UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington,
D.C. 20549 FORM 10-KSB (MARK ONE)
  x
  ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2005o
  TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d)
     OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file
number 1-8594 PRESIDENTIAL REALTY CORPORATION(Exact name of registrant as specified in its
  charter)  DELAWARE
  
  13-1954619(State or other jurisdiction of
  incorporation or organization)
  
  (I.R.S. Employer 
  Identification No.)180 South Broadway, White Plains, New York
  
  10605(Address of principal executive offices)
  
  (Zip Code)Registrants telephone number, including area code
  
  914-948-1300Securities registered pursuant to Section 12 (b) of
  the Act:  Title of each class
  
  Name of each exchange
  on
  which registeredClass A Common Stock
  
  American Stock ExchangeClass 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). Yeso
Nox The
registrants revenues for the year ended December 31, 2005 were $4,414,864. The
aggregate market value of voting stock held by non-affiliates of the registrant
based on the closing price of the stock at February 13, 2006 was $23,340,000.
The registrant has no non-voting stock. The
number of shares outstanding of each of the registrants classes of common
stock on March 10, 2006 was 478,840 shares of Class A common and 3,420,461
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, 2006,
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): Yeso   No  x    PRESIDENTIAL
REALTY CORPORATION

TABLE OF CONTENTS

FACING PAGE
  1TABLE OF CONTENTS
  2FORWARD-LOOKING STATEMENTS
  3PART IItem 1.
  Description
  of Business
  3Item 2.
  Description
  of Property
  18Item 3.
  Legal
  Proceedings
  21Item 4.
  Submission
  of Matters to a Vote of Security Holders
  21PART
  IIItem 5.
  Market
  for Common Equity and Related Stockholder Matters
  21Item 6.
  Managements
  Discussion and Analysis or Plan of Operation
  23Item 7.
  Financial
  Statements
  49Item 8.
  Changes
  in and Disagreements with Accountants on Accounting and Financial Disclosure
  49Item 8A.
  Controls
  and Procedures
  50Item 8B.
  Other
  Information
  50PART IIIItem 9.
  Directors,
  Executive Officers, Promoters and Control Persons; Compliance with Section
  16(a) of the Exchange Act
  51Item 10.
  Executive
  Compensation
  51Item 11.
  Security
  Ownership of Certain Beneficial Owners and Management and Related Stockholder
  Matters
  51Item 12.
  Certain
  Relationships and Related Transactions
  51Item 13.
  Exhibits
  51Item 14.
  Principal
  Accountant Fees and Services
  55Table of Contents to Consolidated
  Financial Statements
  582

Forward-Looking
Statements

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

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

ITEM I.
DESCRIPTION OF BUSINESS(a)
GeneralPresidential Realty Corporation is a Delaware
corporation organized in 1983 to succeed to the business of a company of the
same name which 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 makes loans secured by interests in real estate.

3

Presidential self-manages
the properties that it owns and the property owned by PDL, Inc. and Associates
Limited Co-Partnership (Home Mortgage Partnership) in which the Company is
the general partner and has a 33% partnership interest. At December 31, 2005,
the Company employs 27 people, of which 15 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.

The Companys principal assets fall into the following
categories:

(i) Joint ventures. Approximately 51% of the Companys
assets consists of investments in and advances to joint ventures. The Company
accounts for these investments using the equity method. At December 31, 2005,
investments in and advances to joint ventures were $23,291,133. See Managements
Discussion and Analysis or Plan of Operation and Note 5 of Notes to
Consolidated Financial Statements.

(ii) Notes receivable. Approximately 22% of the
Companys assets consists of notes receivable, which are reflected on the
Companys Consolidated Balance Sheet at December 31, 2005 as Mortgage portfolio:
sold properties and other - net. The $10,647,847 aggregate principal amount of
these notes has been reduced by $758,388 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 accepted). See Notes 1-B, 1-C, 1-D and
3 of Notes to Consolidated Financial Statements. Accordingly, the net
carrying value of the Companys Mortgage portfolio: sold properties and other
was $9,889,459 at December 31, 2005.

All of the loans included in this category of assets
were current at December 31, 2005.

Notes reflected under Mortgage portfolio: sold
properties and other - net consist of notes received from sales of real
properties previously owned by the Company in the aggregate principal amount of
$4,565,000, loans originated by the Company in the aggregate principal amount
of $6,000,000 and notes in the aggregate principal amount of $82,847 that
relate to sold cooperative apartments.

4

(iii) Equity interests in rental properties.
Approximately 4% of the Companys assets are equity interests in rental
properties. These properties have an historical cost of $6,124,665, less
accumulated depreciation of $4,225,223, resulting in a net carrying value of
$1,899,442 at December 31, 2005. See Description of Property below.

(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 estimates that the sale
of this property will close within one year. 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, 2005,
assets related to discontinued operations were $2,850,245. See Managements Discussion
and Analysis or Plan of Operation.

(v) Other investments.
Approximately 3% 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
in select markets nationwide. At December 31, 2005, other investments were
$1,495,000. See Managements Discussion and Analysis or Plan of Operationand
Note 6 of Notes to the 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 $271,073 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, 2005
as Mortgage portfolio: related parties - net. The principal amounts of these
notes have been reduced by discounts and valuation reserves of $61,786 and
these notes have a net carrying value at December 31, 2005 of $209,287.
Management believes that it holds sufficient collateral to protect its
interests in these outstanding loans to Ivy. At December 31, 2005, all of the
loans due from related parties were current. See Relationship with Ivy
Properties, Ltd. and Notes 3 and 21 of Notes to Consolidated Financial
Statements.

5

The Companys investments in
and advances to joint ventures in the amount of $23,291,133 were made to joint
ventures controlled by affiliates of David Lichtenstein. At December 31, 2005,
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 $9,875,000 with a net carrying value of $9,122,683. Some,
but not all, of these loans are guaranteed in whole or in part by Mr.
Lichtenstein and all of such loans are in good standing. While the Company
believes that all of these loans are adequately secured, a default on some or
all of these loans could have a material adverse effect on Presidentials
business and operating results. The $32,413,816 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 71% of the Companys total assets at December 31, 2005. In 2005, the
Company purchased, and is the beneficiary of, a $20,000,000 insurance policy on
Mr. Lichtensteins life.

Subsequent to year end, the
Company received a partial repayment on one of the loans outstanding to
entities controlled by Mr. Lichtenstein. The Company received a partial
repayment 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.
See Managements Discussion and Analysis or Plan of Operationand Note
25 of Notes to the Consolidated Financial Statements.

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
outlet 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

6

27,000,000 square feet of
office, industrial and commercial space in twenty-eight 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 2005 were $.64 per
share.

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 status. See Qualification
as a REIT and Market for Common Equity and Related Stockholder Matters.

(b)
Investment StrategiesThe 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 VenturesThe Company has in the
  last four years utilized a substantial portion of its funds available for
  investment to make loans secured by interests in real property. These loans
  have been7

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-Sold Properties and
  Other 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.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 the purchase money notes will actually be
  made when due.The capital gains from
  sales of real properties previously owned by the Company 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 for8

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 2005 as a
  retained capital gain dividend.(ii)
Equity PropertiesFor 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 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 four
  years, the Company has sold or otherwise disposed of six of its apartment
  properties and is now planning to sell one additional apartment property. See
  Managements Discussion and Analysis or Plan of Operation  Discontinued
  Operations.(iii)
Funding of InvestmentsIn the past, the Company has obtained funds to make
  loans and investments from excess cash from operations or capital
  transactions, 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 from9

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. SeeManagements Discussion and Analysis or
  Plan of Operation  Liquidity and Capital Resources.(c)
Investments in and
  Advances to Joint VenturesDuring 2004 and 2005, the
Company made investments in and loans to joint ventures and received 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 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 2005, 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. The Company utilized the $12,365,000 net cash proceeds from the sale of
its Continental Gardens property in Miami, Florida and the proceeds of a first
mortgage loan in the amount of $14,635,000 to acquire this property. Subsequent
to closing, the Company obtained an additional advance of $8,326,590 under the
first mortgage loan and 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 that owns the property, leaving the Company with a 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.

10

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 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 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.

11

The following table sets
forth information as of December 31, 2005 with respect to the investments in
and advances to joint ventures.

Name
        of
        Property
    
    Joint
        Venture
        Partner
    
    Presidentials
        Ownership
        Interest
    
    Investments
        in
        and Advances to
        Joint VenturesMartinsburg
        Mall
    
    David
        Lichtenstein
    
    29%
    
    $
    919,549Martinsburg,
        WVFour
        Malls
    
    David
        Lichtenstein
    
    29%
    
    
    6,694,235Shenango
        Valley MallHermitage, PAWest
        Manchester MallYork, PABradley
        Square MallCleveland, TNMount
        Berry Square MallRome, GAShawnee/Brazos
        Malls
    
    David
        Lichtenstein
    
    29%
    
    
    6,800,268Brazos
        OutletsCenter MallLake Jackson, TXShawnee
        MallShawnee, OKMacon/Burlington
        Malls
    
    David
        Lichtenstein
    
    29%
    
    
    8,877,081Macon
        MallMacon, GABurlington
        MallBurlington, NC$
    23,291,133(d)
Loans and InvestmentsThe following table sets forth information as of
December 31, 2005 with respect to the mortgage loan portfolio resulting from
the sale of properties or loans originated by the Company.

12

MORTGAGE
  PORTFOLIO: NOTES RECEIVABLE - SOLD PROPERTIES AND OTHERDECEMBER
  31, 2005Name
of Property






Note
Receivable


Discount

Net
Carrying
Value

Maturity
Date

Interest
Rate
December 31,
2005Chelsea Village
Apartments

(a
)

(1
)
$
3,875,000
(b
)
$
752,317

$
3,122,683


2009


10.75
%Atlantic City,
NJPinewood Chase Apartments

(a
)Suitland, MDPlaza Village
Apartments

(a
)Morrisville,
PATown Oaks Apartments

(a
)South Bound
Brook, NJReisterstown
Apartments

(a
)

(2
)

1,500,000
(b
)

-


1,500,000


2008


12.17
%Baltimore,
MDMark Terrace
Associates




(3
)

590,000



-


590,000


2008


9.16
%Bronx,
NYPinewood I & II







100,000



-


100,000


2008


12.00
%Des Moines,
IAVirginia Apartment
Properties




(4
)

4,500,000
(b
)

-


4,500,000


2013


11.50
%Various Sold Co-op
Apartments







82,847
(c
)

6,071


76,776


Various


VariousTotal Notes
Receivable-Sold
Properties and Other






$
10,647,847


$
758,388

$
9,889,459(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.13

(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
  above the six month LIBOR rate, with a minimum rate of 10.50% per annum. At
  December 31, 2005, the annual interest rate was 12.17%.(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. As a result, the Company will receive a principal
  payment of $100,000 in 2006. If the borrower exercises its remaining options
  to extend the note, the Company will receive additional principal payments of
  $100,000 on each of November 30, 2006 and November 30, 2007. As of December
  31, 2005, the note is collateralized by 85 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 2005, the Company received principal payments of
  $110,000 for units that were sold in 2005.(4)
In October, 2003, the
  Company made a $4,500,000 loan collateralized by ownership interests in nine
  apartment properties located in the Commonwealth of Virginia. The loan
  matures on October 23, 2013 and basic interest accrues at an annual rate of
  11.50% through October 23, 2007 and at 11% per annum from October 24, 2007 to
  maturity. For the first five years of the loan, a portion of the basic interest
  equal to 2% per annum is deferred and is payable on the fifth anniversary of
  the loan. In addition to the basic interest accruing on the loan, the Company
  is entitled to receive additional interest equal to 25% of any net sales or
  refinancing proceeds resulting14

from sales or refinancing
  of the nine properties. Subsequent to year end, the first mortgages on the
  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. See Managements Discussion and Analysis
  or Plan of Operationand Note 25 of Notes to the Consolidated
  Financial Statements.(e)
Qualification as a REITSince 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.

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.

15

(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 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
$271,073 as of December 31, 2005, and a net carrying amount of $209,287, after
deducting discounts. Two of the notes have an outstanding principal balance of
$4,770,050 at December 31, 2005 (the Consolidated Loans). 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 small portion of the notes that was adequately secured and was
repaid in 2002. Presidential received interest of $385,476 and $585,327 from
Ivy during 2005 and 2004, 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 an aggregate of
153,149 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.

16

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 that acts as a
producer of theatrical productions, including The Producers and Hairspray,
two successful productions that have recouped their original investments and
have been distributing profits since 2001 and 2003, respectively. 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 continue to be significant over the next
several years. However, the continued profitability of any theatrical
production is by its nature uncertain and management believes that any estimate
of payments from Scorpio on the Consolidated Loans for future periods is too
speculative to project. During 2005, Presidential received $354,000 of interest
payments on the Consolidated Loans. The Consolidated Loans bear interest at a rate
equal to the Chase Prime rate, which was 7.25% at December 31, 2005. At
December 31, 2005, the unpaid and unaccrued interest was $3,103,816 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 3 and 21 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.

(g)
CompetitionThe 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.

17

ITEM 2.
DESCRIPTION OF PROPERTYAs of December 31, 2005, the Company had an ownership
interest in 154 apartment units and 410,500 square feet of commercial,
industrial and professional space, all of which are carried on its balance
sheet at $1,899,442 (net of accumulated depreciation of $4,225,223). The
Company has mortgage debt on the majority of these properties in the aggregate
principal amount of $3,647,603, all of which is nonrecourse to Presidential
with the exception of $1,154,451 secured by the mortgage on the Building
Industries Center property and $145,788 secured by the mortgage on the
Mapletree Industrial Center property.

Included in the 154
apartment units owned by Presidential are 49 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, 2005, the
Company also has an ownership interest in one apartment property that is being
held for sale and is classified as assets related to discontinued operations.
At December 31, 2005, the carrying value of this property was $2,718,244 (net
of accumulated depreciation of $1,634,554) and the mortgage debt, which is
nonrecourse to Presidential, was $2,917,285.

The chart below lists the Companys properties as of December 31, 2005.

18

REAL ESTATE

Gross
        Amount of Real EstateAverage
        
        Vacancy
        Rate
        Percent
        2005
    
    At
        December 31, 2005Rentable
    
    
    Buildings
        andProperty
    
    
    Space
        (approx.)
    
    
    Land
    
    Improvements
    
    TotalResidentialApartment
        BuildingCrown
        Court, New Haven, CT
    
    (1)
    
    105
        Apt. Units & 2,000 sq.ft. of comml. space
    (3)
    
    (Net
        Lease
    )
    $
    168,000
    
    $
    3,135,926
    
    $
    3,303,926Individual
        Cooperative ApartmentsTowne
        House, New Rochelle, NY
    
    
    
    42
        Apt. Units
    (3)
    
    1.67
    %
    
    81,204
    
    
    602,427
    
    
    683,631Various
        Cooperative Apartments, NY & CT
    
    
    
    7 Apt.
        Units
    (3)
    
    0.00
    %
    
    14,337
    
    
    100,535
    
    
    114,872Commercial
        BuildingsBuilding
        Industries Center, White Plains, NY
    
    
    
    23,500
        sq.ft.
    
    
    1.22
    %
    
    61,328
    
    
    1,271,500
    
    
    1,332,828Mapletree
        Industrial Center, Palmer, MA
    
    
    
    385,000
        sq.ft.
    
    
    23.85
    %
    
    79,100
    
    
    610,308
    
    
    689,408$
    403,969
    
    $
    5,720,696
    
    $
    6,124,665Real
        Estate of Discontinued Operations ResidentialApartment
        BuildingCambridge
        Green, Council Bluffs, IA
    
    (2)
    
    201
        Apt. Units
    (3)
    
    17.14
    %
    $
    200,000
    
    $
    4,152,798
    
    $
    4,352,798Property
    
    Accumulated
        Depreciation
        December 31,
        2005
    
    Net
        Amount of
        Real Estate
        At
        December 31,
        2005
    
    Mortgage
        Balance
        December 31,
        2005
    
    
    Maturity
        Date
    
    Interest
        RateResidentialApartment
        BuildingCrown
        Court, New Haven, CT
    
    $
    2,808,608
    
    $
    495,318
    
    $
    2,347,364
    
    
    
    November,
        2021
    
    
    7.00
    %Individual
        Cooperative ApartmentsTowne
        House, New Rochelle, NY
    
    
    155,591
    
    
    528,040
    
    
    Various
        Cooperative Apartments, NY & CT
    
    
    27,560
    
    
    87,312
    
    
    Commercial
        BuildingsBuilding
        Industries Center, White Plains, NY
    
    
    1,069,671
    
    
    263,157
    
    
    1,154,451
    
    (4)
    
    January,
        2009
    
    
    5.45
    %Mapletree
        Industrial Center, Palmer, MA
    
    
    163,793
    
    
    525,615
    
    
    145,788
    
    
    
    June,
        2011
    
    
    6.00
    %$
    4,225,223
    
    $
    1,899,442
    
    $
    3,647,603Real
        Estate of Discontinued Operations ResidentialApartment
        BuildingCambridge
        Green, Council Bluffs, IA
    
    $
    1,634,554
    
    $
    2,718,244
    
    $
    2,917,285
    
    
    
    October,
        2029
    
    
    6.65
    %(1)
The Crown
  Court property is subject to a long-term net lease containing an option to
  purchase in 2009.(2)
The
  Cambridge Green property is currently being marketed for sale. 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)
This
  mortgage amortizes monthly with a balloon payment due at maturity.19

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.

The mortgages
on the Companys properties have fixed rates of interest and amortize monthly
with the exception of the Building Industries Center mortgage, which has a
balloon payment of $1,072,906 due at maturity.

During 2004
and 2005, Presidential invested in and made loans to various entities that own
and operate shopping center malls throughout the United States. In addition to
interest payable on the loans at the rate of 11% per annum, the Company also
received a 29% ownership interest in these various entities (see Description
of Business  Investments in and Advances to Joint Ventures
above). Presidential accounts for these investments in and advances to joint
ventures under the equity method. At December 31, 2005, investments in and
advances to joint ventures was $23,291,133.

The Company is
the general partner of PDL, Inc. and Associates Limited Co-Partnership (Home
Mortgage Partnership) and has an aggregate 33% general and limited partner
interest in the Home Mortgage Partnership. The Home Mortgage Partnership owns
and operates an office building, with 211,000 square feet of commercial space,
located in Hato Rey, Puerto Rico. Presidential accounts for its investment in
this partnership under the equity method. At December 31, 2005, the Companys
investment in the partnership had a negative basis for financial reporting
purposes of $2,208,990. The negative basis was a result of distributions
received from the partnership in excess of investments and earnings, and not a
result of partnership operating losses.

During 2005,
two tenants at the building vacated a total of 52,088 square feet of office
space at the expiration of their leases in order to take occupancy of their own
newly constructed office buildings and subsequent to year end another tenant
vacated 30,299 square feet of office space in order to take occupancy of its
newly constructed office building. As a result, at December 31, 2005, the
vacancy rate at the building was 33% and at March 15, 2006, the vacancy rate
was approximately 48%. Because of the relatively weak rental market in the Hato
Rey area, the Company expects that it will take some time to find tenants for
the vacant space and that until a substantial portion of the vacant space is
rented, the property will

20

operate at a
loss. In addition, the Home Mortgage Partnership has decided to undertake a
program of repairs and improvements to the building that is expected to cost
approximately $1,255,000. The Company has agreed to lend up to $1,000,000 to the
Home Mortgage Partnership (and has the right to lend an additional $1,000,000)
to pay for the cost of improvements to the building and fund any negative cash
flows from the operation of the property. The loan, which will be advanced from
time to time as funds are needed, will bear interest at the rate of 11% per
annum, with interest and principal to be paid out of the first positive cash
flow from the property or upon a refinancing of the first mortgage on the
property.

ITEM 3.
LEGAL
  PROCEEDINGSNone.

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

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


DividendsPaid
PerClass
A

Class
B


Share
onClass
AHigh

Low

High

Low


and
Class BCalendar 2004First Quarter

$
7.80

$
7.44

$
7.85

$
6.95

$
.16Second Quarter


7.75


7.50


7.70


7.05


.16Third Quarter


8.15


6.70


8.09


7.33


.16Fourth Quarter


11.00


8.10


10.00


7.95


.16Calendar 2005First Quarter

$
11.10

$
9.10

$
10.33

$
8.70

$
.16Second Quarter


10.65


9.55


9.15


7.70


.16Third Quarter


9.35


8.00


8.67


7.60


.16Fourth Quarter


8.36


7.70


8.20


7.25


.16(b)
The number
  of record holders for the Companys Common Stock at December 31, 2005 was 104
  for Class A and 520 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, 2005,
  relating to our 2005 Restricted Stock Plan, which was approved by security
  holders:Number of
  securities

Weighted-average

Number of
  securitiesto be issued
  upon exercise

exercise
  price of

remaining
  availableof
  outstanding options,

outstanding
  options,

for future
  issuancewarrants and
  rights

warrants and
  rights

under equitycompensation
  plans(excluding
  securitiesreflected in column (a))(a)

(b)

(c)None

None

101,000
22

ITEM 6.
MANAGEMENTS
  DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONOverview

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

Investments
in and Advances to Joint Ventures

On July 7,
2005, Presidential made a $9,500,000 mezzanine loan to Lightstone Member III
(Lightstone III) in connection with the purchase by Lightstone III of two
shopping mall properties. The loan bears interest at the rate of 11% per annum
and is due on June 30, 2015. As part of the loan transaction, Presidential
obtained a 29% ownership interest in the entities owning the two shopping
malls.

The Company
accounts for this investment using the equity method.

Other
Investments

During 2005,
the Company invested $1,495,000 with Broadway Real Estate Partners, LLC
(Broadway Partners) in connection with two investment opportunities. The first
investment is for $1,000,000, which money is being held in escrow pending
investment into Pickwick Preferred Equity Lender LLC. Pending such investment,
the Company is receiving interest at the rate of 11.43% per annum. The second
investment is a commitment by the Company to invest $1,000,000 in Broadway
Partners Parallel Fund A, a blind pool of investment capital sponsored by
Broadway Partners. The Company has advanced $495,000 of this commitment and the
balance of the commitment, at December 31, 2005, is $505,000. The Company
accounts for this investment at cost.

Real
Estate Loans

During 2005,
the Company received principal repayments on its mortgage portfolio of
$8,755,093, of which $8,550,000 pertains to the Encore Apartments note
receivable that was prepaid in March, 2005.

23

Rental
Property Operations

The Companys
income from rental property operations increased during 2005 as a result of
increased rental revenues and lower operating expenses at most of its
properties, especially the Mapletree Industrial Center property.

Discontinued
Operations

On January 26,
2005, the Company completed the sale of its Farrington Apartments property for
a sales price of $9,325,966. The net cash proceeds of sale were $1,592,580.

On April 4,
2005, the Company consummated the sale of its Fairlawn Gardens property for a
sales price of $3,500,000. The net cash proceeds of sale were $1,906,896.

In the fourth
quarter of 2005, the Company decided to sell the Cambridge Green property
located in Council Bluffs, Iowa and has classified this property as a
discontinued operation.

Management
Company

In October of
2004, the Company began to self-manage its properties through Fourth Floor
Management Corp. (FFMC), a 100% owned subsidiary of Presidential Realty
Corporation. FFMC also manages the property owned by PDL, Inc. and Associates
Limited Co-Partnership (Home Mortgage Partnership) in which the Company is
the general partner and has a 33% partnership interest. As a result of managing
its own properties through FFMC, the Company will achieve cost savings for
management fee expenses and rental lease commission expenses and will receive
management fee income and rental lease commission income from the Home Mortgage
Partnership. These savings will be partially offset by increases in salary
expenses for administrative personnel at the home office. The employees at the
individual property sites are employed directly by FFMC and the salary expenses
for rental property operations have remained the same.

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.

24

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, including the property held by PDL, Inc. and
Associates Limited Co-Partnership (Home Mortgage Partnership), 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
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, 2005, the Companys net real estate was $1,899,442 and the Home
Mortgage Partnerships net real estate was $3,905,347. During 2005, no
impairments were recorded on any of these properties.

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, 2005, assets related to discontinued operations were $2,850,245.

25

The Company estimates the value of a property held for sale to its
estimated fair value less costs to sell. During 2005, no impairment charges have
been recorded for the property held for sale.

Liabilities related to assets held for sale consist primarily of the
$2,917,285 nonrecourse mortgage debt on the property, which will either be
assumed by the purchaser or repaid from the proceeds of the sale. At December
31, 2005, total liabilities related to discontinued operations were $2,996,423
(see Discontinued Operations below).

Mortgage
Portfolio

The Company
evaluates the collectibility of both accrued interest and principal on its
$10,918,920 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 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.

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,
2005, other receivables, net of an allowance for doubtful accounts of $104,305,
were $422,353. For the years ended December 31, 2005 and 2004, bad debt expense
for continuing operations relating to tenant obligations was $7,200 and
$30,645, respectively. In addition, the Company recorded a bad debt expense in
2004 in the amount of

26

$269,585 for
receivables due from an unaffiliated property management company that had been
managing the Companys properties.

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 2005, but did make the maximum tax deductible contribution of
$165,906 in February of 2006 for the 2005 tax year. Contributions for the year
ended December 31, 2004 were $2,551,446. There are no required contributions
for 2006, but the Company may make a maximum tax deductible contribution in
2006 of approximately $389,000. Net periodic benefit costs for the years ended
December 31, 2005 and 2004 were $465,162 and $465,407, respectively. The
projected benefit obligation at December 31, 2005 was $7,377,008 and the fair
value of the plan assets was $7,453,100. At December 31, 2005 and 2004, the
discount rate used in computing the projected benefit obligation was 5.41% and
5.66%, 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, 2005 and 2004 were $473,837 and $459,290, respectively. Benefit
costs for the years ended December 31, 2005 and 2004 were $416,539 and
$414,053, respectively. The projected contractual pension benefit obligation at
December 31, 2005 was $2,835,963. At December 31, 2005 and 2004, the discount
rate used in computing the projected benefit obligation was 5.41% and 5.66%,
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.

27

Income
Taxes

The Company
operates in a manner intended to enable it to continue to qualify as a Real
Estate Investment Trust (REIT) under Sections 856-860 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
2005, there is no requirement to make a distribution in 2006. In addition,
although no assurances can be given, the Company currently expects that it will
not have to pay Federal income taxes for 2005 because its present intention is
to distribute all of its 2005 taxable income (including capital gain) during
2005 and 2006. Therefore, no provision for income taxes has been made at
December 31, 2005. 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

Financial Highlights from Consolidated Statements of Operations:

Year Ended December 31,2005

2004Revenues

$
4,414,864

$
5,492,745Income (loss) before net gain
  from sales of properties

$
(1,881,834
)
$
161,350Recognition of deferred gain
  on sales of properties


3,241,540


2,991,850Income from continuing
  operations


1,359,706


3,153,200Discontinued
Operations:Loss from
discontinued
  operations


(588,484
)

(170,524
)Net gain from
sales of
  discontinued operations


2,423,209


12,171,162Total income from discontinued
  operations


1,834,725


12,000,638Net Income

$
3,194,431

$
15,153,83828

2005 vs
2004

Revenues decreased by $1,077,881 primarily as a result of decreases in
interest income on mortgages-sold properties and other and interest income on
mortgages-related parties. These decreases were partially offset by increases in
rental revenues and other revenues.

Rental revenues increased by $122,677 as a result of increases at all
of the rental properties.

Interest on mortgages-sold properties and other decreased by
$1,324,709. As a result of $17,550,000 in repayments on notes receivable in the
fourth quarter of 2004 and the first quarter of 2005, interest income on those
notes decreased by $1,336,312 in the 2005 period.

Interest on mortgages-related parties decreased by $209,044 primarily
as a result of a decrease of $194,750 in payments of interest income received
on the Consolidated Loans (see below).

Other revenues increased by $333,195 primarily as a result of 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 increased by $103,671 for fees earned by
the Companys management company for third party owned properties. These
increases were partially offset by a $60,000 prepayment fee received on the
repayment of the Newcastle note receivable in 2004.

Costs and
expenses increased by $51,194 primarily due to increases in general and
administrative expenses, partially offset by decreases in rental property
operating expenses.

General and
administrative expenses increased by $80,180 primarily as a result of a
$152,842 increase in salary expense, of which $83,956 pertains to new employees
hired in connection with the property management company formed in October,
2004 and $68,886 pertains to annual salary increases. In addition, professional
fees increased by $99,287 and postretirement benefit costs increased by
$90,096. These increases were partially offset by a decrease of $254,698 in bad
debt expense. In 2004, the Company wrote off to bad debt expense a $269,585
receivable due from an unaffiliated property management company.

29

Rental
property operating expenses decreased by $40,730 primarily as a result of a
$44,007 decrease in property management fees. During the 2004 period, management
fees were paid to a third party management company. As of October 1, 2004, the
Company self-managed its properties and had no management fee expense in 2005.

Other income decreased by $916,428 primarily as a result of the
$771,852 increase in the equity in the loss of joint ventures. The Company
purchased these investments in joint ventures in the third and fourth quarters
of 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 income of partnership decreased by $291,494 due to lower
earnings of the Home Mortgage Partnership, as a result of a higher vacancy rate
at its property (see Liquidity and Capital Resources  Home Mortgage
Partnership below). These decreases were partially offset by a $146,918
increase in investment income attributable to higher interest rates and higher
cash balances.

Income from continuing operations before net gain from sales of
properties decreased by $2,043,184 from income of $161,350 in 2004 to a loss of
$1,881,834 in 2005. This decrease was primarily a result of decreases in
revenues of $1,077,881, the increase in the equity in the loss of joint
ventures of $771,852 and the decrease in the equity in the income of
partnership of $291,494.

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
compared to $2,991,850 in 2004.

Gain from sales recognized
  for the year ended December 31,

2005

2004Deferred gains
recognized upon receipt of
  principal payments on notes:Encore
Apartments

$
3,241,540

$
Newcastle
Apartments





2,991,840Net
gain

$
3,241,540

$
2,991,840Discontinued
Operations:

The Company
had three properties that were classified as discontinued operations during
2005: the Farrington Apartments property in Clearwater, Florida, which was sold
in January of 2005, the Fairlawn Gardens property in Martinsburg, West
Virginia, which

30

was sold in
April of 2005, and the Cambridge Green property, which was designated as held
for sale during the quarter ended December 31, 2005. (See Liquidity and
Capital Resources  Discontinued Operations below).

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

2005

2004Income (loss) from discontinued
operations:Cambridge Green, Council
Bluffs, IA

$
(472,997
)
$
(100,836
)Fairlawn Gardens, Martinsburg,
WV


26,889


12,926Farrington Apartments,
Clearwater, FL


(142,376
)

(206,144
)Continental Gardens, Miami,
FL





248,907Preston Lake Apartments,
Tucker, GA





(121,046
)Three cooperative apartment
units





(4,331
)Loss from discontinued
operations


(588,484
)

(170,524
)Net gain (loss) from sales of
discontinued operations:Fairlawn Gardens


2,434,789


Farrington Apartments


(11,580
)

Continental Gardens





11,008,520Preston Lake
Apartments





248,697Three cooperative apartment
units





913,945Net gain from sales of
discontinued operations


2,423,209


12,171,162Total income from discontinued
operations

$
1,834,725

$
12,000,638Balance Sheet

Net real
estate decreased by $2,360,287 primarily as a result of the $2,389,387
reclassification of net real estate related to the Cambridge Green property,
which was reclassified from net real estate to assets related to discontinued
operations in 2005. In addition, in 2005 the Company purchased additions and
improvements to the properties of $154,283 and recorded depreciation of
$125,183.

Net mortgage
portfolio decreased by $5,361,514 as a result of the repayment of the Encore
Apartments note receivable. In March, 2005, the Company received repayment of
its $8,550,000 note secured by a

31

mortgage on
Encore Apartments in New York, New York. As a result, mortgage receivables
decreased by $8,550,000 and deferred gains on sale decreased by $3,241,540 (a
net effect of $5,308,460 on the mortgage portfolio) and a deferred gain of
$3,241,540 was recognized. In connection with the prepayment of this note, the
Company also received a prepayment fee of $256,500, other fees of $25,000 and
an additional interest payment of $171,000.

Assets related
to discontinued operations decreased by $8,185,762 from $11,036,007 at December
31, 2004 to $2,850,245 at December 31, 2005. Due to the sales of the Farrington
Apartments and the Fairlawn Gardens properties in 2005, assets related to
discontinued operations decreased by $11,036,007. The reclassification of the
Cambridge Green property to discontinued operations in 2005 increased assets
related to discontinued operations by $2,850,245.

Investments in
and advances to joint ventures increased by $6,076,770 primarily as a result of
the $9,500,000 investment made in the Macon and Burlington Malls in July of
2005. This increase was partially offset by distributions of $2,505,239 received
by the Company (of which $2,171,889 was interest at the rate of 11% on loans
advanced to the joint ventures in the aggregate principal amount of $25,600,000
and $333,350 was a return on investment) and $880,685 of equity in the loss
from the joint ventures.

In 2005, the
Company invested $1,495,000 in other investments (see Liquidity and Capital
Resources below).

Prepaid
expenses and deposits in escrow decreased by $474,438 primarily as a result of
decreases of $492,080 in deposits in escrow, partially offset by increases of
$17,642 in prepaid expenses.

Prepaid
defined benefit plan costs decreased by $465,162 as a result of the $465,162
net periodic benefit costs for 2005.

Other
receivables decreased by $355,645 primarily as a result of a decrease in
accrued interest receivable of $196,584, decreases in net tenant accounts
receivable of $68,673 and decreases of $90,388 in miscellaneous receivables.

Cash and cash
equivalents increased by $792,470 primarily as a result of the $9,002,500 cash
received from the prepayment, additional interest and fees on the Encore
Apartments note receivable repayment; net cash proceeds of $1,592,580
from the sale of the Farrington Apartments property and net cash proceeds of

32

$1,906,896 (after first mortgage repayment of $1,411,670) from the sale of the
Fairlawn Gardens property, which were partially offset by disbursements of
$9,500,000 for investment in joint ventures, $1,495,000 for other investments,
$664,854 for additions and improvements and $65,000 for the purchase of an
additional 1% interest in the Home Mortgage Plaza partnership.

Other assets
decreased by $150,152 primarily as a result of the reclassification of $139,398
from other assets to assets related to discontinued operations.

Mortgage debt
decreased by $3,090,323 primarily as a result of the reclassification of
$2,965,810 from mortgage debt to liabilities related to discontinued
operations.

Liabilities
related to discontinued operations decreased by $6,856,499. As a result of the
2005 sales of the Farrington Apartments and Fairlawn Gardens properties,
liabilities related to discontinued operations decreased by $9,852,922. These
decreases were offset by a $2,996,423 increase resulting from the
reclassification of $2,917,285 of mortgage debt and $79,138 of other
liabilities related to the Cambridge Green property, which is classified as
discontinued operations.

Accrued
liabilities decreased by $171,369 primarily as a result of decreases in accrued
rental property expenses of $106,717 and decreases of $64,652 in accrued
general and administrative expenses.

Accounts
payable increased by $97,930. This increase in accounts payable is a result of
payment timing and not from insufficient cash flows.

Other
liabilities decreased by $68,530 primarily as a result of the reclassification
of $79,393 of tenants security deposits to liabilities related to discontinued
operations.

In July, 2005,
three independent directors of the Company each received 1,000 shares of the
Companys Class B common stock as partial payment for directors fees for the
2005 year. The shares were valued at $8.35 per share, which was the market value
of the Class B common stock at the grant date, and, accordingly, the Company
recorded $25,050 in prepaid directors fees based on the market value of the
stock. The Company recorded additions to the Companys Class B common stock of
$300 at par value of $.10 per share and $24,750 to additional paid-in
capital. In addition, in August, 2005, an executive of the Company was awarded
11,000

33

restricted
shares of the Companys Class B common stock, of which 10,000 were granted and
accrued for in 2004 and 1,000 were granted in 2005 (subject to shareholder
approval of the proposed 2005 Restricted Stock Plan, which was obtained in
June, 2005). The 10,000 shares were valued at $7.51 per share and the 1,000
shares were valued at $9.04 per share, which were the respective market values
of the Class B common stock at the grant date. Accordingly, the Company
recorded salary expense of $75,100 in 2004 and $9,040 in 2005. In 2005, the
Company recorded additions to the Companys Class B common stock of $1,100 at
par value of $.10 per share and $83,040 to additional paid-in capital.

Accumulated
other comprehensive loss increased by $79,503 primarily as a result of an
adjustment of $80,257 for contractual pension benefits.

Funds From Operations

Funds from
operations (FFO) represents net income computed in accordance with GAAP,
excluding gains or losses from sales of properties (including properties
classified as discontinued operations), plus depreciation and amortization on
real estate. FFO is calculated in accordance with the National Association of
Real Estate Investment Trusts (NAREIT) definition. There are no material
legal or functional restrictions on the use of FFO. FFO should not be considered
as an alternative to net income as an indicator of the Companys operating
performance. Management believes that FFO is helpful to investors as
supplemental performance measures because these measures exclude the effect of
depreciation, amortization and gains or losses from sales of real estate, all
of which are based on historical costs which implicitly assumes that the value
of real estate diminishes predictably over time. Since real estate values
instead have historically risen or fallen with market conditions, these
non-GAAP measures can facilitate comparisons of operating performance between
periods and among other REITs.

34

FFO is summarized in the following table:

Year ended December 31,2005

2004Net Income

$
3,194,431

$
15,153,838Net gain from sales of
properties


(3,241,540
)

(2,991,850
)Net gain from sales of
discontinued operations


(2,423,209
)

(12,171,162
)Depreciation and amortization
on:Real
estate


125,183


115,407Real estate of
discontinued operations


160,257


334,191Real estate of
partnership


101,005


97,206Real estate of
joint ventures


2,256,368


287,970Funds From Operations

$
172,495

$
825,600Distributions paid to
shareholders

$
2,456,304

$
2,432,273FFO payout ratio (1)


1,424.0
%

294.6
%(1)
In 2005 and 2004, the Company decided to maintain its cash dividend at the
annual rate of $.64 per share despite the fact the dividends paid exceeded
funds from operations. As a result of balloon payments received on the
Companys mortgage portfolio and proceeds from sales of properties, the Company
had funds available to it for distribution to shareholders notwithstanding the
fact that distributions exceeded funds from operations in those periods. See Liquidity
and Capital Resources below.

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, 2005, there was no outstanding balance due
under the line of credit.

35

At December 31, 2005, Presidential had $2,878,237 in
available cash and cash equivalents, an increase of $792,470 from the
$2,085,767 at December 31, 2004. This increase in cash and cash equivalents was
due to cash provided by operating activities of $2,470,810 and cash provided by
investing activities of $2,818,697, offset by cash used in financing activities
of $4,497,037.

During 2004, the Company paid cash distributions to
shareholders that 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 2004, pay dividends in excess of its
cash flow from operating activities if management believes that the Companys
liquidity and capital resources are sufficient to pay such dividends.

To
the extent that payments received on its mortgage portfolio or payments
received from sales are taxable as capital gains, the Company has the option to
distribute the gain to its shareholders or 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 2005, 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 2005, the cost for this
insurance was approximately $187,000. The Company has renewed its insurance
coverage for 2006 and the Company estimates that the premium costs will be
approximately $192,000 for 2006. Although the Company has been able to obtain
terrorism coverage on

36

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, 2005, 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 continue to be
significant over the next several years. However, the continued profitability
of any theatrical production is by its nature uncertain and management believes
that any estimate of payments from Ivy on the Consolidated Loans for future
periods is too speculative to project. Presidential received payments of
$354,000 in 2005 and $548,750 in 2004 of interest income on the Consolidated
Loans. The Consolidated Loans bear interest at a rate equal to the Chase Prime
rate, which was 7.25% at December 31, 2005. At December 31, 2005, the unpaid
and unaccrued interest was $3,103,816 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 a partnership and joint ventures. In
2005, cash received from interest on the Companys mortgage portfolio was
$2,122,593 and distributions received from the partnership and joint ventures
were $26,922 and $2,505,239, respectively. Net cash received from rental
property operations was $425,089. Net cash received from rental property
operations is net of distributions from partnership operations to minority
partners but before additions and improvements and mortgage amortization.

37

Investing
Activities

Presidential holds a portfolio of mortgage notes
receivable. During 2005, the Company received principal payments of $8,755,093
on its mortgage portfolio, of which $8,711,194 represented prepayments and
balloon payments.

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, the Company recognized a gain of $3,241,540 which had
previously been deferred. In connection with the prepayment, the Company
received a prepayment fee of $256,500, other fees of $25,000 and additional
interest of $171,000.

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

In
July, 2005, the Company made a $9,500,000 loan to Lightstone Member III LLC
(Lightstone III) in connection with the acquisition by Lightstone III of two
shopping malls (see Investments in and Advances to Joint Ventures below).

During 2005, the Company received
$875,434 of net proceeds from a fire insurance settlement pertaining to the
Fairlawn Gardens property.

During 2005, the Company invested
$664,854 in additions and improvements to its properties, of which
approximately $503,000 pertains to discontinued operations. It is projected
that additions and improvements in 2006 will be approximately $150,000.

In
January, 2005, the Company completed the sale of its Farrington Apartments
property in Clearwater, Florida, resulting in net proceeds of sale of
$1,592,580 (see Discontinued Operations below).

In
April, 2005, the Company completed the sale of its Fairlawn Gardens property in
Martinsburg, West Virginia resulting in net proceeds of sale of $1,906,896 (see
Discontinued Operations below).

On
May 24, 2005, the Company invested $1,000,000 with Broadway Real Estate
Partners, LLC (Broadway Partners), which money is being held in escrow
pending investment into Pickwick Preferred Equity Lender LLC (Pickwick).
While the money is being held in escrow, the Company received interest payments
at the rate of 8% per annum from May 24, 2005 through May 31, 2005 and at the
rate of 11.43% per

38

annum
thereafter. The $1,000,000 is scheduled to be invested in 2006.

When
the investment in Pickwick is made, the Company will own a 12.05% interest in a
limited liability company whose sole asset is an $8,300,000 note receivable
secured by certain ownership interests in an office building in Greenwich,
Connecticut. Presidential is entitled to receive $9,525 of interest per month
on its investment and when the $8,300,000 loan is repaid, Presidential will
receive $974,335 in full liquidation of its investment.

Presidential
also has agreed to invest $1,000,000 in Broadway Partners Parallel Fund A, a
blind pool of investment capital sponsored by Broadway Partners, through redemption
of its membership interest in Pickwick. Presidentials commitment will be
called on from time to time by Broadway Partners as it requires funds to make
real estate investments. However, Presidential has the right, provided it gives
written notice within seven days of such request, to fund its obligations from
other capital resources. At December 31, 2005, Presidential had advanced
$495,000 of its commitment from its own capital resources and the balance of
Presidentials commitment was $505,000.

In 2005, the Company purchased an
additional 1% interest in the Home Mortgage Partnership for a purchase price of
$65,000. At December 31, 2005, the Company owned a 33% limited and general
partnership interest.

Financing
Activities

The Companys indebtedness at December 31, 2005,
consisted of $3,647,603 of mortgage debt. The mortgage debt is collateralized
by individual properties. The $2,347,364 mortgage on the Crown Court property
is nonrecourse to the Company, whereas the $1,154,451 Building Industries
Center mortgage and the $145,788 Mapletree Industrial Center mortgage are
recourse to Presidential. 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 2005, the Company made $189,437 of principal
payments on mortgage debt.

The mortgages on the Companys properties are at fixed
rates of interest and will fully amortize by periodic principal payments, with
the exception of the Building Industries Center mortgage, which

39

has a balloon payment of $1,072,906 due at maturity in
January, 2009.

In March, 2005, the Company made a prepayment of
$707,588 on the Fairlawn Gardens first mortgage debt from the proceeds of a
fire insurance settlement and repaid the $1,411,670 outstanding balance in May,
2005 from the proceeds of the sale of the property.

During 2005, the Company received $153,000 upon the
exercise of stock options by an officer of the Company.

During 2005, Presidential declared and paid cash
distributions of $2,456,304 to its shareholders and received proceeds from its
dividend reinvestment and share purchase plan of $127,462.

Discontinued
Operations

For the years ended December 31, 2005 and 2004, income
(loss) from discontinued operations includes the Farrington Apartments
property, which was sold in January, 2005, the Fairlawn Gardens property, which
was sold in April, 2005 and the Cambridge Green property, which was designated
as held for sale during the quarter ended December 31, 2005. In addition,
income (loss) from discontinued operations for the year ended December 31, 2004
included the Continental Gardens property, the Preston Lake Apartments property
and three cooperative apartments, which were all sold during the year ended
December 31, 2004.

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. In
connection with the closing, Presidential gave the purchaser a $300,000 credit
against the purchase price for hurricane damage sustained by the property prior
to closing and retained the insurance proceeds of $260,405. 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. Prior to closing, in March, 2005, the Company received $707,588 of
insurance proceeds resulting from fire damage to sixteen apartments at the
property in 2004 and applied those proceeds to pay down a

40

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 on 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 is being 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 will be deferred pursuant to the
provisions of Section 1033.

The
Company consummated the sale of its Continental Gardens property in June, 2004,
for a sales price of $21,500,000. The net cash proceeds of sale, after
repayment of the $7,543,612 first mortgage loan and prepayment penalty of
$919,522, brokerage fees of $411,610 and other expenses of sale of $498,639,
were $12,126,617, all of which was used to purchase an exchange property
pursuant to a tax-free exchange under Section 1031 of the Internal Revenue Code
(see Investments in and Advances to Joint Ventures below). The gain from
sale for financial reporting purposes was $11,008,520.

In
February, 2004, as a result of continuing operating losses at Preston Lake
Apartments in Tucker, Georgia, the Company decided not to make the monthly
payment due February 1, 2004 on the first mortgage note secured by the
property. The holder of the first mortgage commenced foreclosure proceedings and
Presidential consented to the appointment of a receiver for the property and
did not contest the foreclosure sale. On May 4, 2004, the property was sold in
a foreclosure sale by the holder of the first mortgage. The Company recorded a
gain on the foreclosure sale for financial reporting purposes of $248,697.

The
Company owns a small portfolio of cooperative apartments located in New York
and Connecticut. These apartments are held for the production of rental income
and are not generally marketed for sale. However, from time to time, the
Company will receive purchase offers for some of these apartments or decide to
market specific apartments and will make sales if the purchase price is
acceptable to management. In 2004, the Company sold three of these cooperative
apartments. The gain from the sales of these apartments for financial reporting
purposes was $913,945 and the net cash proceeds of sale were $1,015,828.

In
the fourth quarter of 2005, the Company decided to sell the Cambridge Green
property, a 201-unit apartment property in Council Bluffs, Iowa. For the year
ended December 31, 2005, gross revenues

41

were
$1,043,671 and loss from operations was $472,997 (which includes depreciation
expense of $160,257). At December 31, 2005, the carrying value of the property
was $2,718,244 (net of accumulated depreciation of $1,634,554) and the
outstanding mortgage balance was $2,917,285. The interest rate on the mortgage
is 6.65% per annum and the mortgage matures in October, 2029.

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

Year
  Ended December 31,2005

2004Revenues:Rental

$
1,328,831

$
4,602,731Rental property
expenses:Operating
expenses


1,288,824


2,402,696Interest on
mortgage debt


277,655


1,487,078Real estate
taxes


192,499


543,679Depreciation
on real estate


160,257


334,191Amortization
of mortgage costs


2,309


18,150Total


1,921,544


4,785,794Other income:Investment
income


4,229


12,539Loss from discontinued
operations


(588,484
)

(170,524
)Net gain from sales of
discontinued operations


2,423,209


12,171,162Total income from discontinued
operations

$
1,834,725

$
12,000,638At
December 31, 2005, assets related to discontinued operations were $2,850,245
and liabilities related to discontinued operations were $2,996,423.

Investments in and Advances to Joint
Ventures

During
2004 and 2005, the Company made investments in and loans to joint ventures and
received 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 received 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

42

Martinsburg
Mall. The loan matures on September 27, 2014, and the interest rate on the loan
is 11% per annum. Lightstone Member LLC (Lightstone I) manages the property
and David Lichtenstein received a 71% ownership interest in the entity owning
the property, leaving the Company with a 29% ownership interest.

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

The
Martinsburg Mall and the Four Malls are subject to a $105,000,000 nonrecourse
first mortgage loan.

In
December, 2004, the Company made a $7,500,000 mezzanine loan to Lightstone
Member II LLC (Lightstone II) in connection with the acquisition by
Lightstone II of the Brazos Outlets Center Mall in Lake Jackson, Texas and the
Shawnee Mall in Shawnee, Oklahoma (the Shawnee/Brazos Malls). The loan is
secured by the ownership interests in the entities that own the properties and
the Company received a 29% ownership interest in these entities. The loan
matures on December 23, 2014 and the interest rate on the loan is 11% per
annum. The Shawnee/Brazos Malls are subject to a $39,500,000 nonrecourse first
mortgage loan.

On
July 7, 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 two shopping malls, namely the Macon Mall, an enclosed two-story regional
mall located in Macon, Georgia with 764,208 square feet of gross leasable area
(and an additional 682,160 square feet of department store space in the mall
area owned by four department stores), and the Burlington Mall, an enclosed
single story regional mall located in Burlington, North Carolina with 416,442
square feet of gross leasable area (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. 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

43

first
mortgage loan and a mezzanine loan in the aggregate original principal amount
of $158,850,000.

The
Company accounts for these investments using the equity method. At December 31,
2005, investments in and advances to joint ventures are as follows:

Martinsburg Mall

$
919,549Four Malls


6,694,235Shawnee/Brazos Malls


6,800,268Macon/Burlington
Malls


8,877,081$
23,291,133Equity
in the (loss) income of joint ventures for the year ended December 31, 2005 is
as follows:

Martinsburg Mall


(1
)
$
(343,134
)Four Malls


(2
)

(548,327
)Shawnee/Brazos
  Malls


(3
)

169,680Macon/Burlington
  Malls


(4
)

(158,904
)$
(880,685
)(1) The
Companys share of the loss of joint ventures for the Martinsburg Mall is determined
after the deduction for the interest expense at the rate of 11% per annum on
the outstanding $2,600,000 loan from Lightstone.

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

(3) The
Companys share of the income of joint ventures for the Shawnee/Brazos Malls is
determined after interest income at the rate of 11% per annum on the
outstanding $7,500,000 loan from Presidential to Lightstone II.

(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.

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, 2005
reflects 29% of the income (loss) of

44

the
joint ventures. 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 of $463,513 and
amortization of in-place lease values of $1,247,350). Notwithstanding the
income (loss) from the joint ventures, the Company is entitled to receive its
interest at the rate of 11% per annum on its $25,600,000 of loans to the joint
ventures. For the year ended December 31, 2005, the Company received
distributions from the 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, 2005, in
addition to Presidentials investments of $23,291,133 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 $9,875,000 with a net carrying value of $9,122,683.
Some, but not all, of these loans are guaranteed in whole or in part by Mr.
Lichtenstein and all of such loans are in good standing. While the Company
believes that all of these loans are adequately secured, a default on some or
all of these loans could have a material adverse effect on Presidentials
business and operating results. Subsequent to year end, the Company received
partial prepayment on one of the loans outstanding to entities controlled by
Mr. Lichtenstein. The Company has a $4,500,000 loan secured by ownership
interests in entities owning nine apartment properties in the Commonwealth of
Virginia. The first mortgages on these properties were refinanced and
Presidential received $2,425,006 of net refinancing proceeds in repayment of a
portion of its loan principal and $215,750 in payment of the deferred interest
to date, leaving an outstanding principal balance of $2,074,994.

The
$32,413,816 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 71% of the Companys total assets at
December 31, 2005.

Home
Mortgage Partnership

At
December 31, 2005, the Company has an aggregate 33% general and limited partnership
interest in the Home Mortgage Partnership. The Home Mortgage Partnership owns
and operates an office building in Hato Rey, Puerto Rico.

45

During
2005, two tenants at the building vacated a total of 52,088 square feet of
office space at the expiration of their leases in order to take occupancy of
their own newly constructed office buildings and subsequent to year end another
tenant vacated 30,299 square feet of office space in order to take occupancy of
its newly constructed office building. As a result, at December 31, 2005, the
vacancy rate at the building was 33% and at March 15, 2006, the vacancy rate
was approximately 48%. Because of the relatively weak rental market in the Hato
Rey area, the Company expects that it will take some time to find tenants for
the vacant space and that until a substantial portion of the vacant space is
rented, the property will operate at a loss. In addition, the Home Mortgage
Partnership has decided to undertake a program of repairs and improvements to
the building that is expected to cost approximately $1,255,000. The Company has
agreed to lend up to $1,000,000 to the Home Mortgage Partnership (and has the
right to lend an additional $1,000,000) to pay for the cost of improvements to
the building and fund any negative cash flows from the operation of the
property. The loan, which will be advanced from time to time as funds are
needed, will bear interest at the rate of 11% per annum, with interest and
principal to be paid out of the first positive cash flow from the property or
upon a refinancing of the first mortgage on the property.

Contractual
Commitments

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

Mortgage

EmploymentDebt

Agreements

TotalYear ending
  December 31:2006

$
132,082

$
891,480

$
1,023,5622007


140,963


891,480


1,032,4432008


150,448


891,480


1,041,9282009


1,203,209


376,700


1,579,9092010


139,430


376,700


516,130Thereafter


1,881,471


376,700
(1)

2,258,171TOTAL

$
3,647,603

$
3,804,540

$
7,452,143(1) Employment
agreements will expire in 2011.

46

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, 2005, the Company paid $473,837 for pension benefits
and $66,857 for postretirement benefits. The Company expects that payments for
these contractual benefits will be $564,000 in 2006.

In addition, the Company has a contractual commitment
to invest $505,000 in Broadway Partners Parallel Fund A and a commitment to
lend up to $1,000,000 to the Home Mortgage Partnership.

Environmental
Matters

The Company is not aware of any environmental issues
at any of its properties. The presence of hazardous substances at any of its
properties could have an adverse effect on the Companys consolidated financial
statements.

Recent
Accounting Pronouncements

During 2005, the Company was required to implement the
new Statement of Financial Accounting Standards (SFAS) No. 153, Exchanges of
Nonmonetary Assets  An Amendment of APB Opinion No. 29, issued by the
Financial Accounting Standards Board (FASB), which did not have a significant
impact on the Companys consolidated financial statements.

In December, 2004, the FASB issued SFAS No. 123, (Revised
2004)  Share-Based Payment (SFAS No. 123R). SFAS No. 123R replaces SFAS
No. 123, which the Company previously adopted. SFAS No. 123R requires that the
compensation cost relating to share-based payment transactions be recognized in
financial statements and be measured based on the fair value of the equity or
liability instruments issued. SFAS No. 123R is effective as of the first
interim and annual reporting period that begins after December 31, 2005. The
Company does not believe that the adoption of SFAS No. 123R will have a
material effect on the Companys consolidated financial statements.

In
March, 2005, the FASB issued Interpretation No. 47, Accounting for Conditional
Asset Retirement Obligations (FIN 47). FIN 47 requires an entity to
recognize a liability for a conditional asset retirement obligation when
incurred if the liability can be reasonably estimated. FIN 47 clarifies that
the term Conditional

47

Asset
Retirement Obligation refers to a legal obligation (pursuant to existing law
or contract) to perform an asset retirement activity in which the timing and/or
method of settlement are conditional on a future event that may or may not be
within the control of the entity. FIN 47 also clarifies when an entity would
have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. The Company adopted FIN 47 as required effective
December 31, 2005, and the initial application of FIN 47 did not have a
material impact on the consolidated financial statements of the Company.

In
May, 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
 A Replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154 changes the
requirements for the accounting and reporting of a change in accounting
principle by requiring retrospective application to prior periods financial
statements of the change in accounting principle, unless it is impracticable to
do so. SFAS No. 154 also requires that a change in depreciation or amortization
for long-lived, non-financial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The Company does not believe that the
adoption of SFAS No. 154 will have a material effect on the Companys consolidated
financial statements.

In
June, 2005, the FASB ratified the Emerging Issues Task Force (EITF) consensus
on EITF Issue No. 04-5, Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar Entity When the
Limited Partners Have Certain Rights. EITF Issue No. 04-5 provides a framework
for determining whether a general partner controls, and should consolidate, a
limited partnership or a similar entity. It became effective for all newly formed
limited partnerships and for any pre-existing limited partnerships that modify
their partnership agreements after June 29, 2005. General partners of all other
limited partnerships will apply the consensus no later than the beginning of
the first reporting period in fiscal years beginning after December 15, 2005.
The Company does not believe that the adoption of EITF Issue No. 04-5 will have
a material effect on the Companys consolidated financial statements.

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

48

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
$105,000,000 nonrecourse first mortgage loan secured by the Martinsburg Mall
and the Four Malls, and the $39,500,000 nonrecourse first mortgage loan secured
by the Shawnee/Brazos Malls (see Investments in and Advances to Joint
Ventures above), carry interest rates that change monthly based on the
London Interbank Offered Rate and mature in October, 2006 and January, 2007,
respectively, subject to the borrowers right to extend the maturity dates for
three additional one year terms. As a result, any material increase in interest
rates could adversely affect the operating results of the joint ventures and
their ability to make the required interest payments on the Companys
$8,600,000 and $7,500,000 mezzanine loans to those entities. The interest rate
on the first mortgages secured by the Martinsburg Mall and the Four Malls in
fact increased from 5.70% per annum at December 31, 2004 to 7.98% per annum at
December 31, 2005 and the interest rate on the first mortgages secured by the
Shawnee/Brazos Malls increased from 4.90% per annum at December 31, 2004 to
7.18% per annum at December 31, 2005. The Company believes that these first
mortgages will either be extended in accordance with their terms or refinanced
prior to the maturity date of their initial terms.

ITEM 7.
FINANCIAL STATEMENTSSee Table of Contents to Consolidated Financial
Statements.

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

49

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 INFORMATIONThe
Company is delinquent in its federal securities law filing obligations because
it has 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 relates 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 will be cured with the filing of this Form 10-KSB for the year
ended December 31, 2005, which includes audited financial statements for the
properties for the period from the acquisition of the Companys interest in the
properties until December 31, 2005. During the period of delinquency in its
filing obligations, Presidentials dividend reinvestment plan for its Class B
Common Stock continued pursuant to the terms of its Dividend Reinvestment and
Share Purchase Plan but shareholders were not able to make optional cash
payments to acquire shares under the Plan. Since the delinquency will be cured
upon the filing of this Form 10-KSB, shareholders will once again be able to
purchase additional shares under the terms of the Plan.

50

PART IIIITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
  PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACTReference is made to the Companys definitive Proxy
Statement for its Annual Meeting of Shareholders to be held June 15, 2006,
which Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A and which is incorporated herein by reference.

ITEM 10.
EXECUTIVE COMPENSATIONReference is made to the Companys definitive Proxy
Statement for its Annual Meeting of Shareholders to be held June 15, 2006,
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 MATTERSReference is made to the Companys definitive Proxy
Statement for its Annual Meeting of Shareholders to be held June 15, 2006,
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 TRANSACTIONSReference is made to the Companys definitive Proxy
Statement for its Annual Meeting of Shareholders to be held June 15, 2006,
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.
EXHIBITS3.1 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

51

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).

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).

52

10.5 Employment Agreement dated January 1, 2003
between the Company and Elizabeth Delgado (incorporated herein by reference to
Exhibit 10.10 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2003, Commission File No. 1-8594).

10.6 1999 Stock Option Plan for 150,000 shares of
Class B common stock (incorporated herein by reference to Exhibit 10.11 to the
Companys Annual Report on Form 10-K for the year ended December 31, 1999,
Commission File No. 1-8594).

10.7 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 10-K for
the year ended December 31, 2003, Commission File No. 1-8594).

10.8
Purchase and Sale Agreement Between Preit Associates, L.P., Seller, and
Lightstone Real Estate Partners, LLC, Purchaser, dated as of May 14, 2004
(incorporated herein by reference to Exhibit 2.1 to the Quarterly Report on
Form 10-Q for the period ended June 30, 2004 for Pennsylvania Real Estate
Investment Trust, Commission File No. 1-06300).

10.9
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).

10.10
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).

10.11
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).

10.12
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).

53

10.13
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).

10.14
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).

10.15
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).

10.16
2005 Restricted Stock Plan for 115,000 shares of Class B common stock.

10.17
Loan Agreement dated December 23, 2004 in the amount of $7,500,000 between
Presidential Realty Corporation and Lightstone Member II.

10.18
Amended and Restated Operating Agreement of Lightstone Member II LLC dated
December 23, 2004.

10.19
Loan Agreement dated June 30, 2005 in the amount of $9,500,000 between
Presidential Realty Corporation and Lightstone Member III.

10.20
Operating Agreement of Lightstone Member III, LLC dated June 30, 2005.

10.21
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.

21. List of Subsidiaries of Registrant as of December
31, 2005.

23.1 Consent of The Schonbraun McCann Group LLP.

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.

54

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 Consolidated Financial Statements of PRC Member
LLC and Subsidiary for the period ended December 31, 2004 pursuant to Rule 3-09
of Regulation S-X.

99.2 Consolidated Financial Statements of Lightstone
Member LLC and Subsidiaries for the period ended December 31, 2004 pursuant to
Rule  3-09 of Regulation S-X.

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

ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICESReference is made to the Companys definitive Proxy
Statement for its Annual Meeting to Shareholders to be held June 15, 2006,
which Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A and which is incorporated herein by reference.

55

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
  VIERTELThomas
  ViertelChief
  Financial OfficerMarch 23,
  2006Pursuant 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

DateBy:

ROBERT
  E. SHAPIRO

March 23,
  2006Robert E.
  ShapiroChairman of
  the Board ofDirectors
  and DirectorBy:

JEFFREY
  F. JOSEPH

March 23,
  2006Jeffrey F.
  JosephPresident
  and Director(Chief
  Executive Officer)By:

THOMAS
  VIERTEL

March 23,
  2006Thomas
  ViertelExecutive
  Vice President(Chief
  Financial Officer)By:

ELIZABETH
  DELGADO

March 23,
  2006Elizabeth
  DelgadoTreasurer(Principal
  Accounting Officer)By:

RICHARD
  BRANDT

March 23,
  2006Richard
  BrandtDirector56

SIGNATURES (Continued)Signature
and Title

DateBy:

MORTIMER M.
  CAPLIN

March 23,
  2006Mortimer M.
  CaplinDirectorBy:

ROBERT FEDER

March 23,
  2006Robert FederDirectorBy:

JOSEPH
  VIERTEL

March 23,
  2006Joseph
  ViertelDirector57

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

PageReport
  of Independent Registered Public Accounting Firm

59CONSOLIDATED
  FINANCIAL STATEMENTS:Consolidated
  Balance Sheets  December 31, 2005 and 2004

60Consolidated
  Statements of Operations for the Years Ended December 31, 2005 and 2004

61Consolidated
  Statements of Stockholders Equity for the Years Ended December 31, 2005 and
  2004

62Consolidated
  Statements of Cash Flows for the Years Ended December 31, 2005 and 2004

63Notes
  to Consolidated Financial Statements

6558

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the
accompanying consolidated balance sheets of Presidential Realty Corporation and
subsidiaries (the Company) as of December 31, 2005 and 2004, 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, 2005 and 2004, and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

DELOITTE & TOUCHE LLP 
New York, New York 
March 24, 2006

59

PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

December
  31,
  2005

December
  31,
  2004AssetsReal estate (Note 2)

$
6,124,665

$
9,841,035Less: accumulated depreciation


4,225,223


5,581,306Net real estate


1,899,442


4,259,729Mortgage portfolio (Note 3):Sold properties and other -
  net


9,889,459


15,216,094Related parties - net


209,287


244,166Net mortgage portfolio


10,098,746


15,460,260Assets related to discontinued
  operations (Note 4)


2,850,245


11,036,007Investments in and advances to
  joint ventures (Note 5)


23,291,133


17,214,363Other investments (Note 6)


1,495,000


Prepaid expenses and deposits
  in escrow


635,550


1,109,988Prepaid defined benefit plan
  costs (Note 19)


1,771,852


2,237,014Other receivables (net of
  valuation allowance of $104,305 in 2005 and $205,127 in 2004)


422,353


777,998Cash and cash equivalents


2,878,237


2,085,767Other assets


172,194


322,346Total Assets

$
45,514,752

$
54,503,472Liabilities and Stockholders
  EquityLiabilities:Mortgage debt (Note 7)

$
3,647,603

$
6,737,926Liabilities related to
  discontinued operations (Note 4)


2,996,423


9,852,922Contractual pension and
  postretirement benefits liabilities (Note 18)


3,456,666


3,349,638Accrued liabilities


1,142,789


1,314,158Accounts payable


280,365


182,435Distributions from partnership
  in excess of investment and earnings (Note 8)


2,208,990


2,259,943Other liabilities


200,336


268,866Total Liabilities


13,933,172


23,965,888Minority Interest in
  Consolidated Partnership (Note 9)


46,905


51,160Stockholders Equity:Common stock: par value $.10
  per share (Note 14)Class A, authorized 700,000
  shares, issued 478,940 shares and 100 shares held in treasury


47,894


47,894Class B

December 31, 2005

December 31, 2004


339,696


334,273Authorized:

10,000,000

10,000,000Issued:

3,396,961

3,342,726Treasury:

2,000

1,997Additional paid-in capital


3,848,899


3,464,670Retained earnings


28,833,713


28,095,586Accumulated other
  comprehensive loss


(1,513,364
)

(1,433,861
)Treasury stock (at cost)


(22,163
)

(22,138
)Total Stockholders Equity


31,534,675


30,486,424Total Liabilities and Stockholders Equity

$
45,514,752

$
54,503,472See notes to consolidated
financial statements.

60

PRESIDENTIAL REALTY CORPORATION
AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS

YEAR
        ENDED DECEMBER 31,2005
    
    2004Revenues:Rental
    
    $
    2,056,815
    
    $
    1,934,138Interest
        on mortgages - sold properties and other
    
    
    1,497,017
    
    
    2,821,726Interest
        on mortgages - related parties
    
    
    386,973
    
    
    596,017Other
        revenues
    
    
    474,059
    
    
    140,864Total
    
    
    4,414,864
    
    
    5,492,745Costs
        and Expenses:General
        and administrative
    
    
    3,773,737
    
    
    3,693,557Depreciation
        on non-rental property
    
    
    18,359
    
    
    21,835Rental
        property:Operating
        expenses
    
    
    1,145,106
    
    
    1,185,836Interest
        on mortgage debt
    
    
    238,230
    
    
    244,350Real
        estate taxes
    
    
    317,138
    
    
    305,036Depreciation
        on real estate
    
    
    125,183
    
    
    115,407Amortization
        of mortgage costs
    
    
    10,323
    
    
    10,861Total
    
    
    5,628,076
    
    
    5,576,882Other
        Income (Loss):Investment
        income
    
    
    207,433
    
    
    60,515Equity
        in the loss of joint ventures (Note 5)
    
    
    (880,685
    )
    
    (108,833
    )Equity
        in income of partnership (Note 8)
    
    
    12,875
    
    
    304,369Income
        (loss) before minority interest and net gain from sales of properties
    
    
    (1,873,589
    )
    
    171,914Minority
        interest
    
    
    (8,245
    )
    
    (10,564
    )Income
        (loss) before net gain from sales of properties
    
    
    (1,881,834
    )
    
    161,350Recognition
        of deferred gain on sales of properties (Note 3)
    
    
    3,241,540
    
    
    2,991,850Income
        from continuing operations
    
    
    1,359,706
    
    
    3,153,200Discontinued
        Operations (Note 4):Loss
        from discontinued operations
    
    
    (588,484
    )
    
    (170,524
    )Net
        gain from sales of discontinued operations
    
    
    2,423,209
    
    
    12,171,162Total
        income from discontinued operations
    
    
    1,834,725
    
    
    12,000,638Net
        Income
    
    $
    3,194,431
    
    $
    15,153,838Earnings
        per Common Share (basic and diluted):Income
        (loss) before net gain from sales of properties
    
    $
    (0.49
    )
    $
    0.04Recognition
        of deferred gain on sales of properties
    
    
    0.84
    
    
    0.79Income
        from continuing operations
    
    
    0.35
    
    
    0.83Discontinued
        Operations:Loss
        from discontinued operations
    
    
    (0.15
    )
    
    (0.05
    )Net
        gain from sales of discontinued operations
    
    
    0.63
    
    
    3.21Total
        income from discontinued operations
    
    
    0.48
    
    
    3.16Net
        Income per Common Share - basic
    
    $
    0.83
    
    $
    3.99- diluted
    
    $
    0.83
    
    $
    3.97Cash
        Distributions per Common Share (Note 15)
    
    $
    0.64
    
    $
    0.64Weighted
        Average Number of Shares Outstanding - basic
    
    
    3,836,728
    
    
    3,800,129- diluted
    
    
    3,836,728
    
    
    3,819,865See notes to consolidated
financial statements.

61

PRESIDENTIAL
REALTY CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Common
  Stock

AdditionalPaid-inCapital

RetainedEarnings

AccumulatedOtherComprehensive(Loss) Income

TreasuryStock

NotesReceivablefor Exercise ofStock Options

ComprehensiveIncome

TotalStockholdersEquityBalance at January 1,
2004


$
378,561



$
3,189,840



$
15,374,021



$
(2,845,097
)


$
(21,408
)


$
(367,500
)







$
15,708,417Net proceeds from dividend
reinvestment and share purchase plan



3,306




252,288





























255,594Cash distributions ($.64 per
share)













(2,432,273
)























(2,432,273
)Issuance of stock (Note
16)



300




22,542





























22,842Purchase of treasury
stock























(730
)













(730
)Repayment of notes
receivable




























367,500









367,500Comprehensive income:Net
income













15,153,838


















$
15,153,838




15,153,838Other
comprehensive income-Net unrealized
gain on securities available for sale


















2,480














2,480




2,480Minimum
pension liability adjustment


















1,408,756














1,408,756




1,408,756Comprehensive income
































$
16,565,074Balance at December 31,
2004



382,167




3,464,670




28,095,586




(1,433,861
)



(22,138
)













30,486,424Net proceeds from dividend
reinvestment and share purchase plan



1,623




125,839





























127,462Cash distributions ($.64 per
share)













(2,456,304
)























(2,456,304
)Issuance of stock (Note
16)



1,400




107,790





























109,190Exercise of stock options (Note
17)



2,400




150,600





























153,000Purchase of treasury
stock























(25
)













(25
)Comprehensive income:Net
income













3,194,431


















$
3,194,431




3,194,431Other
comprehensive income-Net unrealized
gain on securities available for sale


















754














754




754Minimum
pension liability adjustment


















(80,257
)













(80,257
)



(80,257
)Comprehensive income
































$
3,114,928Balance at December 31,
2005


$
387,590



$
3,848,899



$
28,833,713



$
(1,513,364
)


$
(22,163
)


$









$
31,534,675See notes to
consolidated financial statements.

62

PRESIDENTIAL REALTY CORPORATION
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH
FLOWS

YEAR ENDED DECEMBER 31,2005

2004Cash Flows from Operating
Activities:Cash received
from rental properties

$
3,490,301

$
6,619,278Interest
received


2,122,593


3,230,479Distributions
received from partnership


26,922


226,200Distributions
received from joint ventures


2,505,239


168,178Miscellaneous
income


484,988


159,250Interest paid
on rental property mortgage
  debt


(583,720
)

(1,726,779
)Cash disbursed
for rental property
  operations


(2,468,992
)

(4,607,452
)Cash disbursed
for general and
  administrative costs


(3,106,521
)

(5,542,077
)Net cash provided by (used in)
operating
  activities


2,470,810


(1,472,923
)Cash Flows
from Investing Activities:Payments
received on notes receivable


8,755,093


9,365,495Payments
disbursed for investments in notes
  receivable


(9,500,000
)

(16,100,000
)Net proceeds
received from fire insurance
  settlement


875,434


Payments
disbursed for additions and
  improvements


(664,854
)

(555,310
)Proceeds from
sales of properties


4,911,146


20,655,608Purchase of
property





(27,000,000
)Purchase of
other investments


(1,495,000
)

Purchase of
additional interest in
  partnership


(65,000
)

(73,000
)Other


1,878


46,306Net cash provided by (used in)
investing
  activities


2,818,697


(13,660,901
)Cash Flows from Financing
Activities:Principal
payments on mortgage debt


(189,437
)

(324,930
)Principal
payments on mortgage debt from
  insurance proceeds


(707,588
)

Repayment of
mortgage debt from sale of
  property


(1,411,670
)

(7,543,612
)Mortgage
proceeds





22,961,590Loan
proceeds





2,600,000Mortgage costs
paid





(8,346
)Distributions
to minority partners


(12,500
)

(28,750
)Cash
distributions on common stock


(2,456,304
)

(2,432,273
)Cash received
from exercise of stock
  options


153,000


Cash received
from loan repayments by
  officers





367,500Proceeds from
dividend reinvestment and
  share purchase plan


127,462


255,594Net cash (used in) provided by
financing
  activities


(4,497,037
)

15,846,773Net Increase in Cash and Cash
Equivalents


792,470


712,949Cash and Cash Equivalents,
Beginning of
  Year


2,085,767


1,372,818Cash and Cash Equivalents, End
of Year

$
2,878,237

$
2,085,767See notes to consolidated financial
statements.

63

PRESIDENTIAL REALTY CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED
  DECEMBER 31,2005

2004Reconciliation of Net Income to
Net CashProvided by
(Used in) Operating ActivitiesNet Income

$
3,194,431

$
15,153,838Adjustments to reconcile net
income to net
  cash provided by (used in) operating activities:Recognition of
deferred gain on sales of
  properties


(3,241,540
)

(2,991,850
)Net gain from
sales of discontinued
  operations


(2,423,209
)

(12,171,162
)Equity in
income of partnership


(12,875
)

(304,369
)Equity in the
loss of joint ventures


880,685


108,833Depreciation
and amortization


316,431


500,444Issuance of
stock to directors and officers


34,090


22,842Amortization
of discounts on notes and fees


(159,287
)

(142,140
)Minority
interest


8,245


10,564Distributions
received from partnership


26,922


226,200Distributions
received from joint ventures


2,505,239


168,178Changes in
assets and liabilities:Decrease
(increase) in other receivables


355,644


(7,638
)Decrease in
accounts payable and accrued
  liabilities


(5,394
)

(2,123,071
)Increase
(decrease) in other liabilities


22,080


(48,251
)Decrease in
prepaid expenses, deposits in
  escrow and deferred charges


492,818


122,345Decrease in
prepaid defined benefit plan
  costs


465,162


Other


11,368


2,314Total adjustments


(723,621
)

(16,626,761
)Net cash provided by (used in)
operating
  activities

$
2,470,810
(
$
1,472,923
)SUPPLEMENTAL NONCASH
DISCLOSURES:Satisfaction
of mortgage debt as a result
  of assumption of the mortgage debt by the purchaser

$
7,605,966Satisfaction
of mortgage debt as a result
  of foreclosure sale




$
13,595,028Net carrying
value of real estate written
  off as a result of foreclosure sale




$
13,094,950See notes to consolidated financial
statements.

64

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.

B. Mortgage Portfolio  Net mortgage portfolio
represents the outstanding principal amounts of notes receivable reduced by
discounts and/or deferred gains. 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 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, 2005 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

65

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 Statement of Financial Accounting Standards (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 have been recognized.

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 of acceptance. 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).

All significant intercompany balances and transactions
have been eliminated.

F. Investments in Unconsolidated Partnerships and
Joint Ventures  The Company has equity investments in partnerships and
joint ventures. The Company accounts for these investments using the equity
method of accounting because although it may exercise significant control over
some of these entities, it does not control these entities. 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 5 and 8.

G. Rental Revenue Recognition  The Company
acts as lessor under operating leases. Rental revenue is recorded on the
accrual method.

66

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 Per Share  Basic net income per
share data is computed by dividing net income by the weighted average number of
shares of Class A and Class B common stock outstanding during each year.
Diluted net income per share is computed by dividing net income by the weighted
average shares outstanding, including the dilutive effect, if any, of stock
options outstanding. The dilutive effect of stock options is calculated using
the treasury stock method. As of November 10, 2005, all outstanding stock
options were either exercised or expired (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 and 132 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 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  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 no further options will be
granted (see Note 17). For the years ended December 31, 2005 and 2004, 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.

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

67

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. Adoption
of Recent Accounting Pronouncements  In December of 2004, the Financial Accounting Standards Board (FASB)
issued SFAS No. 153, Exchanges of Nonmonetary Assets  An Amendment of APB
Opinion No. 29. The amendments made by SFAS No. 153 are based on the principle
that exchanges of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the narrow exception
for nonmonetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of nonmonetary assets that do not have
commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 had no impact on the
Companys consolidated financial statements.

O. New Accounting
Pronouncements  In December of 2004, the FASB issued SFAS No. 123,
(Revised 2004)  Share-Based Payment (SFAS No. 123R). SFAS No. 123R
replaces SFAS No. 123, which the Company previously adopted. SFAS No. 123R
requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements and be measured based on the
fair value of the equity or liability instruments issued. SFAS No. 123R is
effective as of the first interim and annual reporting period that begins after
December 31, 2005. The Company does not believe that the adoption of SFAS No.
123R will have a material effect on the Companys consolidated financial
statements.

In March of 2005, the FASB
issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations
(FIN 47). FIN 47 requires an entity to recognize a liability for a
conditional asset retirement obligation when incurred if the liability can be
reasonably estimated. FIN 47 clarifies that the term Conditional Asset
Retirement Obligation refers to a legal obligation (pursuant to existing law
or contract) to perform an asset retirement activity in which the timing and/or
method of settlement are conditional on a future event that may or may not be
within the control of the entity. FIN 47 also clarifies when an entity would
have sufficient information to reasonably estimate the fair value of an asset

68

retirement obligation. The
Company adopted FIN 47 as required effective December 31, 2005, and the initial
application of FIN 47 did not have a material impact on the consolidated
financial statements of the Company.

In May of 2005, the FASB
issued SFAS No. 154, Accounting Changes and Error Corrections  A Replacement
of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154 changes the requirements for
the accounting and reporting of a change in accounting principle by requiring
retrospective application to prior periods financial statements of the change
in accounting principle, unless it is impracticable to do so. SFAS No. 154 also
requires that a change in depreciation or amortization for long-lived,
non-financial assets be accounted for as a change in accounting estimate
effected by a change in accounting principle. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company does not believe that the adoption of SFAS
No. 154 will have a material effect on the Companys consolidated financial
statements.

In June of 2005, the FASB
ratified the Emerging Issues Task Force (EITF) consensus on EITF Issue No.
04-5, Determining Whether a General Partner, or the General Partners as a
Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights. EITF Issue No. 04-5 provides a framework for
determining whether a general partner controls, and should consolidate, a
limited partnership or a similar entity. It became effective for all newly
formed limited partnerships and for any pre-existing limited partnerships that
modify their partnership agreements after June 29, 2005. General partners of
all other limited partnerships will apply the consensus no later than the
beginning of the first reporting period in fiscal years beginning after
December 15, 2005. The Company does not believe that the adoption of EITF Issue
No. 04-5 will have a material effect on the Companys consolidated financial
statements.

P. Reclassification  Certain prior year
amounts have been reclassified to discontinued operations in order to conform
with the 2005 presentation.

69

REAL ESTATE

Real
estate is comprised of the following:

December 31,2005

2004Land

$
403,969

$
603,969Buildings


5,611,211


9,104,222Furniture and equipment


109,485


132,844Total real estate

$
6,124,665

$
9,841,035Two of the properties owned
by the Company represented 33% and 24% of total rental revenue in 2005 and 34%
and 25% of total rental revenue in 2004.

3. MORTGAGE PORTFOLIO

The Companys mortgage portfolio includes notes
receivable  sold properties and other, and notes receivable  related parties.

Notes receivable  sold properties and other 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.(2)
Notes receivable relating to loans made by the
  Company to Ivy in connection with Ivys cooperative conversion business.At December 31, 2005, all of the notes in the
Companys mortgage portfolio are current, in accordance with their terms, as
modified.

70

The following table summarizes the components of the
mortgage portfolio:

71

MORTGAGE PORTFOLIO

Sold Properties and Other

Related PartiesPropertiespreviouslyowned

Other(originatedloans)

Cooperativeapartmentunits

Total

Propertiespreviouslyowned

Cooperativeconversionloans

Total

TotalmortgageportfolioDecember 31, 2005Notes receivable

$
4,565,000

$
6,000,000

$
82,847

$
10,647,847

$
202,592

$
68,481

$
271,073

$
10,918,920Less: Discounts


752,317





6,071


758,388


14,583


47,203


61,786


820,174Net

$
3,812,683

$
6,000,000

$
76,776

$
9,889,459

$
188,009

$
21,278

$
209,287

$
10,098,746Due within one year

$
200,000

$


$
21,004

$
221,004

$
17,872

$
7,786

$
25,658

$
246,662Long-term


3,612,683


6,000,000


55,772


9,668,455


170,137


13,492


183,629


9,852,084Net

$
3,812,683

$
6,000,000

$
76,776

$
9,889,459

$
188,009

$
21,278

$
209,287

$
10,098,746December 31, 2004Notes receivable

$
13,225,000

$
6,000,000

$
148,812

$
19,373,812

$
227,900

$
67,527

$
295,427

$
19,669,239Less: Discounts


909,279





6,899


916,178


14,780


36,481


51,261


967,439Deferred gains


3,241,540








3,241,540











3,241,540Net

$
9,074,181

$
6,000,000

$
141,913

$
15,216,094

$
213,120

$
31,046

$
244,166

$
15,460,260Due within one year

$
6,008,460

$


$
54,204

$
6,062,664

$
20,354

$
8,607

$
28,961

$
6,091,625Long-term


3,065,721


6,000,000


87,709


9,153,430


192,766


22,439


215,205


9,368,635Net

$
9,074,181

$
6,000,000

$
141,913

$
15,216,094

$
213,120

$
31,046

$
244,166

$
15,460,26072

Prepayments, Payoffs and
Modifications

On March 9, 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. As a
result, the Company will receive a principal payment of $100,000 in 2006. If
the borrower exercises its remaining options to extend the note, the Company
will receive additional principal payments of $100,000 on each of November 30,
2006 and November 30, 2007. As of December 31, 2005, the note is collateralized
by 85 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 2005 and 2004, the
Company received $110,000 and $235,000, respectively, in principal payments on
the Mark Terrace note and the balance of the note at December 31, 2005 was
$590,000.

In December, 2004, the
Company accepted prepayment of $3,000,000 on three of its notes and released
its security interest in one of the three New Jersey properties collateralizing
the notes. The Company agreed to accept prepayment so that it could use the
amounts prepaid to fund a portion of the new $7,500,000 mezzanine loan which it
made on December 23, 2004 secured by ownership interests in two shopping malls.
The $3,000,000 prepayment was allocated to repayment of loans previously made
in the amounts of $1,100,000 and $1,775,000, with the remaining $125,000 amount
allocated to the Fairfield Towers loan. The $3,875,000 outstanding principal
amount of the Fairfield Towers loan remains collateralized by the 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

73

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.

In October, 2004, the Company received prepayment of
its $6,000,000 Newcastle Apartments note receivable which was due to mature on July
31, 2006. As a result, the Company recognized a gain of $2,991,850 which had
been previously deferred. In connection with the prepayment, the Company
received a prepayment fee of $60,000.

4. DISCONTINUED OPERATIONS

For the years ended December 31, 2005 and 2004, income
(loss) from discontinued operations includes the Farrington Apartments property,
which was sold in January, 2005, the Fairlawn Gardens property, which was sold
in April, 2005, and the Cambridge Green property, which was designated as held
for sale during the quarter ended December 31, 2005. In addition, income (loss)
from discontinued operations for the year ended December 31, 2004 included the
Continental Gardens property, the Preston Lake Apartments property and three
cooperative apartments, which were all sold during the year ended December 31,
2004.

74

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

Year ended December 31,2005

2004Revenues:Rental

$
1,328,831

$
4,602,731Rental property
  expenses:Operating
  expenses


1,288,824


2,402,696Interest on
  mortgage debt


277,655


1,487,078Real estate
  taxes


192,499


543,679Depreciation on
  real estate


160,257


334,191Amortization of
  mortgage costs


2,309


18,150Total


1,921,544


4,785,794Other income:Investment
  income


4,229


12,539Loss from
  discontinued operations


(588,484
)

(170,524
)Net gain from
  sales of discontinued operations


2,423,209


12,171,162Total income
  from discontinued operations

$
1,834,725

$
12,000,638On 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. In connection with the closing, Presidential
gave the purchaser a $300,000 credit against the purchase price for hurricane
damage sustained by the property prior to closing and retained the insurance
proceeds of $260,405. 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, pursuant to a contract of sale,
as amended, executed in February, 2005. 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. Prior to
closing, in March, 2005, the Company received $707,588 of insurance proceeds
resulting from fire damage to sixteen apartments at the property in 2004 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

75

proceeds were included in
the gain on the sale of the property. The gain on sale for financial reporting
purposes was $2,434,789. The gain for Federal income tax purposes resulting
from this transaction is $2,436,859 and is being 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 will be deferred pursuant to
the provisions of Section 1033.

On June 29, 2004, the
Company consummated the sale of its Continental Gardens property in Miami,
Florida for a sales price of $21,500,000. The net cash proceeds of sale, after
repayment of the $7,543,612 first mortgage loan and prepayment penalty of
$919,522, brokerage fees of $411,610 and other expenses of sale of $498,639, were
$12,126,617, all of which was used to purchase an exchange property pursuant to
a tax-free exchange under Section 1031 of the Internal Revenue Code (see Note
5). The gain from sale for financial reporting purposes was $11,008,520.

In February, 2004, as a
result of continuing operating losses at Preston Lake Apartments in Tucker,
Georgia, the Company decided not to make the monthly payment due February 1,
2004 on the first mortgage note secured by the property. The outstanding
principal balance of the mortgage debt on February 1, 2004 was $13,595,028. The
mortgage note was nonrecourse and the Company had no personal liability for
repayment of the indebtedness. The holder of the first mortgage commenced
foreclosure proceedings and Presidential consented to the appointment of a
receiver for the property and did not contest the foreclosure sale. On May 4,
2004, the property was sold in a foreclosure sale by the holder of the first
mortgage. The Company recorded a gain on the foreclosure sale for financial reporting
purposes of $248,697.

In the first quarter of
2004, the Company sold three cooperative apartment units which were located in
the New York metropolitan area. The gain from the sales of those apartments for
financial reporting purposes was $913,945 and the net cash proceeds of the
sales were $1,015,828.

In the fourth quarter of
2005, the Company decided to sell the Cambridge Green property, a 201-unit
apartment property in Council Bluffs, Iowa. For the year ended December 31,
2005, gross revenues were $1,043,671 and loss from operations was $472,997
(which includes depreciation expense of $160,257). At December 31, 2005, the
carrying value of the property was $2,718,244 (net of accumulated depreciation
of $1,634,554) and the outstanding mortgage balance was $2,917,285. The
interest rate on the mortgage is 6.65%

76

per annum and the mortgage
matures in October, 2029. The Company estimates that the fair value less costs
to sell are in excess of the carrying value of the property.

The combined assets and
liabilities of the Farrington Apartments and the Fairlawn Gardens properties at
December 31, 2004 and the assets and liabilities of the Cambridge Green
property at December 31, 2005 are segregated in the consolidated balance
sheets. The components are as follows:

December 31,2005

2004Assets related to discontinued operations:Land

$
200,000

$
1,971,408Buildings


4,117,679


10,243,952Furniture and equipment


35,119


39,825Less: accumulated depreciation


(1,634,554
)

(1,475,713
)Net real estate


2,718,244


10,779,472Other assets


132,001


256,535Total

$
2,850,245

$
11,036,007Liabilities related to discontinued operations:Mortgage debt

$
2,917,285

$
9,741,622Other liabilities


79,138


111,300Total

$
2,996,423

$
9,852,9225. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

On September 24, 2004, the
Company purchased the Martinsburg Mall, an enclosed regional shopping mall
containing gross leasable area of approximately 552,000 square feet, in
Martinsburg, West Virginia. The purchase price for the Martinsburg Mall was
$27,000,000 and was paid by utilizing $12,365,000 of the net cash proceeds generated
by the sale of the Companys Continental Gardens property in Miami, Florida and
the proceeds of a first mortgage loan in the amount of $14,635,000. Subsequent
to closing, the Company obtained an additional advance of $8,326,590 under the
first mortgage loan and 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 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.

77

On September 28, 2004,
Presidential made an $8,600,000 mezzanine loan to Lightstone Member LLC
(Lightstone I) in connection with the acquisition by Lightstone I of four
shopping malls, namely the Shenango Valley Mall, an enclosed regional mall
located in Hermitage, Pennsylvania with 508,000 square feet of gross leasable
area; the West Manchester Mall, an enclosed regional mall located in York,
Pennsylvania with 733,000 square feet of gross leasable area; the Bradley
Square Mall, an enclosed mall located in Cleveland, Tennessee with 385,000
square feet of gross leasable area; and the Mount Berry Square Mall, an
enclosed regional mall located in Rome, Georgia with 475,000 square feet of
gross leasable area (the Four Malls). The loan is secured by the ownership
interests in the entities owning the Four Malls and Presidential obtained a 29%
ownership interest in the entities owning the Four Malls. The loan matures on
September 27, 2014 and the interest rate on the loan is 11% per annum.

The $22,961,590 first
mortgage loan obtained by Presidential in connection with its acquisition of
the Martinsburg Mall is part of a $105,000,000 nonrecourse first mortgage loan
secured by the Martinsburg Mall and the Four Malls.

On December 23, 2004,
Presidential made a $7,500,000 mezzanine loan to Lightstone Member II LLC
(Lightstone II) in connection with the acquisition by Lightstone II of two
shopping malls, namely the Brazos Outlets Center Mall, an enclosed single story
regional mall located in Lake Jackson, Texas with 587,966 square feet of gross
leasable area and the Shawnee Mall, an enclosed single story regional mall
located in Shawnee, Oklahoma with 445,657 square feet of gross leasable area
(the Shawnee/Brazos Malls). The loan is secured by the ownership interests in
the entities owning the Shawnee/Brazos Malls and Presidential obtained a 29%
ownership interest in the entities owning the Shawnee/Brazos Malls. The loan
matures on December 23, 2014 and the interest rate on the loan is 11% per
annum. The Shawnee/Brazos Malls are subject to a $39,500,000 nonrecourse first
mortgage loan.

On July 7, 2005,
Presidential made a $9,500,000 mezzanine loan to Lightstone Member III LLC
(Lightstone III) in connection with the acquisition by Lightstone III of two
shopping malls, namely the Macon Mall, an enclosed two-story regional mall
located in Macon, Georgia with 764,208 square feet of gross leasable area (and
an additional 682,160 square feet of department store space in the mall area
owned by four department stores), and the Burlington Mall, an enclosed single
story regional mall located in Burlington, North Carolina with 416,442 square
feet of gross leasable area (the

78

Macon/Burlington Malls).
The loan is secured by the ownership interests in the entities owning the
Macon/Burlington Malls and Presidential obtained a 29% ownership interest in
the entities owning the Macon/Burlington Malls. 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.

The Company accounts for
these investments using the equity method. Investments in and advances to joint
ventures are as follows:

December
  31,2005

2004Martinsburg Mall


$
919,549

$
1,352,433Four Malls



6,694,235


8,387,301Shawnee/Brazos Malls



6,800,268


7,474,629Macon/Burlington Malls



8,877,081


$
23,291,133

$
17,214,363Equity in the (loss) income
of joint ventures for the years ended December 31, 2005 and 2004 is as follows:

Year Ended
  December 31,2005

2004Martinsburg Mall
(1
)
$
(343,134
)
$
(85,977
)Four Malls
(2
)

(548,327
)

(22,856
)Shawnee/Brazos Malls
(3
)

169,680


Macon/Burlington Malls
(4
)

(158,904
)

$
(880,685
)
$
(108,833
)(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) The Companys share of the
  income of joint ventures for the Shawnee/Brazos Malls is determined after interest
  income at the rate79

of 11% per
annum on the outstanding $7,500,000 loan from Presidential to Lightstone II.

(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:

December 31,2005

2004Condensed Combined Balance
SheetsNet real
estate

$
302,087,000

$
146,103,060In place lease
values and acquired lease
  rights


22,299,000


17,578,322Prepaid
expenses and deposits in escrow


16,140,000


8,728,026Cash and cash
equivalents


3,488,000


1,635,000Deferred
financing costs


2,202,000


3,608,435Other
assets


5,466,000


1,742,466Total
Assets

$
351,682,000

$
179,395,309Nonrecourse
mortgage debt

$
303,350,000

$
144,500,000Mezzanine
notes payable


28,200,000


18,700,000Other
liabilities


21,138,000


12,514,864Total
Liabilities


352,688,000


175,714,864Members
Equity (Deficit)


(1,006,000
)

3,680,445Total
Liabilities and Members Equity

$
351,682,000

$
179,395,309Year Ended December 31,2005

2004Condensed Combined Statements
of OperationsRevenues

$
46,353,000

$
6,488,000Interest on
mortgage debt and other debt


(17,396,000
)

(1,958,000
)Depreciation
and amortization


(13,680,000
)

(2,127,000
)Other
expenses


(23,685,000
)

(3,314,000
)Net Loss

$
(8,408,000
)
$
(911,000
)As a result of
the Companys use of the equity method of accounting with respect to its
investments in and advances to the joint

80

ventures, the
Companys consolidated statement of operations for the year ended December 31,
2005 reflects 29% of the income (loss) of the joint ventures. 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 of $463,513 and amortization of in-place lease values of $1,247,350).
Notwithstanding the income (loss) from the joint ventures, the Company is
entitled to receive its interest at the rate of 11% per annum on its
$25,600,000 of loans to the joint ventures. For the year ended December 31,
2005, the Company received distributions from the 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 equity in
the loss of joint ventures of $108,833 for the year ended December 31, 2004, is
after deductions in the aggregate amount of $616,830 for the Companys 29% of
noncash charges (depreciation of $287,970, amortization of deferred financing
costs of $86,420 and amortization of in-place lease values of $242,440). The
equity in the loss of joint ventures for the year ended December 31, 2004, was
for the period September 10, 2004 (date of inception) to December 31, 2004. For
the year ended December 31, 2004, the Company received distributions from joint
ventures in the amount of $168,178 all of which were interest payments received
on the outstanding loans to the joint ventures.

The Lightstone
Group is controlled by David Lichtenstein. At December 31, 2005, in addition to
Presidentials investments of $23,291,133 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 $9,875,000 with a net carrying value of $9,122,683. Some,
but not all, of these loans are guaranteed in whole or in part by Mr.
Lichtenstein and all of such loans are in good standing. While the Company
believes that all of these loans are adequately secured, a default on some or
all of these loans could have a material adverse effect on Presidentials
business and operating results.

The
$32,413,816 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 71% of the Companys total assets at
December 31, 2005.

81

6. OTHER
INVESTMENTS

On May 24,
2005, the Company invested $1,000,000 with Broadway Real Estate Partners, LLC
(Broadway Partners), which money is being held in escrow pending investment
into Pickwick Preferred Equity Lender LLC (Pickwick). While the money is
being held in escrow, the Company received interest payments at the rate of 8%
per annum from May 24, 2005 through May 31, 2005 and at the rate of 11.43% per
annum thereafter. The $1,000,000 is scheduled to be invested in Pickwick in
2006. The Company earned interest income of $68,395 in 2005, of which $9,525
was accrued at December 31, 2005.

When the
investment in Pickwick is made, the Company will own a 12.05% interest in a
limited liability company whose sole asset is an $8,300,000 note receivable
secured by certain ownership interests in an office building in Greenwich,
Connecticut. Presidential is entitled to receive $9,525 of interest per month
on its investment and when the $8,300,000 loan is repaid, Presidential will
receive $974,335 in full liquidation of its investment.

Presidential
also has agreed to invest $1,000,000 in Broadway Partners Parallel Fund A, a
blind pool of investment capital sponsored by Broadway Partners, through
redemption of its membership interest in Pickwick. Presidentials commitment
will be called on from time to time by Broadway Partners as it requires funds
to make real estate investments. However, Presidential has the right, provided
it gives written notice within seven days of such request, to fund its
obligations from other capital resources. At December 31, 2005, Presidential
had advanced $495,000 of its commitment from its own capital resources and the
balance of Presidentials commitment was $505,000. The Company accounts for
this investment at cost.

7. MORTGAGE
DEBT

All mortgage
debt is secured by individual properties. The $2,347,364 mortgage on the Crown
Court property in New Haven, Connecticut is nonrecourse to the Company, whereas
the $1,154,451 mortgage on the Building Industries Center property in White
Plains, New York and the $145,788 mortgage on the Mapletree Industrial Center property
in Palmer, Massachusetts are recourse to Presidential.

82

Amortization
requirements of all mortgage debt as of December 31, 2005 are summarized as
follows:

Year ending
December 31:

2006

$
132,0822007


140,9632008


150,4482009


1,203,2092010


139,430Thereafter


1,881,471TOTAL

$
3,647,603Interest on
mortgages is payable at fixed rates, summarized as follows:

Interest
rates:

5.45%-6.00%

$
1,300,2397%


2,347,364TOTAL

$
3,647,6038. DISTRIBUTIONS
FROM PARTNERSHIP IN EXCESS OF INVESTMENT AND EARNINGS

PDL, Inc. (a
wholly owned subsidiary of Presidential) is the general partner of PDL, Inc.
and Associates Limited Co-Partnership (Home Mortgage Partnership). The Home
Mortgage Partnership owns and operates an office building in Hato Rey, Puerto
Rico. Presidential and PDL, Inc. have an aggregate 33% general and limited
partner interest in Home Mortgage Partnership at December 31, 2005. This
percentage has increased since the 31% owned at December 31, 2003 as a result
of the acquisition of an additional 1% interest in August, 2004 for a purchase
price of $73,000 and the acquisition of an additional 1% interest in March,
2005 for a purchase price of $65,000. The Company accounts for its investment
in this partnership under the equity method, because it exercises significant
influence, but not control, over the partnerships affairs.

The Companys
interest in the Home Mortgage Partnership has a negative basis and therefore is
classified as a liability on the Companys consolidated balance sheets, under
the caption

83

distributions
from partnership in excess of investment and earnings. The negative basis is
solely 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, and not due to partnership operating losses.

Summary
financial information for Home Mortgage Partnership is as follows:

December 31,2005

2004Condensed Balance
SheetsNet real
estate

$
3,905,347

$
4,063,811Prepaid
expenses and deposits in escrow


790,331


826,083Cash and cash
equivalents


950,269


993,358Receivables
and other assets


446,570


479,145Total
Assets

$
6,092,517

$
6,362,397Nonrecourse
mortgage debt

$
16,075,068

$
16,313,668Other
liabilities


672,681


665,894Total
Liabilities


16,747,749


16,979,562Partners
Deficiency


(10,655,232
)

(10,617,165
)Total
Liabilities and Partners Deficiency

$
6,092,517

$
6,362,397On the Companys
Consolidated Balance
  Sheets:Distributions from partnership
in excess of
  investment and earnings

$
2,208,990

$
2,259,943Year Ended December 31,2005

2004Condensed
  Statements of OperationsRevenues

$
3,758,704

$
4,521,830Interest on
mortgage debt


(1,211,506
)

(1,232,065
)Depreciation
and amortization


(358,480
)

(352,408
)Other
expenses


(2,170,703
)

(1,979,020
)Investment
income


27,318


8,715Net
Income

$
45,333

$
967,052On the
  Companys Consolidated Statements of Operations:Equity in
income of partnership

$
12,875

$
304,369Net income of
the Home Mortgage Partnership decreased during 2005 as a result of two tenants
vacating a total of 52,088 square feet of office space at the expiration of
their leases. Subsequent to year end another tenant vacated 30,299 square feet
of office space. In

84

addition, the
Home Mortgage Partnership has decided to undertake a program of repairs and
improvements to the building that is expected to cost approximately $1,255,000.
The Company has agreed to lend up to $1,000,000 to the Home Mortgage
Partnership (and has the right to lend an additional $1,000,000) to pay for the
cost of improvements to the building and fund any negative cash flows from the
operation of the property. The loan, which will be advanced from time to time
as funds are needed, will bear interest at the rate of 11% per annum, with
interest and principal to be paid out of the first positive cash flow from the
property or upon a refinancing of the first mortgage on the property.

9. MINORITY
INTEREST IN CONSOLIDATED PARTNERSHIP

Presidential
is the general partner of UTB Associates, a partnership in which Presidential
has a 75% interest. As the general partner of UTB Associates, Presidential
exercises 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 2005 and there are no amounts
outstanding under the line of credit at December 31, 2005.

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.

Upon filing
the Companys income tax return for the year ended December 31, 2004,
Presidential applied all of its available 2004 stockholders distributions and
further elected to apply (under Section 858 of the Internal Revenue Code)
approximately $131,000 of

85

its year 2005
stockholders distributions to reduce its taxable income for 2004 to zero.

For the year
ended December 31, 2005, the Company had taxable income (before distributions
to stockholders) of approximately $4,035,000 ($1.04 per share), which is
comprised of capital gains of $6,151,000 ($1.59 per share) and an ordinary loss
of $2,116,000 ($.55 per share). This taxable income will be reduced by the
$2,331,000 ($.60 per share) of its 2005 distributions that were not utilized in
reducing the Companys 2004 taxable income. In addition, the Company may elect
to apply any eligible year 2006 distributions to reduce its 2005 taxable
income.

As previously
stated, in order to maintain REIT status, Presidential is required to
distribute 90% of its REIT taxable income (exclusive of capital gains). As a
result of the ordinary tax loss for 2005, there is no requirement to make a
distribution in 2006. In addition, although
no assurances can be given, the Company currently expects that it will not have
to pay Federal income taxes for 2005 because its present intention is to
distribute all of its 2005 taxable income (including capital gain) during 2005
and 2006. Therefore, no provision for income taxes has been made at December
31, 2005.

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 $505,000 in Broadway Partners Parallel Fund A (see
Note 6).

In addition,
Presidential has a commitment to lend up to $1,000,000 to the Home Mortgage
Partnership (see Note 8).

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

In the opinion of management, all of the Companys properties are
adequately covered by insurance in accordance with normal insurance practices.
The Company is not aware of any environmental issues at any of its properties.
The presence of hazardous substances at any of its properties could have an
adverse effect on the Companys operating results and financial condition.

86

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 (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, 2005 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 $9,123,000 and all of such loans are in good standing. In
addition, the Company has invested a total of $27,038,410 with entities
controlled by Mr. Lichtenstein in transactions relating to seven shopping mall
properties in 2004 and two shopping mall properties in 2005. In 2005, the
Company purchased, and is the beneficiary of, a $20,000,000 insurance policy on
Mr. Lichtensteins life.

Furthermore,
the $105,000,000 nonrecourse first mortgage loan secured by five 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
October, 2006 and January, 2007, respectively, subject to the borrowers right
to extend the maturity dates for three additional one year terms. As a result,
any material increase in interest rates could adversely affect the operating
results of the joint ventures and their ability to make the required interest
payments on the Companys $8,600,000 and $7,500,000 mezzanine loans to those
entities. The interest rate on the first mortgages secured by the Martinsburg
Mall and the Four Malls in fact increased from 5.70% per annum at December 31,
2004 to 7.98% per annum at December 31, 2005 and the interest rate on the first
mortgages secured by the Shawnee/Brazos Malls increased from 4.90% per annum at
December 31, 2004 to 7.18% per annum at December 31, 2005. The Company believes
that these first mortgages will

87

either be
extended in accordance with their terms or refinanced prior to the maturity
date of their initial terms.

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.

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 Gain2005

$0.64

$0.00

$0.642004

0.64

0.00

0.6416. 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.

88

In July, 2005,
three independent directors of the Company each received 1,000 shares of the
Companys Class B common stock as partial payment for directors fees for the
2005 year. As a result of this transaction, the Company recorded an amount for
directors fees based on the $8.35 per share market value of the Class B common
stock at the grant date. The Company recorded additions to the Companys Class
B common stock of $300 at par value of $.10 per share and $24,750 was added to
additional paid-in capital.

In addition,
in August, 2005, an executive of the Company was awarded 11,000 restricted
shares of the Companys Class B common stock, of which 10,000 were granted and
accrued for in 2004 and 1,000 were granted in 2005 (subject to shareholder
approval of the 2005 Plan). The 10,000 shares were valued at $7.51 per share
and the 1,000 shares were valued at $9.04 per share, which were the respective
market values of the Class B common stock at the grant date. Accordingly, the
Company recorded salary expense of $9,040 in 2005 and $75,100 in 2004. In 2005,
the Company recorded additions to the Companys Class B common stock of $1,100
at par value of $.10 per share and $83,040 to additional paid-in capital.

Stock
compensation activity for the two years ended December 31, 2005 was as follows:

Year

Shares

Market Value
  per Share

Total
  Directors Fees

Salary
  Expense2005


3,000

$
8.35

$
25,050

$
2005


1,000


9.04





9,0402004


3,000


7.614


22,842


2004


10,000


7.51





75,10017. 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 is 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

89

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, 2005 was 10.50% for medical and 14%
for prescription drugs, decreasing gradually each successive year until it
reaches 5% by the year 2017.

The following
tables summarize the actuarial costs of the contractual pension and
postretirement benefits:

90

CONTRACTUAL PENSION AND
POSTRETIREMENT BENEFITS

Contractual Pension Benefit
  Year Ended December 31,

Contractual Postretirement Benefits
  Year Ended December 31,2005

2004

2005

2004Components
  of net periodic benefit cost:Service cost

$
30,091

$
41,478

$
20,734

$
13,089Interest
  cost


132,397


150,451


48,602


38,253Amortization
  of prior service cost


(39,740
)

(24,693
)

(9,612
)

(9,612
)Recognized
  actuarial loss


293,791


246,817


91,203


19,101Net periodic
  benefit cost

$
416,539

$
414,053

$
150,927

$
60,831Weighted
average assumptions as of January 1,

2005

2004

2005

2004Discount
  rate


5.66
%

6.25
%

5.66
%

6.25
%Expected
  return on plan assets


N/A


N/A


N/A


N/ARate of
  compensation increase


N/A


N/A


N/A


N/AThe recorded contractual
pension and postretirement benefits liability of $3,456,666 at December 31,
2005 is comprised of $ 2,835,963 for pension benefits and $620,703 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 31,2005

2004

2005

2004Change in benefit obligation:Benefit obligation at beginning of year

$
2,813,005

$
2,866,504

$
665,648

$
559,705Service cost


30,091


41,478


20,734


13,089Interest cost


132,397


150,451


48,602


38,253Amendments











86,926Actuarial loss


334,307


213,862


222,769


21,762Benefits paid


(473,837
)

(459,290
)

(66,857
)

(54,087
)Benefit obligation at end of year


2,835,963


2,813,005


890,896


665,648Change in plan assets:Employer contributions


473,837


459,290


66,857


54,087Benefits paid


(473,837
)

(459,290
)

(66,857
)

(54,087
)Fair value of plan assets at end of year











Funded status


(2,835,963
)

(2,813,005
)

(890,896
)

(665,648
)Unrecognized net actuarial loss


1,692,843


1,652,326


274,999


143,433Unrecognized prior service cost


(170,049
)

(209,789
)

(4,806
)

(14,418
)Net amount recognized
(
$
1,313,169
)
($
1,370,468
)
($
620,703
)
($
536,633
)Amounts recognized in the balance sheet
  consist of:Accrued benefit liability
(
$
2,835,963
)
($
2,813,005
)
($
620,703
)
($
536,633
)Accumulated other comprehensive loss


1,522,794


1,442,537





Net amount recognized
(
$
1,313,169
)
($
1,370,468
)
($
620,703
)
($
536,633
)Additional disclosure items for the
  underfunded plans at December 31:Accumulated benefit obligation

$
2,835,963

$
2,813,005

$
890,896

$
665,648Projected benefit obligation


2,835,963


2,813,005


890,896


665,648Fair value of plan assets


N/A


N/A


N/A


N/AIncrease (decrease) in minimum liability included in other comprehensive income


80,257


(8,262
)

N/A


N/AWeighted average assumptions as of December
  31:Discount rate


5.41
%

5.66
%

5.41
%

5.66
%Expected return on plan assets


N/A


N/A


N/A


N/ARate of compensation increase


N/A


N/A


N/A


N/AAssumed 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-

1-Percentage-Point Increase

Point DecreaseEffect on
  total service and interest cost components

$
6,928

$
(5,986
)Effect on
  postretirement benefit obligation

$
81,191

$
(70,553
)91

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 2006 will be as follows:

Contractual
  pension benefit payments

$487,000Contractual
  postretirement benefit payments

77,000Estimated
Future Benefit Payments

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

Year Ending

Contractual

ContractualDecember 31,

Pension Benefit

Postretirement Benefits2006


$
487,000



$
77,0002007



373,912




78,8932008



323,188




76,4912009



274,968




73,6042010



230,200




79,3512011  2015



1,071,311




351,61119. 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. Periodic
pension costs

92

are reflected
in general and administrative expenses. The Company uses a December 31
measurement date for the plan.

Year Ended December 31,2005


2004Components of net periodic benefit cost:Service cost

$
490,030

$
388,038Interest cost


372,084


342,839Expected return on plan assets


(490,260
)

(341,050
)Amortization of prior service cost


12,616


12,616Amortization of accumulated loss


80,692


62,964Net periodic benefit cost

$
465,162

$
465,407Weighted
average assumptions as of January 1,

2005

2004Discount
  rate


5.66
%

6.25
%Expected
  return on plan assets


7
%

7
%Rate of
  compensation increase


5
%

5
%93

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

December
  31,2005

2004Change in benefit
  obligation:Benefit obligation at
  beginning of year

$
6,573,921

$
5,485,431Service cost


490,030


388,038Interest cost


372,084


342,839Actuarial (gain) loss


(59,027
)

357,613Benefit obligation at end
  of year


7,377,008


6,573,921Change in plan assets:Fair value of plan assets
  at beginning of year


7,003,714


4,087,727Actual return on plan
  assets


449,386


364,541Employer contributions





2,551,446Fair value of plan assets
  at end of year


7,453,100


7,003,714Funded status actuarial


76,092


429,793Unrecognized prior service
  cost


118,590


131,206Unrecognized loss


1,577,170


1,676,015Net amount recognized

$
1,771,852

$
2,237,014Amounts recognized in the
  balance sheet consist of:Prepaid benefit cost

$
1,771,852

$
2,237,014Accrued benefit liability





Intangible asset





Accumulated other
  comprehensive loss





Net amount recognized

$
1,771,852

$
2,237,014Additional
disclosure items for the plan at December 31:

2005

2004Accumulated benefit
  obligation

$
7,358,465

$
6,569,774Projected benefit
  obligation


7,377,008


6,573,921Fair value of plan assets


7,453,100


7,003,714Increase (decrease) in
  minimum liability included in
  other comprehensive income





(1,400,494
)Weighted-average
  assumptions as of December 31:2005

2004Discount rate


5.41
%

5.66
%Expected return on plan
  assets


7
%

7
%Rate of
  compensation increase


5
%

5
%94

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 31,2005

2004Plan Assets:Cash and cash equivalents

$
317,276


$
407,473Securities available for sale


7,135,824



6,596,241Total plan assets

$
7,453,100


$
7,003,714Presidentials weighted-average asset allocations by
asset category are as follows:Equities


55
%


53
%Fixed income


31
%


31
%Professionally managed futures contracts portfolio


10
%


10
%Cash and money market funds


4
%


6
%Total


100
%


100
%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 2006, but may make the maximum tax
deductible contribution in 2006 of approximately $389,000. In February, 2006,
the Company made a maximum tax deductible contribution of $165,906 for the 2005
tax year.

95

Estimated Future Benefit Payments

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

Year EndingDecember 31,


Pension Benefits2006


$
271,9842007



502,6382008



502,6382009



609,5942010



629,5382011  2015



3,267,07920. DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN

Presidential maintains a Dividend Reinvestment and
Share Purchase Plan (the Plan). Under the Plan, stockholders may reinvest
cash dividends and make optional cash payments 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.

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

Net
  ProceedsShares

ReceivedTotal shares issued at January 1, 2004


448,655

$
3,036,610Shares issued during 2004


33,052


255,594Total shares issued at December 31, 2004


481,707


3,292,204Shares issued during 2005


16,235


127,462Total shares issued at December 31, 2005


497,942

$
3,419,666The Company is delinquent in its federal securities
law filing obligations because it has 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 relates 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

96

the properties. This delinquency will be cured with
the filing of the Form 10-KSB for the year ended December 31, 2005, which
includes audited financial statements for the properties for the period from
the acquisition of the Companys interest in the properties until December 31,
2005. During the period of delinquency in its filing obligations,
Presidentials dividend reinvestment plan for its Class B Common Stock
continued pursuant to the terms of its Dividend Reinvestment and Share Purchase
Plan but shareholders were not able to make optional cash payments to acquire
shares under the Plan. Since the delinquency will be cured upon the filing of
the Form 10-KSB, shareholders will once again be able to purchase additional
shares under the terms of the Plan.

21. RELATED PARTY TRANSACTIONS

In connection with the exercise of stock options in
November, 1999, the Company loaned $367,500 in the aggregate to three of its
officers to pay for the purchase of the stock. The recourse notes, secured by
the stock, bore interest at 8% per annum, payable quarterly, and the principal
was repaid in 2004 prior to the maturity date of November 30, 2004.
Presidential recognized interest income on these notes of $14,636 during 2004.

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 $271,073 as
of December 31, 2005, and a net carrying amount of $209,287, after deducting
discounts. Presidential received interest of $385,476 and $585,327 from Ivy
during 2005 and 2004, respectively, on these loans.

In addition, in 2005 and 2004, Presidential recognized
$1,497 and $10,690, respectively, of income representing the amortization of
discounts on notes receivable.

Two of the notes have an aggregate outstanding
principal balance of $4,770,050 at December 31, 2005. 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 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

97

Scorpio Entertainment, Inc. (Scorpio), a company
owned by two of the owners of Ivy. Scorpio acts as a producer of theatrical
productions. The Company received interest payments on these notes of $354,000
and $548,750 during 2005 and 2004, 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, 2005, the unpaid and unaccrued interest was
$3,103,816.

All outstanding loans to Ivy at December 31, 2005 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.

22. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimated fair values of the Companys financial
instruments as of December 31, 2005 and 2004 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.

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

December 31, 2005




December 31, 2004(Amounts in thousands)Net





Estimated




Net




EstimatedCarrying




Fair





Carrying





FairValue (1)




Value




Value (1)





ValueAssets:Cash and cash
  equivalents

$
2,878


$
2,878


$
2,086


$
2,086Notes
  receivable-sold properties and other


9,889



11,512



15,216



20,131Notes
  receivable-related parties


209



300



244



320Liabilities:Mortgage
debt


3,648



3,508



6,738



6,467(1)
Net carrying value is net of discounts and deferred
  gains where applicable.The fair value estimates presented above are based on
pertinent information available to management as of December 31, 2005 and 2004.
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, 2005 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.

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23. FUTURE MINIMUM ANNUAL BASE RENTS

Future minimum annual base rental revenue for the next
five years for commercial real estate owned at December 31, 2005, and subject
to non-cancelable operating leases is as follows:

Year Ending December 31,2006

$
764,6272007


404,9032008


152,3332009


24,7342010


Total

$
1,346,597The 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.

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

Year  Ended December
  31

Revenues
  (1)

Net 
  Income (Loss)

EarningsPer 
  Common 
  Share2005First

$
1,387

$
1,389
(2)
$
0.36
(2)Second


1,035


1,614


0.42Third


1,018


758
(2)

0.20
(2)Fourth


975


(567
)

(0.15
)2004First

$
1,409

$
965

$
0.25Second


1,337


11,387
(3)

3.00
(3)Third


1,432


95


0.03Fourth


1,315


2,707


0.71(1)
Amounts
  have been adjusted to give effect to the reclassification from revenues to
  discontinued operations for the Cambridge Green property, which has been
  designated as held for sale.100

(2)
Net
  income for the first quarter of 2005 includes a provision for income taxes of
  $1,941,661 which reduced the recognition of the deferred gain on sale of
  properties. In March, 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 $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)
Net
  income for the second quarter of 2004 includes the recognition of a gain of
  $11,008,520 from the sale of the Continental Gardens property.25. SUBSEQUENT EVENT

Subsequent to year end, the Company received a partial prepayment on
one of the loans outstanding to entities controlled by Mr. Lichtenstein. The
Company has a $4,500,000 loan secured by ownership interests in entities owning
nine apartment properties in the Commonwealth of Virginia. The first mortgages
on these properties were refinanced and Presidential received $2,425,006 of net
refinancing proceeds in repayment of a portion of its loan principal and
$215,750 in payment of the deferred interest to date, leaving an outstanding
principal balance of $2,074,994.

101