) Then, to the Managing Member and its affiliates, until the Managing Member and its affiliates have received an aggregate amount equal the Managing Member’s and its affiliates’ capital contribution.

(c) Then, to the members in accordance with their respective ownership interests.

c. Allocation of Profits and Losses

For financial reporting purposes, income is allocated based upon the cash flow distribution formula above. Losses are allocated pro-rata based upon ownership interests.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Accounting

The accompanying combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

b. Principles of Combination

The combined financial statements include the accounts of Lightstone and its wholly owned subsidiaries; Mount Berry Square Mall LLC, Bradley Square Mall LLC, West Manchester Mall LLC and Shenango Valley Mall LLC; PRC and its wholly owned subsidiary; Martinsburg Mall LLC; Lightstone II and its wholly owned subsidiaries; Shawnee Mall LLC and Brazos Outlet Mall LLC; Lightstone III and its wholly owned subsidiaries; Macon Mall LLC and Burlington Mall LLC. All material intercompany balances and transactions have been eliminated in combination. The financial statements were combined due to common ownership and control.

8

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

c. Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. They also affect reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of investments in real estate, valuation of receivables and the allocation of purchase price to acquired lease rights and obligations. Actual results could differ from those estimates.

d. Cash and Cash Equivalents

For purposes of the statement of cash flows, the Companies consider short-term investments with maturities of 90 days or less when purchased to be cash equivalents.

The Companies maintain cash accounts at financial institutions, which are insured up to a maximum of $100,000. At various times during the year, balances exceeded the federally insured limit. Due to the stature and high credit quality of the financial institutions, such credit risk is considered to be minimal.

e. Marketing

General marketing and advertising costs are expensed as incurred and were approximately $1,295 and $600 for 2006 and 2005, respectively.

f. Revenue Recognition and Tenant Receivables

Base rental revenues from rental retail properties are recognized on a straight-line basis over the noncancelable terms of the related leases, which are all accounted for as operating leases. “Percentage rent” or rental revenue which is based upon a percentage of the sales recorded by the Companies’ tenants, is recognized in the period in which the tenants achieve their specified threshold per their lease agreements. These amounts are included in rental revenue in the accompanying financial statements.

Rental income is also recognized in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, whereby the amortization of acquired favorable leases and acquired unfavorable leases is recognized as a reduction of or an addition to base rental income, respectively, over the terms of the respective leases. The net amount included in base rental income for the years ended December 31, 2006 and 2005 are as follows:

9

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

f. Revenue Recognition and Tenant Receivables (continued)

	2006			2005
Martinsburg Mall	$	(97	)	$	(169	)
Bradley Square Mall		107			114
West Manchester Mall		704			476
Shenango Valley Mall		274			186
Mount Berry Square Mall		175			181
Shawnee Mall		126			54
Brazos Outlets Center		574			168
Burlington Mall		51			45
Macon Mall		(50	)		12
	$	1,864		$	1,067

Reimbursements from tenants related to real estate taxes, insurance and other shopping center operating expenses are recognized as revenue, based on a predetermined formula, in the period the applicable costs are incurred. Lease termination fees are recognized when the related leases are canceled, the tenant surrenders the space, and the Companies have no continuing obligation to provide services to such former tenants.

The Companies provide an allowance for doubtful accounts against the portion of tenant receivables which is estimated to be uncollectible. Management of the Companies reviews its allowance for doubtful accounts monthly. Balances that are past due over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered doubtful. Allowance for doubtful accounts as of December 31, 2006 and 2005 was approximately $ 1,043 and $450, respectively.

g. Deferred Charges

Deferred leasing commissions, acquired in-place lease value, and other direct costs associated with the acquisition of tenants are capitalized and amortized on a straight-line basis over the terms of the related leases. Loan costs are capitalized and amortized to interest expense over the term of the related loan using a method that approximates the effective-interest method.

10

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

h. Real Estate and Depreciation

Real estate is stated at historical cost less accumulated depreciation. The building and improvements thereon are depreciated on the straight-line basis over an estimated useful life of 40 years. Tenant improvements are depreciated on the straight-line basis over the shorter of the lease term or their estimated useful life. Equipment is depreciated on the straight-line basis over estimated useful lives of 5 to 7 years.

Improvements and replacements are capitalized when they extend the useful life or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred.

i. Impairment of Long-Lived Assets

Management assesses whether there has been impairment in the value of its long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Management believes no impairment in the net carrying values of the investments in real estate has occurred.

j. Purchase Accounting for Acquisition of Interests in Real Estate Entities

Management allocated the purchase price of properties to tangible and identified intangible assets acquired based on its fair value in accordance with the provisions of SFAS No. 141, Business Combinations. The fair value of the tangible assets of an acquired property (which includes land, building, and improvements) was determined by valuing the properties as if vacant, and the “as-if-vacant” value was then allocated to land, building and improvements based on management’s determination of the relative fair values of these assets. Management determined the “as-if-vacant” fair value of properties using methods similar to those used by independent appraisers.

Factors considered by management in performing these analyses included an estimate of carrying costs to execute similar leases. In estimating carrying costs, management included real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimated costs to execute similar leases including leasing commissions, legal and other related costs.

11

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

j. Purchase Accounting for Acquisition of Interests in Real Estate Entities

(Continued)

In allocating the fair value of the identified intangible assets and liabilities of acquired properties, above-market and below-market in-place lease values were recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values (included in the acquired lease rights in the accompanying combined balance sheets) are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values (presented as acquired lease obligations in the accompanying combined balance sheets) are amortized as an increase to rental income over the initial term and any fixed rate renewal periods in the respective leases.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, was measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value was allocated between in-place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in-place lease value because such value and its consequence to amortization expense is immaterial for these particular acquisitions. The value of in-place leases exclusive of the value of above-market and below-market in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.

Purchase accounting was applied, on a pro-rata basis, to the assets and liabilities related to the Properties. The results of operations of the Properties since acquisition are included in the accompanying combined statements of operations. The purchase price of the Properties, including closing costs, was as follows:

Lightstone	$	84,089
PRC		27,247
Lightstone II		45,500
Lightstone III		167,006
	$	323,842

12

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

j. Purchase Accounting for Acquisition of Interests in Real Estate Entities

(Continued)

The fair value of the real estate acquired was allocated to the acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, if any, based in each case on their fair values.

The following are the amounts that were assigned to each major asset and liability caption at the acquisition date:

	Lightstone			PRC			Lightstone II			Lightstone III
Land	$	10,641		$	6,875		$	7,086		$	25,930
Buildings and tenant
improvements		70,378			16,546			35,797			132,946
Acquired lease rights (1)		2,426			1,843			1,851			4,588
Acquired lease obligations (1)		(6,069	)		(781	)		(2,052	)		(2,737	)
In-place lease values (1)		6,713			2,764			2,818			6,279
	$	84,089		$	27,247		$	45,500		$	167,006

⁽¹⁾ These intangibles are being amortized over the remaining lease terms. The weighted average remaining lease terms are approximately 4.2 years.

k. Income Taxes

The Companies are limited liability companies which elected to be treated as partnerships for income tax purposes and are, therefore, not subject to income taxes at the entity level. All income and losses pass through to the members and are reported by them individually for income tax purposes.

13

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

3. ESCROW DEPOSITS

Escrow deposits include funds and other restricted deposits required in conjunction with the Companies’ loan agreements. Such amounts are to be used for specific purposes, such as the payment of real estate taxes, insurance and capital improvements.

4. REAL ESTATE

At December 31, 2006 and 2005, real estate consists of the following:

	2006			2005
Land	$	50,466		$	50,532
Buildings and improvements		237,230			235,934
Tenant improvements		35,360			24,386
		323,056			310,852
Less accumulated depreciation		(18,698	)		(8,765	)
	$	304,358		$	302,087

The decrease of land and buildings and improvements in the amount of $415 were related to reduction of closing cost in Lightstone III.

5. MORTGAGE AND OTHER NOTES PAYABLE

On June 8, 2006, Martinsburg Mall, LLC (“Martinsburg”), Shenango Valley Mall, LLC (“Shenango”), Mount Berry Square Mall, LLC (“Mt. Berry”), and Bradley Mall, LLC (“Bradley”) together borrowed $73,900 from CIBC Inc., at an interest rate of 5.93% per annum. The loan is payable interest only monthly for twenty three months and thereafter in equal monthly installment of $440 and is secured by the related real estate, assignment of leases, rent and security deposits. The loan matures in July 2016 with no prepayment option. The loan, however, may be defeased.

Management allocated the loan amount to the Properties as follows:

Martinsburg	$	27,285
Bradley		12,615
Shenango		13,470
Mt. Berry		20,530
	$	73,900

14

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

5. MORTGAGE AND OTHER NOTES PAYABLE (Continued)

On June 8, 2006, West Manchester, Mall LLC ( “West Manchester” ) borrowed $29,600 from CIBC Inc., at an interest rate of LIBOR plus 232 basis points ( approximately 7.45% per annum at December 31, 2006), subject to a minimum rate of 7.89% per annum. The loan is payable interest only monthly and is secured by its real estate, assignment of leases, rent and security deposits. The loan matures on June 8, 2008 and contains a prepayment penalty equal to .75% of the outstanding principal amount if repaid prior to maturity. The loan is guaranteed by Lightstone Holdings, LLC an affiliate of a member. The Companies are a party to an interest rate cap agreement which effectively caps the interest rate at 6.15% per annum. The agreement expires June 8, 2007. At December 31, 2006 and 2005, the cap had a notional value.

On June 8, 2006, Martinsburg, Shenango, Mount Berry, and Bradley borrowed $7,000 from CIBC Bank, at an interest rate of 12% per annum. Principal and interest on this loan is payable in equal monthly installment of $72 and is secured by the related real estate, assignment of leases, rent and security deposits of each property. The loan matures on July 1, 2016 with no prepayment option till three months prior to maturity date, however, the loan may be defeased.

At December 31, 2006 loan amount allocated to properties were as follows:

Martinsburg	$	2,579
Bradley		1,189
Shenango		1,279
Mt. Berry		1,949
	$	6,996

On September 23, 2004, Lightstone, PRC and its subsidiaries borrowed $105,000 from Wachovia Bank, at an interest rate of LIBOR plus 360 basis points. The loan was payable interest only monthly. The loan was scheduled to mature in October 2006. This loan was repaid on June 8, 2006 with a 1% prepayment penalty from the proceeds received from the above loans.

On December 16, 2004, Lightstone II borrowed $39,500 from Wachovia at an interest rate of the greater of 8.8% per annum or the 30 day LIBOR plus 280 basis points (approximately 7.93% at December 31, 2006). This loan is payable interest only monthly and matured on January 9, 2007 with three one-year options with an extension fee of .125% of the outstanding principal. This loan is secured by the real estate, assignment of leases, rent and security deposits of Brazos Outlet Center LLC (“Brazos”) and Shawnee Mall LLC (“Shawnee”).

15

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

5. MORTGAGE AND OTHER NOTES PAYABLE (Continued)

The Company extended the loan until January 2008.

Management allocated the loan amount to the properties as follows:

Brazos	$	21,725
Shawnee		17,775
	$	39,500

On June 30, 2005, Lightstone III borrowed $141,200 (“Mortgage”) from Wachovia at an interest rate of 5.78% per annum. This loan is payable interest only monthly until July 11, 2006 and then installments of $827 as principal and interest until maturity on June 11, 2015. This loan is secured by the real estate, assignment of leases, rent and security deposits of Macon Mall LLC (“Macon”) and Burlington Mall LLC (“Burlington”). On June 30, 2005, Wachovia made an additional mezzanine loan (“Mezzanine”) in the amount of $17,650 under the same terms as the first mortgage. In 2006, $671 and $84 were repaid against Mortgage and Mezzanine loan, respectively.

Management allocate the mortgage and Mezzanine loans to the properties at acquisition as follows:

	First Mortgage		Mezzanine Loan
Macon	$	114,203	$	14,275
Burlington		26,997		3,375
	$	141,200	$	17,650

Mortgage and Mezzanine loans to the properties at December 31, 2006:

	First Mortgage		Mezzanine Loan
Macon	$	113,659	$	14,208
Burlington		26,870		3,359
	$	140,529	$	17,567

Future minimum annual principal payments due assuming no extension options are exercised, as of December 31, 2006, are as follows:

2007	$	41,605
2008		32,284
2009		3,312
2010		3,512
2011		3,724
Thereafter		223,655
	$	308,092

16

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

6. NOTES PAYABLE – RELATED PARTY

Lightstone borrowed $8,600 in 2004 from Presidential Realty Corp., a member of the Companies. The loan bears interest of 11% per annum, payable monthly. The entire loan payable is due in September 2014. The loan is secured by an assignment of the Companies’ ownership interest in its subsidiaries, subject to the first mortgage lien to CIBC Inc.

The loan has a prepayment penalty of 3% of principal. $959 was recorded as interest expense in each of 2006 and 2005.

PRC borrowed $2,600 in 2004 from David Lichtenstein and Cedar Asset Management, LLC, members of the Companies. The loans bear interest of 11% per annum, payable interest only monthly. The entire loan balances are due in September 2014. The loans are secured by an assignment of the Companies’ ownership interest in PRC’s subsidiary, subject to the first mortgage lien to CIBC Inc.

This loan has a prepayment penalty of 3% of principal. $290 was recorded as interest expense in each of 2006 and 2005.

Lightstone II borrowed $7,500 in 2004 from Presidential Realty Corp., a member of the Companies. This loan bears interest only at the rate of 11% per annum payable in monthly installments and matures on December 23, 2014. This loan is secured by interest in certain subsidiaries subject to the first mortgage lien to Wachovia Bank. Presidential Realty Corp funded an additional $335 in 2006 under the same terms.

This loan has a prepayment penalty of 3% of principal. Approximately $856 and $836 were recorded as interest expense in 2006 and 2005, respectively.

On June 30, 2005, Lightstone III borrowed $9,500 from Presidential Realty Corp., a member of the Companies. This loan bears interest only at a rate of 11% per annum payable monthly and matures on June 30, 2015. This loan is secured by membership interests in certain subsidiaries, subject to the first mortgage lien to Wachovia bank.

This loan has a prepayment penalty of 3% of principal. $1,060 and $523 were recorded as interest expense in 2006 and 2005, respectively.

A member of the Company advanced $1,947 in 2005 for working capital needs of certain properties. This amount was repaid with approximately $125,000 of interest expense in 2006. The member advanced $3,135 in 2006 for the same purpose. These amounts are included in Notes payable – related party on the accompanying Company combined balance sheets.

The net amount due to affiliates represents advances from affiliated entities and is due upon demand at interest rate of 11%.

17

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

7. RENTALS UNDER OPERATING LEASES

The Companies’ receive rental income from the leasing of retail shopping center space under operating leases. The Companies recognize income from tenant operating leases on a straight-line basis over the respective lease terms and, accordingly, rental income in a given period will vary from actual contractual rental amounts due. Rental income recorded in 2006 and 2005 in excess of amounts contractually due was approximately $856 and $501, respectively.

The minimum annual future base rentals due under non-cancelable operating leases as of December 31, 2006, are approximately as follows:

2007	$	27,852
2008		24,916
2009		21,029
2010		17,345
2011		12,216
Thereafter		29,042
	$	132,400

Minimum annual future rentals due do not include amounts which are payable by certain tenants based upon certain reimbursable operating expenses. The tenants include national and regional chains and local retailers and, consequently, the Companies’ credit risk is concentrated in the retail industry.

8. COMMITMENT AND CONTINGENCIES

Shenango Valley Mall is subject to a ground lease. The Companies exercised the first 17 year ground lease option in 2005 which expires on December 31, 2021. The ground lease payment is based upon 10% of monthly gross revenues, as defined. The gross revenues, upon which the ground rent is computed, cannot be less than 75% of gross revenues of the previous year. Approximately $436 and $353 were expensed as ground rent for Shenango in 2006 and 2005, respectively.

A parcel of Macon Mall is under a ground lease that expires in 2071. The ground lease is subject to an annual rent payment of $54 throughout the remainder of its term. The Companies are responsible for all other costs including real estate taxes and utilities.

18

LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2006

(Dollar amounts in thousands)

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 2006, the fair values of the Companies’ mortgage and other notes and mezzanine notes payable to related parties approximate the carrying values as the terms are similar to those currently available to the Companies for debt with similar risk and the same remaining maturities. The carrying amounts for cash and cash equivalents, restricted cash, rents and other receivables, due to affiliates, and accounts payable and other liabilities approximate fair value because of the short-term nature of these instruments.

19