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|UNITED STATESSECURITIES AND EXCHANGE COMMISSION
    Washington, D.C. 20549

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|-----------
|FORM 10-KSB

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

|                             
|-----------------------------
|Commission file number 1-8594

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|PRESIDENTIAL REALTY CORPORATION                       
|                                                      
|(Exact name of registrant as specified in its charter)

|                                |  |                    
|------------------------------- |  | -------------------
|DELAWARE                        |  | 13-1954619         
|                                |  |                    
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)

|                                           |  |           
|------------------------------------------ |  | ----------
|180 South Broadway, White Plains, New York |  | 10605     
|                                           |  |           
|(Address of principal executive offices)   |  | (Zip Code)

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

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

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

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

|None            
|----------------
|                
|(Title of class)
|                

|Check
whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. o
Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. 
Yes x    No o
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained
in this form, and no disclosure will be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).Yes o  No x
The
registrants revenues for the year ended December 31, 2006 were $3,919,621.
The
aggregate market value of voting stock held by non-affiliates of the registrant based on the closing
price of the stock at February 2, 2007 was $24,975,000. The registrant has no non-voting stock.
The
number of shares outstanding of each of the registrants classes of common stock on March 12,
2007 was 478,066 shares of Class A common and 3,459,446 shares of Class B common.
Documents Incorporated by Reference: The Companys definitive Proxy Statement for its Annual Meeting of Shareholders to be held
on June 15, 2007, which Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, is incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one):Yes o     No x
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|
|



|PRESIDENTIAL REALTY CORPORATION                       
|------------------------------------------------------
|                                                      
|TABLE OF CONTENTS                                     
|                                                      
|FORWARD-LOOKING STATEMENTS                            
|                                                      
|PART I                                                
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|PART II                                               
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|                                                      
|PART III                                              
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|                                                      
|Table of Contents to Consolidated Financial Statements

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|



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

| |  | general economic and business conditions, which will, among other things, affect the demand for apartments,
mall space or other commercial space, availability and creditworthiness of prospective tenants, rental
rates and the terms and availability of financing;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                      
| |  | adverse changes in the real estate markets including, among other things, competition with other companies;                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                      
| |  | risks of real estate development, acquisition, ownership
and operation;                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                      
| |  | governmental actions and initiatives; and                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                      
| |  | environmental and safety requirements.                                                                                                                                                                                                                               

|      
|------
|PART I

|        |                        
|------- | -----------------------
|ITEM I. | DESCRIPTION OF BUSINESS

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
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|(a)           General
Presidential Realty Corporation is a Delaware corporation organized in 1983 to succeed to the business
of a company of the same name that was organized in 1961 to succeed to the business of a closely
held real estate business founded in 1911. The terms Presidential or the Company
refer to the present Presidential Realty Corporation or its predecessor company of the same name
and to any subsidiaries. Since 1982 the Company has elected to be treated as a real estate investment
trust (REIT) for Federal and State income tax purposes. See Qualification as a REIT. The Company invests in joint ventures that own shopping malls, owns real estate and interests in
real estate and makes loans secured by interests in real estate.
Presidential self-manages the properties that it owns and the property owned by PDL, Inc. and Associates
Limited Co-Partnership

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|(the Hato Rey Partnership) in which the Company is the general partner and has a 59% partnership
interest. At December 31, 2006, the Company employed 26 people, of which 14 are employed at the Companys
home office and 12 are employed at the individual property sites. The Company does not manage the
shopping mall properties owned by the joint ventures in which it has invested. Those properties are
managed by an affiliate of the Companys partner in the joint ventures.
During 2006, the Company purchased the 25% partnership interest held by one of its partners in the
Hato Rey Partnership for a purchase price of $950,000 (plus additional costs of purchase of $54,439).
Management believes that the purchase price reflects the current high vacancy rate at the property
and represents an opportunity for the Company to benefit from any subsequent improvement in the operations
of the property. As a result of the purchase of the additional 25% partnership interest, the Company
owns a 59% partnership interest, and, accordingly, the Company has consolidated the Hato Rey Partnership
on the Companys consolidated balance sheet at December 31, 2006. The Company did not consolidate
the Hato Rey Partnerships results of operations on its consolidated statement of operations
because for the year ended December 31, 2006, the Company only had a 33% and 34% ownership interest
in the partnership, and accordingly, the Company recorded its share of the loss from the partnership
for the year ended December 31, 2006, in Equity in the (loss) income of partnership, under the equity
method of accounting. The Company allocated the transactions value, the negative basis of the minority
partners and the Companys negative basis, to the tangible and intangible assets acquired and
liabilities assumed based on the increase in their estimated fair values over historical costs in
a partial step acquisition in accordance with the provisions of Accounting Research Bulletin (ARB)
No. 51, Consolidated Financial Statements and the Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, as follows:
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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

|                                                                                                                                                                                                                                                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The Companys assets fall into the following categories:
      (i)   Joint ventures.  Approximately 35% of the Companys assets consists of investments
    in and advances to joint ventures. The Company accounts for these investments using the equity method.

|2
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|At December 31, 2006, investments in and advances to joint ventures were $18,059,749. See Managements Discussion and Analysis or Plan of Operation and Note 2 of Notes to Consolidated Financial Statements.
(ii)   Equity interests in rental properties. Approximately 31% of the Companys assets are equity
interests in commercial and residential rental properties. These properties have a carrying value
of $20,333,180, less accumulated depreciation of $4,363,886, resulting in a net carrying value of
$15,969,294 at December 31, 2006. See Description of Property below.
(iii)   Notes receivable. Approximately 14% of the Companys assets consists of notes receivable,
which are reflected on the Companys Consolidated Balance Sheet at December 31, 2006 as Mortgage
portfolio: notes receivable  net. The $7,803,444 aggregate principal amount of these
notes has been reduced by $569,205 of discounts (which reflect the difference between the stated
interest rates on the notes and the market interest rates at the time the notes were made). See Notes
1-B, 1-C, 1-D and 4 of Notes to Consolidated Financial Statements. Accordingly, the net carrying value of the Companys Mortgage portfolio: notes receivable
was $7,234,239 at December 31, 2006.
All of the loans included in this category of assets were current at December 31, 2006.
Notes reflected under Mortgage portfolio: notes receivable - net consist of notes received
from sales of real properties previously owned by the Company in the aggregate principal amount of
$4,170,000, loans originated by the Company in the aggregate principal amount of $3,574,994 and notes
in the aggregate principal amount of $58,450 that relate to sold cooperative apartments.
(iv)   Assets related to discontinued operations. Approximately 6% of the Companys assets are classified
as Assets related to discontinued operations. This category of assets relates to one
operating property, Cambridge Green Apartments in Council Bluffs, Iowa, that is being held for sale.
The Company entered into a contract for the sale of the property in September, 2006 and consummated
the sale in March, 2007. These assets are carried at the lower of cost (net of accumulated depreciation
and amortization) or fair value less costs to sell. Depreciation and amortization are discontinued
when the property is classified as a discontinued operation. At December 31, 2006, assets related
to discontinued
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|operations were $2,922,493. See Managements Discussion and Analysis or Plan of Operation and Note 27 of Notes to Consolidated Financial Statements.
(v)   Other investments. Approximately 4% of the Companys assets are other investments. These investments
are with Broadway Real Estate Partners LLC, a private real estate investment and management firm,
which invests in high quality office properties. At December 31, 2006, other investments were $2,000,000.
See Managements Discussion and Analysis or Plan of Operation and Note 6 of Notes to Consolidated Financial Statements.
(vi)   Notes receivable - related parties. A small portion of the Companys assets consists of notes
receivable in the aggregate principal amount of $195,001 resulting from loans made to Ivy Properties,
Ltd. (Ivy) in connection with the conversion of apartment buildings to cooperative ownership
or the sale in 1981 by the Company to Ivy of an apartment project. These loans are reflected on the
Companys Consolidated Balance Sheet at December 31, 2006 as Mortgage portfolio: notes
receivable - related parties - net. The principal amounts of these notes have been reduced
by discounts and valuation reserves of $46,785 and these notes have a net carrying value at December
31, 2006 of $148,216. Management believes that it holds sufficient collateral to protect its interests
in these outstanding loans to Ivy. At December 31, 2006, all of the loans due from related parties
were current. See Relationship with Ivy Properties, Ltd.  and Notes 4 and 23 of Notes to Consolidated Financial Statements.
The Companys investments in and advances to joint ventures in the amount of $18,059,749 were
made to joint ventures controlled by affiliates of David Lichtenstein. At December 31, 2006, in addition
to Presidentials investments in these joint ventures with entities controlled by Mr. Lichtenstein,
Presidential has three loans that are due from entities that are controlled by Mr. Lichtenstein in
the aggregate outstanding principal amount of $7,449,994 with a net carrying value of $6,886,161.
Two of the loans in the aggregate outstanding principal amount of $5,375,000, with a net carrying
value of $4,811,167, are secured by interests in five apartment properties and are also personally
guaranteed by Mr. Lichtenstein up to a maximum amount of $3,137,500. The Company believes that Mr.
Lichtenstein has sufficient net worth and liquidity to satisfy his obligations under these personal
guarantees. However, because of the substantial equity in the properties securing the loans, it is
unlikely that Presidential will have to call upon these personal guarantees. The third loan in the
outstanding principal amount of
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|$2,074,994 is secured by interests in nine apartment properties. All of these loans are in good standing
and the Company believes that all of these loans are adequately secured; however, a default on any
or all of these loans could have a material adverse effect on Presidentials business and operating
results. The $24,945,910 net carrying value of investments in and advances to joint ventures with
entities controlled by Mr. Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein
constitute 48% of the Companys total assets at December 31, 2006.
Presidential first met Mr. Lichtenstein, the principal owner of The Lightstone Group (Lightstone),
in 1999 when it sold him its first and second mortgage notes secured by the Fairfield Towers apartment
property in Brooklyn, New York. In connection with that transaction, Mr. Lichtenstein assumed the
obligation to repay a $4,000,000 note that is still held by the Company. Over the next four years,
the Company made four new loans to Mr. Lichtenstein secured by various apartment properties. As Mr.
Lichtenstein expanded his business into shopping center properties with the acquisition in 2003 of
Prime Retail, Inc., the owner of 36 shopping malls throughout the United States, Presidential saw
an opportunity to participate in this new investment area, and in 2004 and 2005 made the joint venture
investments referenced above. Presidential may make additional loans to or investments with Mr. Lichtenstein
in the future, although there are no commitments to do so at the present time. Lightstone currently
owns and manages a diverse portfolio of approximately 20,000 apartment units and 27,000,000 square
feet of office, industrial and commercial space in 28 states and Puerto Rico.
Under the Internal Revenue Code of 1986, as amended (the Code), a REIT that meets certain
requirements is not subject to Federal income tax on that portion of its taxable income that is distributed
to its shareholders, if at least 90% of its real estate investment trust taxable income
(exclusive of capital gains) is so distributed. Since January 1, 1982, the Company has elected to
be taxed as a REIT and has paid regular quarterly cash distributions. Total dividends paid by the
Company in 2006 were $.64 per share of which $.52 per share was a taxable capital gain dividend and
$.12 per share was a return of capital.
While the Company intends to operate in such a manner as to enable it to be taxed as a REIT, and to
pay dividends in an amount sufficient to maintain REIT status, no assurance can be given that the
Company will, in fact, continue to be taxed as a REIT, that distributions will be maintained at the
current rate or that the Company will have cash available to pay sufficient dividends in order to
maintain REIT
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|status.  See Qualification as a REIT, Market for Common Equity and Related Stockholder Matters and Note 15 of Notes to Consolidated Financial Statements.
(b)           Investment Strategies
The Companys current general investment strategy is to make investments in real property that
offer attractive current yields with, in some cases, potential for capital appreciation. The Companys
investment policy is not contained in or subject to restrictions included in the Companys Certificate
of Incorporation or Bylaws, and there are no limits in the Companys Certificate of Incorporation
or Bylaws on the percentage of assets that it may invest in any one type of asset or the percentage
of securities of any one issuer that it may acquire. The investment policy may, therefore, be changed
by the Board of Directors of the Company without the concurrence of the holders of its outstanding
stock. However, to continue to qualify as a REIT, the Company must restrict its activities to those
permitted under the Code. See Qualification as a REIT.
The Companys current primary investment strategies are as follows:
(i)   Loans
and Investments in Joint Ventures
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | The Company has in the last five years utilized a substantial portion of its funds available for investment
to make loans secured by interests in real property. These loans have been mezzanine
type loans, which are secured by subordinate security interests in real property or by ownership
interests in entities that own real property. These loans carry interest rates in excess of rates
usually obtainable on first priority loans. See notes to the Mortgage Portfolio: Notes Receivable
table under Loans and Investments. In some cases, the Company has, in connection with a loan, obtained an ownership interest in the
borrowing entity and, as a result, is entitled to share in the earnings of the borrower. These loans
are reflected on the Companys consolidated financial statements as Investments in and
advances to joint ventures. The Company expects to make additional loans of this type if the
opportunity to do so arises. To date, all of these loans have been made to entities controlled by
David Lichtenstein. See Investments in and Advances to Joint Ventures.
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| | The Company has over the years held long term mortgage notes which provide for balloon principal payments
at varying times. The Company may in appropriate circumstances agree to extend and modify these notes.
See the table set forth below under Loans and Investments. It should be noted that there can be no assurance that the balloon principal payments due in accordance
with these notes will actually be made when due.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
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| | The Company has in the past and may in the future receive mortgage notes from the sales of its properties.
As a result, the capital gains from sales of real properties are recognized for income tax purposes
on the installment method as principal payments are received. To the extent that any such gain is
recognized by Presidential, or to the extent that Presidential incurs a capital gain from the sale
of a property, it may, as a REIT, either (i) elect to retain such gain, in which event it will be
required to pay Federal and State income tax on such gain, (ii) distribute all or a portion of such
gain to shareholders, in which event Presidential will not be required to pay taxes on the gain to
the extent that it is distributed to shareholders or (iii) elect to retain such gain and designate
it as a retained capital gain dividend, in which event the Company would pay the Federal tax on such
gain, the shareholders would be taxed on their share of the undistributed long-term capital gain
and the shareholders would receive a tax credit for their share of the Federal tax that the Company
paid and increase the tax basis of their stock for the difference between the long-term capital gain
and the tax credit. To the extent that Presidential retains any principal payments on notes or proceeds
of sale, the proceeds, after payment of any taxes, will be available for investment. Presidential
has not adopted a specific policy with respect to the distribution or retention of capital gains,
and its decision as to any such gain will be made in connection with all of the circumstances existing
at the time the gain is recognized. The Company did not designate any capital gain in 2006 as a retained capital gain dividend.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (ii)   Equity Properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | For many years the Companys investment policy was focused on acquiring equity interests in income
producing real estate, principally moderate income apartment properties located in the eastern United
States. However, in recent years the Company has not found any such investments that offer rates
of return satisfactory to the Company or otherwise meet the Companys investment criteria. As
described in subparagraph (i) above, in                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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| | recent years the Company has focused its investment activities in making loans secured by interests
in real property or by ownership interests in entities that own real property; and in some instances
the Company has obtained ownership interests in the properties in connection with its loans. While
the Companys present intention is to continue to seek opportunities to make loans as described
above, the Company may in the future acquire equity interests in real estate, including residential
properties and commercial properties such as office buildings, shopping centers and light industrial
properties.                                                                                                                                                                                                                                                                                            
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | While it has been Presidentials policy to acquire properties for long term investment, it has
from time to time sold its equity interests in such properties and may do so in the future. Over
the past five years, the Company has sold or otherwise disposed of six of its apartment properties
and sold one additional apartment property in March of 2007. See Managements Discussion and Analysis or Plan of Operation  Discontinued Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (iii)   Funding of Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The Company typically obtains funds to make loans and investments from excess cash from operations,
from refinancing of mortgage loans on its real estate equities or from sales of such equities, and
from repayments on its mortgage portfolio. In the past, the Company also obtained loans from financial
institutions secured by specific real property or from general corporate borrowings. Such loans have
in the past been, and may in the future be, secured by real property and provide for recourse to
Presidential. However, funds may not be readily available from these sources and such unavailability
may limit the Companys ability to make new investments. In addition, the Company may face competition
for investment properties from other potential purchasers with greater financial resources. See Managements Discussion and Analysis or Plan of Operation  Liquidity and Capital Resources.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
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|(c)          Investments in and Advances to Joint Ventures
During 2004 and 2005, the Company made investments in and loans to joint ventures and received 29%
ownership interests in these joint ventures. The Company accounts for these investments and loans
under the equity method because it exercises significant influence over, but does not control, these
entities. These investments are recorded at cost, as investments in and advances to joint ventures,
and

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|adjusted for the Companys share of each ventures income or loss and increased for cash
contributions and decreased for distributions received. Real estate held by such entities is regularly
reviewed for impairment, and would be written down to its estimated fair value if impairment were
determined to exist. In 2006, no impairments were recorded for this real estate.
The Company purchased the Martinsburg Mall in Martinsburg, West Virginia for $27,000,000 in September,
2004 and subsequent to closing obtained a mezzanine loan from Lightstone in the amount of $2,600,000,
which is secured by a pledge of ownership interests in the entity that owns the Martinsburg Mall.
The loan matures on September 27, 2014, and the interest rate on the loan is 11% per annum. Lightstone
Member LLC (Lightstone I) manages the property and David Lichtenstein received a 71%
ownership interest in the entity owning the property, and the Company owns the remaining 29% ownership
interest.
In September, 2004, the Company made a $8,600,000 mezzanine loan to Lightstone I in connection with
the acquisition by Lightstone I of four shopping malls, namely the Shenango Valley Mall in Hermitage,
Pennsylvania; the West Manchester Mall in York, Pennsylvania; the Bradley Square Mall in Cleveland,
Tennessee and the Mount Berry Square Mall in Rome, Georgia (the Four Malls). The loan
is secured by the ownership interests in the entities that own the Four Malls and the Company received
a 29% ownership interest in these entities. The loan matures on September 27, 2014 and the interest
rate on the loan is 11% per annum.
In December, 2004, the Company made a $7,500,000 mezzanine loan to Lightstone Member II LLC (Lightstone
II) in connection with the acquisition by Lightstone II of the Brazos Outlets Center Mall in
Lake Jackson, Texas and the Shawnee Mall in Shawnee, Oklahoma (the Shawnee/Brazos Malls).
The loan is secured by the ownership interests in the entities that own the Shawnee/Brazos Malls
and the Company received a 29% ownership interest in these entities. The loan matures on December
23, 2014 and the interest rate on the loan is 11% per annum. In June, 2006, the Company made an additional
$335,000 mezzanine loan to Lightstone II. The loan was added to the original $7,500,000 loan and
has the same interest rate and maturity date as the original loan.
In July, 2005, the Company made a $9,500,000 mezzanine loan to Lightstone Member III LLC (Lightstone
III) in connection with the acquisition by Lightstone III of the Macon Mall in Macon, Georgia
and the Burlington Mall in Burlington, North Carolina (the Macon/Burlington Malls). The
loan is secured by the ownership
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|interests in the entities that own the Macon/Burlington Malls and the Company received a 29% ownership
      interest in these entities. The loan matures on June 30, 2015 and the interest rate on the loan is
      11% per annum.
      The following table sets forth information as of December 31, 2006 with respect to the investments
    in and advances to joint ventures.
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|                                                                                                                                                                                                                                                                                                                                                                                    

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

|                                                                                                                                                                                                                                      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(d)           Loans and Investments
      The following table sets forth information as of December 31, 2006 with respect to the mortgage loan
    portfolio resulting from the sale of properties or loans originated by the Company.

|10
|--



|MORTGAGE PORTFOLIO: NOTES RECEIVABLE
|------------------------------------
|                                    

|                                                      
|------------------------------------------------------
|
|
|
|
|                                                      
|Chelsea Village Apartments
          Atlantic City, NJ
|Pinewood Chase Apartments
          Suitland, MD      
|Plaza Village Apartments
          Morrisville, PA    
|Town Oaks Apartments
          South Bound Brook, NJ  
|                                                      
|Reisterstown Apartments
          Baltimore, MD       
|                                                      
|Mark Terrace Associates
          Bronx, NY           
|                                                      
|Pinewood I & II
          Des Moines, IA              
|                                                      
|Virginia Apartment Properties                         
|                                                      
|Various Sold Co-op Apartments                         
|                                                      
|                                                      
|Total Notes Receivable                                
|                                                      

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

|11
|--



|(1) | This note, which was received
by the Company in connection with the sale of the Fairfield Towers mortgages in 1999, is collateralized by security interests in
the ownership interests in entities that own various properties located in Maryland, New Jersey and
Pennsylvania. The discount on this note was computed at a rate of 18%.                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(2) | In February, 2003, the Company
made a $1,500,000 loan collateralized by ownership interests in Reisterstown Square Associates, LLC, which owns Reisterstown
Apartments in Baltimore, Maryland, and by a personal guarantee from the borrower. The loan matures
on January 31, 2008. The loan had an annual interest rate of 10.50% until January 31, 2005 and thereafter,
the interest rate changes every six months to a rate equal to 800 basis points (825 basis points
since July 1, 2005) above the six month LIBOR rate, with a minimum rate of 10.50% per annum. At December
31, 2006, the annual interest rate was 13.80%.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|(3) | Under the terms of the Mark Terrace note, the borrower has annual options to extend the maturity
date from November 29, 2005 to November 29, 2008 at the interest rate of 9.16% per annum until maturity.
In October, 2005, the borrower exercised its first annual option to extend the maturity date to November
29, 2006, and, as a result, the Company received a principal payment of $100,000 in 2006. In October,
2006, the borrower exercised its second annual option to extend the maturity date to November 29,
2007. As a result, the Company received a $50,000 principal payment and will receive another $50,000
principal payment in 2007. If the borrower exercises its remaining option to extend the note, the
Company will receive an additional principal payment of $100,000 on November 30, 2007. As of December
31, 2006, the note is collateralized by 76 unsold cooperative apartments at the Mark Terrace property.
As apartments are sold, the Company receives principal payments ranging from $20,000 to $35,000 per
unit depending upon the size of the unit. In 2006, the Company received principal payments of $395,000
on the Mark Terrace note.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(4) | In October, 2003, the Company made a $4,500,000 loan which matures on October 23, 2013 and is collateralized
by ownership interests in entities owning nine apartment properties located in the Commonwealth of
Virginia. The first mortgages on these properties were refinanced and in March, 2006, Presidential
received $2,425,006 of net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|12
|--



| | refinancing proceeds in repayment of a portion of its loan principal and $215,750 in payment of the
deferred interest to date, leaving an outstanding principal balance of $2,074,994. Under the original
terms of the note, upon a refinancing and principal prepayment on the note, the interest rate on
the unpaid balance of the note was to be recalculated pursuant to a specific formula. In order to
resolve a disagreement over the recalculation of this interest rate, in July, 2006, the Company and
the borrower modified the terms of this note. Under the terms of the modification, effective January
1, 2006, the interest rate on the note was increased from 11.50% per annum to 13.50% per annum until
October 24, 2007 and 13% per annum thereafter until maturity (2% of such interest will be deferred
and payable on October 23, 2008, as per the original terms of the note). In addition, the Company
will receive additional interest in an amount equal to 27% of any operating cash flow distributed
to the borrower and 27% (increased from 25%) of any net proceeds resulting from sales or refinancing
of the properties.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(e)          Qualification as a REIT
Since 1982, the Company has operated in a manner intended to permit it to qualify as a REIT under Sections
856 to 860 of the Code. The Company intends to continue to operate in a manner to permit it to qualify
as a REIT. However, no assurance can be given that it will be able to continue to operate in such
a manner or to remain qualified.
In any year that the Company qualifies as a REIT and meets other conditions, including the distribution
to stockholders of at least 90% of its real estate investment trust taxable income (excluding
long-term capital gains but before a deduction for dividends paid), the Company will be entitled
to deduct the distributions that it pays to its stockholders in determining its ordinary income and
capital gains that are subject to federal income taxation (see Note 11 of Notes to Consolidated Financial Statements). Income not distributed is subject to tax at rates applicable to a domestic corporation. In addition,
the Company is subject to an excise tax (at a rate of 4%) if the amounts actually or deemed distributed
during the year do not meet certain distribution requirements. In order to receive this favorable
tax treatment, the Company must restrict its operations to those activities that are permitted under
the Code and to restrict itself to the holding of assets that a REIT is permitted to hold.

|13
|--



|No assurance can be given that the Company will, in fact, continue to be taxed as a REIT; that distributions
will be maintained at the current rate; that the Company will have sufficient cash to pay dividends
in order to maintain REIT status or that it will be able to make cash distributions in the future.
In addition, even if the Company continues to qualify as a REIT, the Board of Directors has the discretion
to determine whether or not to distribute long-term capital gains and other types of income not required
to be distributed in order to maintain REIT tax treatment.
(f)          Relationship with Ivy Properties, Ltd.
The Company holds nonrecourse purchase money notes receivable from Ivy Properties, Ltd. and its affiliates
(Ivy) relating to properties sold to Ivy, as well as nonrecourse notes receivable relating
to loans made to Ivy in connection with Ivys former cooperative conversion business, or as
a result of a settlement of disputes between Ivy and the Company, all of which transactions and settlement
negotiations occurred between 1989 and 1996. In the aggregate, the notes receivable from Ivy had
a carrying amount of $195,001 as of December 31, 2006, and a net carrying amount of $148,216, after
deducting discounts. Two of the notes have an outstanding principal balance of $4,770,050 at December
31, 2006 (the Consolidated Loans). These notes were received by the Company in 1991 in
exchange for nonrecourse loans that had been previously written off by the Company. Accordingly,
these notes were recorded at zero except for a small portion of the notes that was adequately secured
and was repaid in 2002. Presidential received interest of $210,785 and $385,476 from Ivy during 2006
and 2005, respectively, on all of the notes receivable from Ivy.
Ivy is owned by Thomas Viertel, Steven Baruch and Jeffrey Joseph (the Ivy Principals),
who are the sole partners of Pdl Partnership, which owns 198,735 shares of the Companys Class
A common stock. As a result of the ownership of these shares and 27,601 aggregate additional shares
of Class A common stock owned individually by the Ivy Principals, Pdl Partnership and the Ivy Principals
have beneficial ownership of an aggregate of approximately 47% of the outstanding shares of Class
A common stock of the Company, which class of stock is entitled to elect two-thirds of the Board
of Directors of the Company. By reason of such beneficial ownership, the Ivy Principals are in a
position substantially to control elections of the Board of Directors of the Company. In addition,
these three officers own
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14
|--



|an aggregate of 191,219 shares of the Companys Class B common stock.
Jeffrey Joseph is the Chief Executive Officer, the President and a Director of Presidential. Thomas
Viertel, an Executive Vice President and the Chief Financial Officer of Presidential, is the son
of Joseph Viertel, a Director and a former President of Presidential, and the nephew of Robert E.
Shapiro, Chairman of the Board of Directors and a former President of Presidential. Steven Baruch,
an Executive Vice President of Presidential, is the cousin of Robert E. Shapiro and Joseph Viertel.
Since 1996, the Ivy Principals have made payments on the Consolidated Loans in an amount equal to 25%
of the operating cash flow (after provision for certain reserves) of Scorpio Entertainment, Inc.
(Scorpio), a company owned by two of the Ivy Principals to carry on theatrical productions.
Amounts received by Presidential from Scorpio are applied to unpaid and unaccrued interest on the
Consolidated Loans and recognized as income. The Company anticipates that these amounts may be material
from time to time. However, the profitability of theatrical productions is by its nature uncertain
and management believes that any estimate of payments from Scorpio on the Consolidated Loans for
future periods is too speculative to project. During 2006, Presidential received $186,500 of interest
payments on the Consolidated Loans. The Consolidated Loans bear interest at a rate equal to the JP
Morgan Chase Prime rate, which was 8.25% at December 31, 2006. At December 31, 2006, the unpaid and
unaccrued interest was $3,287,265 and such interest is not compounded.
Any transactions relating to or otherwise involving Ivy and the Ivy Principals were and remain subject
to the approval by a committee of three members of the Board of Directors with no affiliations with
the owners of Ivy.
See Note 4 and 23 of Notes to the Consolidated Financial Statements for additional information on transactions with related parties. For further historical information
about the loan transactions with Ivy, reference is made to the Companys Annual Report on Form
10-K for the year ended December 31, 2003.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15
|--



|(g)          Competition
The real estate business is highly competitive in all respects. In attempting to expand its portfolio
of owned properties, the Company will be in competition with other potential purchasers for properties
and sources of financing, most of whom will be larger and have greater financial resources than the
Company. In addition, in attempting to make loans secured by interests in real estate, the Company
may be competing with other real estate lenders who may be willing to make loans at more favorable
rates. As a result of such competition, there can be no assurance that the Company will be able to
obtain opportunities for new investments at attractive rates of return.
ITEM 2.    DESCRIPTION OF PROPERTY
As of December 31, 2006, the Company had an ownership interest in 155 apartment units and 620,500 square
feet of commercial, industrial and professional space, all of which are carried on its balance sheet
at $15,969,294 (net of accumulated depreciation of $4,363,886). The Company has mortgage debt on
the majority of these properties in the aggregate principal amount of $19,334,054, all of which is
nonrecourse to Presidential with the exception of $1,128,733 secured by the mortgage on the Building
Industries Center property and $123,266 secured by the mortgage on the Mapletree Industrial Center
property. At December 31, 2006, mortgage debt on the consolidated balance sheet was $19,176,330,
which has been discounted by $157,724 to reflect the fair value of the Hato Rey Partnership mortgage
as a result of the consolidation of the partnership.
The Company is the general partner of PDL, Inc. and Associates Limited Co-Partnership (the Hato
Rey Partnership) and had an aggregate 33% general and limited partner interest in the Hato
Rey Partnership at December 31, 2005. On June 30, 2006, the Company purchased an additional 1% limited
partnership interest for a purchase price of $45,000. Prior to the purchase of an additional 25%
limited partnership interest, as discussed below, the Company accounted for its investment in this
partnership under the equity method. The Hato Rey Partnership owns and operates an office building,
with 210,000 square feet of commercial space, located in Hato Rey, Puerto Rico (the Hato Rey
Center).
On April 12, 2006, the Company closed in escrow on its contract to acquire an additional 25% limited
partnership interest in the
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16
|--



|Hato Rey Partnership for a purchase price of $950,000. Additional costs of purchase were $54,439 for
a total purchase price of $1,004,439. The closing documents and the purchase price were released
from escrow in October, 2006. Pursuant to the closing documents, the transfer of the 25% limited
partnership interest will not be effective until January 1, 2007 and the seller will receive his
25% share of the income/loss from the partnership through December 31, 2006. As of the date of the
release of the escrowed purchase price, Presidential effectively owned a 59% interest (1% general
and 58% limited) in the Hato Rey Partnership. As a result, at December 31, 2006, the Company owns
the majority of the partnership interests in the Hato Rey Partnership, is the general partner of
the partnership, and exercises effective control over the partnership through its ability to manage
the affairs of the partnership in the ordinary course of business. Accordingly, at December 31, 2006,
the Company consolidated the Hato Rey Partnership on the Companys consolidated balance sheet.
The Company did not consolidate the Hato Rey Partnerships results of operations on its consolidated
statement of operations because for the year ended December 31, 2006, the Company only had a 33%
and 34% ownership interest in the partnership, and accordingly, the Company recorded its share of
the loss from the partnership for the year ended December 31, 2006, in Equity in the (loss) income
of partnership, under the equity method of accounting. The Company accounted for the consolidation
under the provisions of the Accounting Research Bulletin (ARB) No. 51 and the Statement
of Financial Accounting Standards (SFAS) No. 141 as a partial step acquisition. See Managements Discussion and Analysis or Plan of Operation  Hato Rey Partnership and Note 8 of Notes to Consolidated Financial Statements.
Included in the 155 apartment units owned by Presidential are 50 cooperative apartment units. Although
it may from time to time sell individual or groups of these apartments, Presidential intends to continue
to hold them as rental apartments.
As of December 31, 2006, the Company also has an ownership interest in one apartment property that
is subject to a contract of sale and is classified as assets related to discontinued operations.
At December 31, 2006, the carrying value of this property was $2,820,678 (net of accumulated depreciation
of $1,634,161) and the mortgage debt, which is nonrecourse to Presidential, was $2,865,433.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|17
|--



|The chart below lists the Companys properties as of December 31, 2006.
|-----------------------------------------------------------------------

|18
|--



|**REAL ESTATE**
|---------------
|               

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

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

|19
|--



|Mapletree Industrial Center  Palmer, Massachusetts
The Company is involved in an environmental remediation process for contaminated soil found on its
property. In the fourth quarter of 2006, the Company accrued a $1,000,000 liability which was discounted
by $145,546 and charged $854,454 to expense. In addition to the $854,454 charged to operations for
environmental expense, the Company incurred costs of $225,857 for environmental site testing and
removal of soil. The total amounts charged to operations for environmental expense for 2006 were
$1,080,311. See Managements Discussion and Analysis or Plan of Operation  Environmental Matters and Note 12 of Notes to Consolidated Financial Statements.
The Hato Rey Center  Hato Rey, Puerto Rico
At December 31, 2005, the vacancy rate at the Hato Rey Center was approximately 33%, which was primarily
the result of two tenants who had vacated a total of 52,088 square feet of office space at the expiration
of their leases in order to take occupancy of their own newly constructed office buildings. In March,
2006, another tenant vacated 30,299 square feet of office space in order to take occupancy of its
newly constructed office building. At December 31, 2006, the vacancy rate was approximately 45% and
at March 15, 2007 the vacancy rate was approximately 36%. The Company expects that it will take some
time to find tenants for the remainder of the vacant space and that until a substantial portion of
the vacant space is rented, the property will operate at a loss. In addition, in 2006, the Hato Rey
Partnership undertook a program of repairs and improvements to the building which is estimated to
cost approximately $1,255,000, and the renovations are expected to be completed in 2007. The Company
agreed to lend up to $1,000,000 to the Hato Rey Partnership (and has the right to lend an additional
$1,000,000) to pay for the cost of improvements to the building and fund any negative cash flows
from the operation of the property. At December 31, 2006, the Company had advanced $1,058,716 of
the loan to the Hato Rey Partnership and subsequent to December 31, 2006, the Company advanced an additional $437,559.
In the opinion of management, all of the Companys properties are adequately covered by insurance
in accordance with normal insurance practices. All real estate owned by the Company is owned in fee
simple with title generally insured for the benefit of the Company by reputable title insurance companies.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20
|--



|The mortgages on the Companys properties have fixed rates of interest and amortize monthly with
the exception of the Hato Rey Center mortgage and the Building Industries Center mortgage, which
have balloon payments of $15,445,099 and $1,072,906, respectively, due at maturity.
During 2004 and 2005, Presidential invested in and made loans to various entities that own and operate
shopping center malls throughout the United States. In addition to interest payable on the loans
at the rate of 11% per annum, the Company alsoreceived a 29% ownership interest in these various entities (see Description of Business  Investments in and Advances to Joint Ventures above). Presidential accounts for these investments in and advances to joint ventures under the equity
method. At December 31, 2006, investments in and advances to joint ventures was $18,059,749.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------
|        |                  

|None.
|-----
|     

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

|None.
    PART II
|-----------------
|                 

|ITEM 5. | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | --------------------------------------------------------
|        |                                                         

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

|21
|--



|               | Stock Prices |       | Dividends
      Paid Per
      Share on
      Class A
      and Class B |  
|-------------- | ------------ | ----- | ----------------------------------------------------------------------- | -
|
|
|
|
|
|Calendar 2005  |              |       |                                                                         |  
|First Quarter  | $            | 11.10 |                                                                         | $
|Second Quarter |              | 10.65 |                                                                         |  
|Third Quarter  |              | 9.35  |                                                                         |  
|Fourth Quarter |              | 8.36  |                                                                         |  
|               |              |       |                                                                         |  
|Calendar 2006  |              |       |                                                                         |  
|First Quarter  | $            | 8.30  |                                                                         | $
|Second Quarter |              | 8.00  |                                                                         |  
|Third Quarter  |              | 7.25  |                                                                         |  
|Fourth Quarter |              | 7.15  |                                                                         |  

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

|22
|--



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

|23
|--



|ITEM 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|------- | ---------------------------------------------------------

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Overview
Presidential Realty Corporation is taxed for federal income tax purposes as a real estate investment
trust. Presidential owns real estate directly and through partnerships and joint ventures and makes
loans secured by interests in real estate.
Investments in and Advances to Joint Ventures
In June, 2006, Presidential made an additional $335,000 mezzanine loan to Lightstone Member II (Lightstone
II) The loan was added to the original $7,500,000 loan made to Lightstone II and has the same
interest rate and maturity date as the original loan.Hato Rey
Partnership
PDL, Inc. (a wholly owned subsidiary of Presidential) is the general partner of PDL, Inc. and Associates
Limited Co-Partnership (the Hato Rey Partnership). The Hato Rey Partnership owns and
operates an office building in Hato Rey, Puerto Rico (the Hato Rey Center).
On April 12, 2006, the Company closed in escrow on its contract to acquire an additional 25% limited
partnership interest in the Hato Rey Partnership for a purchase price of $1,004,439 (a purchase price
of $950,000 plus additional costs of purchase of $54,439). The acquisition was closed in escrow pending
approval of certain legal issues by the holder of the first mortgage on the property, which approval
was obtained, and the closing documents and the purchase price were released from escrow in October,
2006. Pursuant to the closing documents, the transfer of the 25% limited partnership interest was
not effective until January 1, 2007 and the seller received his 25% share of the income/loss from
the partnership through December 31, 2006. As a result of this transaction, Presidential effectively
owned a 59% interest (1% general and 58% limited) in the Hato Rey Partnership as of the date of the
release of the escrowed purchase price. The Company owns the majority of the partnership interests
in the partnership and exercises effective control over the partnership through its ability to manage
the affairs of the partnership in the ordinary course of business. Accordingly, at December 31, 2006,
the Company consolidated the Hato Rey Partnership on the

|24
|--



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

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Prior to the purchase of the additional 25% limited partnership interest, the Company accounted for
its investment in this partnership under the equity method. The Companys interest in the Hato
Rey Partnership had a negative basis and therefore was classified as a liability on the Companys
consolidated balance sheet, under the caption Distributions from partnership in excess of investment
and earnings. The negative basis was primarily due to the refinancing of the mortgage on the
property owned by the partnership and the distribution of the proceeds to the partners in excess
of their investment in prior years.
Other Investments
During 2006, the Company invested another $505,000 with Broadway Real Estate Partners, LLC (Broadway
Partners) in connection with two investment opportunities, increasing its total investment
from $1,495,000 at December 31, 2005 to $2,000,000 at December 31, 2006. These investments are accounted
for by the Company under the cost method.

|25
|--



|Real Estate Loans
During 2006, the Company received principal repayments on its mortgage portfolio of $2,907,164, of
which $2,425,006 was a partial prepayment received by the Company in March, 2006 on its $4,500,000
loan secured by ownership interests in entities owning nine apartment properties in the Commonwealth
of Virginia.
Discontinued Operations
The Cambridge Green property located in Council Bluffs, Iowa is currently subject to a contract of
sale and is classified as a discontinued operation. The sale was consummated in March, 2007.
Critical Accounting Policies
In preparing the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America (GAAP), management is required to make estimates
and assumptions that affect the financial statements and disclosures. These estimates require managements
most difficult, complex or subjective judgments. Management has discussed with the Companys
Audit Committee the implementation of the critical accounting policies described below and the estimates
required with respect to such policies.
Real Estate
Real estate is carried at cost, net of accumulated depreciation and amortization. Additions and improvements
are capitalized and repairs and maintenance are charged to rental property operating expenses as
incurred. Depreciation is generally provided on the straight-line method over the estimated useful
life of the asset. The useful life of each property, as well as the allocation of the costs associated
with a property to its various components, requires estimates by management. If management incorrectly
estimates the allocation of those costs or incorrectly estimates the useful lives of its real estate,
depreciation expense may be miscalculated.
The Company reviews each of its properties for impairment at least annually or more often if events
or changes in circumstances warrant. If impairment were to occur, the property would be written down
to its estimated fair value. The Company assesses impairment based on undiscounted cash flow estimates
that utilize appropriate capitalization rates. The future
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|26
|--



|estimated cash flows of a property are based on current rental revenues and operating expenses, as
well as the current local economic climate of the property. Considerable judgment is required in
making these estimates and changes in these estimates could cause the estimated cash flows to change
and impairment could occur. As of December 31, 2006, the Companys net real estate was carried
at $15,969,294. During 2006, no impairments were recorded on any of these properties.
Purchase Accounting
In 2006, the Company acquired an additional 25% limited partnership interest in the Hato Rey Partnership,
which increased the ownership interest to 59% as of December 31, 2006, and, as a result, consolidated
the Hato Rey Partnership on the Companys consolidated balance sheet. The Company did not consolidate
the Hato Rey Partnerships results of operations on its consolidated statement of operations
because for the year ended December 31, 2006, the Company only had a 33% and 34% ownership interest
in the partnership, and accordingly, the Company recorded its share of the loss from the partnership
for the year ended December 31, 2006, in Equity in the (loss) income of partnership, under the equity
method of accounting.
The Company allocated the fair value of acquired tangible and intangible assets and assumed liabilities
based on their estimated fair values in accordance with the provisions of ARB No. 51 and SFAS No.
141, as a partial step acquisition. The Company assessed fair value based on third party appraisals
and cash flow projections that utilized appropriate discount rates and/or capitalization rates. Tangible
assets, land, buildings and tenant improvements are fair valued as if vacant (replacement cost).
Intangible assets, which are above and below market leases, were recorded at fair value, which was
determined by calculating the present value of the rental income of each tenant at the contractual
lease rent rate and at the market rent rate. The present value of the difference between these two
rates represents the fair value of the above or below market leases. The present value was determined
using a discount rate of 9.0%. The above or below market lease values are amortized as a reduction
of, or an increase to, rental income over the remaining term of each lease.
The fair value of the leases in place was determined by calculating the estimated downtime costs for
each tenant. Downtime costs represent the value of the lost revenue including
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27
|--



|all rents and reimbursements during the downtime as if the property was purchased with 100% of the
in-line space vacant and was then leased to the existing tenants using lease-up assumptions, and
includes estimated nonrecoverable operating costs incurred during the lease up period. In place lease
values are amortized to expense over the terms of the related tenant leases.
No gain or goodwill was recognized on the recording of the acquisition of the 25% interest in the Hato
Rey Partnership.
Assets
and Liabilities Related to Discontinued Operations
Assets related to discontinued operations are carried at the lower of cost(net of accumulated depreciation
and amortization) or fair value less costs to sell. An operating property is classified as held for
sale and, accordingly, as a discontinued operation when, in the judgment of management, a sale that
will close within one year is probable. The Company discontinues depreciation and amortization when
a property is classified as a discontinued operation. At December 31, 2006, assets related to discontinued
operations were $2,922,493. The Company estimates the value of a property held for sale to its estimated
fair value less costs to sell. During 2006, no impairment charges have been recorded for the property
held for sale.
Liabilities related to assets held for sale consist primarily of the $2,865,433 nonrecourse mortgage
debt on the property, which will be assumed by the purchaser upon completion of the sale. At December
31, 2006, total liabilities related to discontinued operations were $2,911,677 (see Liquidity and Capital Resources - Discontinued Operations below).
Mortgage Portfolio
The Company evaluates the collectibility of both accrued interest and principal on its $7,998,445 mortgage
portfolio to determine whether there are any impaired loans. If a mortgage loan were considered to
be impaired, the Company would establish a valuation allowance equal to the difference between a)
the carrying value of the loan, and b) the present value of the expected cash flows from the loan
at its effective interest rate, or at the estimated fair value of the real estate collateralizing
the loan. Although a loan modification could be an indicator of a possible impairment, the Company
has in the past, and may in the future, modify loans for business purposes and not as a result of
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|28
|--



|debtor financial difficulties. Income on impaired loans is recognized only as cash is received. All
loans are current as to payment of principal and interest according to their terms, as modified,
and no loans have been classified as impaired.
Rental Revenue Recognition
The Company recognizes rental revenue on the straight-line basis from the later of the date of the
commencement of the lease or the date of acquisition of the property subject to existing leases,
which averages minimum rents over the terms of the leases. Certain leases require the tenants to
reimburse a pro rata share of real estate taxes, utilities and maintenance costs.
Allowance for Doubtful Accounts
Management assesses the collectibility of amounts due from tenants and other receivables, using indicators
such as past-due accounts, the nature and age of the receivable, the payment history and the ability
of the tenant or debtor to meet its payment obligations. Managements estimate of allowances
for doubtful accounts is subject to revision as these factors change. Rental revenue is recorded
on the accrual method and rental revenue recognition is generally discontinued when the tenant in
occupancy is delinquent for ninety days or more. Bad debt expense is charged for vacated tenant accounts
and subsequent receipts collected for those receivables will reduce bad debt expense. At December
31, 2006, other receivables, net of an allowance for doubtful accounts of $274,303, were $382,393.
For the years ended December 31, 2006 and 2005, bad debt expense for continuing operations relating
to tenant obligations was $6,598 and $7,200, respectively.
Pension
Plans
The Company maintains a qualified Defined Benefit Pension Plan, which covers substantially all of its
employees. The plan provides for monthly retirement benefits commencing at age 65. The Company makes
annual contributions that meet the minimum funding requirements and the maximum contribution levels
under the Internal Revenue Code. The Company was not required to make any contributions to the plan
in 2006 for the 2006 tax year, but did make the maximum tax deductible contribution of $165,906 in
February of 2006 for the 2005 tax year. There are no required contributions for 2007. Net periodic
benefit costs for the years ended December 31, 2006 and 2005 were $326,972 and $465,162,
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|29
|--



|respectively.  The projected benefit obligation at December 31, 2006 was $7,539,315 and the fair
value of the plan assets was $8,121,709. At December 31, 2006 and 2005, the discount rate used in
computing the projected benefit obligation was 5.72% and 5.41%, respectively. The expected rate of
return on plan assets was 7% for both years. Management regularly reviews the plan assets, the actuarial
assumptions and the expected rate of return. Changes in actuarial assumptions, interest rates or
changes in the fair value of the plan assets can materially affect the benefit obligation, the required
funding and the benefit costs.
In addition, the Company has contractual retirement agreements with certain active and retired officers
providing for unfunded pension benefits. The Company accrues on an actuarial basis the estimated
costs of these benefits during the years the employee provides services. The benefits generally provide
for annual payments in specified amounts for each participant for life, commencing upon retirement,
with an annual cost of living increase. Benefits paid for the years ended December 31, 2006 and 2005
were $480,402 and $473,837, respectively. Benefit costs for the years ended December 31, 2006 and
2005 were $481,879 and $416,539, respectively. The projected contractual pension benefit obligation
at December 31, 2006 was $2,574,747. At December 31, 2006 and 2005, the discount rate used in computing
the projected benefit obligation was 5.72% and 5.41%, respectively. Changes in interest rates and
actuarial assumptions, amendments to the plan and life expectancies could materially affect benefit
costs and the contractual accumulated pension benefit obligation.
Fourth Floor Management Corp. Profit Sharing Plan
In 2006, Fourth Floor Management Corp., a 100% owned subsidiary of Presidential Realty Corporation
that manages the Companys properties, adopted a profit sharing plan for substantially all
of
its employees. The profit sharing plan became effective as of January 1, 2006, and the plan
provides
for annual contributions up to a maximum of 5% of the employees annual compensation. The
Company
made a $10,937 contribution to the plan in January, 2007 for the 2006 plan year and charged
the contribution
to general and administrative expense.
Income Taxes
The Company operates in a manner intended to enable it to continue to qualify as a Real Estate Investment
Trust (REIT)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|30
|--



|under Sections 856 to 860 of the Code. Under those sections, a REIT which meets certain requirements
      is not subject to Federal income tax on that portion of its taxable income which is distributed to
      its shareholders, if at least 90% of its REIT taxable income (exclusive of capital gains) is so distributed.
      As a result of its ordinary tax loss for 2006, there is no requirement to make a distribution in
      2007. In addition, no provision for income taxes was required at December 31, 2006. If the Company
      failed to distribute the required amounts of income to its shareholders, or otherwise fails to meet
      the REIT requirements, it would fail to qualify as a REIT and substantial adverse tax consequences
      could result.
      Results of Operations
    2006 vs 2005
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Financial Highlights from Consolidated Statements Of Operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                                               |   |           
|-------------------------------------------------------------- | - | ----------
|
|
|
|
|
|Revenues                                                       | $ | 3,919,621 
|                                                               |   |           
|Income (loss) before net gain
        from sales of properties | $ | (4,562,814
|Recognition of deferred gain
       on sales of properties     |   |          
|                                                               |   |           
|                                                               |   |           
|Income (loss) from continuing operations                       |   | (4,562,814
|                                                               |   |           
|                                                               |   |           
|Discontinued Operations:                                       |   |           
|Loss from discontinued operations                              |   | (314,143  
|Net gain from sales of
          discontinued operations       |   |          
|                                                               |   |           
|                                                               |   |           
|Total income (loss) from
        discontinued operations       |   | (314,143  
|                                                               |   |           
|                                                               |   |           
|Net Income (Loss)                                              | $ | (4,876,957
|                                                               |   |           

|                                                                                                                                                                                                                                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Revenues decreased by $495,243 primarily as a result of decreases in interest income on mortgages 
notes receivable, interest income on mortgages  notes receivable - related parties and other
revenues, partially offset by increases in rental revenues.

|31
|--



|Rental revenues increased by $197,046. Rental revenues increased at all of the rental properties, including
a $140,342 increase at the Mapletree Industrial Center property as a result of increased occupancy
rates.
Interest on mortgages - notes receivable decreased by $201,977. As a result of repayments of $8,550,000
and $2,425,006 on notes receivable in the first quarters of 2005 and 2006, respectively, interest
income on those notes decreased by $233,744 in the 2006 period.
Interest on mortgages - notes receivable - related parties decreased by $179,098 primarily as a result
of a decrease of $167,500 in payments of interest received on the Consolidated Loans (see Liquidity and Capital Resources  Consolidated Loans below).
Other revenues decreased by $311,214 primarily because the 2005 period included a $256,500 prepayment
fee received on the repayment of the Encore Apartments note receivable and an additional $25,000
fee in connection with the Encore repayment. In addition, other revenues decreased by $23,531 as
a result of reduced fees earned by the Companys management company for third party owned properties.
Costs and expenses increased by $891,003 primarily due to increases in rental property operating expenses,
partially offset by decreases in general and administrative expenses.
General and administrative expenses decreased by $278,817 primarily as a result of decreases in salary
expense of $192,703, defined benefit plan expenses of $138,190 and contractual benefits of $33,146.
Salary expense decreased primarily as a result of a decrease in contractual executive bonuses of
$233,359. These decreases were partially offset by increases in travel and entertainment expenses
of $64,731. Travel and entertainment expenses increased as a result of increased travel for rental
property supervisors to the Cambridge Green property and the Hato Rey Center property.
Rental property operating expenses increased by $1,144,238 primarily as a result of environmental expenses
of $1,080,311 relating to the Mapletree Industrial Center property that were charged to repairs and
maintenance (see Liquidity and Capital Resources  Environmental Matters below).
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32
|--



|Other income decreased by $1,295,816 primarily as a result of the $1,202,428 increase in the equity
in the loss of joint ventures. The Company purchased these investments in joint ventures in 2004
and in the third quarter of 2005 (see Liquidity and Capital Resources  Investments in and Advances to Joint Ventures below). In addition, equity in the loss of partnership increased by $240,385 due to lower earnings
of the Hato Rey Partnership, as a result of a higher vacancy rate at its property (see Liquidity and Capital Resources  The Hato Rey Center below). These amounts were partially offset by an increase in investment income of $146,997 primarily
due to a $145,076 distribution received from Broadway Partners Parallel Fund A (see Liquidity and Capital Resources  Investing Activities below).
Loss from continuing operations before net gain from sales of properties increased by $2,680,980 from
$1,881,834 in 2005 to $4,562,814 in 2006. This increase was primarily a result of the increase in
the equity in the loss of joint ventures of $1,202,428, environmental expenses of $1,080,311 for
the Mapletree Industrial Center property and a $311,214 decrease in other revenues.
Net gain from sales of properties consists of recognition of deferred gains from sales in prior years.
The recognition of deferred gains from sales in prior years depends on the receipt of installments
or prepayments of purchase money notes. In 2005, the net gain from sales of properties was $3,241,540.
This gain was attributable to the prepayment of the $8,550,000 Encore Apartments note receivable.
Discontinued Operations:
In 2006, the Company has one property that was classified as discontinued operations, the Cambridge
Green property in Council Bluffs, Iowa, which was designated as held for sale during the quarter
ended December 31, 2005. In September, 2006, the Company entered into a contract for the sale of
the property and the sale was consummated in March, 2007 (see Liquidity and Capital Resources  Discontinued Operations below).
The following table compares the total income or loss from discontinued operations for the years ended
December 31, for properties included in discontinued operations:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|33
|--



|                                                               | 2006 |          | 2005 |  
|-------------------------------------------------------------- | ---- | -------- | ---- | -
|
|                                                               |      |          |      |  
|Income (loss) from discontinued operations:                    |      |          |      |  
|                                                               |      |          |      |  
|Cambridge Green, Council Bluffs, IA                            | $    | (314,143 | )    | $
|Fairlawn Gardens, Martinsburg, WV                              |      |         |      |  
|Farrington Apartments, Clearwater, FL                          |      |         |      |  
|                                                               |      |          |      |  
|                                                               |      |          |      |  
|Loss from discontinued operations                              |      | (314,143 | )    |  
|                                                               |      |          |      |  
|                                                               |      |          |      |  
|Net gain (loss) from sales of
        discontinued operations: |      |          |      |  
|Fairlawn Gardens                                               |      |         |      |  
|Farrington Apartments                                          |      |         |      |  
|                                                               |      |          |      |  
|                                                               |      |          |      |  
|Net gain from sales ofdiscontinued operations                  |      |         |      |  
|                                                               |      |          |      |  
|                                                               |      |          |      |  
|Total income (loss) from
        discontinued operations       | $    | (314,143 | )    | $
|                                                               |      |          |      |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Balance Sheet
Investments in and advances to joint ventures decreased by $5,231,384 as a result of $3,483,271 of
distributions received and $2,083,113 of equity in the loss from the joint ventures. These decreases
were partially offset by an additional $335,000 loan made by the Company to Lightstone II. The $335,000
loan was added to the original $7,500,000 loan to Lightstone II and has the same interest rate and
maturity date as the original loan.
Net real estate increased by $14,069,852 primarily as a result of the $13,987,345 consolidation of
the Hato Rey Partnership property. In addition, in 2006 the Company purchased additions and improvements
to its other properties of $218,476 and recorded depreciation on its other properties of $134,972.
Net mortgage portfolio decreased by $2,716,291 primarily as a result of a partial prepayment in March,
2006 on a $4,500,000 note receivable secured by ownership interests in entities owning nine apartment
properties in the Commonwealth of Virginia. The first mortgages on these properties were refinanced
and Presidential received $2,425,006 of net refinancing proceeds in repayment of a portion of its
loan principal and $215,750 in payment of the deferred interest to date, leaving an outstanding principal
balance of $2,074,994. In addition, the Company received principal payments of $395,000 on the Mark
Terrace note.

|34
|--



|Other investments increased by $505,000 as a result of the Companys investments of $395,000 and
$590,000 in Broadway Partners Parallel Fund A (Broadway Fund A) and Broadway Partners
Feeder Fund A II (Broadway Fund A II), respectively, partially offset by the $480,000
reduction in the funds held by Broadway Real Estate Partners, LLC (Broadway Partners),
which funds were utilized to fund the Companys investments in Broadway Funds A and A II (see Liquidity and Capital Resources  Investing Activities below).
Prepaid expenses and deposits in escrow increased by $687,682 primarily as a result of the $781,963
of prepaid expenses and deposit in escrow from the consolidation of the Hato Rey Partnership. Excluding
the Hato Rey Partnership, there were decreases of $84,775 in deposits in escrow and decreases of
$9,506 in prepaid expenses.
Prepaid defined benefit plan costs decreased by $1,189,458 primarily due to the initial adoption of
SFAS No. 158, which resulted in the reclassification of $1,039,101 to accumulated other comprehensive
loss (see Recent Accounting Pronouncements below). In addition, there were $326,972 of net periodic benefit costs for 2006, partially offset
by a Company contribution to the plan of $165,906.
Other receivables decreased by $39,960 primarily as a result of a decrease in accrued interest receivable
of $105,119 resulting from a $215,750 deferred interest payment received in March, 2006. This decrease
was partially offset by the $86,029 increase in tenants accounts receivable as a result of the consolidation
of the Hato Rey Partnership.
Cash and cash equivalents decreased by $614,703 primarily as a result of cash distributions on common
stock to shareholders of $2,502,948. In addition, the Company purchased an additional 26% limited
partnership interest in the Hato Rey Partnership for a cost of $1,049,439. These decreases were partially
offset by the $2,640,756 cash received from the prepayment and deferred interest on the $4,500,000
loan.
Other assets increased by $1,040,647 primarily as a result of the $989,385 of other assets from the
consolidation of the Hato Rey Partnership and additions of $52,731 to home office furniture and equipment.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|35
|--



|Mortgage debt increased by $15,528,727 primarily as a result of the consolidation of the Hato Rey Partnership.
Accrued liabilities increased by $709,164 primarily as a result of an increase of $854,454 for accrued
environmental costs and the $148,774 of accrued liabilities attributable to the consolidation of
the Hato Rey Partnership. These increases were partially offset by decreases in accrued contractual
executive bonuses of $233,359 and decreases in accrued commissions of $75,000.
Accounts payable increased by $244,664 primarily as a result of the consolidation of the Hato Rey Partnership.
Distributions from partnership in excess of investment and earnings decreased by $2,208,990 as a result
of the consolidation of the Hato Rey Partnership.
Other liabilities increased by $557,611 primarily as a result of the consolidation of the Hato Rey
Partnership.
During 2006, the Company awarded 32,000 shares of the Companys Class B common stock to directors,
officers and an employee of the Company. These shares were issued from the Companys 2005 Restricted
Stock Plan (the 2005 Plan). Stock granted to directors were fully vested on the grant
date and stock granted to officers and employees will vest at the rate of 20% per year. Notwithstanding
the vesting schedule, the officers and employees are entitled to receive distributions on the total
number of shares awarded. The issued shares are valued at the market value of the Class B common
stock at the grant date. The following is a summary of the shares issued in 2006.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|36
|--



|2006      
|----------
|          
|
|          
|Aug., 2005
|Aug., 2005
|Jan., 2006
|Jan., 2006
|Dec., 2006
|          
|          
|          
|          

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

|37
|--



|Accumulated other comprehensive loss increased by $845,463 primarily as a result of an adjustment of
$1,039,101 for the defined benefit plan and an adjustment of $73,419 for contractual postretirement
benefits due to the initial adoption of SFAS No. 158. These increases were partially offset by an
adjustment of $262,693 for contractual pension benefits.
Liquidity and Capital Resources
Management believes that the Company has sufficient liquidity and capital resources to carry on its
existing business and, barring any unforeseen circumstances, to pay the dividends required to maintain
REIT status in the foreseeable future. Except as discussed herein, management is not aware of any
other trends, events, commitments or uncertainties that will have a significant effect on liquidity.
Presidential obtains funds for working capital and investment from its available cash and cash equivalents,
from operating activities, from refinancing of mortgage loans on its real estate equities or from
sales of such equities, and from repayments on its mortgage portfolio. The Company also has at its
disposal a $250,000 unsecured line of credit from a lending institution. At December 31, 2006, there
was no outstanding balance under the line of credit.
At December 31, 2006, Presidential had $2,263,534 in available cash and cash equivalents, a decrease
of $614,703 from the $2,878,237 at December 31, 2005. This decrease in cash and cash equivalents
was due to cash provided by operating activities of $1,770,550 and cash provided by investing activities
of $102,092, offset by cash used in financing activities of $2,487,345.
During 2006, the Company paid cash distributions to shareholders which exceeded cash flows from operating
activities. Periodically the Company receives balloon payments on its mortgage portfolio and net
proceeds from sales of discontinued operations and other properties. These payments are available
to the Company for distribution to its shareholders or the Company may retain these payments for
future investment. The Company may in the future, as it did in 2006, pay dividends in excess of its
cash flow from operating activities if management believes that the Companys liquidity and
capital resources are sufficient to pay such dividends.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|38
|--



|To the extent that payments received on its mortgage portfolio or payments received from sales are
taxable as capital gains, the Company has the option to distribute the gain to its shareholders or
retain the gain and pay Federal income tax on it.
The Company does not have a specific policy as to the retention or distribution of capital gains. The
Companys dividend policy regarding capital gains for future periods will be based upon many
factors including, but not limited to, the Companys present and projected liquidity, its desire
to retain funds available for additional investment, its historical dividend rate and its ability
to reduce taxes by paying dividends. While the Company maintained the $.64 dividend rate in 2006,
no assurances can be given that the present dividend rate will be maintained in the future.
Insurance
The Company carries comprehensive liability, fire, flood (where necessary), extended coverage, rental
loss and acts of terrorism insurance on all of its properties. Management believes that all of its
properties are adequately covered by insurance. In 2006, the cost for this insurance was approximately
$207,000. The Company has renewed its insurance coverage for 2007 and the Company estimates that
the premium costs will be approximately $291,000 for 2007. Although the Company has been able to
obtain terrorism coverage on its properties in the past, this coverage may not be available in the
future.
Consolidated
Loans
Presidential holds two nonrecourse notes (the Consolidated Loans) from Ivy Properties,
Ltd. and its affiliates (Ivy). At December 31, 2006, the Consolidated Loans have an outstanding
principal balance of $4,770,050 and a net carrying value of zero. Pursuant to existing agreements
between the Company and the Ivy principals, the Company is entitled to receive, as payments of principal
and interest on the Consolidated Loans, 25% of the cash flow of Scorpio Entertainment, Inc. (Scorpio),
a company owned by two of the Ivy principals (Steven Baruch, Executive Vice President of Presidential,
and Thomas Viertel, Executive Vice President and Chief Financial Officer of Presidential) to carry
on theatrical productions. Amounts received by Presidential from Ivy will be applied to unpaid and
unaccrued interest on the Consolidated Loans and recognized as income. The Company anticipates that
these amounts may be material from time to time.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|39
|--



|However, the profitability of theatrical production is by its nature uncertain and management believes
that any estimate of payments from Scorpio on the Consolidated Loans for future periods is too speculative
to project. Presidential received payments of $186,500 in 2006 and $354,000 in 2005 of interest income
on the Consolidated Loans. The Consolidated Loans bear interest at a rate equal to the JP Morgan
Chase Prime rate, which was 8.25% at December 31, 2006. At December 31, 2006, the unpaid and unaccrued
interest was $3,287,265 and such interest is not compounded.
Operating Activities
Cash from operating activities includes interest on the Companys mortgage portfolio, net cash
received from rental property operations and distributions received from joint ventures and other
investments. In 2006, cash received from interest on the Companys mortgage portfolio was $1,620,721
and distributions received from joint ventures and other investments were $3,628,347. Net cash disbursed
for rental property operations was $2,168. Net cash disbursed for rental property operations includes
distributions from partnership operations to minority partners but does not include additions and
improvements and mortgage amortization.
Investing Activities
Presidential holds a portfolio of mortgage notes receivable. During 2006, the Company received principal
payments of $2,907,164 on its mortgage portfolio, of which $2,864,742 represented prepayments and
balloon payments.
In March, 2006, the Company received a partial prepayment of $2,425,006 on its $4,500,000 loan secured
by ownership interests in entities owning nine apartment properties in the Commonwealth of Virginia.
Under the original terms of the note, upon a refinancing and principal prepayment on the note, the
interest rate on the unpaid balance of the note was to be recalculated pursuant to a specific formula.
In order to resolve a disagreement over the recalculation of this interest rate, in July, 2006, the
Company and the borrower modified the terms of this note. Under the terms of the modification, effective
January 1, 2006, the interest rate on the note was increased from 11.50% per annum to 13.50% per
annum until October 24, 2007 and 13% per annum thereafter until maturity (2% of such interest will
be deferred and payable on October 23, 2008, in accordance with
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|40
|--



|the original terms of the note). In addition, the Company will receive additional interest in an amount
equal to 27% of any operating cash flow distributed to the borrower and 27% (increased from 25%)
of any net proceeds resulting from sales or refinancing of the properties.
Prepayments and balloon payments are sporadic and cannot be relied upon as a regular source of liquidity.
In June, 2006, the Company advanced an additional loan in the amount of $335,000 to Lightstone II (see
Investments in and Advances to Joint Ventures below).
During 2006, the Company advanced $1,058,716 to the Hato Rey Partnership, pursuant to a loan agreement
with the partnership (see The Hato Rey Center below).
During 2006, the Company invested $412,126 in additions and improvements to its properties, of which
approximately $102,434 pertains to discontinued operations. It is projected that additions and improvements
in 2007 will be approximately $1,207,000 of which $1,042,000 is projected for additions and improvements
at the Hato Rey Center.
In 2005, the Company agreed to advance $1,000,000 from time to time to Broadway Fund A, a blind pool
of investment capital sponsored by Broadway Partners. In connection with such agreement, the Company
advanced $1,000,000 to Broadway Partners and received interest on these funds at the rate of 11.43%
per annum through September 30, 2006 and 5% per annum thereafter until such funds were used to fund
the Companys commitment to Broadway Fund A. In 2006, the Company made an additional commitment
to fund an additional $1,000,000 to Broadway Fund A II, another blind pool of investment capital
sponsored by Broadway Partners. The Company retained the right to fund its commitments to Broadway
Fund A and Broadway Fund A II with the $1,000,000 advanced to Broadway Partners or with other funds
available to the Company.
At December 31, 2006, Presidential had advanced $890,000 (including $395,000 advanced during 2006)
of its $1,000,000 commitment to Broadway Fund A and the balance of Presidentials commitment
to Broadway Fund A at December 31, 2006 was $110,000. Also in 2006, Presidential advanced $590,000
of its $1,000,000 commitment to Broadway Fund A II and the balance of Presidentials commitment
to Broadway Fund A II at December 31,
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|41
|--



|2006 was $410,000.  At December 31, 2006, Broadway Partners continued to hold $520,000 of the
funds previously advanced to it by Presidential. In January, 2007, the balance of the $410,000 commitment
to Broadway Fund A II was funded from the Broadway Partners Fund.
In September, 2006, the Company received a $145,076 distribution from Broadway Fund A resulting from
the proceeds of sales and recorded the distribution to investment income.
On April 12, 2006, the Company closed in escrow on its contract to acquire an additional 25% limited
partnership interest in the Hato Rey Partnership for a purchase price of $950,000. Additional costs
of purchase were $54,439 for a total purchase price of $1,004,439. The closing documents and the
purchase price were released from escrow in October, 2006 (see Hato Rey Partnership above).
In connection with this acquisition and the resulting consolidation of the Hato Rey Partnership balance
sheet at December 31, 2006, the Company recorded $555,209 of cash.
On June 30, 2006, the Company purchased an additional 1% limited partnership interest in the Hato Rey
Partnership for a purchase price of $45,000.
Financing Activities
The Companys indebtedness at December 31, 2006, consisted of mortgage debt of $19,176,330 for
continuing operations and $2,865,433 for discontinued operations. The $15,817,989 mortgage debt on
the Hato Rey Center property was recorded at its fair value of $15,660,265 at December 31, 2006 (see
Hato Rey Partnership above). The mortgage debt is collateralized by individual properties. The $15,817,989 mortgage on
the Hato Rey Center property and the $2,264,066 mortgage on the Crown Court property are nonrecourse
to the Company, whereas the $1,128,733 Building Industries Center mortgage and the $123,266 Mapletree
Industrial Center mortgage are recourse to Presidential. The $2,865,433 mortgage on the Cambridge
Green property, which is classified as a discontinued operation, is nonrecourse to the Company. In
addition, some of the Companys mortgages provide for Company liability for damages resulting
from specified acts or circumstances, such as for environmental liabilities and fraud. Generally,
mortgage debt repayment is serviced with cash flow from the operations of the individual properties. During
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|42
|--



|2006, the Company made $183,390 of principal payments on mortgage debt.
The mortgages on the Companys properties are at fixed rates of interest and will fully amortize
by periodic principal payments, with the exception of the Hato Rey Center mortgage, which has a balloon
payment of $15,445,099 due at maturity in May, 2008, and the Building Industries Center mortgage,
which has a balloon payment of $1,072,906 due at maturity in January, 2009. The Company intends to
refinance the Hato Rey Center mortgage prior to its maturity date.
During 2006, Presidential declared and paid cash distributions of $2,502,948 to its shareholders and
received proceeds from its dividend reinvestment plan of $217,743.
The Company had previously suspended the operation of its Share Purchase Plan because the Company was
delinquent in its federal securities law filing obligations because it had not filed the required
financial information as an Exhibit to the Companys Form 8-K with respect to its investment
in five shopping mall properties in September, 2004. With the filing of its financial statements
in its Form 10-KSB for the year ended December 31, 2005, the delinquency was cured. In April of 2006,
the Company decided to terminate the Share Purchase Plan. However, the Dividend Reinvestment Plan
remains in effect.
Discontinued Operations
For the years ended December 31, 2006 and 2005, income (loss) from discontinued operations includes
the Cambridge Green property which was designated as held for sale during the three months ended
December 31, 2005. In September, 2006, the Company entered into a contract for the sale of the property
(see below). In addition, income (loss) from discontinued operations for the year ended December
31, 2005 included the Farrington Apartments property and the Fairlawn Gardens property, which were
sold during the year ended December 31, 2005.
In September, 2006, the Company entered into a contract for the sale of the Cambridge Green property
in Council Bluffs, Iowa for a sales price of $3,700,000 to be paid by (i) the buyers assumption
of the first mortgage loan on the property, (the outstanding principal balance of which was $2,865,433
at December 31, 2006), (ii) a $200,000 secured note receivable, which will mature one year from the
date of the closing and have an interest
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|43
|--



|rate of 7% per annum and (iii) the balance of the purchase price to be paid in cash. The closing of
the contract of sale is subject to the approval of the US Department of Housing and Urban Development
(HUD), which insures the first mortgage loan on the property and subsequent to year end
this approval was received from HUD. The gain from the sale for financial reporting purposes is estimated
to be approximately $650,000 and the estimated net proceeds will be approximately $665,000, which
includes the proceeds of the $200,000 note receivable. The sale was consummated in March, 2007.
On January 26, 2005, the Company completed the sale of its Farrington Apartments property in Clearwater,
Florida for a sales price of $9,325,966, of which $1,720,000 was paid in cash and the $7,605,966
balance was paid by the assumption by the purchaser of the first mortgage on the property. The loss
from the sale for financial reporting purposes was $11,580.
On April 4, 2005, the Company consummated the sale of its Fairlawn Gardens property in Martinsburg,

West Virginia for a sales price of $3,500,000. The net cash proceeds of sale, after repayment of

the $1,411,670 outstanding principal balance of the first mortgage, prepayment fees and other closing

expenses, were $1,906,896. In March, 2005, prior to closing, the Company received $707,588 of insurance

proceeds resulting from fire damage to sixteen apartments at the property and applied those proceeds

to pay down a portion of the outstanding balance of the first mortgage prior to the sale. In November,

2005, the Company received $167,846 of additional insurance proceeds related to the same fire and

these proceeds were included in the gain on the sale of the property. The gain from sale for financial

reporting purposes was $2,434,789. The gain for Federal income tax purposes resulting from this
transaction
was $2,436,859 and was treated by the Company as a gain resulting from an involuntary
conversion
of property under Section 1033 of the Internal Revenue Code. Accordingly, the gain has
been deferred
pursuant to the provisions of Section 1033.
The following table summarizes income or loss for the properties sold or held for sale.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|44
|--



|                                                         | Year Ended December 31, |          
|-------------------------------------------------------- | ----------------------- | ---------
|
|
|
|Revenues:                                                |                         |          
|Rental                                                   | $                       | 879,228  
|
|Rental property expenses:                                |                         |          
|Operating expenses                                       |                         | 838,364  
|Interest on mortgage debt                                |                         | 192,151  
|Real estate taxes                                        |                         | 168,934  
|Depreciation on real estate                              |                         |         
|Amortization of mortgage costs                           |                         |         
|                                                         |                         |          
|Total                                                    |                         | 1,199,449
|                                                         |                         |          
|                                                         |                         |          
|Other income:                                            |                         |          
|Investment income                                        |                         | 6,078    
|                                                         |                         |          
|                                                         |                         |          
|Loss from discontinued operations                        |                         | (314,143 
|                                                         |                         |          
|Net gain from sales of
       discontinued operations    |                         |         
|                                                         |                         |          
|                                                         |                         |          
|Total income (loss)
        from discontinued operations | $                       | (314,143 
|                                                         |                         |          

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|At December 31, 2006 assets related to discontinued operations were $2,922,493 and liabilities related
to discontinued operations were $2,911,677.
Investments in and Advances to Joint Ventures
During 2004 and 2005, the Company made investments in and loans to joint ventures and received 29%
ownership interests in these joint ventures.
The Company purchased the Martinsburg Mall in Martinsburg, West Virginia for $27,000,000 in September,
2004 and subsequent to closing obtained a mezzanine loan from The Lightstone Group (Lightstone)
in the amount of $2,600,000, which is secured by a pledge of the ownership interests in the entity
that owns the Martinsburg Mall. The loan matures on September 27, 2014, and the interest rate on
the loan is 11% per annum. Lightstone Member LLC (Lightstone I) manages the property
and David Lichtenstein received a 71% ownership interest in the entity owning the property, leaving
the Company with a 29% ownership interest.
In September, 2004, the Company made an $8,600,000 mezzanine loan to Lightstone I in connection with
the acquisition by Lightstone I of four shopping malls, namely the Shenango Valley Mall, in

|45
|--



|Hermitage, Pennsylvania; the West Manchester Mall, in York, Pennsylvania; the Bradley Square Mall in
Cleveland, Tennessee; and the Mount Berry Square Mall in Rome, Georgia (the Four Malls).
The loan is secured by the ownership interests in the entities that own the Four Malls and the Company
received a 29% ownership interest in these entities. The loan matures on September 27, 2014 and the
interest rate on the loan is 11% per annum.
The Martinsburg Mall and the Four Malls are subject to $110,500,000 nonrecourse first mortgage and
mezzanine loans. During the quarter ended June 30, 2006, the original $105,000,000 nonrecourse first
mortgage loan was refinanced with the following mortgage loans: a $73,900,000 nonrecourse first mortgage
loan with an interest rate of 5.93% per annum maturing on July 1, 2016, a $7,000,000 mezzanine loan
with an interest rate of 12% per annum maturing on July 1, 2016 and a $29,600,000 nonrecourse first
mortgage loan with an adjustable interest rate based on the London Interbank Offered Rates, with
a minimum rate of 7.89%, maturing on June 8, 2008. The $73,900,000 first mortgage loan and the $7,000,000
mezzanine loan are secured by the Martinsburg Mall and three of the Four Malls. The $29,600,000 first
mortgage loan is secured by the West Manchester Mall.
In December, 2004, the Company made a $7,500,000 mezzanine loan to Lightstone Member II LLC (Lightstone
II) in connection with the acquisition by Lightstone II of the Brazos Outlets Center Mall in
Lake Jackson, Texas and the Shawnee Mall in Shawnee, Oklahoma (the Shawnee/Brazos Malls).
The loan is secured by the ownership interests in the entities that own the properties and the Company
received a 29% ownership interest in these entities. The loan matures on December 23, 2014 and the
interest rate on the loan is 11% per annum. In June, 2006, the Company made an additional $335,000
mezzanine loan to Lightstone II. The loan was added to the original $7,500,000 loan and has the same
interest rate and maturity date as the original loan. The Shawnee/Brazos Malls are subject to a $39,500,000
nonrecourse first mortgage loan.
In July, 2005, the Company made a $9,500,000 mezzanine loan to Lightstone Member III LLC (Lightstone
III) in connection with the acquisition by Lightstone III of the Macon Mall in Macon, Georgia
and the Burlington Mall in Burlington, North Carolina (the Macon/Burlington Malls). The
loan is secured by the ownership interests in the entities that own the properties and the Company
received a 29% ownership interest in these entities.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|46
|--



|The loan matures on June 30, 2015, and the interest rate on the loan is 11% per annum. The Macon/Burlington
Malls are subject to a nonrecourse first mortgage loan and a mezzanine loan in the aggregate original
principal amount of $158,850,000.
Each individual owning entity is a single purpose entity that is prohibited by its organizational documents
from owning any assets other than the specified shopping mall properties above.
The Company accounts for these investments using the equity method. At December 31, 2006, investments
in and advances to joint ventures are as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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

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

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)   The Companys share of the loss of joint ventures for the Martinsburg Mall is determined after
the deduction for the interest expense at the rate of 11% per annum on the outstanding $2,600,000
loan from Lightstone.
(2)   Interest income earned by the Company at the rate of 11% per annum on the outstanding $8,600,000
loan from the Company to Lightstone I is included in the calculation of the Companys share
of the loss of joint ventures for the Four Malls.
(3)  Interest income earned by the Company at the rate of 11% per annum on the outstanding $7,835,000
loan from the Company to Lightstone II is included in the calculation of the Companys share
of the loss of joint ventures for the Shawnee/Brazos Malls.
(4)   Interest income earned by the Company at the rate of 11% per annum on the outstanding $9,500,000
loan from the Company to Lightstone III is included in the calculation of the Companys

|47
|--



|share of the loss of joint ventures for the Macon/Burlington Malls.
As a result of the Companys use of the equity method of accounting with respect to its investments
in and advances to the joint ventures, the Companys consolidated statement of operations for
the year ended December 31, 2006 reflects 29% of the loss of the joint ventures. The equity in the
loss of joint ventures of $2,083,113 for the year ended December 31, 2006 is after deductions in
the aggregate amount of $4,669,588 for the Companys 29% of noncash charges (depreciation of
$2,878,024, amortization of deferred financing costs and other costs of $578,549 and amortization
of in-place lease values of $1,213,015). Notwithstanding the loss from the joint ventures, the Company
is entitled to receive its interest at the rate of 11% per annum on its $25,935,000 of loans to the
joint ventures. For the year ended December 31, 2006, the Company received distributions from the
joint ventures in the amount of $3,483,271, which included payments of interest in the amount of
$2,871,592 and return on investment in the amount of $611,679. The return on investment of $611,679
includes a distribution of $335,110 from Lightstone III and this distribution was utilized to fund
the additional $335,000 mezzanine loan to Lightstone II.
The Lightstone Group is controlled by David Lichtenstein. At December 31, 2006, in addition to Presidentials
investments of $18,059,749 in these joint ventures with entities controlled by Mr. Lichtenstein,
Presidential has three loans that are due from entities that are controlled by Mr. Lichtenstein
in the aggregate outstanding principal amount of $7,449,994 with a net carrying value of $6,886,161.
Two of the loans in the outstanding principal amount of $5,375,000, with a net carrying value of
4,811,167, are secured by interests in five apartment properties and are also personally guaranteed
by Mr. Lichtenstein up to a maximum amount of $3,137,500. The Company believes that Mr. Lichtenstein
has sufficient net worth and liquidity to satisfy his obligations under these personal guarantees.
However, because of the substantial equity in the properties securing the loans, it is unlikely
that Presidential will have to call upon these personal guarantees. The third loan in the outstanding
principal amount of $2,074,994 is secured by interests in nine apartment properties. All of these
loans are in good standing and the Company believes that all of these loans are adequately secured;
however, a default on any or all of these loans could have a material adverse effect on Presidentials
business and operating results.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|48
|--



|The $24,945,910 net carrying value of investments in and advances to joint ventures with entities controlled
by Mr. Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein constitute
48%
of the Companys total assets at December 31, 2006.
The Hato Rey Center
At December 31, 2005, the vacancy rate at the Hato Rey Center was approximately 33%, which was primarily
the result of two tenants who had vacated a total of 52,088 square feet of office space at the expiration
of their leases in order to take occupancy of their own newly constructed office buildings. In March,
2006, another tenant vacated 30,299 square feet of office space in order to take occupancy of its
newly constructed office building. At December 31, 2006, the vacancy rate was approximately 45% and
at March 15, 2007 the vacancy rate was approximately 36%. The Company expects that it will take some
time to find tenants for the remainder of the vacant space and that until a substantial portion of
the vacant space is rented, the property will operate at a loss. In addition, in 2006, the Hato Rey
Partnership undertook a program of repairs and improvements to the building that is expected to cost
approximately $1,255,000 and it is anticipated to be completed in 2007. The Company agreed to lend
up to $1,000,000 to the Hato Rey Partnership (and has the right to lend an additional $1,000,000)
to pay for the cost of improvements to the building and fund any negative cash flows from the operation
of the property. At December 31, 2006, the Company had advanced $1,058,716 of the loan to the Hato
Rey Partnership and subsequent to December 31, 2006, the Company advanced an additional $437,559.
Contractual Commitments
The Companys significant contractual commitments are its liabilities under mortgage debt and
employment agreements, which are payable as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|49
|--



|                          | Mortgage
      Debt |            | Employment
      Agreements |   | Total     |    
|------------------------- | ------------------- | ---------- | --------------------------- | - | --------- | ---
|
|                         
|Year ending December 31 : |                     |            |                             |   |           |    
|2007                      | $                   | 417,167    |                             | $ | 921,740   |    
|2008                      |                     | 15,691,120 |                             |   | 921,740   |    
|2009                      |                     | 1,203,408  |                             |   | 776,750   |    
|2010                      |                     | 140,233    |                             |   | 776,750   |    
|2011                      |                     | 134,065    |                             |   | 400,020   |    
|Thereafter                |                     | 1,748,061  |                             |   | 836,420   | (1)
|                          |                     |            |                             |   |           |    
|                         
|TOTAL                     | $                   | 19,334,054 |                             | $ | 4,633,420 |    
|                          |                     |            |                             |   |           |    

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)   Employment agreements will expire in 2011 and contain provisions for three years of consulting
fees thereafter.
The Company also has contractual commitments for pension and postretirement benefits. The contractual
pension benefits generally provide for annual payments in specified amounts for each participant
for life, commencing upon retirement, with an annual adjustment for an increase in the consumer price
index. The contractual benefit plans are not funded. For the year ended December 31, 2006, the Company
paid $480,402 for pension benefits and $64,449 for postretirement benefits. The Company expects that
payments for these contractual benefits will be $531,000 in 2007.
In addition, the Company has a contractual commitment to invest $110,000 in Broadway Fund A and a commitment
to invest $410,000 in Broadway Fund A II.
Environmental Matters
Mapletree Industrial Center  Palmer, Massachusetts
The Company is involved in an environmental remediation process for contaminated soil found on this
property. The land area involved is approximately 1.25 acres and the depth of the contamination is
at this time undetermined. Since the most serious identified threat on the site is to songbirds,
the proposed remediation will consist of removing all exposed metals and a layer of soil (the depth
of which is yet to be determined). The Company estimates that the costs of the cleanup will not exceed
$1,000,000. The remediation will comply with the requirements of the Massachusetts Department of
Environmental Protection (MADEP). The MADEP has agreed that the Company may complete
the remediation over the next fifteen years, but the Company expects to complete the project over
the next ten years.

|50
|--



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

|Year      |  | Estimated
    Cash Payments |   | Estimated
      Undiscounted Amount
      to be Recognized
    as Expense |  | 
|--------- |  | --------------------------- | - | ------------------------------------------------------------------------- |  | 
|2007      |  |                             | $ | 200,000                                                                   |  | 
|2008      |  |                             |   | 200,000                                                                   |  | 
|2009      |  |                             |   | 150,000                                                                   |  | 
|2010      |  |                             |   | 100,000                                                                   |  | 
|2011      |  |                             |   | 100,000                                                                   |  | 
|2012-2016 |  |                             |   | 250,000                                                                   |  | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. The
Company believes that any additional liability in excess of amounts provided which may result from
the resolution of this matter will not have a material adverse effect on the financial condition,
liquidity or the cash flow of the Company.
In addition to the $854,454 charged to operations for environmental expense, the Company incurred costs
in 2006 of $225,857 for environmental site testing and removal of soil. The total amounts charged
to operations for environmental expense for 2006 were $1,080,311.
Recent Accounting Pronouncements
During 2006, the Company was required to implement the new Statement of Financial Accounting Standards
(SFAS) No. 123 (Revised 2004)  Share-Based Payment (SFAS No.
123R), issued by the Financial Accounting Standards Board (FASB), which did not
have a significant impact on the Companys consolidated financial statements.
In addition, in 2006, the Company was required to implement the Emerging Issues Task Force (EITF)
consensus on EITF Issue No. 04-5, Determining Whether a General Partner, or the General

|51
|--



|Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have
Certain Rights as ratified by the FASB, which had no effect on the Companys consolidated
financial statements.
In February, 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments
 An Amendment of FASB Statements No. 133 and 140. The purpose of SFAS No. 155 is to
simplify the accounting for certain hybrid financial instruments by permitting fair value re-measurement
for any hybrid financial instrument that contains an embedded derivative that otherwise would require
bifurcation. SFAS No. 155 also eliminates the restriction on passive derivative instruments that
a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments
acquired or issued after the beginning of an entitys first fiscal year beginning after September
15, 2006. The adoption of this standard on January 1, 2007 did not have a material effect on the
Companys consolidated financial statements.
In March, 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets -
Amendment of FASB Statement No. 140. SFAS No. 156 requires separate recognition of a servicing
asset and a servicing liability each time an entity undertakes an obligation to service a financial
asset by entering into a servicing contract. This statement also requires that servicing assets
and liabilities be initially recorded at fair value and subsequently adjusted to the fair value
at the end of each reporting period. This statement is effective in fiscal years beginning after
September 15, 2006. The adoption of this standard on January 1, 2007 did not have a material effect
on the Companys consolidated financial statements.
In July, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 establishes new evaluation
and measurement processes for all income tax positions taken. FIN 48 also requires expanded disclosures
of income tax matters. The Company is in the process of evaluating the impact, if any, that the adoption of this standard on January 1, 2007 will have on the Companys consolidated financial statements.
In September, 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
clarifies the definition of fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. This
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|52
|--



|statement is effective in fiscal years beginning after November 15, 2007. The Company believes that
the adoption of this statement on January 1, 2008 will not have a material effect on the Companys
consolidated financial statements.
In September, 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an Amendment of SFAS No. 87, 88, 106 and 132R. SFAS
No. 158 requires an employer to (i) recognize in its statement of financial position an asset for
a plans overfunded status or a liability for a plans underfunded status; (ii) measure
a plans assets and its obligations that determine its funded status as of the end of the employers
fiscal year (with limited exceptions); and (iii) recognize changes in the funded status of a defined
benefit postretirement plan in the year in which the changes occur. Those changes will be reported
in comprehensive income. The adoption of the requirement to recognize the funded status of a benefit
plan and the disclosure requirements as of December 31, 2006 resulted in a $1,112,520 increase in
accumulated other comprehensive loss on the Companys consolidated balance sheet. The requirement
to measure plan assets and benefit obligations to determine the funded status as of the end of the
fiscal year and to recognize changes in the funded status in the year in which the changes occur
is effective for fiscal years ending after December 15, 2008. The adoption of the measurement date
provisions of this standard is not expected to have a material effect on the Companys consolidated
financial statements.
In September, 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108
(SAB 108), which becomes effective for the first fiscal period ending after November
15, 2006. SAB 108 provides guidance on the consideration of the effects of prior period misstatements
in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 provides
for the quantification of the impact of correcting all misstatements, including both the carryover
and reversing effects of prior year misstatements, on the current year financial statements. The
adoption of SAB 108 on December 31, 2006 did not have a material effect on the Companys consolidated
financial statements.
In February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits entities to choose to measure many financial assets
and financial liabilities at fair value. Unrealized gains and losses on items for which the fair
value option has been elected
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|53
|--



|are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.
The Company is currently assessing the impact of SFAS No. 159 on the Companys financial position
or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys financial instruments consist primarily of notes receivable and mortgage notes payable.
Substantially all of these instruments bear interest at fixed rates, so the Companys cash flows
from them are not directly impacted by changes in market rates of interest. Changes in market rates
of interest impact the fair values of these fixed rate assets and liabilities. However, because the
Company generally holds its notes receivable until maturity or prepayment and repays its notes payable
at maturity or upon sale of the related properties, any fluctuations in values do not impact the
Companys earnings, balance sheet or cash flows. Nevertheless, since some of the Companys
mortgage notes payable are at fixed rates of interest and provide for yield maintenance payments
upon prepayment prior to maturity, if market interest rates are lower than the interest rates on
the mortgage notes payable, the Companys ability to sell the properties securing the notes
may be adversely affected and the net proceeds of any sale may be reduced as a result of the yield
maintenance requirements. The Company does not own any derivative financial instruments or engage
in hedging activities.
The $29,600,000 nonrecourse first mortgage loan secured by the West Manchester Mall and the $39,500,000
nonrecourse first mortgage loan secured by the Shawnee/Brazos Malls (see Investments in and Advances to Joint Ventures above), carry interest rates that change monthly based on the London Interbank Offered Rate and mature
in June, 2008 and January, 2008, respectively. The borrower has the right to extend the maturity
date of the Shawnee/Brazos Malls first mortgage for two additional one year terms. A material increase
in interest rates could adversely affect the operating results of the joint ventures and their ability
to make the required interest payments on the Companys $8,600,000 and $7,835,000 mezzanine
loans to those entities. The interest rate on the first mortgage secured by the West Manchester Mall
in fact decreased from 8.125% per annum at September 30, 2006 to 7.89% per annum at December 31,
2006 and the interest rate on the first mortgages secured by the Shawnee/Brazos Malls increased from
7.18% per annum at December 31, 2005 to 7.93% per annum at December 31, 2006. The Company believes
that these first mortgages will either be extended in
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|54
|--



|accordance with their terms or refinanced prior to the maturity date.
ITEM 7.        FINANCIAL STATEMENTS
See Table of Contents to Consolidated Financial Statements.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                     

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

|                                          
|------------------------------------------
|None.
ITEM 8A.     CONTROLS AND PROCEDURES
|                                          

|(a) | As of the end of the period covered by this Annual Report on Form 10-KSB, the Company carried out an evaluation, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of its disclosure controls and procedures. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective
in timely alerting them to material information required to be included in this report.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|(b) | There has been no change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has
materially affected or is reasonably likely to materially affect the Companys internal control
over financial reporting.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              
|----------------------------------------------
|ITEM 8B.      OTHER INFORMATION
None.
PART III
|                                              

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

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

|55
|--



|ITEM 10. | EXECUTIVE COMPENSATION
|-------- | ----------------------
|         |                       

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

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

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

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

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

|         |         
|-------- | --------
|ITEM 13. | EXHIBITS

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.5 to
      Post-effective Amendment No. 1 to the Companys Registration Statement on Form S-14, Registration
      No. 2-83073).
      3.2   Certificate of Amendment to Certificate of Incorporation of the Company (incorporated herein by
        reference to Exhibit 3 to the Companys Annual Report on Form 10-K for the year ended December
        31, 1987, Commission File No. 1-8594).
      3.3   Certificate of Amendment to Certificate of Incorporation of the Company, filed July 21, 1988 with
        the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit 3.3
        to the Companys Annual Report on Form 10-K for the year ended December 31, 1988, Commission
    File No. 1-8594).

|56
|--



|3.4   Certificate of Amendment to Certificate of Incorporation of the Company, filed on September 12,
1989 with the Secretary of State of the State of Delaware (incorporated herein by reference to Exhibit
3.4 to the Companys Annual Report on Form 10-K for the year ended December 31, 1989, Commission
File No. 1-8594).
3.5  By-laws of the Company (incorporated herein by reference to Exhibit 3.7 to Post-effective Amendment
No. 1 to the Companys Registration Statement on Form S-14, Registration No. 2-83073).
10.1   Employment Agreement dated as of November 1, 1982 between the Company and Robert E. Shapiro, as
amended by Amendments dated March 1, 1983, November 25, 1985, February 23, 1987 and January 4, 1988
(incorporated herein by reference to Exhibit 10.3 to the Companys Annual Report on Form 10-K
for the year ended December 31, 1988, Commission File No. 1-8594).
10.2   Employment Agreement dated as of November 1, 1982 between the Company and Joseph Viertel, as amended
by Amendments dated March 1, 1983, November 22, 1985, February 23, 1987 (incorporated herein by reference
to Exhibit 10.12 to the Companys Annual Report on Form 10-K for the year ended December 31,
1992, Commission File No. 1-8594).
10.3   Settlement Agreement dated November 14, 1991 between the Company and Steven Baruch, Jeffrey F.
Joseph and Thomas Viertel, (incorporated herein by reference to Exhibit 10.11 to the Companys
Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-8594).
10.4   First Amendment dated August 1, 1996 to Settlement Agreement dated November 14, 1991 between the
Company and Steven Baruch, Jeffrey F. Joseph and Thomas Viertel (incorporated herein by reference
to Exhibit 10.13 to the Companys Quarterly Report on Form 10-Q for the period ended March
31, 1997, Commission File No. 1-8594).
10.5   Employment Agreement dated January 1, 2006 between the Company and Elizabeth Delgado (incorporated
herein by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-QSB for the
period ended June 30, 2006, Commission File No. 1-8594).
10.6   Amended and Restated Presidential Realty Corporation Defined Benefit Plan, dated September 10,
2003 (incorporated herein by reference to Exhibit 10.13 to the Companys Annual Report on Form
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|57
|--



|10-K for the year ended December 31, 2003, Commission File No. 1-8594).
10.7   Amended and Restated Operating Agreement of PRC Member LLC dated September 27, 2004 (incorporated
herein by reference to Exhibit 10.15 to the Companys Quarterly Report on Form 10-QSB for the
period ended September 30, 2004, Commission File No. 1-8594).
10.8   Loan Agreement dated September 27, 2004 in the amount of $2,600,000 between David Lichtenstein
and PRC Member LLC (incorporated herein by reference to Exhibit 10.16 to the Companys Quarterly
Report on Form 10-QSB for the period ended September 30, 2004, Commission File No. 1-8594).
10.9   Amended and Restated Operating Agreement of Lightstone Member LLC dated September 27, 2004 (incorporated
herein by reference to Exhibit 10.17 to the Companys Quarterly Report on Form 10-QSB for the
period ended September 30, 2004, Commission File No. 1-8594).
10.10   Loan Agreement dated September 27, 2004 in the amount of $8,600,000 between Presidential Realty
Corporation and Lightstone Member LLC (incorporated herein by reference to Exhibit 10.18 to the Companys
Quarterly Report on Form 10-QSB for the period ended September 30, 2004, Commission File No. 1-8594).
10.11   Amended and Restated Employment and Consulting Agreement, made January 31, 2005 as of January
1, 2004, between the Company and Jeffrey F. Joseph (incorporated herein by reference to Exhibit 10.1
to the Companys Form 8-K as filed on February 3, 2005, Commission File No. 1-8594).
10.12   Amended and Restated Employment and Consulting Agreement, made January 31, 2005 as of January
1, 2004, between the Company and Thomas Viertel (incorporated herein by reference to Exhibit 10.2
to the Companys Form 8-K as filed on February 3, 2005, Commission File No. 1-8594).
10.13    Amended and Restated Employment and Consulting Agreement, made January 31, 2005 as of January
1, 2004, between the Company and Steven Baruch (incorporated herein by reference to Exhibit 10.3
to the Companys Form 8-K as filed on February 3, 2005, Commission File No. 1-8594).
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|58
|--



|10.14   2005 Restricted Stock Plan for 115,000 shares of Class B common stock (incorporated herein by
reference to Exhibit 10.16 to the Companys Annual Report on Form 10KSB for the year ended
December 31, 2005, Commission File No. 1-8594).
10.15   Loan Agreement dated December 23, 2004 in the amount of $7,500,000 between Presidential Realty
Corporation and Lightstone Member II (incorporated herein by reference to Exhibit 10.17 to the Companys
Annual Report on Form 10KSB for the year ended December 31, 2005, Commission File No. 1-8594).
10.16   Amended and Restated Operating Agreement of Lightstone Member II LLC dated December 23, 2004
(incorporated herein by reference to Exhibit 10.18 to the Companys Annual Report on Form 10KSB
for the year ended December 31, 2005, Commission File No. 1-8594).
10.17   Loan Agreement dated June 30, 2005 in the amount of $9,500,000 between Presidential Realty Corporation
and Lightstone Member III (incorporated herein by reference to Exhibit 10.19 to the Companys
Annual Report on Form 10KSB for the year ended December 31, 2005, Commission File No. 1-8594).
10.18   Operating Agreement of Lightstone Member III, LLC dated June 30, 2005 (incorporated herein by
reference to Exhibit 10.20 to the Companys Annual Report on Form 10KSB for the year ended
December 31, 2005, Commission File No. 1-8594).
10.19   Letter Agreement dated September 16, 2005 between PDL, Inc., the General Partner, and the Limited
Partners of the partnership PDL, Inc. and Associates Limited Co-Partnership, for PDL, Inc. to lend
$1,000,000 to the partnership (incorporated herein by reference to Exhibit 10.21 to the Companys
Annual Report on Form 10KSB for the year ended December 31, 2005, Commission File No. 1-8594).
10.20   Amendment, dated as of January 1, 2007 between the Company and Steven Baruch, to the Amended
and Restated Employment and Consulting Agreement made January 31, 2005 between the Company and Steven
Baruch (incorporated herein by reference to Exhibit 99.1 to the Companys Form 8-K as filed
on January 23, 2007, Commission File No. 1-8594).
21.   List of Subsidiaries of Registrant (incorporated herein by reference to Exhibit 21 to the Companys
Annual Report on Form
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|59
|--



|10KSB for the year ended December 31, 2005, Commission File No. 1-8594).
31.1   Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
31.2   Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
32.1   Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1   Combined Financial Statements of Lightstone Member LLC, PRC Member LLC, Lightstone Member II LLC,
and Lightstone Member III LLC for the years ended December 31, 2006 and 2005 pursuant to Rule 3-09
of Regulation S-X.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

|60
|--



|SIGNATURES                                                                                                                                                                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                       
|Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| |                                 |               
| | ------------------------------- | --------------
| | PRESIDENTIAL REALTY CORPORATION |               
| |                                 |               
| | By:                             | THOMAS VIERTEL
| |                                 |               
| |                                 |               
| |                                 |               
| |                                 |               

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

| | Signature and Title |  | Date
| | ------------------- |  | ----
| |                     |  |     
| |                     |  |     

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

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

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

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

|By: |  | RICHARD BRANDT     |  | March 30, 2007
|--- |  | ------------------ |  | --------------
|    |  |                    | 
|    |  | Richard
    Brandt |  |               
|    |  | Director           |  |               

|61
|--



|SIGNATURES (Continued)
|----------------------
|                      

| | Signature and Title |  | Date
| | ------------------- |  | ----
| |                     |  |     
| |                     |  |     

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

|By: |  | ROBERT FEDER |  | March 30, 2007
|--- |  | ------------ |  | --------------
|    |  |              | 
|    |  | Robert Feder |  |               
|    |  | Director     |  |               
|    |  |              | 

|By: |  | JOSEPH VIERTEL |  | March 30, 2007
|--- |  | -------------- |  | --------------
|    |  |                | 
|    |  | Joseph Viertel |  |               
|    |  | Director       |  |               

|62
|--



|PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES      
|------------------------------------------------------
|                                                      
|TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

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

|63
|--



|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders ofPresidential Realty CorporationWhite Plains, New York
We have audited the accompanying consolidated balance sheets of Presidential Realty Corporation and
subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders equity and cash flows for the years then ended. These
financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances but not for the purpose
of expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the
financial position of Presidential Realty Corporation and subsidiaries at December 31, 2006 and 2005,
and the results of their operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLPStamford, ConnecticutApril 2, 2007
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|64
|--



|PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
|---------------------------------------------------------------------------
|                                                                           

|                                                                                                                                                            | December 31,
      2006 |            | December 31,
      2005 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ---------- | ----------------------- | -
|                                                                                                                                                            |                         |            |                         |  
|Assets                                                                                                                                                      |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Investments in and advances to joint ventures (Note 2)                                                                                                      | $                       | 18,059,749 |                         | $
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Real estate (Note 3)                                                                                                                                        |                         | 20,333,180 |                         |  
|Less: accumulated depreciation                                                                                                                              |                         | 4,363,886  |                         |  
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Net real estate                                                                                                                                             |                         | 15,969,294 |                         |  
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Mortgage portfolio (Note 4):                                                                                                                                |                         |            |                         |  
|Notes receivable - net                                                                                                                                      |                         | 7,234,239  |                         |  
|Notes receivable - related parties - net                                                                                                                    |                         | 148,216    |                         |  
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Net mortgage portfolio                                                                                                                                      |                         | 7,382,455  |                         |  
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Assets related to discontinued operations (Note 5)                                                                                                          |                         | 2,922,493  |                         |  
|Other investments (Note 6)                                                                                                                                  |                         | 2,000,000  |                         |  
|Prepaid expenses and deposits in escrow                                                                                                                     |                         | 1,323,232  |                         |  
|Prepaid defined benefit plan costs (Note 19)                                                                                                                |                         | 582,394    |                         |  
|Other receivables (net of valuation allowance of
    $274,303 in 2006 and $104,305 in 2005)                                                                 |                         | 382,393    |                         |  
|Cash and cash equivalents                                                                                                                                   |                         | 2,263,534  |                         |  
|Other assets                                                                                                                                                |                         | 1,212,841  |                         |  
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Total Assets                                                                                                                                                | $                       | 52,098,385 |                         | $
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Liabilities and Stockholders Equity                                                                                                                        |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Liabilities:                                                                                                                                                |                         |            |                         |  
|Mortgage debt (Note 7)                                                                                                                                      | $                       | 19,176,330 |                         | $
|Liabilities related to discontinued operations (Note 5)                                                                                                     |                         | 2,911,677  |                         |  
|Contractual pension and postretirement benefits liabilities (Note 18)                                                                                       |                         | 3,256,861  |                         |  
|Accrued liabilities                                                                                                                                         |                         | 1,851,953  |                         |  
|Accounts payable                                                                                                                                            |                         | 525,029    |                         |  
|Distributions from partnership in excess of investment and earnings (Note 8)                                                                                |                         |           |                         |  
|Other liabilities                                                                                                                                           |                         | 757,947    |                         |  
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |            |                         |  
|Total Liabilities                                                                                                                                           |                         | 28,479,797 |                         |  
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |           
|Minority Interest in Consolidated Partnership (Note 9)                                                                                                      |                         | 35,318     |                         |  
|                                                                                                                                                            |                         |            |                         |  
|                                                                                                                                                            |                         |           
|Stockholders Equity:                                                                                                                                       |                         |            |                         |  
|Common stock: par value $.10 per share (Note 14)
       Class A, authorized 700,000 shares, issued 478,940 shares
          and 100 shares held in treasury |                         | 47,894     |                         |  
|                                                                                                                                                            |                         |           

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

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

|                                               
|-----------------------------------------------
|See notes to consolidated financial statements.

|65
|--



|PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
|-------------------------------------------------------------------------------------
|                                                                                     

|                                                                            | YEAR ENDED DECEMBER 31, |  
|--------------------------------------------------------------------------- | ----------------------- | -
|
|
|                                                                            |                         |  
|                                                                           
|Revenues:                                                                   |                         |  
|Rental                                                                      |                         | $
|Interest on mortgages - notes receivable                                    |                         |  
|Interest on mortgages - notes receivable - related parties                  |                         |  
|Other revenues                                                              |                         |  
|                                                                            |                         |  
|                                                                           
|Total                                                                       |                         |  
|                                                                            |                         |  
|                                                                           
|Costs and Expenses:                                                         |                         |  
|General and administrative                                                  |                         |  
|Depreciation on non-rental property                                         |                         |  
|Rental property:                                                            |                         |  
|Operating expenses                                                          |                         |  
|Interest on mortgage debt                                                   |                         |  
|Real estate taxes                                                           |                         |  
|Depreciation on real estate                                                 |                         |  
|Amortization of mortgage costs                                              |                         |  
|                                                                            |                         |  
|                                                                           
|Total                                                                       |                         |  
|                                                                            |                         |  
|Other Income (Loss):                                                        |                         |  
|Investment income                                                           |                         |  
|Equity in the loss of joint ventures (Note 2)                               |                         |  
|Equity in the (loss) income of partnership (Note 8)                         |                         |  
|                                                                            |                         |  
|                                                                            |                         |  
|Loss before minority interest and net gain
        from sales of properties |                         |  
|                                                                           
|Minority interest share of partnership income                               |                         |  
|                                                                            |                         |  
|Loss before net gain from sales of properties                               |                         |  
|                                                                           
|Recognition of deferred gain on sales of properties (Note 4)                |                         |  
|                                                                            |                         |  
|                                                                           
|Income (loss) from continuing operations                                    |                         |  
|                                                                            |                         |  
|                                                                           
|Discontinued Operations (Note 5):                                           |                         |  
|Loss from discontinued operations                                           |                         |  
|Net gain from sales of discontinued operations                              |                         |  
|                                                                            |                         |  
|                                                                           
|Total income (loss) from discontinued operations                            |                         |  
|                                                                            |                         |  
|                                                                           
|Net Income (Loss)                                                           |                         |  
|                                                                            |                         |  
|                                                                           
|Earnings per Common Share (basic and diluted):                              |                         |  
|Loss before net gain from sales of properties                               |                         |  
|                                                                            |                         |  
|Recognition of deferred gain on sales of properties                         |                         |  
|                                                                            |                         |  
|                                                                           
|Income (loss) from continuing operations                                    |                         |  
|                                                                            |                         |  
|                                                                           
|Discontinued Operations:                                                    |                         |  
|Loss from discontinued operations                                           |                         |  
|Net gain from sales of discontinued operations                              |                         |  
|                                                                            |                         |  
|                                                                           
|Total income (loss) from discontinued operations                            |                         |  
|                                                                            |                         |  
|                                                                           
|Net Income (Loss) per Common Share - basic and diluted                      |                         |  
|                                                                            |                         |  
|                                                                           
|Cash Distributions per Common Share (Note 15)                               |                         | $
|                                                                            |                         |  
|                                                                           
|Weighted Average Number of Shares Outstanding - basic and diluted           |                         |  
|                                                                            |                         |  

|                                               
|-----------------------------------------------
|See notes to consolidated financial statements.

|66
|--



|PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|------------------------------------------------------------------------------------------------
|                                                                                                

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

|                                               
|-----------------------------------------------
|See notes to consolidated financial statements.

|67
|--



|PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
|-------------------------------------------------------------------------------------
|                                                                                     

|                                                                  | YEAR ENDED DECEMBER 31, |  
|----------------------------------------------------------------- | ----------------------- | -
|
|
|                                                                  |                         |  
|                                                                 
|Cash Flows from Operating Activities:                             |                         |  
|Cash received from rental properties                              |                         | $
|Interest received                                                 |                         |  
|Distributions received from joint ventures                        |                         |  
|Distributions received from other investments                     |                         |  
|Distributions received from partnership                           |                         |  
|Miscellaneous income                                              |                         |  
|Interest paid on rental property mortgage debt                    |                         |  
|Cash disbursed for rental property operations                     |                         |  
|Cash disbursed for general and administrative costs               |                         |  
|                                                                  |                         |  
|                                                                  |                         |  
|Net cash provided by operating activities                         |                         |  
|                                                                  |                         |  
|Cash Flows from Investing Activities:                             |                         |  
|Payments received on notes receivable                             |                         |  
|Loan advanced to joint venture                                    |                         |  
|Loan advanced to partnership                                      |                         |  
|Net proceeds received from fire insurance settlement              |                         |  
|Payments disbursed for additions and improvements                 |                         |  
|Proceeds from sales of properties                                 |                         |  
|Purchase of other investments                                     |                         |  
|Cash received from purchase of additional interest in partnership |                         |  
|Purchase of additional interest in partnership                    |                         |  
|Other                                                             |                         |  
|                                                                  |                         |  
|                                                                  |                         |  
|Net cash provided by investing activities                         |                         |  
|                                                                  |                         |  
|Cash Flows from Financing Activities:                             |                         |  
|Principal payments on mortgage debt                               |                         |  
|Principal payments on mortgage debt from insurance proceeds       |                         |  
|Repayment of mortgage debt from sale of property                  |                         |  
|Distributions to minority partners                                |                         |  
|Cash distributions on common stock                                |                         |  
|Cash received from exercise of stock options                      |                         |  
|Proceeds from dividend reinvestment plan                          |                         |  
|                                                                  |                         |  
|                                                                  |                         |  
|Net cash used in financing activities                             |                         |  
|                                                                  |                         |  
|                                                                 
|Net (Decrease) Increase in Cash and Cash Equivalents              |                         |  
|                                                                  |                         |  
|Cash and Cash Equivalents, Beginning of Year                      |                         |  
|                                                                  |                         |  
|                                                                 
|Cash and Cash Equivalents, End of Year                            |                         | $
|                                                                  |                         |  

|                                               
|-----------------------------------------------
|See notes to consolidated financial statements.

|68
|--



|PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CASH FLOWS
|--------------------------------------------------------------------------------------------
|                                                                                            

|                                                                                                                                                                                                                 | YEAR ENDED DECEMBER 31, |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | -
|
|
|                                                                                                                                                                                                                 |                         |  
|                                                                                                                                                                                                                
|Reconciliation of Net Income (Loss) to Net Cash
  Provided by Operating Activities                                                                                                                               |                         |  
|                                                                                                                                                                                                                 |                         |  
|Net Income (Loss)                                                                                                                                                                                                |                         |  
|                                                                                                                                                                                                                 |                         |  
|                                                                                                                                                                                                                 |                         |  
|Adjustments to reconcile net income (loss) to net
  cash provided by operating activities:                                                                                                                       |                         |  
|Recognition of deferred gain on sales of properties                                                                                                                                                              |                         |  
|Net gain from sales of discontinued operations                                                                                                                                                                   |                         |  
|Equity in the loss (income) of partnership                                                                                                                                                                       |                         |  
|Equity in the loss of joint ventures                                                                                                                                                                             |                         |  
|Depreciation and amortization                                                                                                                                                                                    |                         |  
|Issuance of stock to directors and officers                                                                                                                                                                      |                         |  
|Amortization of discounts on notes and fees                                                                                                                                                                      |                         |  
|Minority interest share of partnership income                                                                                                                                                                    |                         |  
|Distributions received from partnership                                                                                                                                                                          |                         |  
|Distributions received from joint ventures                                                                                                                                                                       |                         |  
|                                                                                                                                                                                                                 |                         |  
|Changes in assets and liabilities:                                                                                                                                                                               |                         |  
|Decrease in other receivables                                                                                                                                                                                    |                         |  
|Increase (decrease) in accounts payable and accrued liabilities                                                                                                                                                  |                         |  
|Increase in other liabilities                                                                                                                                                                                    |                         |  
|Decrease (increase) in prepaid expenses, deposits in escrow
      and deferred charges                                                                                                                           |                         |  
|Other                                                                                                                                                                                                            |                         |  
|                                                                                                                                                                                                                 |                         |  
|                                                                                                                                                                                                                 |                         |  
|Total adjustments                                                                                                                                                                                                |                         |  
|                                                                                                                                                                                                                 |                         |  
|                                                                                                                                                                                                                 |                         |  
|Net cash provided by operating activities                                                                                                                                                                        |                         | $
|                                                                                                                                                                                                                 |                         |  
|                                                                                                                                                                                                                 |                         |  
|SUPPLEMENTAL NONCASH DISCLOSURES:                                                                                                                                                                                |                         |  
|                                                                                                                                                                                                                 |                         |  
|Satisfaction of mortgage debt as a result of assumption
    of the mortgage debt by the purchaser                                                                                                                |                         |  
|                                                                                                                                                                                                                 |                         |  
|                                                                                                                                                                                                                 |                         |  
|Real estate, intangible assets and liabilities recorded on the Companys
    consolidated balance sheet as a result of the purchase of an additional
      25% partnership interest in the Hato Rey Partnership: |                         |  
|Real estate                                                                                                                                                                                                      |                         | $
|                                                                                                                                                                                                                 |                         |  
|Intangible assets                                                                                                                                                                                                |                         | $
|                                                                                                                                                                                                                 |                         |  
|Mortgage payable                                                                                                                                                                                                 |                         | $
|                                                                                                                                                                                                                 |                         |  
|Other liabilities                                                                                                                                                                                                |                         | $
|                                                                                                                                                                                                                 |                         |  

|                                               
|-----------------------------------------------
|See notes to consolidated financial statements.

|69
|--



|PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Presidential Realty Corporation (Presidential or the Company), is operated
as a self-administrated, self-managed Real Estate Investment Trust (REIT). The Company
is engaged principally in the ownership of income producing real estate and in the holding of notes
and mortgages secured by real estate. Presidential operates in a single business segment, investments
in real estate related assets.
1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.  Real Estate  Real estate is stated at cost. Generally, depreciation is provided on the straight-line method
over the assets estimated useful lives, which range from twenty to fifty years for buildings
and from three to ten years for furniture and equipment. Maintenance and repairs are charged to operations
as incurred and renewals and replacements are capitalized. The Company reviews each of its property
investments for possible impairment at least annually, and more frequently if circumstances warrant.
Impairment of properties is determined to exist when estimated amounts recoverable through future
operations on an undiscounted basis are below the properties carrying value. If a property
is determined to be impaired, it is written down to its estimated fair value.
Purchase Accounting
In 2006, the Company acquired an additional 25% limited partnership interest in PDL, Inc. and Associates
Limited Co-Partnership (the Hato Rey Partnership), which increased the ownership interest
to 59% as of December 31, 2006, and, as a result, consolidated the Hato Rey Partnership on the Companys
consolidated balance sheet. The Company did not consolidate the Hato Rey Partnerships results
of operations on its consolidated statement of operations because for the year ended December 31,
2006, the Company only had a 33% and 34% ownership interest in the partnership, and accordingly,
the Company recorded its share of the loss from the partnership for the year ended December 31, 2006,
in Equity in the (loss) income of partnership, under the equity method of accounting.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|70
|--



|The Company allocated the fair value of acquired tangible and intangible assets and assumed liabilities
based on their estimated fair values in accordance with the provisions of Accounting Research Bulletin
(ARB) No. 51 Consolidated Financial Statements, and the Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations, as a partial
step acquisition. The Company assessed fair value based on third party appraisals and cash flow projections
that utilized appropriate discount rates and/or capitalization rates. Tangible assets, land, buildings
and tenant improvements are fair valued as if vacant (replacement cost). Intangible assets, above
and below market leases, were recorded at their estimated present value. The present value was determined
by calculating the present value of the difference between the rental income of each tenant at the
contractual lease rent rate and at the market rent rate. The present value of the difference between
these two rates represents the value of the above or below market leases. The present value was determined
using a discount rate of 9.0%. The above or below market lease values are amortized as a reduction
of, or an increase to, rental income over the remaining term of each lease.
The value of the leases in place was determined by calculating the estimated downtime costs for each
tenant. The value of the downtime costs represents the value of the lost revenue including all rents
and reimbursements during the downtime as if the property was purchased with 100% of the in-line
space vacant and was then leased to the existing tenants using lease-up assumptions, and includes
estimated nonrecoverable operating costs incurred during the lease up period. In place lease
values are amortized to expense over the terms of the related tenant leases.
No gain or goodwill was recognized on the recording of the acquisition of the 25% interest in the Hato

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

|71
|--



|unable to collect all amounts due according to the existing contractual terms of the loan. The Company
also considers loan modifications as possible indicators of impairment, although all modifications
during the two years ended December 31, 2006 have been at the Companys request for business
purposes and not as a result of debtor financial difficulties. When a mortgage loan is considered
to be impaired, the Company establishes a valuation allowance equal to the difference between a)
the carrying value of the loan, and b) the present value of the expected cash flows from the loan
at its effective interest rate, or at the estimated fair value of the real estate collateralizing
the loan. Income on impaired loans, including interest, and the recognition of deferred gains and
unamortized discounts, is recognized only as cash is received. The Company currently has no loans
that are impaired according to their terms as modified.
C.   Sale of Real Estate  Presidential complies with the provisions of SFAS No. 66, Accounting for Sales of Real
Estate. Accordingly, the gains on certain transactions have been deferred and are being recognized
on the installment method until such transactions have complied with the criteria for full profit
recognition. At December 31, 2005, all deferred gains were recognized and the Company had no deferred
gains at December 31, 2006.
D.   Discounts on Notes Receivable  Presidential assigned discounted values to long-term notes received from the sales of properties
to reflect the difference between the stated interest rates on the notes and market interest rates
at the time the notes were made. Such discounts are being amortized using the interest method.
E.   Principles of Consolidation  The consolidated financial statements include the accounts of Presidential Realty Corporation
and its wholly owned subsidiaries. Additionally, the consolidated financial statements include 100%
of the account balances of UTB Associates, a partnership in which Presidential is the general partner
and owns a 75% interest (see Note 9). At December 31, 2006, the consolidated balance sheet also includes
100% of the account balances of the Hato Rey Partnership. PDL, Inc. (a wholly owned subsidiary of
Presidential and the general partner of the Hato Rey Partnership) and Presidential own an aggregate
59% general and limited partnership interest in the Hato Rey Partnership at December 31, 2006 (see Note 8).
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|72
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|All significant intercompany balances and transactions have been eliminated.
F.   Investments in Joint Ventures The Company has equity investments in joint ventures and accounts for these investments using
the equity method of accounting. These investments are recorded at cost and adjusted for the Companys
share of each entitys income or loss and adjusted for cash contributions or distributions.
Real estate held by such entities is regularly reviewed for impairment, and would be written down
to its estimated fair value if impairment were determined to exist. See Notes 2 and 8.
G.   Rental Revenue Recognition  The Company acts as lessor under operating leases. Rental revenue is recorded on the straight-line
basis from the later of the date of the commencement of the lease or the date of acquisition of the
property subject to existing leases, which averages minimum rents over the terms of the leases. Certain
leases require the tenants to reimburse a pro rata share of real estate taxes, utilities and maintenance
costs.Recognition of rental revenue is generally discontinued when the rental is delinquent for ninety days
or more, or earlier if management determines that collection is doubtful.
H.   Net Income (Loss) Per Share  Basic net income (loss) per share data is computed by dividing net income (loss) by the weighted
average number of shares of Class A and Class B common stock outstanding during each year. Diluted
net income (loss) per share is computed by dividing net income (loss) by the weighted average shares
outstanding, including the dilutive effect, if any, of stock options outstanding. The dilutive effect
of stock options is calculated using the treasury stock method. As of November 10, 2005, all outstanding
stock options were either exercised or expired (see Note 17).
I.   Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, cash in banks and money market funds.
J.   Benefits  The Company follows SFAS Nos. 87, 106, 132 and 158 in accounting for pension and postretirement
benefits (see Notes 18 and 19).
K.   Management Estimates  The consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. In preparing the consolidated financial statements,
management is required to
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|--



|make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported
amounts of income and expense for the reporting period. Actual results could differ from those estimates.
L.   Accounting for Stock Options and Stock Awards  The Company adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, and elected to continue to account for employee stock-based compensation as prescribed
by Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued
to Employees. The Company has not granted any stock options in the last two years and all existing
options were either exercised or expired during the year ended December 31, 2005 (see Note 17). For
the year ended December 31, 2005, there would have been no additional compensation expense if the
Company had applied the fair value based method of accounting to its existing options because all
options were vested.
The Company adopted SFAS No. 123R on January 1, 2006, and applied the provisions of this statement
for stock awards granted in 2006. During 2006, the Company granted 32,000 shares of Class B common
stock to directors, officers and employees. The shares granted to the directors were fully vested
upon the grant date and the shares granted to the officers and employees will vest at the rate of
20% per year, with full distribution rights at the date of the grants. The Company recorded the market
value of the grants that vested in 2006 to expense in 2006.
M.   Discontinued Operations  The Company complies with the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement requires that the results of operations, including
impairment, gains and losses related to the properties that have been sold or properties that are
intended to be sold be presented as discontinued operations in the statements of operations for all
periods presented and the assets and liabilities of properties intended to be sold are to be separately
classified on the balance sheet. Properties designated as held for sale are carried at the lower
of cost or fair value less costs to sell and are not depreciated.
N.   Recent Accounting Pronouncements  In June, 2005, the Financial Accounting Standards Board (FASB) ratified the Emerging
Issues Task Force (EITF) consensus on EITF Issue No. 04-5, Determining Whether
a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|74
|--



|Entity When the Limited Partners Have Certain Rights. EITF Issue No. 04-5 provides a framework
for determining whether a general partner controls, and should consolidate, a limited partnership
or a similar entity. It became effective for all newly formed limited partnerships and for any pre-existing
limited partnerships that modify their partnership agreements after June 29, 2005. General partners
of all other limited partnerships will apply the consensus no later than the beginning of the first
reporting period in fiscal years beginning after December 15, 2005. The initial adoption of EITF
Issue No. 04-5 had no effect on the Companys consolidated financial statements.
In February, 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments

 An Amendment of FASB Statements No. 133 and 140. The purpose of SFAS No. 155 is to
simplify
the accounting for certain hybrid financial instruments by permitting fair value re-measurement
for
any hybrid financial instrument that contains an embedded derivative that otherwise would require

bifurcation. SFAS No. 155 also eliminates the restriction on passive derivative instruments that

a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments

acquired or issued after the beginning of an entitys first fiscal year beginning after September

15, 2006. The adoption of this standard on January 1, 2007 did not have a material effect on the

Companys consolidated financial statements.
In March, 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets -

Amendment of FASB Statement No. 140. SFAS No. 156 requires separate recognition of a servicing

asset and a servicing liability each time an entity undertakes an obligation to service a financial

asset by entering into a servicing contract. This statement also requires that servicing assets
and
liabilities be initially recorded at fair value and subsequently adjusted to the fair value
at the
end of each reporting period. This statement is effective in fiscal years beginning after
September
15, 2006. The adoption of this standard on January 1, 2007 did not have a material effect
on the
Companys consolidated financial statements.
In July, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 establishes new evaluation
and measurement processes for all income tax positions taken. FIN 48 also requires expanded disclosures
of income tax matters. The Company is in the process of evaluating the impact, if any, that the adoption of this standard on January 1, 2007 will have
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|75
|--



|on the Companys consolidated financial statements.
In September, 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
clarifies the definition of fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. This statement is effective in fiscal years beginning
after November 15, 2007. The Company does not believe that the adoption of this standard on January
1, 2008 will have a material effect on the Companys consolidated financial statements.
In September, 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans  An Amendment of FASB Statements No. 87, 88, 106 and
132(R). SFAS No. 158 requires an employer to (i) recognize in its statement of financial position
an asset for a plans overfunded status or a liability for a plans underfunded status;
(ii) measure a plans assets and its obligations that determine its funded status as of the
end of the employers fiscal year (with limited exceptions); and (iii) recognize changes in
the funded status of a defined benefit postretirement plan in the year in which the changes occur.
Those changes will be reported in comprehensive income. The adoption of the requirement to recognize
the funded status of a benefit plan and the disclosure requirements as of December 31, 2006 resulted
in a $1,112,520 increase in accumulated other comprehensive loss on the Companys consolidated
balance sheet. The requirement to measure plan assets and benefit obligations to determine the funded
status as of the end of the fiscal year and to recognize changes in the funded status in the year
in which the changes occur is effective for fiscal years ending after December 15, 2008. The adoption
of the measurement date provisions of this standard is not expected to have a material effect on
the Companys consolidated financial statements.
In September, 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108
(SAB 108), which becomes effective for the first fiscal period ending after November
15, 2006. SAB 108 provides guidance on the consideration of the effects of prior period misstatements
in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 provides
for the quantification of the impact of correcting all misstatements, including both the carryover
and reversing effects of prior year misstatements, on the current year financial statements. The
adoption of SAB 108 on December 31,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|76
|--



|2006 did not have a material effect on the Companys consolidated financial statements.
In February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits entities to choose to measure many financial assets
and financial liabilities at fair value. Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 159
on the Companys financial position and results of operations.
2.             INVESTMENTS IN AND ADVANCES
TO JOINT VENTURES
During 2004 and 2005, the Company made investments in and loans to four joint ventures which own and
operate nine shopping malls located in seven states. These investments in and advances to joint ventures
were made to entities controlled by David Lichtenstein, who also controls The Lightstone Group (Lightstone).
The Company accounts for these investments using the equity method.
The first investment, the Martinsburg Mall, was purchased by the Company in 2004 and, subsequent to
closing, the Company obtained a mezzanine loan from Lightstone in the amount of $2,600,000, which
is secured by ownership interests in the entity that owns the Martinsburg Mall. The loan matures
on September 27, 2014, and the interest rate on the loan is 11% per annum. Lightstone will manage
the Martinsburg Mall and David Lichtenstein received a 71% ownership interest in the entity owning
the Martinsburg Mall, leaving the Company with a 29% ownership interest.
During 2004 and 2005, the Company made three mezzanine loans in the aggregate principal amount of $25,600,000
to joint ventures controlled by David Lichtenstein. These loans are secured by the ownership interests
in the entities that own the properties and the Company received a 29% ownership interest in these
entities. These loans mature in 2014 and 2015 and the interest rate on the loans is 11% per annum.
In June, 2006, the Company made an additional $335,000 mezzanine loan to Lightstone II (see below).
The loan was added to the original $7,500,000 loan made to Lightstone II and has the same interest
rate and maturity date as the original loan. At
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|December 31, 2006, the aggregate principal amount of loans to joint ventures controlled by David Lichtenstein was $25,935,000.
    The following table summarizes information on the shopping mall properties and the mezzanine loans with respect thereto (amounts in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                  

|                                              |   |        |  |  |       |  | Nonrecourse First Mortgage
      and Mezzanine Loans 
    December 31, 2006 |        
|--------------------------------------------- | - | ------ |  |  | ----- |  | --------------------------------------------------------------------------- | -------
|
|                                              |   |        |  |  |       |  |                                                                             |        
|                                             
|PRC Member LLCMartinsburg MallMartinsburg, WV |   |        |  |  | 552   |  | $                                                                           | 29,864 
|                                              |   |        |  |  |       |  |                                                                             |        
|Lightstone IFour Malls                        | $ | 8,600  |  |  |       |  |                                                                             |        
|Bradley Square Mall                           |   |        |  |  | 385   |  |                                                                             | 13,804 
|Cleveland, TN                                 |   |        |  |  |       |  |                                                                             |        
|                                              |  
|Mount Berry Square MallRome, GA               |   |        |  |  | 478   |  |                                                                             | 22,479 
|                                              |  
|Shenango Valley Mall                          |   |        |  |  | 508   |  |                                                                             | 14,749 
|Hermitage, PA                                 |   |        |  |  |       |  |                                                                             |        
|                                              |  
|West Manchester MallYork, PA                  |   |        |  |  | 733   |  |                                                                             | 29,600 
|                                              |  
|Lightstone II                                 |   |        |  |  |       |  |                                                                             |        
|Shawnee/Brazos Malls                          |   | 7,835  |  |  |       |  |                                                                             | 39,500 
|Brazos Outlets                                |   |        |  |  |       |  |                                                                             |        
|Center Mall                                   |   |        |  |  | 698   |  |                                                                             |        
|Lake Jackson, TX                              |   |        |  |  |       |  |                                                                             |        
|                                              |  
|Shawnee MallShawnee, OK                       |   |        |  |  | 444   |  |                                                                             |        
|                                              |  
|Lightstone III                                |   |        |  |  |       |  |                                                                             |        
|Macon/Burlington Malls                        |   | 9,500  |  |  |       |  |                                                                             | 158,096
|Burlington Mall                               |   |        |  |  | 412   |  |                                                                             |        
|Burlington, NC                                |   |        |  |  |       |  |                                                                             |        
|                                              |  
|Macon MallMacon, GA                           |   |        |  |  | 1,446 |  |                                                                             |        
|                                              |   |        |  |  |       |  |                                                                             |        
|                                              | $ | 25,935 |  |  | 5,656 |  | $                                                                           | 308,092
|                                              |   |        |  |  |       |  |                                                                             |        

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

|78
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|assets other than the specified shopping mall properties listed above.
      (2)   On June 8, 2006, the original $105,000,000 nonrecourse first mortgage loan secured by the Martinsburg Mall and the Four Malls was refinanced with the following mortgage loans: a $73,900,000 nonrecourse first mortgage loan with an interest rate of 5.93% per annum, maturing on July 1, 2016, a $7,000,000 mezzanine loan with an interest rate of 12% per annum maturing on July 1, 2016 and a $29,600,000 nonrecourse first mortgage loan with an adjustable interest rate based on the London Interbank Offered Rates plus 232 basis points (approximately 7.45% at December 31, 2006), with a minimum interest rate of 7.89%, maturing on June 8, 2008. The $73,900,000 first mortgage loan and the $7,000,000 mezzanine loan are secured by the Martinsburg Mall and three of the Four Malls. The $29,600,000 first mortgage loan is secured by the West Manchester Mall.
      (3)   The interest rate is at the 30 day LIBOR rate plus 280 basis points (approximately 7.93% at December 31, 2006). The loan matures in January, 2008, with two one-year options to extend the loan for an extension fee of .125% of the outstanding principal.
    Investments in and advances to joint ventures are as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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

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

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

| |                        |  | Year Ended December 31, | 
| | ---------------------- |  | ----------------------- | 
|
|
| |                        |  |                         | 
|
| | Martinsburg Mall       |  | (1)                     | 
| | Four Malls             |  | (2)                     | 
| | Shawnee/Brazos Malls   |  | (3)                     | 
| | Macon/Burlington Malls |  | (4)                     | 
| |                        |  |                         | 
| |                        |  |                         | 
| |                        |  |                         | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)   The Companys share of the loss of joint ventures for the Martinsburg Mall is determined after

the deduction for the interest expense at the rate of 11% per annum on the outstanding $2,600,000

loan from Lightstone.
(2)   Interest income earned by the Company at the rate of 11% per annum on the outstanding $8,600,000

loan from the Company to Lightstone I is included in the calculation of the Companys share

of the loss of joint ventures for the Four Malls.
(3)   Interest income earned by the Company at the rate of 11% per annum on the outstanding $7,835,000

loan from the Company to Lightstone II is included in the calculation of the Companys share

of the loss of joint ventures for the Shawnee/Brazos Malls.
(4)   Interest income earned by the Company at the rate of 11% per annum on the outstanding $9,500,000
loan from the Company to Lightstone III is included in the calculation of the Companys share
of the loss of joint ventures for the Macon/Burlington Malls.
The Company prepares the summary of the condensed combined financial information for the Martinsburg
Mall, the Four Malls, the Shawnee/Brazos Malls and the Macon/Burlington Malls based on information
provided by The Lightstone Group. The summary financial information below includes information for
all of the joint ventures, but only from their respective inception dates. The condensed combined
information is as follows:

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|                                                   | December 31, |  
|-------------------------------------------------- | ------------ | -
|
|
|                                                   |              |  
|Condensed Combined Balance Sheets                  |              |  
|Net real estate                                    |              | $
|In place lease values and acquired
   lease rights |              |  
|Prepaid expenses and
   deposits in escrow         |              |  
|Cash and cash equivalents                          |              |  
|Deferred financing costs                           |              |  
|Other assets                                       |              |  
|                                                   |              |  
|                                                   |              |  
|Total Assets                                       |              | $
|                                                   |              |  
|                                                   |              |  
|Nonrecourse mortgage debt                          |              | $
|Mezzanine notes payable                            |              |  
|Other liabilities                                  |              |  
|                                                   |              |  
|                                                   |              |  
|Total Liabilities                                  |              |  
|Members Deficit                                   |              |  
|                                                   |              |  
|                                                   |              |  
|Total Liabilities and Members Deficit             |              | $
|                                                   |              |  

|                                                |  |  
|----------------------------------------------- |  | -
|
|
|
|                                                |  |  
|Condensed Combined Statements
 of Operations    |  |  
|Revenues                                        |  | $
|Interest on mortgage debt and other debt        |  |  
|Other expenses                                  |  |  
|                                                |  |  
|Income before depreciation
    and amortization |  |  
|Depreciation and amortization                   |  |  
|                                                |  |  
|Net Loss                                        |  | $
|                                                |  |  

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

|81
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|amount of $2,871,592 and return on investment in the amount of $611,679. The return on investment of
$611,679 includes a distribution of $335,110 from Lightstone III and this distribution was utilized
to fund the additional $335,000 mezzanine loan to Lightstone II.
The equity in the loss of joint ventures of $880,685 for the year ended December 31, 2005, is after
deductions in the aggregate amount of $3,967,231 for the Companys 29% of noncash charges (depreciation
of $2,256,368, amortization of deferred financing costs and other costs of $463,513 and amortization
of in-place lease values of $1,247,350). For the year ended December 31, 2005, the Company received
distributions from joint ventures in the amount of $2,505,239, which included payments of interest
in the amount of $2,171,889 and return on investment in the amount of $333,350.
The Lightstone Group is controlled by David Lichtenstein. At December 31, 2006, in addition to Presidentials

investments of $18,059,749 in these joint ventures with entities controlled by Mr. Lichtenstein,

Presidential has three loans that are due from entities that are controlled by Mr. Lichtenstein
in
the aggregate outstanding principal amount of $7,449,994 with a net carrying value of $6,886,161.

Two of the loans in the outstanding principal amount of $5,375,000, with a net carrying value of

4,811,167, are secured by interests in five apartment properties and are also personally guaranteed

by Mr. Lichtenstein up to a maximum amount of $3,137,500. The Company believes that Mr. Lichtenstein

has sufficient net worth and liquidity to satisfy his obligations under these personal guarantees.

However, because of the substantial equity in the properties securing the loans, it is unlikely
that
Presidential will have to call upon these personal guarantees. The third loan in the outstanding

principal amount of $2,074,994 is secured by interests in nine apartment properties. All of these

loans are in good standing and the Company believes that all of these loans are adequately secured;

however, a default on any or all of these loans could have a material adverse effect on Presidentials

business and operating results.
The $24,945,910 net carrying value of investments in and advances to joint ventures with entities controlled

by Mr. Lichtenstein and loans outstanding to entities controlled by Mr. Lichtenstein constitute
48%
of the Companys total assets at December 31, 2006.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|--



|3. | REAL ESTATE
|-- | -----------
|   |            

| | Real estate is comprised of the following:
| | ------------------------------------------
|

|                        | December 31, |  
|----------------------- | ------------ | -
|
|
|                        |              |  
|                       
|Land                    |              | $
|Buildings               |              |  
|Furniture and equipment |              |  
|                        |              |  
|                       
|Total real estate       |              | $
|                        |              |  

|                                                                                                                                                                                                                                                                                                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|At December 31, 2006, real estate includes the real estate of the Hato Rey Partnership as a result of the consolidation of this partnership on the Companys consolidated balance sheet in December, 2006 (see Note 8).
    Two of the properties owned by the Company represented 37% and 23% of total rental revenue in 2006 and 33% and 24% of total rental revenue in 2005.
|                                                                                                                                                                                                                                                                                                                                                                               

|4. | MORTGAGE PORTFOLIO
|-- | ------------------
|   |                   

|The Companys mortgage portfolio includes notes receivable and notes receivable  related parties.
|--------------------------------------------------------------------------------------------------
|                                                                                                  
|Notes receivable consist of:                                                                      

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

|                                                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------
|Notes receivable  related parties are all due from Ivy Properties, Ltd. or its affiliates (collectively
Ivy) and consist of:

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

|83
|--



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

|                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|At December 31, 2006, all of the notes in the Companys mortgage portfolio are current in accordance
with their terms, as modified.
The following table summarizes the components of the mortgage portfolio:

|84
|--



|MORTGAGE PORTFOLIO
|------------------

|                    |  |  
|------------------- |  | -
|
|
|
|
|December 31, 2006   |  |  
|                   
|Notes receivable    |  | $
|                   
|Less: Discounts     |  |  
|
|Net                 |  | $
|
|                   
|Due within one year |  | $
|Long-term           |  |  
|
|Net                 |  | $
|
|December 31, 2005   |  |  
|                   
|Notes receivable    |  | $
|                   
|Less: Discounts     |  |  
|
|Net                 |  | $
|
|                   
|Due within one year |  | $
|Long-term           |  |  
|
|Net                 |  | $
|

|85
|--



|Prepayments, Payoffs and Modifications
On March 8, 2006, the Company received a partial prepayment on one of the loans outstanding to entities
controlled by Mr. Lichtenstein. The Company had a $4,500,000 loan secured by ownership interests
in entities owning nine apartment properties in the Commonwealth of Virginia. The first mortgages
on these properties were refinanced and Presidential received $2,425,006 of net refinancing proceeds
in repayment of a portion of its loan principal and $215,750 in payment of the deferred interest
to date, leaving an outstanding principal balance of $2,074,994. Under the original terms of the
note, upon a refinancing and principal prepayment on the note, the interest rate on the unpaid balance
of the note was to be recalculated pursuant to a specific formula. In order to resolve a disagreement
over the recalculation of this interest rate, in July, 2006, the Company and the borrower modified
the terms of this note. Under the terms of the modification, effective January 1, 2006, the interest
rate on the note was increased from 11.50% per annum to 13.50% per annum until October 24, 2007 and
13% per annum thereafter until maturity (2% of such interest will be deferred and payable on October
23, 2008, in accordance with the original terms of the note). In addition, the Company will receive
additional interest in an amount equal to 27% of any operating cash flow distributed to the borrower
and 27% (increased from 25%) of any net proceeds resulting from sales or refinancing of the properties.
In March, 2005, the Company received prepayment of its $8,550,000 Encore Apartments note receivable
which was due to mature on April 30, 2009. As a result of the prepayment of this note, the Company
recognized a $3,241,540 gain from the sale of the property, which had previously been deferred. The
long-term capital gain for tax purposes, which was being recognized on the installment method, was
approximately $5,548,000.
In connection with the prepayment, the Company received an additional interest payment of $171,000,
a prepayment fee of $256,500 and other fees of $25,000.
Under the terms of the Mark Terrace note, the borrower has annual options to extend the maturity date
from November 29, 2005 to November 29, 2008 at an interest rate of 9.16% per annum until maturity.
In October, 2005, the borrower exercised its first annual option to extend the maturity date of the
note to November 29, 2006 and, as a result, the Company received a principal
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|86
|--



|payment of $100,000 in 2006. In October, 2006, the borrower exercised its second annual option to extend
the maturity date to November 29, 2007. As a result, the Company received a $50,000 principal payment
and will receive another $50,000 principal payment in 2007. If the borrower exercises its remaining
option to extend the note, the Company will receive an additional principal payment of $100,000 on
November 30, 2007. As of December 31, 2006, the note is collateralized by 76 unsold cooperative apartments
at the Mark Terrace property. As apartments are sold, the Company receives principal payments ranging
from $20,000 to $35,000 per unit depending upon the size of the unit. During 2006 and 2005, the Company
received $395,000 and $110,000, respectively, in principal payments on the Mark Terrace note and
the balance of the note at December 31, 2006 was $195,000.
The $3,875,000 outstanding principal amount of the Fairfield Towers loan is collateralized by two New
Jersey properties and by the borrowers personal guarantee up to the maximum amount of $1,647,500.
In November, 2005, this loan was further collateralized by ownership interests in the entities owning
Pinewood Chase Apartments in Suitland, Maryland, Reisterstown Apartments in Baltimore, Maryland and
Plaza Village Apartments in Morrisville, Pennsylvania. In addition, these ownership interests further
collateralize a $1,500,000 loan. The additional collateral was added in exchange for permitting the
borrower to refinance the existing first mortgages on the original collateral properties.
5.   DISCONTINUED OPERATIONS
For the years ended December 31, 2006 and 2005, income (loss) from discontinued operations includes
the Cambridge Green property which was designated as held for sale during the three months ended
December 31, 2005. In September, 2006, the Company entered into a contract for the sale of the property,
which sale was consummated in March, 2007 (see below). In addition, income (loss) from discontinued
operations for the year ended December 31, 2005 included the Farrington Apartments property and the
Fairlawn Gardens property, which were sold during the year ended December 31, 2005.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|--



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

|                                                   | Year ended December 31,
|-------------------------------------------------- | -----------------------
|                                                  
|                                                  
|                                                   |                        
|Revenues:                                          |                        
|Rental                                             | $                      
|                                                   |                        
|                                                  
|Rental property expenses:                          |                        
|Operating expenses                                 |                        
|Interest on mortgage debt                          |                        
|Real estate taxes                                  |                        
|Depreciation on real estate                        |                        
|Amortization of mortgage costs                     |                        
|                                                   |                        
|Total                                              |                        
|                                                   |                        
|                                                  
|Other income:                                      |                        
|Investment income                                  |                        
|                                                   |                        
|                                                  
|Loss from
  discontinued operations                |                        
|                                                   |                        
|Net gain from sales of
  discontinued operations   |                        
|                                                   |                        
|                                                  
|Total income (loss) from
  discontinued operations | $                      
|                                                   |                        

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|In September, 2006, the Company entered into a contract for the sale of the Cambridge Green property
in Council Bluffs, Iowa for a sales price of $3,700,000 to be paid by (i) the buyers assumption
of the first mortgage loan on the property, (the outstanding principal balance of which was $2,865,433
at December 31, 2006), (ii) a $200,000 secured note receivable, which will mature one year from the
date of the closing and have an interest rate of 7% per annum, and (iii) the balance of the purchase
price to be paid in cash. The closing of the contract of sale is subject to the approval of the US
Department of Housing and Urban Development (HUD), which insures the first mortgage loan
on the property and subsequent to year end this approval was received from HUD. The sale was consummated
in March, 2007.
The gain from the sale for financial reporting purposes is estimated to be approximately $650,000 and
the estimated net proceeds will be approximately $665,000, which includes the proceeds of the $200,000
note receivable.
On January 26, 2005, the Company completed the sale of its Farrington Apartments property in Clearwater,
Florida for a sales

|88
|--



|price of $9,325,966, of which $1,720,000 was paid in cash and the $7,605,966 balance was paid by the
assumption by the purchaser of the first mortgage on the property. The loss from the sale for financial
reporting purposes was $11,580.
On April 4, 2005, the Company consummated the sale of its Fairlawn Gardens property in Martinsburg,

West Virginia for a sales price of $3,500,000. The net cash proceeds of sale, after repayment of

the $1,411,670 outstanding principal balance of the first mortgage, prepayment fees and other closing

expenses, were $1,906,896. In March, 2005, prior to closing, the Company received $707,588 of insurance

proceeds resulting from fire damage to sixteen apartments at the property and applied those proceeds

to pay down a portion of the outstanding balance of the first mortgage prior to the sale. In November,

2005, the Company received $167,846 of additional insurance proceeds related to the same fire and

these proceeds were included in the gain on the sale of the property. The gain from sale for financial

reporting purposes was $2,434,789. The gain for Federal income tax purposes resulting from this
transaction
was $2,436,859 and was treated by the Company as a gain resulting from an involuntary
conversion
of property under Section 1033 of the Internal Revenue Code. Accordingly, the gain has
been deferred
pursuant to the provisions of Section 1033.
The assets and liabilities of the Cambridge Green property are segregated in the consolidated balance
sheets. The components are as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                                        | December 31, |           
|------------------------------------------------------- | ------------ | ----------
|
|                                                       
|                                                        |              |           
|Assets related to
        discontinued operations:      |              |           
|Land                                                    | $            | 200,000   
|Buildings                                               |              | 4,214,988 
|Furniture and equipment                                 |              | 39,851    
|Less: accumulated depreciation                          |              | (1,634,161
|                                                        |              |           
|Net real estate                                         |              | 2,820,678 
|Other assets                                            |              | 101,815   
|                                                        |              |           
|Total                                                   | $            | 2,922,493 
|                                                        |              |           
|                                                       
|Liabilities related to
        discontinued operations: |              |           
|Mortgage debt                                           | $            | 2,865,433 
|Other liabilities                                       |              | 46,244    
|                                                        |              |           
|Total                                                   | $            | 2,911,677 
|                                                        |              |           

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|--



|6.             OTHER INVESTMENTS
        In 2005, the Company agreed to advance $1,000,000 from time to time to Broadway Partners Parallel Fund
          A (Broadway Fund A), a blind pool of investment capital sponsored by Broadway Real Estate
          Partners, LLC (Broadway Partners). In connection with such agreement, the Company advanced
          $1,000,000 to Broadway Partners and received interest on these funds at the rate of 11.43% per annum
          through September 30, 2006 and 5% per annum thereafter until such funds were used to fund the Companys
          commitment to Broadway Fund A. In 2006, the Company made an additional commitment to fund an additional
          $1,000,000 to Broadway Partners Feeder Fund A II (Broadway Fund A II), another blind
          pool of investment capital sponsored by Broadway Partners. The Company retained the right to fund
          its commitments to Broadway Fund A and Broadway Fund A II with the $1,000,000 advanced to Broadway
          Partners or with other funds available to the Company.
      At December 31, 2006, Presidential had advanced $890,000 (including $395,000 advanced during 2006)
        of its $1,000,000 commitment to Broadway Fund A and the balance of Presidentials commitment
        to Broadway Fund A at December 31, 2006 was $110,000. Also in 2006, Presidential advanced $590,000
        of its $1,000,000 commitment to Broadway Fund A II and the balance of Presidentials commitment
        to Broadway Fund A II at December 31, 2006 was $410,000. At December 31, 2006, Broadway Partners
        continued to hold $520,000 of the funds previously advanced to it by Presidential. In January, 2007,
        the balance of the $410,000 commitment to Broadway Fund A II was funded from the Broadway Partners Fund.
      In September, 2006, the Company received a $145,076 distribution from Broadway Fund A resulting from
        the proceeds of sales and recorded the distribution to investment income. In addition, for the years
        ended December 31, 2006 and 2005, the Company earned interest income of $94,097 and $68,395, respectively,
        on the funds held by Broadway Partners. At December 31, 2006 and 2005, accrued interest was $6,022
        and $9,525, respectively.
      The Company accounts for these investments under the cost method.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|90
|--



|                   |  
|------------------ | -
|
|
|
|                  
|                   |  
|Broadway Partners  | $
|Broadway Fund A    |  
|Broadway Fund A II |  
|                   |  
|                  
|Total              | $
|                   |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|7.             MORTGAGE DEBT
        At December 31, 2006, mortgage debt on the consolidated balance sheet was $19,176,330, which has been discounted by $157,724 to reflect the fair value of the Hato Rey Partnership mortgage as a result of the consolidation of the partnership. The aggregate outstanding mortgage debt at December 31, 2006 is $19,334,054.
      All mortgage debt is secured by individual properties. The $15,817,989 mortgage on the Hato Rey Center property in Hato Rey, Puerto Rico and the $2,264,066 mortgage on the Crown Court property in New Haven, Connecticut are nonrecourse to the Company, whereas the $1,128,733 mortgage on the Building Industries Center property in White Plains, New York and the $123,266 mortgage on the Mapletree Industrial Center property in Palmer, Massachusetts are recourse to Presidential.
      Amortization requirements of all mortgage debt as of December 31, 2006 are summarized as follows:

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

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

|91
|--



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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The $15,817,989 mortgage on the Hato Rey Center property has a balloon payment of $15,445,099 due at
      maturity in May, 2008. The Company intends to refinance this mortgage prior to its maturity date.
        8.  ACQUISITION OF PARTNERSHIP INTEREST
        PDL, Inc. (a wholly owned subsidiary of Presidential) is the general partner of the Hato Rey Partnership.
        Presidential and PDL, Inc. had an aggregate 33% general and limited partner interest in the Hato
        Rey Partnership at December 31, 2005. On June 30, 2006, the Company purchased an additional 1% limited
        partnership interest for a purchase price of $45,000. Prior to the purchase of an additional 25%
        limited partnership interest, as discussed below, the Company accounted for its investment in this
        partnership under the equity method. The Hato Rey Partnership owns and operates an office building,
        with 210,000 square feet of commercial space, located in Hato Rey, Puerto Rico (the Hato Rey
        Center).
      On April 12, 2006, the Company closed in escrow on its contract to acquire an additional 25% limited
        partnership interest in the Hato Rey Partnership for a purchase price of $950,000. Additional costs
        of purchase were $54,439 for a total purchase price of $1,004,439. The closing documents and the
        purchase price were released from escrow in October, 2006. Pursuant to the closing documents, the
        transfer of the 25% limited partnership interest will not be effective until January 1, 2007 and
        the seller will receive his 25% share of the income/loss from the partnership through December 31,
        2006. As of the date of the release of the escrowed purchase price, Presidential effectively owned
        a 59% interest (1% general and 58% limited) in the Hato Rey Partnership. As a result, at December
        31, 2006, the Company owns the majority of the partnership interests in the partnership, is the general
        partner of the partnership, and exercises effective control over the partnership through its ability
        to manage the affairs of the partnership in the ordinary course of business.

|92
|--



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

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|As previously mentioned, prior to the purchase of the additional 25% limited partnership interest,
      the Company accounted for its investment in this partnership under the equity method. The Companys
      interest in the Hato Rey Partnership had a negative basis and therefore was classified as a liability
      on the Companys consolidated balance sheet, under the caption Distributions from partnership
      in excess of investment and earnings. The negative basis was primarily due to the refinancing
      of the mortgage on the property owned by the partnership and the distribution of the proceeds to
      the partners in excess of their investment in prior years.

|93
|--



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

|                                                                              | December 31,
      2005
|----------------------------------------------------------------------------- | -----------------------
|                                                                              |                        
|Condensed Balance Sheet                                                       |                        
|Net real estate                                                               | $                      
|Prepaid expenses and deposits in escrow                                       |                        
|Cash and cash equivalents                                                     |                        
|Receivables and other assets                                                  |                        
|                                                                              |                        
|                                                                              |                        
|Total Assets                                                                  | $                      
|                                                                              |                        
|                                                                              |                        
|                                                                             
|Nonrecourse mortgage debt                                                     | $                      
|Other liabilities                                                             |                        
|                                                                              |                        
|                                                                              |                        
|Total Liabilities                                                             |                        
|Partners Deficiency                                                          |                        
|                                                                              |                        
|                                                                              |                        
|                                                                              |                        
|Total Liabilities and
              Partners Deficiency                      | $                      
|                                                                              |                        
|                                                                              |                        
|                                                                             
|On the Companys Consolidated
          Balance Sheet:                        |                        
|Distributions from partnership in
          excess of investment and earnings | $                      
|                                                                              |                        
|                                                                              |                        

|                                                           
|-----------------------------------------------------------
|Summary statements of operations information is as follows:
|                                                           

|                                                       | Year Ended 
      December 31,
      2006 |            | Year Ended 
      December 31,
      2005 |  
|------------------------------------------------------ | ----------------------------------------- | ---------- | ----------------------------------------- | -
|
|Condensed Statements of Operations                     |                                           |            |                                           |  
|Revenues                                               | $                                         | 3,046,533  |                                           | $
|Interest on mortgage debt                              |                                           | (1,192,948 | )                                         |  
|Depreciation and amortization                          |                                           | (382,753   | )                                         |  
|Other expenses                                         |                                           | (2,174,568 | )                                         |  
|Investment income                                      |                                           | 25,108     |                                           |  
|
|                                                      
|Net Income (Loss)                                      | $                                         | (678,628   | )                                         | $
|
|                                                      
|On the Companys Consolidated                          |                                           |            |                                           |  
|Statements of Operations:                              |                                           |            |                                           |  
|Equity in the (loss)
            income of partnership | $                                         | (227,510   | )                                         | $
|
|                                                       |                                           |           
|                                                       |                                           |           
|                                                       |                                           |           

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

|94
|--



|that is estimated to cost approximately $1,255,000 and these renovations are expected to be completed
      in 2007. The Company agreed to lend up to $1,000,000 to the Hato Rey Partnership (and has the right
      to lend an additional $1,000,000) to pay for the cost of improvements to the building and fund any
      negative cash flows from the operation of the property. The loan, which is advanced from time to
      time as funds are needed, bears interest at the rate of 11% per annum, with interest and principal
      to be paid out of the first positive cash flow from the property or upon a refinancing of the first
      mortgage on the property. At December 31, 2006, the Company had advanced $1,058,716 of the loan to
      the Hato Rey Partnership and subsequent to December 31, 2006, the Company advanced an additional $437,559.
        9.   MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP
      Presidential is the general partner of UTB Associates, a partnership, which holds notes receivable
        and in which Presidential has a 75% interest. As the general partner of UTB Associates, Presidential
        exercises control over this partnership through its ability to manage the affairs of the partnership
        in the ordinary course of business, including the ability to approve the partnerships budgets,
        and through its significant equity interest. Accordingly, Presidential consolidates this partnership
        in the accompanying consolidated financial statements. The minority interest reflects the minority
        partners equity in the partnership.
      10.   LINE OF CREDIT
      The Company has an unsecured $250,000 line of credit from a lending institution. The interest rate
        on the line of credit is 1% above the prime rate. There were no borrowings under this line of credit
        during 2006 and there are no amounts outstanding under the line of credit at December 31, 2006.
      11.   INCOME TAXES
      Presidential has elected to qualify as a Real Estate Investment Trust under the Internal Revenue Code.
        A REIT which distributes at least 90% of its real estate investment trust taxable income to its shareholders
        each year by the end of the following year and which meets certain other conditions will not be taxed
        on that portion of its taxable income which is distributed to its shareholders.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|95
|--



|Upon filing the Companys income tax return for the year ended December 31, 2005, Presidential
      applied all of its available 2005 stockholders distributions and further elected to apply (under
      Section 858 of the Internal Revenue Code) approximately $2,018,000 of its year 2006 stockholders
      distributions to reduce its taxable income for 2005 to zero.
        For the year ended December 31, 2006, the Company had a tax loss of approximately $1,709,000 ($0.43
          per share), which is comprised of capital gains of $217,000 ($0.06 per share) and an ordinary loss
          of $1,926,000 ($0.49 per share).
      As previously stated, in order to maintain REIT status, Presidential is required to distribute 90%
        of its REIT taxable income (exclusive of capital gains). As a result of the ordinary tax loss for
        2006, there is no requirement to make a distribution in 2007. In addition, no provision for income
        taxes was required at December 31, 2006.
      Presidential has, for tax purposes, reported the gain from the sale of certain of its properties using
        the installment method.
      12.   COMMITMENTS AND CONTINGENCIES
      Presidential has a commitment to invest $110,000 in Broadway Fund A and a commitment to invest $410,000
        in Broadway Fund A II (see Note 6).
      Presidential is not a party to any material legal proceedings. The Company may from time to time be
        a party to routine litigation incidental to the ordinary course of its business.
      In the opinion of management, all of the Companys properties are adequately covered by insurance
        in accordance with normal insurance practices.
      The Company is involved in an environmental remediation process for contaminated soil found on its
        Mapletree Industrial Center property in Palmer, Massachusetts. The land area involved is approximately
        1.25 acres and the depth of the contamination is at this time undetermined. Since the most serious
        identified threat on the site is to songbirds, the proposed remediation will consist of removing
        all exposed metals and a layer of soil (the depth of which is yet to be determined). The Company
        estimates that the costs of the cleanup will not exceed $1,000,000. The remediation will comply with
        the requirements of the
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|96
|--



|Massachusetts Department of Environmental Protection (MADEP). The MADEP has agreed that the Company may complete the remediation over the next fifteen years, but the Company expects to complete the project over the next ten years.
        In accordance with the provisions of SFAS No. 5, Accounting for Contingencies, in the fourth quarter of 2006, the Company accrued a $1,000,000 liability which was discounted by $145,546 and charged $854,454 to expense. The discount rate used was 4.625%, which was the interest rate on 10 year Treasury Bonds. The expected cash payments and undiscounted amount to be recognized in the Companys consolidated financial statements are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. The

      Company believes that any additional liability in excess of amounts provided which may result from

      the resolution of this matter will not have a material adverse effect on the financial condition,

      liquidity or the cash flow of the Company.
        In addition to the $854,454 charged to operations for environmental expense, the Company incurred costs

          in 2006 of $225,857 for environmental site testing and removal of soil. The total amounts charged

          to operations for environmental expense for 2006 were $1,080,311.
      13.   CONCENTRATIONS OF CREDIT RISK
      Financial instruments which potentially subject the Company to concentrations of credit risk consist
        principally of its mortgage portfolio and cash and cash equivalents.
      The Companys mortgage portfolio consists of long-term notes receivable collateralized by real
        estate located in seven states

|97
|--



|(primarily Virginia, New Jersey and Maryland). The real estate collateralizing these notes, consisting
      primarily of moderate income apartment properties and, to a lesser extent, cooperative apartment
      units, has at a minimum an estimated fair value equal to the net carrying value of the notes.
        Included in the mortgage portfolio at December 31, 2006 are three collateralized loans made to different
          companies, all of which are controlled by the same individual, David Lichtenstein. Some, but not
          all, of these loans, are guaranteed in whole or in part by Mr. Lichtenstein. The aggregate net carrying
          value of all of the outstanding loans made by Presidential to companies controlled by Mr. Lichtenstein
          is approximately $6,886,000 and all of such loans are in good standing. In addition, the Company
          has invested a total of $27,373,410 with entities controlled by Mr. Lichtenstein in transactions
          relating to nine shopping mall properties.
      Furthermore, the $29,600,000 nonrecourse first mortgage loan secured by one of the shopping mall properties
        and the $39,500,000 nonrecourse first mortgage loan secured by two of the shopping mall properties
        carry interest rates which change monthly based on the London Interbank Offered Rate and mature in
        June, 2008 and January, 2008, respectively, subject to the borrowers right to extend the maturity
        date of the $39,500,000 loan for two additional one year terms. As a result, any material increase
        in interest rates could adversely affect the operating results of the joint ventures and their ability
        to make the required interest payments on the Companys $8,600,000 and $7,835,000 mezzanine
        loans to those entities. The interest rate on the first mortgage secured by the West Manchester Mall
        in fact decreased from 8.125% per annum at September 30, 2006 to 7.89% per annum at December 31,
        2006 and the interest rate on the first mortgages secured by the Shawnee/Brazos Malls increased from
        7.18% per annum at December 31, 2005 to 7.93% per annum at December 31, 2006. The Company believes
        that these first mortgages will either be extended in accordance with their terms or refinanced prior
        to the maturity date.
      The Company generally maintains its cash in money market funds with high credit quality financial institutions.
        Periodically, the Company may invest in time deposits with such institutions. Although the Company
        may maintain balances at these institutions in excess of the FDIC insurance limit, the Company does
        not anticipate and has not experienced any losses.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|98
|--



|14.   COMMON STOCK
        The Class A and Class B common stock of Presidential have identical rights except that the holders of Class A common stock are entitled to elect two-thirds of the Board of Directors and the holders of the Class B common stock are entitled to elect one-third of the Board of Directors.
      Other than as described in Note 16 and Note 17, no shares of common stock of Presidential are reserved.
      15.   DISTRIBUTIONS ON COMMON STOCK (UNAUDITED)
      For income tax purposes, distributions paid on common stock are allocated as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|Year |  | Total 
      Distribution |      | Taxable
      Ordinary
      Income |   | Taxable 
      Capital
      Gain |  | Non- 
      Taxable |     
|---- |  | ------------------------- | ---- | ----------------------------------- | - | --------------------------------- |  | ------------------- | ----
|
|    
|2006 |  | $                         | 0.64 |                                     | $ | 0.00                              |  | $                   | 0.52
|2005 |  | $                         | 0.64 |                                     | $ | 0.00                              |  | $                   | 0.64

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)    The non-taxable distribution of $0.12 per share in 2006 is a return of capital.
        16.   STOCK COMPENSATION
      On June 15, 2005, shareholders approved the adoption of the Companys 2005 Restricted Stock Plan
        (the 2005 Plan). The 2005 Plan provides that a total of 115,000 shares of the Companys
        Class B common stock may be issued to employees, directors and consultants of the Company, to provide
        incentive compensation. The 2005 Plan is administered by the Compensation and Pension Committees
        of the Companys Board of Directors, which have the authority, among other things, to determine
        the terms and conditions of any award under the 2005 Plan (including the vesting schedule applicable
        to the award, if any). The Board of Directors may at any time amend, suspend or terminate the 2005
        Plan. The 2005 Plan will terminate on June 15, 2015, unless terminated earlier by the Board of Directors.
      In 2005 and 2006, stock granted to directors were fully vested upon the grant date. Stock granted to
        officers and employees will vest at the rate of 20% per year. Notwithstanding the vesting schedule,
        the officers and employees are entitled to

|99
|--



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

|100
|---



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

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

|101
|---



|17.   STOCK OPTION PLAN
        In 1999, the Company adopted a Nonqualified Stock Option Plan (the 1999 Stock Option Plan).
          The 1999 Stock Option Plan provided that options to purchase up to 150,000 shares of the Companys
          Class B common stock may be issued prior to December 31, 2003 to the Companys key employees
          at exercise prices equal to the market value on the date the option was granted. On November 10,
          1999, options to purchase a total of 60,000 shares were granted to three of the Companys officers
          at an exercise price of $6.375 per share. On November 9, 2005, 24,000 of the options were exercised
          and the Company received $153,000. The Company recorded additions to the Companys Class B common
          stock of $2,400 at par value of $.10 per share and $150,600 was added to additional paid-in capital.
          The remaining 36,000 options were not exercised and expired on November 10, 2005. No other options
          have been granted, exercised or cancelled under this plan and no further options can be granted under this plan.
      18.   CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS
      Presidential has employment contracts with several active and retired officers and employees. These
        contracts provide for annual pension benefits and other postretirement benefits such as health care
        benefits. The pension benefits generally provide for annual payments in specified amounts for each
        participant for life, commencing upon retirement, with an annual adjustment for an increase in the
        consumer price index. The Company accrues on an actuarial basis the estimated costs of these benefits
        during the years the employee provides services. Periodic benefit costs are reflected in general
        and administrative expenses. The contractual benefit plans are not funded. The Company uses a December
        31 measurement date for the contractual benefit plans.
      The assumed health care cost trend rate at December 31, 2006 was 10% for medical and 13% for prescription
        drugs and 10.50% for medical and 14% for prescription drugs at December 31, 2005. The trend rate
        decreases gradually each successive year until it reaches 5% by the year 2017.
      Effective December 31, 2006, the Company adopted SFAS No. 158, which required employers to recognize
        the overfunded and underfunded status for contractual pension benefit and postretirement benefit
        plans, measured as the difference between the fair value of plan assets and the benefit obligation,
        as an asset or liability in its statement of financial condition. The
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|102
|---



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

|103
|---



|CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS                                                                
|---------------------------------------------------------------------------------------------------------------
|                                                                                                               
|The following table illustrates the incremental effect of the application of SFAS No. 158 at December 31, 2006:
|                                                                                                               

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

|                                                                                                                                                                                                                                                                                                                                             | Contractual Pension Benefit
      Year Ended December 31, |         | Contractual Postretirement Benefits
      Year Ended December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------- | ----------------------------------------------------------------- | -
|
|
|
|Components of net periodic benefit cost:                                                                                                                                                                                                                                                                                                     |                                                           |         |                                                                   |  
|Service cost                                                                                                                                                                                                                                                                                                                                 | $                                                         | 16,479  |                                                                   | $
|Interest cost                                                                                                                                                                                                                                                                                                                                |                                                           | 127,436 |                                                                   |  
|Amortization of prior service cost                                                                                                                                                                                                                                                                                                           |                                                           | (46,376 | )                                                                 |  
|Recognized actuarial loss                                                                                                                                                                                                                                                                                                                    |                                                           | 384,340 |                                                                   |  
|                                                                                                                                                                                                                                                                                                                                             |                                                           |         |                                                                   |  
|Net periodic benefit cost                                                                                                                                                                                                                                                                                                                    | $                                                         | 481,879 |                                                                   | $
|                                                                                                                                                                                                                                                                                                                                             |                                                           |         |                                                                   |  
|                                                                                                                                                                                                                                                                                                                                             |                                                           |         |                                                                   |  
|The recorded contractual pension and postretirement benefits liability of $3,256,861 at December 31, 2006 is comprised of $2,574,747 for pension benefits and $682,114 for postretirement benefits. The accumulated pension and postretirement benefit obligations and recorded liabilities, none of which has been funded, were as follows:
|                                                                                                                                                                                                                                                                                                                                            

|                                                                          | Contractual Pension Benefit
    December 31, |             | Contractual Postretirement Benefits
    December 31, |  
|------------------------------------------------------------------------- | -------------------------------------------- | ----------- | ---------------------------------------------------- | -
|
|
|
|Change in benefit obligation:                                             |                                              |             |                                                      |  
|Benefit obligation at beginning of year                                   | $                                            | 2,835,963   |                                                      | $
|Service cost                                                              |                                              | 16,479      |                                                      |  
|Interest cost                                                             |                                              | 127,436     |                                                      |  
|Amendments                                                                |                                              |            |                                                      |  
|Actuarial loss (gain)                                                     |                                              | 75,271      |                                                      |  
|Benefits paid                                                             |                                              | (480,402    | )                                                    |  
|                                                                          |                                              |             |                                                      |  
|Benefit obligation at end of year                                         | $                                            | 2,574,747   |                                                      | $
|                                                                          |                                              |             |                                                      |  
|                                                                         
|Change in plan assets:                                                    |                                              |             |                                                      |  
|Employer contributions                                                    | $                                            | 480,402     |                                                      | $
|Benefits paid                                                             |                                              | (480,402    | )                                                    |  
|                                                                          |                                              |             |                                                      |  
|Fair value of plan assets at end of year                                  | $                                            |            |                                                      | $
|                                                                          |                                              |             |                                                      |  
|                                                                         
|Funded status                                                             |                                              | ($2,574,747 | )                                                    |  
|Unrecognized net actuarial loss                                           |                                              |             |                                                      |  
|Unrecognized prior service cost                                           |                                              |             |                                                      |  
|                                                                          |                                              |             |                                                      |  
|Net amount recognized                                                     |                                              |             |                                                      |  
|                                                                          |                                              |             |                                                      |  
|Transitional adjustment to accumulated
          other comprehensive loss |                                              |             |                                                      |  
|                                                                          |                                              |             |                                                      |  
|Funded status                                                             |                                              | ($2,574,747 | )                                                    |  
|                                                                          |                                              |             |                                                      |  

|104
|---



|                                                                      | Contractual Pension Benefit
      Year Ended December 31, |             | Contractual Postretirement Benefits
      Year Ended December 31, |  
|--------------------------------------------------------------------- | --------------------------------------------------------- | ----------- | ----------------------------------------------------------------- | -
|
|
|                                                                      |                                                           |             |                                                                   |  
|Net amount recognized in the consolidated 
            balance sheet: |                                                           |             |                                                                   |  
|Accrued benefit liability                                             |                                                           | ($2,574,747 | )                                                                 |  
|                                                                      |                                                           |             |                                                                   |  
|                                                                      |                                                           |             |                                                                   |  
|Amounts recognized in accumulated other comprehensive loss:           |                                                           |             |                                                                   |  
|Net loss                                                              | $                                                         | 1,383,774   |                                                                   |  
|Prior service cost                                                    |                                                           | (123,673    | )                                                                 |  
|                                                                      |                                                           |             |                                                                   |  
|                                                                      | $                                                         | 1,260,101   |                                                                   | $
|                                                                      |                                                           |             |                                                                   |  
|                                                                      |                                                           |             |                                                                   |  
|Additional disclosure items for the plans at December 31,            
|                                                                     

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

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

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

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

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

|                                                     | 1-Percentage-
      Point Increase |        | 1-Percentage-
      Point Decrease | 
|---------------------------------------------------- | ---------------------------------- | ------ | ---------------------------------- | 
|                                                     |                                    |        |                                    | 
|                                                    
|Effect on total service and interest cost components | $                                  | 4,017  |                                    | 
|Effect on postretirement benefit obligation          | $                                  | 50,089 |                                    | 

|105
|---



|All measures of the accumulated postretirement benefit obligation and the net periodic postretirement benefit cost included in this footnote do not reflect the effect of the Medicare Prescription Drug Improvement and Modernization Act of 2003. As a result of contractual commitments for benefits under the plan, there will be no impact on plan benefits, costs or obligations from this recently passed legislation.
        Cash Flows
      The contractual pension and postretirement benefit plans are non-funded plans, employer contributions equal benefit payments. The Company estimates that the contractual payments for 2007 will be as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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

|                                                                                                                                                                       
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Estimated Future Benefit Payments
        The following benefit payments (including expected future service and net of employee contributions) are expected to be paid:
|                                                                                                                                                                       

|Year Ending 
      December 31, |  | Contractual 
Pension Benefit |         | Contractual
Postretirement Benefits
|------------------------------- |  | ---------------------------- | ------- | -----------------------------------
|
|                               
|2007                            |  | $                            | 464,600 |                                    
|2008                            |  |                              | 345,204 |                                    
|2009                            |  |                              | 293,642 |                                    
|2010                            |  |                              | 245,797 |                                    
|2011                            |  |                              | 202,439 |                                    
|2012  2016                     |  |                              | 972,511 |                                    

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|19.   DEFINED BENEFIT PLAN
        The Company has a noncontributory defined benefit pension plan, which covers substantially all of its
          employees. The plan provides monthly retirement benefits commencing at age 65. The monthly benefit
          is equal to the sum of (1) 7.15% of average monthly compensation multiplied by the total number of
          plan years of service (up to a maximum of 10 years), plus (2) .62% of such average monthly compensation
          in excess of one-twelfth of covered compensation multiplied by the total number of plan years of
          service (up to a maximum of 10 years). The Company makes annual contributions that meet the minimum
          funding requirements and the maximum contribution limitations under the Internal Revenue Code.

|106
|---



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

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

|                                                                            
|----------------------------------------------------------------------------
|Periodic pension costs are reflected in general and administrative expenses.
|                                                                            

|                                                 | Year Ended December 31, |         
|------------------------------------------------ | ----------------------- | --------
|
|
|
|Components of net periodic
        benefit cost: |                         |         
|Service cost                                     | $                       | 379,970 
|Interest cost                                    |                         | 399,096 
|Expected return on plan assets                   |                         | (531,879
|Amortization of prior service cost               |                         | 12,616  
|Amortization of accumulated loss                 |                         | 67,169  
|                                                 |                         |         
|                                                
|Net periodic benefit cost                        | $                       | 326,972 
|                                                 |                         |         

|107
|---



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

|                                                                       | December 31, |           
|---------------------------------------------------------------------- | ------------ | ----------
|
|
|
|Change in benefit obligation:                                          |              |           
|Benefit obligation at beginning of year                                | $            | 7,377,008 
|Service cost                                                           |              | 379,970   
|Interest cost                                                          |              | 399,096   
|Actuarial (gain) loss                                                  |              | (56,966   
|Benefits paid                                                          |              | (559,793  
|                                                                       |              |           
|Benefit obligation at end of year                                      | $            | 7,539,315 
|                                                                       |              |           
|                                                                      
|Change in plan assets:                                                 |              |           
|Fair value of plan assets at
        beginning of year                 | $            | 7,453,100 
|Actual return on plan assets                                           |              | 1,062,496 
|Employer contributions                                                 |              | 165,906   
|Benefits paid                                                          |              | (559,793  
|                                                                       |              |           
|Fair value of plan assets at
        end of year                       | $            | 8,121,709 
|                                                                       |              |           
|Funded status                                                          | $            | 582,394   
|Unrecognized net actuarial loss                                        |              | 933,127   
|Unrecognized prior service cost                                        |              | 105,974   
|                                                                       |              |           
|Net amount recognized                                                  |              |           
|                                                                       |              |           
|Transitional adjustment to accumulated
       other comprehensive loss |              | (1,039,101
|                                                                       |              |           
|Funded status                                                          | $            | 582,394   
|                                                                       |              |           
|                                                                      
|Net amount recognized in the consolidated
        balance sheet:       |              |           
|Prepaid benefit cost                                                   | $            | 582,394   
|                                                                       |              |           
|                                                                      
|Amounts recognized in accumulated
        other comprehensive loss:    |              |           
|Net loss                                                               | $            | 933,127   
|Prior service cost                                                     |              | 105,974   
|                                                                       |              |           
|                                                                       | $            | 1,039,101 
|                                                                       |              |           

|                                                       
|-------------------------------------------------------
|Additional disclosure items for the plan at December 31
|                                                       

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

|108
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|The estimated net loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic cost over the next year are $9,612 and $12,616, respectively.
        Assumptions
      Weighted-average assumptions used to determine benefit obligations at
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                

|                              | December 31, |     
|----------------------------- | ------------ | ----
|
|
|
|Discount rate                 |              | 5.72
|Rate of compensation increase |              | 5   

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

|                               | December 31, |     
|------------------------------ | ------------ | ----
|
|
|
|Discount rate                  |              | 5.41
|Expected return on plan assets |              | 7   
|Rate of compensation increase  |              | 5   

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

|                                                                                                                        | December 31, |          
|----------------------------------------------------------------------------------------------------------------------- | ------------ | ---------
|
|
|
|Plan Assets:                                                                                                            |              |          
|Cash and cash equivalents                                                                                               | $            | 200,158  
|Securities available for sale                                                                                           |              | 7,921,551
|                                                                                                                        |              |          
|Total plan assets                                                                                                       | $            | 8,121,709
|                                                                                                                        |              |          
|                                                                                                                        |              |          
|The plans weighted-average 
                allocations at December 31, by 
            asset category are as follows: |              |          
|                                                                                                                        |              |          

| |                                                            | December 31, |    
| | ---------------------------------------------------------- | ------------ | ---
|
|
|
| | Equities                                                   |              | 60 
| | Fixed income                                               |              | 28 
| | Professionally managed futures
        contracts portfolio |              | 10 
| | Cash and money market funds                                |              | 2  
| |                                                            |              |    
| | Total                                                      |              | 100
| |                                                            |              |    

|109
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|The Company has consistently applied what it believes to be an appropriate investment strategy for the defined benefit plan.
        The Company invests primarily in a) equities of listed corporations, b) fixed income funds consisting of corporate bonds, United States treasury bonds and government mortgage backed securities, c) a professionally managed futures contract portfolio and d) cash and money market funds.
      Cash Flows
      The Companys funding policy for the plan is based on contributions at the minimum and maximum amounts required by law. The Company is not required to make any contributions in 2007.
      Estimated Future Benefit Payments
      The following benefit payments (including expected future service) are expected to be paid:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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

|                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------
|20.   ACCUMULATED OTHER COMPREHENSIVE LOSS
        The components of accumulated other comprehensive loss are as follows:

|110
|---



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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|21.   DIVIDEND REINVESTMENT PLAN
        Presidential maintains a Dividend Reinvestment Plan (formerly a Dividend Reinvestment and Share Purchase
          Plan) (the Plan). Under the Plan, stockholders may reinvest cash dividends to purchase
          Class B common stock without incurring any brokerage commission or service charge. Additionally,
          the price of Class B common stock purchased with reinvested cash dividends will be discounted by
          5% from the average of the high and low market prices of the five days immediately prior to the dividend
          payment date, as reported on the American Stock Exchange.
      During 2005, the Company was delinquent in its federal securities law filing obligations because it
        had not filed the required financial information as an Exhibit to the Companys Form 8-K with
        respect to its investment in five shopping mall properties in September, 2004. The financial information
        related to operations of the properties for calendar year 2003 and the nine months ended September,
        2004 prior to the Companys investment in the properties. The Company was unable to obtain the
        financial information from the seller of the properties. This delinquency was cured with the filing
        of the Form 10-KSB for the year ended December 31, 2005, which included audited financial statements
        for the properties for the period from the acquisition of the Companys interest in the properties
        until December 31, 2005. During the period of delinquency in its filing obligations, Presidentials
        dividend reinvestment plan for its Class B Common

|111
|---



|Stock continued pursuant to the terms of its Dividend Reinvestment and Share Purchase Plan but shareholders were not able to make optional cash payments to acquire shares under the Plan. With the filing of the Form 10-KSB, the delinquency was cured. In April, 2006, the Company terminated the Share Purchase Plan. However, the Dividend Reinvestment Plan remains in effect.
        Class B Common Shares issued under the Plan are summarized below:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                         | Shares |         | Net Proceeds
      Received |  
|---------------------------------------- | ------ | ------- | --------------------------- | -
|                                         |        |         |                             |  
|Total shares issued at January 1, 2005   |        | 481,707 |                             | $
|Shares issued during 2005                |        | 16,235  |                             |  
|                                         |        |         |                             |  
|Total shares issued at December 31, 2005 |        | 497,942 |                             |  
|Shares issued during 2006                |        | 33,355  |                             |  
|                                         |        |         |                             |  
|Total shares issued at December 31, 2006 |        | 531,297 |                             | $
|                                         |        |         |                             |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|22.   PROFIT SHARING PLAN
        In 2006, Fourth Floor Management Corp., a 100% owned subsidiary of Presidential Realty Corporation

          that manages the Companys properties, adopted a profit sharing plan for substantially all
          of
          its employees. The profit sharing plan became effective as of January 1, 2006, and the plan
          provides
          for annual contributions up to a maximum of 5% of the employees annual compensation. The
          Company
          made a $10,937 contribution to the plan in January, 2007 for the 2006 plan year and charged
          the contribution
          to general and administrative expense.
      23.   RELATED PARTY TRANSACTIONS
      As shown in Note 3, the Company holds nonrecourse purchase money notes receivable from Ivy, relating
        to properties sold to Ivy in prior years, as well as nonrecourse notes receivable relating to loans
        made to Ivy in connection with Ivys former cooperative conversion business. In the aggregate,
        the loans receivable from Ivy had a carrying amount of $195,001 as of December 31, 2006, and a net
        carrying amount of $148,216, after deducting discounts. Presidential received interest of $210,785
        and $385,476 from Ivy during 2006 and 2005, respectively, on these loans.
      Two of the notes have an aggregate outstanding principal balance of $4,770,050 at December 31, 2006.
        These notes were received by the Company in 1991 for nonrecourse loans that had been previously written
        off by the Company. Accordingly, these notes were recorded at zero except for a $155,584 portion
        of the notes

|112
|---



|that was adequately secured and which was repaid in 2002. In 1996, the Company and Ivy agreed that
      the only payments required under the terms of the note would be in an amount equal to 25% of the
      operating cash flow (after provision for certain reserves) of Scorpio Entertainment, Inc. (Scorpio),
      a company owned by two of the owners of Ivy to carry on theatrical productions. The Company received
      interest payments on these notes of $186,500 and $354,000 during 2006 and 2005, respectively. The
      Company does not expect to recover any material principal amounts on these notes; amounts received
      from Scorpio will be applied to unpaid, unaccrued interest and recognized as income when received.
      At December 31, 2006, the unpaid and unaccrued interest was $3,287,265.
        All outstanding loans to Ivy at December 31, 2006 are current in accordance with their modified terms.
          Management believes that Presidential holds sufficient collateral to protect its interests in the
          loans that remain outstanding from Ivy to the extent of the net carrying value of these loans.
      The loans to Ivy were subject to various settlement agreements and modifications in previous years.
        Ivy is owned by three officers of the Company, who also hold beneficial ownership of an aggregate
        of approximately 47% of the outstanding shares of Class A common stock of the Company, which class
        of stock is entitled to elect two-thirds of the Board of Directors of the Company. Because of the
        relationship between the owners of Ivy and the Company, all transactions with Ivy are negotiated
        on behalf of the Company, and subject to approval, by a committee of three members of the Board of
        Directors with no affiliations with the owners of Ivy.
      24.   ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
      Estimated fair values of the Companys financial instruments as of December 31, 2006 and 2005
        have been determined using available market information and various valuation estimation methodologies.
        Considerable judgment is required to interpret the effects on fair value of such items as future
        expected loss experience, current economic conditions, risk characteristics of various financial
        instruments and other factors. The estimates presented herein are not necessarily indicative of the
        amounts that the Company could realize in a current market exchange. Also, the use of different market
        assumptions and/or estimation methodologies may have a material effect on the estimated fair values.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|113
|---



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

|                                             | December 31, 2006 |        | December 31, 2005 |  
|-------------------------------------------- | ----------------- | ------ | ----------------- | -
|
|
|
|
|Assets:                                      |                   |        |                   |  
|Cash and cash equivalents                    | $                 | 2,264  |                   | $
|Notes receivable                             |                   | 7,234  |                   |  
|Notes receivable-
           related parties |                   | 148    |                   |  
|                                             |                   |        |                   |  
|Liabilities:
         Mortgage debt          |                   | 19,176 |                   |  

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The fair value estimates presented above are based on pertinent information available to management
      as of December 31, 2006 and 2005. Although management is not aware of any factors that would significantly
      affect the estimated fair value amounts, such amounts have not been comprehensively revalued since
      December 31, 2006 and, therefore, current estimates of fair value may differ significantly from the
      amounts presented above.
        Fair value methods and assumptions are as follows:
      Cash and Cash Equivalents  The estimated fair value approximates carrying value, due to the short
        maturity of these investments.
      Notes Receivable  The fair value of notes receivable has been estimated by discounting projected
        cash flows using current rates for similar notes receivable.
      Mortgage Debt  The fair value of mortgage debt has been estimated by discounting projected cash
        flows using current rates for similar debt.
      25.   FUTURE MINIMUM ANNUAL BASE RENTS
      Future minimum annual base rental revenue for the next five years for commercial real estate owned
        at December 31, 2006, and subject to non-cancelable operating leases is as follows:

|114
|---



|Year Ending December 31, |  
|------------------------ | -
|2007                     | $
|2008                     |  
|2009                     |  
|2010                     |  
|2011                     |  
|                         |  
|Total                    | $
|                         |  

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

|26.QUARTERLY FINANCIAL INFORMATION  UNAUDITED          
|--------------------------------------------------------
|(Amounts in thousands, except earnings per common share)
|                                                        

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

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

|115
|---



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

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

|                      
|----------------------
|27.   SUBSEQUENT EVENT

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

|116
|---