UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549
 FORM 10-QSB (Mark One)x
QUARTERLY REPORT PURSUANT
  TO SECTION 13 OR15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934  For the quarterly period
  ended September 30, 2006OR o
TRANSITION REPORT PURSUANT
  TO SECTION 13 OR 15(d)OF
  THE EXCHANGE ACT For the transition period
  from                    to Commission file number 1-8594PRESIDENTIAL
  REALTY CORPORATION(Exact
  name of small business issuer as specified in its charter)  Delaware

13-1954619(State
  or other jurisdiction of

(I.R.S. Employerincorporation
  or organization)

Identification
  No.)  180 South Broadway, White
  Plains, New York 10605(Address of principal
  executive offices) Issuers telephone number,
  including area code 914-948-1300 Check whether the issuer (1)
filed all reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x    No o 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 number of shares outstanding of each of the issuers classes
of common stock as of the close of business on November 6, 2006 was 478,840
shares of Class A common and 3,444,255 shares of Class B common. Transitional Small Business
Disclosure Format (check one): 
Yes o
    No x    PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

Index to Form 10-QSB
For the Nine Months Ended
September 30, 2006

PagePart
I
Financial
Information (Unaudited)Item 1.
Financial StatementsConsolidated Balance Sheets
  (Unaudited)
3Consolidated Statements of Operations (Unaudited)
4Consolidated Statements of Stockholders Equity
  (Unaudited)
5Consolidated Statements of Cash Flows (Unaudited)
6Notes to Consolidated Financial Statements (Unaudited)
8Item 2.
Managements Discussion and Analysis or Plan of
  Operation
26Quantitative and Qualitative Disclosures about Market
  Risk
39Item 3.
Controls and Procedures
39Part II
Other InformationItem 5.
Other Information
40Item 6.
Exhibits
402

PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (Unaudited)

September 30,
  2006

December 31,
  2005AssetsInvestments in
and advances to joint ventures
  (Note 2)

$
19,858,530

$
23,291,133Mortgage
portfolio (Note 3):Notes
receivable - net


7,323,574


9,889,459Notes
receivable - related parties - net


153,397


209,287Net mortgage
portfolio (of which $365,850
  in 2006 and $246,662 in 2005 are due within one year)


7,476,971


10,098,746Real estate
(Note 4)


6,306,342


6,124,665Less:
accumulated depreciation


4,324,816


4,225,223Net real
estate


1,981,526


1,899,442Assets related
to discontinued operations
  (Note 5)


2,885,436


2,850,245Other
investments (Note 6)


2,012,000


1,495,000Purchase
deposit in escrow (Note 7)


977,503


Prepaid
expenses and deposits in escrow


514,485


635,550Prepaid
defined benefit plan costs


1,703,236


1,771,852Other
receivables (net of valuation
  allowance of $142,702 in 2006 and $104,305 in 2005)


847,986


422,353Cash and cash
equivalents


2,503,065


2,878,237Other
assets


177,676


172,194Total Assets

$
40,938,414

$
45,514,752Liabilities and
Stockholders EquityLiabilities:Mortgage debt
(of which $137,799 in 2006
  and $132,082 in 2005 are due within one year)

$
3,549,635

$
3,647,603Liabilities
related to discontinued
  operations (Note 5)


2,933,188


2,996,423Contractual
pension and postretirement
  benefits liabilities


3,445,969


3,456,666Accrued
liabilities


871,634


1,142,789Accounts
payable


205,186


280,365Distribution
payable on common stock


627,695


Distributions
from partnership in excess of
  investment and earnings (Note 7)


2,322,053


2,208,990Other
liabilities


241,548


200,336Total Liabilities


14,196,908


13,933,172Minority Interest in
Consolidated
  Partnership (Note 8)


36,387


46,905Stockholders Equity:Common stock:
par value $.10 per shareClass A,
authorized 700,000 shares, issued
  478,940 shares and 100 shares held in treasury


47,894


47,894Class B

September
30, 2006

December 31,
2005



344,626


339,696Authorized:

10,000,000

10,000,000Issued:

3,446,255

3,396,961Treasury:

2,000

2,000Additional
paid-in capital


4,188,279


3,848,899Retained
earnings


23,657,224


28,833,713Accumulated
other comprehensive loss (Note
  10)


(1,510,741
)

(1,513,364
)Treasury stock
(at cost)


(22,163
)

(22,163
)Total Stockholders
Equity


26,705,119


31,534,675Total Liabilities and
Stockholders Equity

$
40,938,414

$
45,514,752See notes to
consolidated financial statements.

3

PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

NINE MONTHS ENDED
  SEPTEMBER 30,

THREE MONTHS ENDED
  SEPTEMBER 30,2006

2005

2006

2005Revenues:Rental

$
1,667,187

$
1,550,242

$
603,343

$
552,423Interest on
mortgages - notes receivable


922,762


1,153,471


289,725


345,792Interest on
mortgages - notes receivable -
  related parties


191,816


303,676


84,712


80,873Other
revenues


122,896


432,171


38,351


38,726Total


2,904,661


3,439,560


1,016,131


1,017,814Costs and Expenses:General and
administrative


2,800,243


2,854,339


821,330


953,432Depreciation
on non-rental property


12,750


13,441


4,630


4,481Rental
property:Operating
expenses


1,113,001


829,746


492,529


280,886Interest on
mortgage debt


175,115


179,041


58,259


59,704Real estate
taxes


250,489


235,468


86,297


82,194Depreciation
on real estate


99,792


93,229


34,747


31,689Amortization
of mortgage costs


8,611


7,495


2,892


1,935Total


4,460,001


4,212,759


1,500,684


1,414,321Other Income (Loss):Investment
income


305,774


161,089


205,882


58,315Equity in the
loss of joint ventures (Note
  2)


(1,045,351
)

(681,664
)

(31,012
)

(610,857
)Equity in the
(loss) income of partnership
  (Note 7)


(158,063
)

46,253


(51,701
)

(35,080
)Loss before minority interest
and net gain
  from sales of properties


(2,452,980
)

(1,247,521
)

(361,384
)

(984,129
)Minority interest


(5,732
)

(6,150
)

(1,606
)

(2,036
)Loss before net gain from sales
of properties


(2,458,712
)

(1,253,671
)

(362,990
)

(986,165
)Recognition of deferred gain on
sales of
  properties





3,241,540





1,941,661Income (loss) from continuing
operations


(2,458,712
)

1,987,869


(362,990
)

955,496Discontinued Operations (Note
5):Loss from
discontinued operations


(214,829
)

(482,339
)

(116,095
)

(197,238
)Net gain from
sales of discontinued
  operations





2,255,364





Total income (loss) from
discontinued
  operations


(214,829
)

1,773,025


(116,095
)

(197,238
)Net Income (Loss)

($
2,673,541
)
$
3,760,894

($
479,085
)
$
758,258Earnings per Common Share
(basic and
  diluted):Loss before
net gain from sales of
  properties

($
0.63
)
($
0.33
)
($
0.09
)
($
0.26
)Recognition of
deferred gain on sales of properties





0.85





0.51Income (loss)
from continuing operations


(0.63
)

0.52


(0.09
)

0.25Discontinued
Operations:Loss from
discontinued operations


(0.05
)

(0.13
)

(0.03
)

(0.05
)Net gain from
sales of discontinued
  operations





0.59





Total income
(loss) from discontinued
  operations


(0.05
)

0.46


(0.03
)

(0.05
)Net Income
(Loss) per Common Share - basic
  and diluted

($
0.68
)
$
0.98

($
0.12
)
$
0.20Cash Distributions Declared per
Common
  Share

$
0.64

$
0.48

$
0.32

$
0.16Weighted Average Number of
Shares
  Outstanding
  - basic


3,906,072


3,827,933


3,916,416


3,838,614- diluted


3,906,072


3,839,128


3,916,416


3,850,742See notes to
consolidated financial statements.

4

PRESIDENTIAL REALTY
CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited)

Common
  Stock

Additional
  Paid-in
  Capital

Retained
  Earnings

Accumulated
  Other
  Comprehensive
  (Loss) Income

Treasury
  Stock

Comprehensive
  (Loss) Income

Total
  Stockholders
  EquityBalance at January 1,
2006

$
387,590

$
3,848,899

$
28,833,713

($
1,513,364
)
($
22,163
)



$
31,534,675Net proceeds from dividend
reinvestment plan


2,380


152,510














154,890Cash distributions declared
($.64 per share)








(2,502,948
)










(2,502,948
)Issuance of stock


2,550


186,870














189,420Comprehensive loss:Net
loss








(2,673,541
)






($
2,673,541
)

(2,673,541
)Other
comprehensive income-Net unrealized
gain on securities available for sale











2,623





2,623


2,623Comprehensive loss
















($
2,670,918
)Balance at September 30,
2006

$
392,520

$
4,188,279

$
23,657,224

($
1,510,741
)
($
22,163
)



$
26,705,119See notes to consolidated
financial statements.

5

PRESIDENTIAL REALTY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

NINE
  MONTHS ENDED SEPTEMBER 30,2006

2005Cash Flows
  from Operating Activities:Cash received
from rental properties

$
2,423,121

$
2,725,678Interest
received


1,349,133


1,738,097Distributions
received from joint ventures


2,722,252


1,941,000Distributions
received from other
  investments


145,076


Distributions
received from partnership





26,922Miscellaneous
income


126,113


439,517Interest paid
on rental property mortgage
  debt


(320,186
)

(475,742
)Cash disbursed
for rental property
  operations


(2,062,936
)

(1,822,699
)Cash disbursed
for general and
  administrative costs


(2,872,737
)

(2,436,730
)Net cash
  provided by operating activities


1,509,836


2,136,043Cash Flows
  from Investing Activities:Payments
received on notes receivable


2,765,430


8,650,280Loan advanced
to partnership


(631,031
)

Loan advanced
to joint venture


(335,000
)

(9,500,000
)Net proceeds
received from fire insurance
  settlement





707,588Payments
disbursed for additions and
  improvements


(271,758
)

(480,021
)Proceeds from
sales of properties





4,911,146Purchase of
other investments


(517,000
)

(1,415,000
)Deposit on
purchase of additional interest
  in partnership


(977,503
)

Purchase of
additional interest in
  partnership


(45,000
)

(65,000
)Other





1,878Net cash
  (used in) provided by investing activities


(11,862
)

2,810,871Cash Flows
  from Financing Activities:Principal
payments on mortgage debt


(136,533
)

(145,303
)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


(16,250
)

(8,751
)Cash
distributions on common stock


(1,875,253
)

(1,837,292
)Proceeds from
dividend reinvestment plan


154,890


90,533Net cash
  used in financing activities


(1,873,146
)

(4,020,071
)Net
  (Decrease) Increase in Cash and Cash Equivalents


(375,172
)

926,843Cash and
  Cash Equivalents, Beginning of Period


2,878,237


2,085,767Cash and
  Cash Equivalents, End of Period

$
2,503,065

$
3,012,610See notes to
consolidated financial statements.

6

PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

NINE
  MONTHS ENDED SEPTEMBER 30,2006

2005Reconciliation of Net Income
(Loss) to Net
  Cash Provided by Operating ActivitiesNet Income
  (Loss)

($
2,673,541
)
$
3,760,894Adjustments 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





(2,255,364
)Equity in the
loss (income) of partnership


158,063


(46,253
)Equity in the
loss of joint
  ventures


1,045,351


681,664Depreciation
and amortization


121,153


229,992Issuance of
stock to directors and officers


183,690


27,828Amortization
of discounts on notes and fees


(143,655
)

(118,495
)Minority
interest


5,732


6,150Distributions
received from partnership





26,922Distributions
received from joint ventures


2,722,252


1,941,000Changes in
assets and liabilities:Decrease in
other receivables


205,399


370,241Increase
(decrease) in accounts payable and
  accrued liabilities


(332,479
)

148,606Increase in
other liabilities


37,463


33,734Decrease in
prepaid expenses, deposits in
  escrow and deferred charges


194,462


558,672Other


(14,054
)

11,992Total adjustments


4,183,377


(1,624,851
)Net cash provided by operating
activities

$
1,509,836

$
2,136,043SUPPLEMENTAL NONCASH
DISCLOSURES:Satisfaction of mortgage debt
as a result
  of assumption of the mortgage debt by the purchaser




$
7,605,966See notes to
consolidated financial statements.

7

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)

Presidential
Realty Corporation (Presidential or the Company), is operated as a
self-administrated, self-managed Real Estate Investment Trust (REIT). The
Company is engaged principally in the ownership of income producing real estate
and in the holding of notes and mortgages secured by real estate. Presidential
operates in a single business segment, investments in real estate related
assets.

1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

A. Principles
of Consolidation  The consolidated financial statements include the accounts
of Presidential Realty Corporation and its wholly owned subsidiaries.
Additionally, the consolidated financial statements include 100% of the account
balances of UTB Associates, a partnership in which Presidential is the general
partner and owns a 75% interest. All significant intercompany balances and
transactions have been eliminated.

B. Net
Income Per Share  Basic net income per share data is computed by dividing net
income by the weighted average number of shares of Class A and Class B common
stock outstanding during each period. Diluted net income per share is computed
by dividing net income by the weighted average shares outstanding, including
the dilutive effect, if any, of stock options outstanding. The dilutive effect
of stock options is calculated using the treasury stock method. As of November
10, 2005, all outstanding stock options were either exercised or expired.

C. Basis
of Presentation  The accompanying unaudited consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information. The results
for such interim periods are not necessarily indicative of the results to be
expected for the year. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation of the results for the respective periods have been reflected.
These consolidated financial statements and accompanying notes should be read
in conjunction with the Companys Form 10-KSB for the year ended December 31, 2005.

D. Management
Estimates  In preparing the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the consolidated balance sheets and the reported
amounts of income and expense for the reporting period. Actual results could
differ from those estimates.

E. Discontinued
Operations  The Company complies with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement requires that the results of
operations, including impairment, gains and losses related to the properties
that have been sold or properties that are intended to be sold be presented as
discontinued operations in the statements of operations for all periods
presented and the assets and liabilities of properties intended to be sold are
to be separately classified on the balance

8

sheet.
Properties designated as held for sale are carried at the lower of cost or fair
value less costs to sell and are not depreciated.

F. Equity
Method  The Company accounts for its investments in joint ventures and
partnerships using the equity method of accounting because it exercises
significant influence, but not control over these investments.

G. Adoption
of Recent Accounting Pronouncements  In December of 2004, the Financial
Accounting Standards Board (FASB) issued SFAS No. 123, (Revised 2004) 
Share-Based Payment (SFAS No. 123R). SFAS No. 123R replaces SFAS No. 123,
which the Company previously adopted. SFAS No. 123R requires that the compensation
cost relating to share-based payment transactions be recognized in financial
statements and be measured based on the fair value of the equity or liability
instruments issued. SFAS No. 123R was effective for the Company beginning
January 1, 2006. The adoption of SFAS No. 123R did not have a material effect
on the Companys consolidated financial statements.

In June of
2005, the FASB ratified the Emerging Issues Task Force (EITF) consensus on
EITF Issue No. 04-5, Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar Entity When the
Limited Partners Have Certain Rights. EITF Issue No. 04-5 provides a framework
for determining whether a general partner controls, and should consolidate, a
limited partnership or a similar entity. It became effective for all newly
formed limited partnerships and for any pre-existing limited partnerships that
modify their partnership agreements after June 29, 2005. General partners of
all other limited partnerships will apply the consensus no later than the
beginning of the first reporting period in fiscal years beginning after
December 15, 2005. The initial adoption of EITF Issue No. 04-5 had no effect on
the Companys consolidated financial statements.

H. New
Accounting Pronouncements - In February of 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments  An Amendment of FASB
Statements No. 133 and 140. The purpose of SFAS No. 155 is to simplify the
accounting for certain hybrid financial instruments by permitting fair value
re-measurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation. SFAS No. 155 also
eliminates the restriction on passive derivative instruments that a qualifying
special-purpose entity may hold. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of an entitys first fiscal
year beginning after September 15, 2006. The Company does not believe that the
adoption of this standard on January 1, 2007 will have a material effect on the
Companys consolidated financial statements.

In March of
2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial
Assets - Amendment of FASB Statement No. 140. SFAS No. 156 requires separate
recognition of a servicing asset and a servicing liability each time an entity
undertakes an obligation to service a financial asset by entering into a
servicing contract. This statement also requires that servicing assets and
liabilities be initially recorded at fair value and subsequently adjusted to
the fair value at the end of each reporting period. This statement is effective
in fiscal years beginning after September 15, 2006. The Company does not
believe that the adoption of this standard on January 1, 2007 will have a
material effect on the Companys consolidated financial statements.

9

In July of
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in a
companys financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. The
Interpretation also provides guidance on description, classification, interest
and penalties, accounting in interim periods, disclosure and transition. The
Company does not believe that the adoption of this standard on January 1, 2007
will have a material effect on the Companys consolidated financial statements.

In September
of 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 is in the process of determining the impact, if any, that the adoption
of this statement will have 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 (1) recognize the
overfunded or underfunded status of a defined benefit post-retirement plan as
an asset or liability in its statement of financial position; (2) recognize
changes in the funded status in the year in which the changes occur through
comprehensive income; and (3) measure plan assets and obligations as of the
employers balance sheet date. The recognition provisions of SFAS No. 158 are
effective for fiscal years ending after December 15, 2006. The measurement
provision of SFAS No. 158 will be effective for fiscal years ending after
December 15, 2008, with early application encouraged. The Company is in the
process of determining the impact of SFAS No. 158 on its consolidated financial
statements.

In September,
2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 108 (SAB 108), which becomes effective beginning on January 1, 2007. 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. If a
misstatement is material to the current year financial statements, the prior
year financial statements should also be corrected, even though such revision
was, and continues to be, immaterial to the prior year financial statements.
Correcting prior year financial statements for immaterial errors would not
require previously filed reports to be amended. Such correction should be made
in the current period filings. The Company is in the process of determining the
impact, if any, that the adoption of this bulletin will have on its
consolidated financial statements.

2. INVESTMENTS
IN AND ADVANCES TO JOINT VENTURES

During 2004
and 2005, the Company made investments in and loans to four joint ventures
which own and operate nine shopping malls located in seven states. These
investments in and advances to joint ventures were made to entities controlled
by David Lichtenstein, who also controls The Lightstone Group

10

(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 terms as the original loan. At September 30, 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:

11

Owning
  Entity and
  Property
  Owned (1)


Mezzanine
  Loans 
  Advanced by
  the Company


Gross
  Leasable
  Area
  (Sq. Ft.)



Nonrecourse
  First Mortgage
  and Mezzanine Loans
  September 30, 2006Balance


Maturity
  Date


Interest 
  RatePRC Member
  LLCMartinsburg Mall





552,000

$
29,865,191


July, 2016


(2
)Martinsburg,
WVLightstone I Four Malls

$
8,600,000Bradley Square Mall 
  Cleveland, TN





385,000


13,805,473


July, 2016


(2
)Mount Berry Square Mall 
  Rome, GA





475,000


22,480,000


July, 2016


(2
)Shenango Valley Mall 
  Hermitage, PA





508,000


14,750,000


July, 2016


(2
)West Manchester Mall 
  York, PA





733,000


29,600,000


June, 2008


(2
)Lightstone II Shawnee/Brazos Malls


7,835,000





39,500,000


Jan., 2007


(3
)Brazos Outlets 
  Center Mall 
  Lake Jackson, TX





587,966Shawnee Mall 
  Shawnee, OK





445,657Lightstone III Macon/Burlington Malls

9,500,000





158,570,500


June, 2015


5.78
%Burlington Mall 
  Burlington, NC





416,442Macon Mall 
  Macon, GA





764,208$
25,935,000


4,867,273

$
308,571,164(1) Each
individual owning entity is a single purpose entity that is prohibited by its organizational
documents from owning any assets other than the specified shopping mall
properties listed above.

(2) 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

12

$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 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
8.13% at September 30, 2006). The loan matures in January, 2007, with three
one-year options to extend the loan for an extension fee of .125% of the
outstanding principal.

Investments in
and advances to joint ventures are as follows:

December 31,
  2005

Net
  Distributions
  Received

Equity
  in the
  Loss of
  Joint
  Ventures

September 30,
  2006Martinsburg
Mall

$
919,549

$
(236,687
)
$
(309,268
)
$
373,594Four
Malls


6,694,235


(720,011
)

(404,904
)

5,569,320Shawnee/Brazos Malls (1)


6,800,268


(300,082
)

(269,079
)

6,231,107Macon/Burlington Malls


8,877,081


(1,130,472
)

(62,100
)

7,684,509$
23,291,133

$
(2,387,252
)
$
(1,045,351
)
$
19,858,530(1) The
distributions received for the Shawnee/Brazos Malls of $300,082 is net of a
loan advanced to Lightstone II in the amount of $335,000.

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

Nine Months Ended
  September 30,

Three Months Ended
  September 30,2006

2005

2006

2005Martinsburg
Mall (1)

$
(309,268
)
$
(325,956
)
$
(23,302
)
$
(151,336
)Four Malls
(2)


(404,904
)

(467,665
)

213,829


(336,522
)Shawnee/Brazos Malls (3)


(269,079
)

173,736


(170,022
)

(61,220
)Macon/Burlington Malls (4)


(62,100
)

(61,779
)

(51,517
)

(61,779
)$
(1,045,351
)
$
(681,664
)
$
(31,012
)
$
(610,857
)(1) The
Companys share of the loss of joint ventures for the Martinsburg Mall is
determined after the deduction for the interest expense at the rate of 11% per
annum on the outstanding $2,600,000 loan from Lightstone.

(2) Interest
income earned by the Company at the rate of 11% per annum on the outstanding
$8,600,000 loan from the Company to Lightstone I is included in the calculation
of the Companys share of the (loss) income of joint ventures for the Four Malls.

13

(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:

September 30,
  2006

December 31,
  2005Condensed
Combined Balance SheetsNet real estate

$
300,905,786

$
302,087,000In place lease values and acquired lease
  rights


17,919,046


22,299,000Prepaid expenses and deposits in escrow


16,752,792


16,140,000Cash and cash equivalents


3,888,462


3,488,000Deferred financing costs


1,370,444


2,202,000Other assets


8,199,052


5,466,000Total Assets

$
349,035,582

$
351,682,000Nonrecourse mortgage debt

$
308,571,164

$
303,350,000Mezzanine notes payable


28,535,000


28,200,000Other liabilities


20,841,630


21,138,000Total Liabilities


357,947,794


352,688,000Members Deficit


(8,912,212
)

(1,006,000
)Total Liabilities and Members Deficit

$
349,035,582

$
351,682,00014

Nine Months Ended
  September 30,

Three Months Ended
  September 30,2006

2005

2006

2005Condensed
Combined Statements of OperationsRevenues

$
44,194,101

$
31,332,595

$
14,743,161

$
14,503,473Interest on mortgage debt and other debt


(18,708,512
)

(11,347,024
)

(5,707,559
)

(5,799,227
)Other expenses


(22,058,590
)

(16,640,151
)

(7,329,954
)

(8,196,027
)Income before depreciation and amortization


3,426,999


3,345,420


1,705,648


508,219Depreciation and amortization


(12,068,046
)

(9,378,342
)

(3,525,439
)

(4,260,782
)Net Loss

$
(8,641,047
)
$
(6,032,922
)
$
(1,819,791
)
$
(3,752,563
)As a result of
the Companys use of the equity method of accounting with respect to its
investments in and advances to the joint ventures, the Companys consolidated
statements of operations reflect 29% of the income (loss) of the joint
ventures. The equity in the loss of joint ventures of $1,045,351 for the nine
months ended September 30, 2006, is after deductions in the aggregate amount of
$3,499,733 for the Companys 29% of noncash charges (depreciation of $2,046,673
and amortization of deferred financing costs and in-place lease values of
$1,453,060). Notwithstanding the income (loss) from the joint ventures, the
Company is entitled to receive its interest at the rate of 11% per annum on its
$25,935,000 of loans to the joint ventures. For the nine months ended September
30, 2006, the Company received distributions from the joint ventures in the
amount of $2,722,252, which included payments of interest in the amount of
$2,150,455 and return on investment in the amount of $571,797. The return on
investment of $571,797 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 $681,664 for the nine months ended September 30,
2005, is after deductions in the aggregate amount of $2,719,719 for the
Companys 29% of noncash charges (depreciation of $1,500,228 and amortization
of deferred financing costs and in-place lease values of $1,219,491). For the
nine months ended September 30, 2005, the Company received distributions from
joint ventures in the amount of $1,941,000, which included payments of interest
in the amount of $1,607,650 and return on investment in the amount of $333,350.

The Lightstone
Group is controlled by David Lichtenstein. At September 30, 2006, in addition
to Presidentials investments of $19,858,530 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
$6,839,040. Two of the loans in the outstanding principal amount of $5,375,000,
with a net carrying value of $4,764,046, are secured by interests

15

in five
apartment properties and are also personally guaranteed by Mr. Lichtenstein up
to a maximum amount of $3,137,500. The Company believes that Mr. Lichtenstein
has sufficient net worth and liquidity to satisfy his obligations under these
personal guarantees. However, because of the substantial equity in the
properties securing the loans, it is unlikely that Presidential will have to
call upon these personal guarantees. The third loan in the outstanding
principal amount of $2,074,994 is secured by interests in nine apartment
properties. All of these loans are in good standing but, while the Company
believes that all of these loans are adequately secured, a default on some or
all of these loans could have a material adverse effect on Presidentials
business and operating results.

The
$26,697,570 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 65% of the Companys total assets at
September 30, 2006.

3. MORTGAGE
PORTFOLIO

The components
of the net mortgage portfolio are as follows:

September
  30, 2006

Notes
  Receivable

Notes
  Receivable-
  Related
  Parties

TotalNotes
  receivable

$
7,940,056

$
200,123

$
8,140,179Less:
  Discounts


616,482


46,726


663,208Net mortgage
  portfolio

$
7,323,574

$
153,397

$
7,476,971December
  31, 2005Notes
  receivable

$
10,647,847

$
271,073

$
10,918,920Less:
  Discounts


758,388


61,786


820,174Net mortgage
  portfolio

$
9,889,459

$
209,287

$
10,098,746At September
30, 2006, all of the notes in the Companys mortgage portfolio are current in
accordance with their terms, as modified.

On March 8,
2006, the Company received a partial prepayment on one of the loans outstanding
to entities controlled by Mr. Lichtenstein. The Company 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

16

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.

4. REAL
ESTATE

Real
estate is comprised of the following:

September 30,
  2006

December 31,
  2005Land

$
404,839

$
403,969Buildings


5,787,115


5,611,211Furniture
  and equipment


114,388


109,485Total real
  estate

$
6,306,342

$
6,124,6655. DISCONTINUED
OPERATIONS

For the
periods ended September 30, 2006 and 2005, loss from discontinued operations
includes the Cambridge Green property which was designated as held for sale
during the three months ended December 31, 2005. In September, 2006, the
Company entered into a contract for the sale of the property (see below). In
addition, loss from discontinued operations for the periods ended September 30,
2005 included the Farrington Apartments property and the Fairlawn Gardens property,
which were sold during the year ended December 31, 2005.

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

17

Nine Months Ended
  September 30,

Three Months Ended
  September 30,2006

2005

2006

2005Revenues:Rental

$
720,410

$
1,076,719

$
186,974

$
271,818Rental property
expenses:Operating
expenses


669,086


1,066,217


214,232


331,150Interest on
mortgage debt


144,439


229,086


47,932


48,774Real estate
taxes


126,703


150,273


42,251


49,504Depreciation
on real estate





114,100





40,740Amortization
of mortgage costs





1,727





580Total


940,228


1,561,403


304,415


470,748Other income:Investment
income


4,989


2,345


1,346


1,692Loss from discontinued
operations


(214,829
)

(482,339
)

(116,095
)

(197,238
)Net gain from sales of
discontinued operations





2,255,364





Total income (loss) from
discontinued operations

$
(214,829
)
$
1,773,025

$
(116,095
)
$
(197,238
)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 which will be
paid by (i) the buyers assumption of the first mortgage loan on the property,
(the outstanding principal balance of which was $2,878,720 at September 30,
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 will 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. The
contract of sale may be terminated by either party if HUD does not give its
approval of the sale by February 17, 2007.

Upon execution
of the contract of sale, the purchaser made a $25,000 deposit in escrow. Upon
expiration of the purchasers due diligence period in October, 2006, the
purchaser made an additional $75,000 escrow deposit. Based on the terms of the
contract, the gain from the sale for financial reporting purposes is estimated
to be approximately $707,000 and the estimated net proceeds will be
approximately $679,000, 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 price of $9,325,966, of which $1,720,000 was
paid in cash and the $7,605,966 balance was paid by

18

the assumption
by the purchaser of the first mortgage on the property. The loss from the sale
for financial reporting purposes was $11,580.

On April 4,
2005, the Company consummated the sale of its Fairlawn Gardens property in
Martinsburg, West Virginia for a sales price of $3,500,000. The net cash
proceeds of sale, after repayment of the $1,411,670 outstanding principal
balance of the first mortgage, prepayment fees and other closing expenses, were
$1,906,896. In March, 2005, prior to closing, the Company received $707,588 of
insurance proceeds resulting from fire damage to sixteen apartments at the
property and applied those proceeds to pay down a portion of the outstanding
balance of the first mortgage on March 29, 2005. The gain from the sale for
financial reporting purposes was $2,266,944.

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

September 30,
  2006

December 31,
  2005Assets related to discontinued
operations:Land

$
200,000

$
200,000Buildings


4,176,183


4,117,679Furniture and
equipment


39,851


35,119Less:
accumulated depreciation


(1,634,161
)

(1,634,554
)Net real
estate


2,781,873


2,718,244Other
assets


103,563


132,001Total

$
2,885,436

$
2,850,245Liabilities related to
discontinued
  operations:Mortgage
debt

$
2,878,720

$
2,917,285Other
liabilities


54,468


79,138Total

$
2,933,188

$
2,996,4236. OTHER
INVESTMENTS

On May 24,
2005, the Company advanced $1,000,000 to Broadway Real Estate Partners, LLC (Broadway
Partners), which money is being held in escrow by Broadway Partners and will
be utilized from time to time to make advances to the Broadway Partners Funds
below. The escrowed funds bear interest at a rate of 11.43% per annum through
September 30, 2006 and 5% per annum thereafter. The Company earned interest
income of $85,725 during the nine months ended September 30, 2006, of which
$9,525 was accrued at September 30, 2006. In October, 2006, the Company
utilized $420,000 of these funds to fund a portion of its commitment to
Broadway Partners Feeder Fund A II.

In 2005,
Presidential agreed to invest $1,000,000 in Broadway Partners Parallel Fund A,
a blind pool of investment capital sponsored by Broadway Partners. Presidentials
commitment will be called on from time to time by Broadway Partners as it
requires funds to make real estate investments. At September 30, 2006,
Presidential had advanced $890,000 (including

19

$395,000
during 2006) of its commitment with funds other than the escrowed funds and the
balance of Presidentials commitment was $110,000. In September, 2006, the
Company received a distribution from the proceeds of sales in the amount of
$145,076 and recorded the distribution in investment income. The Company
accounts for this investment at cost.

In March,
2006, Presidential agreed to invest $1,000,000 in Broadway Partners Feeder Fund
A II, another blind pool of investment capital sponsored by Broadway Partners. Presidentials
commitment will be called on from time to time by Broadway Partners as it
requires funds to make real estate investments. Presidential will fund this
obligation from its own funds or from the $1,000,000 escrow account held by
Broadway Partners. At September 30, 2006, Presidential had advanced $122,000 of
its commitment with funds other than the escrowed funds and the balance of
Presidentials commitment is $878,000. Presidential accounts for this
investment at cost. In October, 2006, the Company funded an additional $420,000
of its commitment from the escrowed funds.

7. DISTRIBUTIONS
FROM PARTNERSHIP IN EXCESS OF INVESTMENT AND EARNINGS

PDL, Inc. (a
wholly owned subsidiary of Presidential) is the general partner of PDL, Inc.
and Associates Limited Co-Partnership (the Hato Rey Partnership). The Hato
Rey Partnership owns and operates an office building in Hato Rey, Puerto Rico (The
Hato Rey Center). Presidential and PDL, Inc. had an aggregate 33% general and
limited partner interest in the Hato Rey Partnership at December 31, 2005 and
purchased an additional 1% limited partnership interest on June 30, 2006 for a
purchase price of $45,000. The Company accounts for its investment in this
partnership under the equity method because it exercises significant influence,
but not control, over the partnerships affairs.

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 $977,503. 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 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 a result of this
transaction, Presidential effectively owns 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 since the Company will exercise effective control over
the partnership through its ability to manage the affairs of the partnership in
the ordinary course of business. Accordingly, the Company will consolidate the
Hato Rey Partnership in the Companys consolidated financial statements in the
fourth quarter of 2006.

The Companys
interest in the Hato Rey Partnership has a negative basis and therefore is
classified as a liability on the Companys consolidated balance sheets, under
the caption distributions from partnership in excess of investment and
earnings. The negative basis was primarily due to the refinancing of the
mortgage on the property owned by the partnership and the distribution of the
proceeds to the partners in excess of their investment in prior years.

20

Summary
financial information for the Hato Rey Partnership is as follows:

September
  30,

December
  31,2006

2005Condensed
  Balance SheetsNet real
estate

$
4,564,245

$
3,905,347Prepaid
expenses and deposits in escrow


772,408


790,331Cash and cash
equivalents


550,765


950,269Receivables
and other assets


479,060


446,570Total
Assets

$
6,366,478

$
6,092,517Nonrecourse
mortgage debt

$
15,884,855

$
16,075,068Other
liabilities


1,611,225


672,681Total
Liabilities


17,496,080


16,747,749Partners
Deficiency


(11,129,602
)

(10,655,232
)Total
Liabilities and Partners Deficiency

$
6,366,478

$
6,092,517On the
  Companys Consolidated Balance Sheets:Distributions
  from partnership in excess of investment and earnings

$
2,322,053

$
2,208,990Nine
  Months Ended

Three
  Months EndedSeptember
  30,

September
  30,2006

2005

2006

2005Condensed Statements of
OperationsRevenues

$
2,310,948

$
2,890,159

$
808,702

$
818,659Interest on
mortgage debt


(894,062
)

(907,811
)

(300,094
)

(304,814
)Depreciation
and amortization


(283,475
)

(267,554
)

(94,756
)

(86,980
)Other
expenses


(1,626,594
)

(1,587,668
)

(571,822
)

(540,762
)Investment
income


18,813


19,354


5,909


7,593Net (Loss)
Income

$
(474,370
)
$
146,480

$
(152,061
)
$
(106,304
)On the Companys
Consolidated Statement of
  Operations:Equity in the
(loss) income of partnership

$
(158,063
)
$
46,253

$
(51,701
)
$
(35,080
)21

Net income of
the Hato Rey Partnership decreased during the year ended December 31, 2005 as a
result of two tenants vacating a total of 52,088 square feet of office space at
the expiration of their leases.  In
March, 2006, another tenant vacated 30,299 square feet of office space.  In addition, the Hato Rey Partnership has
decided to undertake a program of repairs and improvements to the building that
is expected to cost approximately $1,255,000.
The Company has agreed to lend up to $1,000,000 to the Hato Rey Partnership
(and has the right to lend an additional $1,000,000) to pay for the cost of
improvements to the building and fund any negative cash flows from the
operation of the property. The loan, which 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 September 30, 2006, the Company had
advanced $631,031 of the loan to the Hato Rey Partnership and the balance of
its commitment was $368,969.  Subsequent
to September 30, 2006, the Company advanced an additional $161,685 of its
commitment.

8. MINORITY
INTEREST IN CONSOLIDATED PARTNERSHIP

Presidential
is the general partner of UTB Associates, a partnership in which Presidential
has a 75% interest.  As the general
partner of UTB Associates, Presidential exercises effective control over this
partnership through its ability to manage the affairs of the partnership in the
ordinary course of business, including the ability to approve the partnerships
budgets, and through its significant equity interest.  Accordingly, Presidential consolidates this partnership in the
accompanying consolidated financial statements.  The minority interest reflects the minority partners equity in
the partnership.

9. INCOME
TAXES

Presidential
has elected to qualify as a Real Estate Investment Trust under the Internal
Revenue Code.  A REIT which distributes
at least 90% of its real estate investment trust taxable income to its
shareholders each year by the end of the following year and which meets certain
other conditions will not be taxed on that portion of its taxable income which
is distributed to its shareholders.

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 nine
months ended September 30, 2006, the Company had a tax loss of approximately
$1,394,000 ($0.36 per share), which is comprised of capital gains of
approximately $151,000 ($0.04 per share) and an ordinary loss of approximately
$1,545,000 ($0.40 per share).

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

10.
ACCUMULATED OTHER COMPREHENSIVE LOSS

The components
of accumulated other comprehensive loss are as follows:

22

September
  30,

December
  31,2006

2005Minimum
  pension liability

$
(1,522,794
)
$
(1,522,794
)Net
  unrealized gain on securities available for sale


12,053


9,430Total
  accumulated other comprehensive loss

$
(1,510,741
)
$
(1,513,364
)The Companys
other comprehensive income consists of the changes in the net unrealized gain
on securities available for sale and the minimum pension liability adjustments,
if any.  Thus, comprehensive income
(loss), which consists of net income (loss) plus or minus other comprehensive
income, is as follows:

Nine
  Months Ended

Three
  Months EndedSeptember
  30,

September
  30,2006

2005

2006

2005Net income
  (loss)

$
(2,673,541
)
$
3,760,894

$
(479,085
)
$
758,258Other
  comprehensive income-Net
  unrealized gain (loss) on securities available for sale


2,623


764


1,037


(333
)Comprehensive
  income (loss)

$
(2,670,918
)
$
3,761,658

$
(478,048
)
$
757,92511.
COMMITMENTS AND CONTINGENCIES

Presidential
has a commitment to invest $110,000 in Broadway Partners Parallel Fund A and a
commitment to invest $878,000 in Broadway Partners Parallel Fund B II (see Note
6).

In addition,
Presidential has a commitment to lend $368,969 to the Hato Rey Partnership (see
Note 7).

Presidential
is not a party to any material legal proceedings.  The Company may from time to time be a party to routine
litigation incidental to the ordinary course of its business.

In the opinion
of management, all of the Companys properties are adequately covered by
insurance in accordance with normal insurance practices.

The Company
has incurred costs of $206,966 for environmental site testing and removal of
soil at its Mapletree Industrial Center property in Palmer,

23

Massachusetts.  These costs have been charged to expense.  As a result of the
site testing and removal
of soil at the property, it has been determined that there are unacceptable
levels of lead in the soil.  The Company
is currently working on a remediation proposal to submit to the Massachusetts
Department of Environmental Protection.
Until the proposal is submitted and a course of action is agreed upon,
the Company cannot reasonably estimate the costs of the cleanup.  The Company will comply with the provisions
of FASB Statement No. 5, Accounting for Contingencies, when sufficient
information is available to reasonably estimate the liability.

12.
CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS

The following
table sets forth the components of net periodic benefit costs for contractual
pension benefits:

Nine
  Months Ended

Three
  Months EndedSeptember
  30,

September
  30,2006

2005

2006

2005Service cost

$
12,360

$
22,568

$
4,120

$
7,522Interest cost


95,843


99,915


31,948


33,305Amortization of prior service
cost


(34,782
)

(18,520
)

(11,594
)

(6,173
)Recognized actuarial
loss


288,255


220,343


96,085


73,448Net periodic benefit
cost

$
361,676

$
324,306

$
120,559

$
108,102The following
table sets forth the components of net periodic benefit costs for contractual
postretirement benefits:

Nine
  Months Ended

Three
  Months EndedSeptember
  30,

September
  30,2006

2005

2006

2005Service cost

$
9,620

$
15,551

$
3,206

$
5,184Interest
  cost


27,983


36,452


9,328


12,151Amortization
  of prior service cost


(38,136
)

(7,209
)

(12,712
)

(2,403
)Recognized
  actuarial loss


39,865


68,401


13,288


22,799Net periodic
  benefit cost

$
39,332

$
113,195

$
13,110

$
37,731During the
nine months ended September 30, 2006, the Company made contributions of
$365,258 and $46,448 for contractual pension benefits and postretirement
benefits, respectively.  The Company
anticipates additional contributions of $115,130 and $25,000 for contractual
pension benefits and postretirement benefits, respectively, for the remainder
of 2006.

24

13. DEFINED
BENEFIT PLAN

The following
table sets forth the components of net periodic benefit costs:

Nine
  Months Ended

Three
  Months EndedSeptember
  30,

September
  30,2006

2005

2006

2005Service cost

$
284,979

$
367,523

$
94,994

$
122,508Interest cost


299,322


279,066


99,774


93,022Expected return on plan
assets


(398,909
)

(367,695
)

(132,970
)

(122,565
)Amortization of prior service
cost


9,462


9,462


3,154


3,154Amortization of accumulated
loss


50,377


60,519


16,792


20,173Net periodic benefit
cost

$
245,231

$
348,875

$
81,744

$
116,292The Companys
funding policy for the defined benefit plan is based on contributions at the
minimum and maximum amounts required by law.
During the nine months ended September 30, 2006, the Company did not
make a contribution to the defined benefit plan for the 2006 plan year.  The Company is not required to make any
contributions in 2006, but may make a tax deductible contribution for the 2006
year in 2007.  In February, 2006, the
Company made a maximum tax deductible contribution of $165,906 for the 2005 tax
year.

25

PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENTS
  DISCUSSION AND ANALYSIS 
  OR PLAN OF OPERATION
  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005Forward-Looking
Statements

Certain
statements made in this report may constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or current
expectations of the Company and its management and involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following:


general
  economic and business conditions, which will, among other things, affect the
  demand for apartments, mall space or other commercial space, availability and
  credit worthiness of prospective tenants, lease rents and the terms and
  availability of financing;
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
environment
  and safety requirements.Critical
Accounting Policies

In preparing
the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP), management is
required to make estimates and assumptions that affect the financial statements
and disclosures. These estimates require managements most difficult, complex
or subjective judgments. The Companys critical accounting policies are
described in its Form 10-KSB for the year ended December 31, 2005. There have
been no significant changes in the Companys critical accounting policies since
December 31, 2005.

Results of
Operations

Financial
  Information for the nine months ended September 30, 2006 and 2005:Continuing
Operations:

Revenues
decreased by $534,899 primarily as a result of decreases in interest income on
mortgages-notes receivable, interest income on mortgages-notes
receivable-related parties and other revenues, partially offset by increases in
rental revenues.

Rental
revenues increased by $116,945. As a result of increases in occupancy rates at
the Mapletree Industrial Center property, rental revenues increased by $78,037.
In addition, rental revenues increased at all of the other rental properties.

26

Interest on
mortgages-notes receivable decreased by $230,709. 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 $257,542 in the
2006 period.

Interest on
mortgages-notes receivable-related parties decreased by $111,860 primarily as a
result of a decrease of $103,500 in payments of interest income received on the
Consolidated Loans (see Liquidity and Capital Resources  Consolidated Loans
below).

Other revenues
decreased by $309,275 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 $21,195 as a result of
reduced fees earned by the Companys management company for third party owned
properties.

Costs and
expenses increased by $247,242 primarily due to increases in rental property
operating expenses, partially offset by decreases in general and administrative
expenses.

General and
administrative expenses decreased by $54,096 primarily as a result of decreases
in contractual benefits of $36,493 and defined benefit plan expenses of
$103,644. These decreases were partially offset by increases in travel and
entertainment expenses of $42,648 and professional fees of $36,767. 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 $283,255 primarily as a result of
increases of $269,266 in repairs and maintenance expenses and increases of
$23,197 in utility expenses. These increases were partially offset by a
decrease of $18,815 in snow removal expenses. The increase in repairs and
maintenance is primarily a result of environmental costs of $206,966 at the
Companys Mapletree Industrial Center property (see Liquidity and Capital
Resources  Environmental Matters).

Other income decreased by $423,318 primarily as a result of the
$363,687 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 $204,316 due to lower earnings of the Hato Rey Partnership, as a result of a
higher vacancy rate at its property (see Liquidity and Capital Resources  Hato
Rey Partnership below). These amounts were partially offset by an increase in
investment income of $144,685 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
$1,205,041 from $1,253,671 in 2005 to $2,458,712 in 2006. This increase was
primarily a result of the increase in the equity in the loss of joint ventures
of $363,687, the increase in the equity in the loss of partnership of $204,316,
increases in rental property operating expenses of $283,255 and the decrease in
revenues of $534,899, partially offset by the increase in investment income of
$144,685.

27

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 is classified as discontinued operations, the
Cambridge Green property in Council Bluffs, Iowa, which was designated as held
for sale during the quarter ended December 31, 2005. In September, 2006, the
Company entered into a contract for the sale of the property. (See Liquidity
and Capital Resources - Discontinued Operations below).

The following
table compares the total loss from discontinued operations for the nine month
periods ended September 30, for properties included in discontinued operations:

2006

2005Income
  (loss) from discontinued operations:Cambridge
  Green, Council Bluffs, IA

$
(214,829
)
$
(373,093
)Farrington
  Apartments, Clearwater, FL





(135,096
)Fairlawn
  Gardens, Martinsburg, WV





25,850Loss from
  discontinued operations


(214,829
)

(482,339
)Net gain
  (loss) from sales of discontinued operations:Fairlawn
  Gardens





2,266,944Farrington
  Apartments





(11,580
)Net gain
  from sales of discontinued operations





2,255,364Total income
  (loss) from discontinued operations

$
(214,829
)
$
1,773,025Financial
  Information for the three months ended September 30, 2006 and 2005:Continuing
Operations:

Revenues
decreased by $1,683 primarily as a result of decreases in interest income on
mortgages-notes receivable, partially offset by increases in rental revenues.

28

Rental
revenues increased by $50,920. Rental revenues increased by $26,702 at the
Mapletree Industrial Center property and by $24,218 at all of the other rental
properties.

Interest on
mortgages-notes receivable decreased by $56,067. As a result of a $2,425,006
repayment on a note receivable in the first quarter of 2006, interest income on
that note decreased by $60,662 in the 2006 period.

Costs and
expenses increased by $86,363 primarily due to increases in rental property
operating expenses, partially offset by decreases in general and administrative
expenses.

General and
administrative expenses decreased by $132,102 primarily as a result of
decreases in salary expense of $68,641, decreases of $34,548 in defined benefit
plan expenses and a $26,356 decrease in bad debt expense. The decrease in
salary expense is primarily a result of a decrease in contractual executive
bonuses of $51,678.

Rental
property operating expenses increased by $211,643 primarily as a result of
increases of $194,922 in repairs and maintenance expenses and increases of
$8,102 in utility expenses. The increase in repairs and maintenance is
primarily a result of environmental costs of $190,326 at the Companys
Mapletree Industrial Center property (see Liquidity and Capital Resources 
Environmental Matters).

Other income increased by $710,791 primarily as a result of the
$579,845 decrease in the equity in the loss of joint ventures and the $147,567
increase in investment income. Equity in the loss of joint ventures decreased
by $579,845 primarily due to improved results from the Four Malls. Investment
income increased by $147,567 due to a $145,076 distribution received from
Broadway Partners Parallel Fund A.

Loss from
continuing operations before net gain from sales of properties decreased by
$623,175 from $986,165 in 2005 to $362,990 in 2006. This decrease was primarily
a result of the $579,845 decrease in the equity in the loss of joint ventures.

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.
The $1,941,661 deferred gain recognized in the 2005 period resulted from the
reversal of a provision for Federal income taxes on the long-term capital gain
of $5,548,000 relating to the $8,500,000 prepayment received on the Encore
Apartments note receivable. During the 2005 period, the Company made the
decision not to designate and retain the $5,548,000 long-term capital gain.
Therefore, in the third quarter of 2005, the accrual for income taxes of
$1,941,661 was reversed.

Discontinued
Operations:

The following
table compares the total loss from discontinued operations for the three month
periods ended September 30, for properties included in discontinued operations:

29

2006

2005Income
  (loss) from discontinued operations:Cambridge
  Green, Council Bluffs, IA

$
(116,095
)
$
(188,291
)Farrington
  Apartments, Clearwater, FL





(10,653
)Fairlawn
  Gardens, Martinsburg, WV





1,706Loss from
  discontinued operations

$
(116,095
)
$
(197,238
)Balance Sheet

Investments in
and advances to joint ventures decreased by $3,432,603 as a result of
$2,722,252 of distributions received and $1,045,351 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 terms as the
original loan.

Net mortgage
portfolio decreased by $2,621,775 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 $265,000 on the Mark Terrace note.

Other
investments increased by $517,000 as a result of the Companys investments of
$395,000 and $122,000 in Broadway Partners Parallel Fund A and Broadway
Partners Feeder Fund A II, respectively (see Liquidity and Capital Resources 
Investing Activities below).

Prepaid expenses
and deposits in escrow decreased by $121,065 primarily as a result of decreases
of $205,142 in deposits in escrow, partially offset by increases of $84,077 in
prepaid expenses.

Other
receivables increased by $425,633 primarily as the result of $631,031 in
advances made to the Hato Rey Partnership (see Liquidity and Capital Resources
 Hato Rey Partnership below). This increase was partially offset by a $201,272
decrease in interest receivable as a result of the $215,750 deferred interest
payment received in March, 2006.

Cash and cash
equivalents decreased by $375,172 primarily as a result of cash distributions
on common stock to shareholders of $1,875,253 and the $977,503 deposit on
purchase for the purchase of an additional 25% limited partnership interest in
the Hato Rey Partnership, partially offset by the $2,640,756 cash received from
the prepayment and deferred interest on the $4,500,000 loan.

Accrued
liabilities decreased by $271,155 primarily as a result of decreases in accrued
contractual executive bonuses of $233,359.

30

In the third
quarter of 2006, the Company declared the fourth quarter dividend payable on
December 29, 2006. The $627,695 ($.16 per share) dividend was declared in the
third quarter of 2006 to enable the Company to deduct the dividend from 2005
taxable income in accordance with the provisions of the Internal Revenue Code
applicable to real estate investment trusts.

Other
liabilities increased by $41,212 primarily as a result of a $21,709 increase in
deferred interest income and a $22,066 increase in tenant security deposits.

In January,
2006, three independent directors of the Company each received 1,000 shares of
the Companys Class B common stock as a partial payment of directors fees for
the 2006 year. The shares were valued at $7.64 per share, which was the market
value of the Class B common stock at the grant date, and, accordingly, the
Company recorded $22,920 in prepaid directors fees (to be amortized during
2006) based on the market value of the stock. The Company recorded additions to
the Companys Class B common stock of $300 at par value of $.10 per share and
$22,620 to additional paid-in capital. Also in January, 2006, three executive
officers of the Company were awarded an aggregate of 22,500 restricted shares of
the Companys Class B common stock. The shares were valued at $7.40 per share,
which was the market value of the Class B common stock at the grant date, and,
accordingly, the Company recorded salary expense of $166,500. The Company
recorded additions to the Companys Class B common stock of $2,250 at par value
of $.10 per share and $164,250 to additional paid-in capital.

Liquidity and
Capital Resources

Management
believes that the Company has sufficient liquidity and capital resources to
carry on its existing business and, barring any unforeseen circumstances, to
pay the dividends required to maintain REIT status in the foreseeable future.
Except as discussed herein, management is not aware of any other trends,
events, commitments or uncertainties that will have a significant effect on
liquidity.

Presidential
obtains funds for working capital and investment from its available cash and
cash equivalents, from operating activities, from refinancing of mortgage loans
on its real estate equities or from sales of such equities, and from repayments
on its mortgage portfolio. The Company also has at its disposal a $250,000
unsecured line of credit from a lending institution. At September 30, 2006,
there was no outstanding balance due under the line of credit.

During the
first nine months of 2006, the Company paid cash distributions to shareholders
which exceeded cash flows from operating activities. Periodically the Company
receives balloon payments on its mortgage portfolio and net proceeds from sales
of discontinued operations and other properties. These payments are available
to the Company for distribution to its shareholders or the Company may retain
these payments for future investment. The Company may in the future, as it did
in the first nine months of 2006, pay dividends in excess of its cash flow from
operating activities if management believes that the Companys liquidity and
capital resources are sufficient to pay such dividends.

31

To the extent
that payments received on its mortgage portfolio or payments received from
sales are taxable as capital gains, the Company has the option to distribute
the gain to its shareholders or to retain the gain and pay Federal income tax
on it.

The Company
does not have a specific policy as to the retention or distribution of capital
gains. The Companys dividend policy regarding capital gains for future periods
will be based upon many factors including, but not limited to, the Companys
present and projected liquidity, its desire to retain funds available for
additional investment, its historical dividend rate and its ability to reduce
taxes by paying dividends. While the Company has maintained the annual $.64
dividend rate in 2006, no assurances can be given that the present dividend
rate will be maintained in the future.

At September
30, 2006, Presidential had $2,503,065 in available cash and cash equivalents, a
decrease of $375,172 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
$1,509,836, offset by cash used in investing activities of $11,862 and cash
used in financing activities of $1,873,146.

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, other investments and a partnership. In 2006, cash received
from interest on the Companys mortgage portfolio was $1,349,133 and
distributions received from joint ventures and other investments were
$2,867,328. Net cash received from rental property operations was $23,749. Net
cash received from rental property operations is net of distributions to
minority partners but does not include additions and improvements and mortgage
amortization.

Investing
Activities

Presidential
holds a portfolio of mortgage notes receivable. During 2006, the Company
received principal payments of $2,765,430 on its mortgage portfolio of which
$2,734,742 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,
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.

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

32

During the
first nine months of 2006, the Company advanced $631,031 to the Hato Rey
Partnership, pursuant to a loan agreement with the partnership (see Hato Rey
Partnership below).

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 the
first nine months of 2006, the Company invested $271,758 in additions and
improvements to its properties.

In 2005,
Presidential advanced $1,000,000 to Broadway Real Estate Partners LLC
(Broadway Partners), which money is being held in escrow by Broadway Partners
and will be utilized to fund Presidentials commitments to the Broadway
Partners Funds. While the money is being held in escrow, Presidential receives
interest payments at the rate of 11.43% per annum through September 30, 2006
and 5% per annum thereafter. In October, 2006, the Company utilized $420,000 of
these funds to fund a portion of its commitment to Broadway Partners Feeder
Fund A II.

In March,
2006, Presidential agreed to invest $1,000,000 in Broadway Partners Feeder Fund
A II, a blind pool of investment capital sponsored by Broadway Partners.
Presidentials commitment will be called on from time to time by Broadway
Partners as it requires funds to make real estate investments. Presidential
will fund this obligation from its own funds or from the $1,000,000 escrow
account held by Broadway Partners. At September 30, 2006, Presidential had
advanced $122,000 of its commitment with funds other than the escrowed funds
and the balance of Presidentials commitment is $878,000. In October, 2006, the
Company funded an additional $420,000 of its commitment from the escrowed
funds.

In addition,
in 2005, the Company agreed to invest $1,000,000 in Broadway Partners Parallel
Fund A. During 2005 and 2006, the Company advanced $495,000 and $395,000,
respectively, and the balance of its commitment at September 30, 2006 was
$110,000. In September, 2006, the Company received a distribution from the
proceeds of sales in the amount of $145,076 and recorded the distribution in
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 $977,503 (see Hato Rey Partnership below).

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 September 30, 2006, consisted of mortgage debt of $3,549,635
for continuing operations and $2,878,720 for discontinued operations. The
mortgage debt is collateralized by individual properties. The $2,285,439
mortgage on the Crown Court property is nonrecourse to the Company, whereas the
$1,135,294 Building Industries Center mortgage and the $128,902 Mapletree
Industrial Center mortgage are recourse to Presidential. The $2,878,720
mortgage on the Cambridge Green property, which is classified as a discontinued
operation, is nonrecourse to the Company. In addition,

33

some of the Companys
mortgages provide for Company liability for damages resulting from specified
acts or circumstances, such as for environmental liabilities and fraud.
Generally, mortgage debt repayment is serviced with cash flow from the
operations of the individual properties. During the first nine months of 2006,
the Company made $136,533 of principal payments on mortgage debt.

The mortgages
on the Companys properties are at fixed rates of interest and will fully
amortize by periodic principal payments, with the exception of the Building
Industries Center mortgage, which has a balloon payment of $1,072,906 due at
maturity in January, 2009.

During the
first nine months of 2006, Presidential declared cash distributions of
$2,502,948 (including $627,695 payable in the fourth quarter) to its
shareholders and received proceeds from its dividend reinvestment plan of
$154,890.

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

At September
30, 2006, assets related to discontinued operations were $2,885,436 and
liabilities related to discontinued operations were $2,933,188. These assets
and liabilities relate to the Cambridge Green property, which was designated as
held for sale during the three months ended December 31, 2005.

At September
30, 2006, the carrying value of the Cambridge Green property was $2,781,873
(net of accumulated depreciation of $1,634,161) and the outstanding mortgage
balance was $2,878,720. For the nine months ended September 30, 2006, gross
revenues were $720,410 and loss from operations was $214,829.

In September,
2006, the Company entered into a contract for the sale of the property for a
sales price of $3,700,000 which will be paid by (i) the buyers assumption of
the first mortgage loan on the property, (ii) a $200,000 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 will 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. The contract of sale may be terminated by either
party if HUD does not give its approval of the sale by February 17, 2007.

Upon execution of the contract
of sale, the purchaser made a $25,000 deposit in escrow. Upon expiration of the
purchasers due diligence period in October, 2006, the purchaser made an
additional $75,000 escrow deposit. Based on the terms of the contract, the gain
from the sale for financial

34

reporting
purposes is estimated to be approximately $707,000 and the estimated net
proceeds will be approximately $679,000, which includes the proceeds of the
$200,000 note receivable.

Investments in
and Advances to Joint Ventures

During 2004
and 2005, the Company made investments in and loans to joint ventures and
received 29% ownership interests in these joint ventures.

The Company
purchased the Martinsburg Mall in Martinsburg, West Virginia for $27,000,000 in
September, 2004 and subsequent to closing obtained a mezzanine loan from The
Lightstone Group (Lightstone) in the amount of $2,600,000, which is secured
by a pledge of ownership interests in the entity that owns the Martinsburg
Mall. The loan matures on September 27, 2014, and the interest rate on the loan
is 11% per annum. Lightstone Member LLC (Lightstone I) manages the property
and David Lichtenstein received a 71% ownership interest in the entity owning
the property, leaving the Company with a 29% ownership interest.

In September,
2004, the Company made an $8,600,000 mezzanine loan to Lightstone I in
connection with the acquisition by Lightstone I of four shopping malls, namely
the Shenango Valley Mall in Hermitage, Pennsylvania; the West Manchester Mall
in York, Pennsylvania; the Bradley Square Mall in Cleveland, Tennessee and the
Mount Berry Square Mall in Rome, Georgia (the Four Malls). The loan is
secured by the ownership interests in the entities that own the Four Malls and
the Company received a 29% ownership interest in these entities. The loan
matures on September 27, 2014 and the interest rate on the loan is 11% per
annum.

The
Martinsburg Mall and the Four Malls are subject to $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 terms as the original loan.
The Shawnee/Brazos Malls are subject to a $39,500,000 nonrecourse first
mortgage loan.

In July, 2005,
Presidential made a $9,500,000 mezzanine loan to Lightstone Member III LLC
(Lightstone III) in connection with the acquisition by Lightstone III of the
Macon Mall in Macon, Georgia and the Burlington Mall in

35

Burlington,
North Carolina (the Macon/Burlington Malls). The loan is secured by the
ownership interests in the entities that own the Macon/Burlington Malls and
Presidential received a 29% ownership interest in these entities. The loan
matures on June 30, 2015, and the interest rate on the loan is 11% per annum.
The Macon/Burlington Malls are subject to a nonrecourse first mortgage loan and
a mezzanine loan in the aggregate original principal amount of $158,850,000.

Each
individual owning entity is a single purpose entity that is prohibited by its
organizational documents from owning any assets other than the specified
shopping mall properties above.

The Company
accounts for these investments using the equity method. At September 30, 2006,
investments in and advances to joint ventures are as follows:

Martinsburg Mall

$
373,594Four Malls


5,569,320Shawnee/Brazos
  Malls


6,231,107Macon/Burlington
  Malls


7,684,509$
19,858,530Equity in the
loss of joint ventures for the nine months ended September 30, 2006 is as
follows:

Martinsburg
  Mall

$
(309,268
)Four Malls


(404,904
)Shawnee/Brazos
  Malls


(269,079
)Macon/Burlington
  Malls


(62,100
)$
(1,045,351
)As a result of
the Companys use of the equity method of accounting with respect to its investments
in and advances to the joint ventures, the Companys consolidated statements of
operations reflect 29% of the loss of the joint ventures. The equity in the
loss of joint ventures of $1,045,351 for the nine months ended September 30,
2006 is after deductions in the aggregate amount of $3,499,733 for the
Companys 29% of noncash charges (depreciation of $2,046,673 and amortization
of deferred financing costs and in-place lease values of $1,453,060).
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 nine months ended September 30, 2006, the
Company received distributions from the joint ventures in the amount of $2,722,252,
of which $2,150,455 were interest payments received on the outstanding loans to
the joint ventures and $571,797 was a return on investment. The return on
investment of $571,797 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 September 30, 2006, in addition
to Presidentials investments of $19,858,530 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

36

the aggregate
outstanding principal amount of $7,449,994 with a net carrying value of
$6,839,040. Two of the loans in the outstanding principal amount of $5,375,000,
with a net carrying value of $4,764,046, are secured by interests in five
apartment properties and are also personally guaranteed by Mr. Lichtenstein up
to a maximum amount of $3,137,500. The Company believes that Mr. Lichtenstein
has sufficient net worth and liquidity to satisfy his obligations under these
personal guarantees. However, because of the substantial equity in the
properties securing the loans, it is unlikely that Presidential will have to
call upon these personal guarantees. The third loan in the outstanding
principal amount of $2,074,994 is secured by interests in nine apartment
properties. All of these loans are in good standing but, while the Company
believes that all of these loans are adequately secured, a default on some or
all of these loans could have a material adverse effect on Presidentials
business and operating results.

The
$26,697,570 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 65% of the Companys total assets at
September 30, 2006.

Hato Rey
Partnership

At September
30, 2006, the Company has an aggregate 34% general and limited partnership interest
in the Hato Rey Partnership. The Hato Rey Partnership owns and operates an
office building in Hato Rey, Puerto Rico.

During the
year ended December 31, 2005, two tenants at the building vacated a total of
52,088 square feet of office space at the expiration of their leases in order
to take occupancy of their own newly constructed office buildings and in March,
2006, another tenant vacated 30,299 square feet of office space in order to
take occupancy of its newly constructed office building. As a result, at
December 31, 2005, the vacancy rate at the building was approximately 33% and
at September 30, 2006, the vacancy rate was approximately 46%. The Company
expects that it will take some time to find tenants for the vacant space and
that until a substantial portion of the vacant space is rented, the property
will operate at a loss. In addition, the Hato Rey Partnership has decided to
undertake a program of repairs and improvements to the building that is
expected to cost approximately $1,255,000. The Company has agreed to lend up to
$1,000,000 to the Hato Rey Partnership (and has the right to lend an additional
$1,000,000) to pay for the cost of improvements to the building and fund any
negative cash flows from the operation of the property. The loan, which 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 September 30, 2006, the Company had advanced $631,031 to the Hato
Rey Partnership under the loan agreement and the balance of its commitment was
$368,969. Subsequent to September 30, 2006, the Company advanced an additional
$161,685 of its commitment.

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.

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 $977,503. The acquisition was closed in escrow pending approval of certain
legal issues by the holder of the first mortgage on the

37

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 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. Presidential
believes that the purchase price reflects the current high vacancy rate at the
property and presents an opportunity to benefit from a potential increase in
the value of the property if and when the capital improvement and leasing
programs are successfully completed. As a result of this transaction,
Presidential effectively owns 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 since the Company will exercise effective control over the partnership
through its ability to manage the affairs of the partnership in the ordinary
course of business. Accordingly, the Company will consolidate the Hato Rey
Partnership in the Companys consolidated financial statements in the fourth
quarter of 2006.

Consolidated
Loans

Presidential
holds two nonrecourse loans (the Consolidated Loans), which were
collateralized by substantially all of the remaining assets of Ivy Properties,
Ltd. and its affiliates (Ivy). At September 30, 2006, the Consolidated Loans
have an outstanding principal balance of $4,770,050 and a net carrying value of
zero. Pursuant to existing agreements, the Company is entitled to receive, as
payments of principal and interest on the Consolidated Loans, 25% of the cash
flow of Scorpio Entertainment, Inc. (Scorpio), a company owned by two of the
Ivy principals who are officers of Presidential (Messrs. Baruch and Viertel) to
carry on theatrical productions. Amounts received by Presidential from Scorpio
will be applied to unpaid and unaccrued interest on the Consolidated Loans and
recognized as income. The Company anticipates that these amounts may continue
to be significant over the next several years. However, the continued
profitability of any theatrical production is by its nature uncertain and
management believes that any estimate of payments from Scorpio on the
Consolidated Loans for future periods is too speculative to project. During the
nine months ended September 30, 2006 and 2005, the Company received payments of
$176,000 and $279,500, respectively, from Scorpio. The Consolidated Loans bear
interest at a rate equal to the JP Morgan Chase Prime rate, which was 8.25% at
September 30, 2006. At September 30, 2006, the unpaid and unaccrued interest
was $3,197,197 and such interest is not compounded.

Environmental
Matters

The Company
has incurred costs of $206,966 for environmental site testing and removal of
soil at its Mapletree Industrial Center property in Palmer, Massachusetts.
These costs have been charged to expense. As a result of the site testing and
removal of soil at the property, it has been determined that there are
unacceptable levels of lead in the soil. The Company is currently working on a
remediation proposal to submit to the Massachusetts Department of Environmental
Protection. Until the proposal is submitted and a course of action is agreed
upon, the Company cannot reasonably estimate the costs of the cleanup. The
Company will comply with the provisions of the Financial Accounting Standards
Board (FASB) Statement No. 5, Accounting for Contingencies, when sufficient
information is available to reasonably estimate the liability.

38

QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys
financial instruments consist primarily of notes receivable and mortgage notes
payable. Substantially all of these instruments bear interest at fixed rates,
so the Companys cash flows from them are not directly impacted by changes in market
rates of interest. Changes in market rates of interest impact the fair values
of these fixed rate assets and liabilities. However, because the Company
generally holds its notes receivable until maturity and repays its notes
payable at maturity or upon sale of the related properties, any fluctuations in
values do not impact the Companys earnings, balance sheet or cash flows.
Nevertheless, since some of the Companys mortgage notes payable are at fixed
rates of interest and provide for yield maintenance payments upon prepayment
prior to maturity, if market interest rates are lower than the interest rates
on the mortgage notes payable, the Companys ability to sell the properties
securing the notes may be adversely affected and the net proceeds of any sale
may be reduced because of the yield maintenance requirements. The Company does
not own any derivative financial instruments or engage in hedging activities.

The
$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 which change monthly based on the London Interbank Offered
Rate and mature in June, 2008 and January, 2007, respectively. The borrower has
the right to extend the maturity date of the Shawnee/Brazos Malls first
mortgage for three 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 was 8.125% per annum
at September 30, 2006 and the interest rate on the first mortgage secured by
the Shawnee/Brazos Malls increased from 7.18% per annum at December 31, 2005 to
8.13% per annum at September 30, 2006. The Company believes that these first
mortgages will either be extended in accordance with their terms or refinanced
prior to the maturity date.

ITEM 3.
CONTROLS AND
  PROCEDURESa)
As of the
  end of the period covered by this quarterly report on Form 10-QSB, the
  Company carried out an evaluation, under the supervision and with the
  participation of our Chief Executive Officer and Chief Financial Officer, of
  the effectiveness of the design and operation of its disclosure controls and
  procedures. Based on this evaluation, our Chief Executive Officer and Chief
  Financial Officer concluded that our disclosure controls and procedures are
  effective in timely alerting them to material information required to be
  included in this report.b)
There has
  been no change in the Companys internal control over financial reporting
  that occurred during the Companys most recent fiscal quarter that has
  materially affected or is reasonably likely to materially affect the
  Companys internal control over financial reporting.39

PART II  OTHER INFORMATION

Item 5.
Other
  InformationThe Company was delinquent in its federal
securities law filing obligations because it had not filed the required
financial information as an Exhibit to the Companys Form 8-K with respect to
its investment in five shopping mall properties in September, 2004. The
financial information related to operations of the properties for calendar year
2003 and the nine months ended September, 2004 prior to the Companys
investment in the properties. The Company was unable to obtain the financial
information from the seller of the properties. This delinquency was cured with
the filing of the Companys Form 10-KSB for the year ended December 31, 2005,
which included audited financial statements for the properties for the period
from the acquisition of the Companys interest in the properties until December
31, 2005. During the period of delinquency in its filing obligations,
Presidentials dividend reinvestment plan for its Class B Common Stock
continued pursuant to the terms of its Dividend Reinvestment and Share Purchase
Plan but shareholders were not able to make optional cash payments to acquire
shares under the Plan. With the filing of the Form 10-KSB, the delinquency was
cured. However, on April 4, 2006, the Company terminated the Share Purchase
Plan.

The dividend
reinvestment provisions of the Dividend Reinvestment and Share Purchase Plan
remain effective.

Item 6.
Exhibits31.1
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 2002.40

SIGNATURES

Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

PRESIDENTIAL REALTY CORPORATION
(Registrant)

DATE:
November 8,
  2006
By:
/s/ Jeffrey
  F. JosephJeffrey F.
  JosephPresident
  and Chief Executive OfficerDATE:
November 8,
  2006
By:
/s/
  Elizabeth DelgadoElizabeth
  DelgadoTreasurer41