PRESIDENTIAL REALTY CORP/DE/ - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - PRESIDENTIAL REALTY CORP/DE/	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - PRESIDENTIAL REALTY CORP/DE/	ex31_1.htm
EX-32.2 - EXHIBIT 32.2 - PRESIDENTIAL REALTY CORP/DE/	ex32_2.htm
EX-32.1 - EXHIBIT 32.1 - PRESIDENTIAL REALTY CORP/DE/	ex32_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

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)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 T No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £	Accelerated filer £

Non-accelerated filer £ (Do not check if a smaller reporting company)	Smaller reporting company T

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

The number of shares outstanding of each of the registrant’s classes of common stock as of November 9, 2010 was 442,533 shares of Class A common stock and 2,960,147 shares of Class B common stock.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

Index to Form 10-Q

For the Quarterly Period Ended

September 30, 2010

			Page

Part I	Financial Information (Unaudited)

Item 1.	Financial Statements
		Consolidated Balance Sheets (Unaudited)	1
		Consolidated Statements of Operations (Unaudited)	2
		Consolidated Statement of Stockholders’ Equity (Unaudited)	3
		Consolidated Statements of Cash Flows (Unaudited)	4
		Notes to Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		40

Item 4.	Controls and Procedures		40


Part II	Other Information

Item 6.	Exhibits		40

Index

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

	September 30,		December 31,
	2010		2009
Assets

Real estate (Note 2)	$	15,658,670	$	16,595,998
Less: accumulated depreciation		1,523,363		1,516,641

Net real estate		14,135,307		15,079,357
Mortgage portfolio held for sale (Note 3)		2,074,994		-
Net mortgage portfolio (of which $769,338 in 2010 and $769,037 in 2009 are due within one year) (Note 3)		796,076		2,880,922
Investments in joint ventures (Note 4)		1,980,879		2,595,603
Assets related to discontinued operations (Note 5)		683,716		231,813
Prepaid expenses and deposits in escrow		912,102		1,132,569
Other receivables (net of valuation allowance of $219,295 in 2010 and $234,316 in 2009)		389,324		804,376
Cash and cash equivalents		1,486,221		784,674
Securities available for sale (Note 6)		2,872,225		3,614,113
Other assets		444,160		518,185

Total Assets	$	25,775,004	$	27,641,612

Liabilities and Stockholders' Equity

Liabilities:
Mortgage debt (of which $366,112 in 2010 and $375,916 in 2009 are due within one year)	$	14,668,159	$	14,969,607
Liabilities related to discontinued operations (Note 5)		22,763		1,045,867
Contractual pension and postretirement benefits liabilities		918,779		927,882
Defined benefit plan liability		2,179,248		1,957,522
Accrued liabilities		1,911,956		1,797,502
Accounts payable		359,953		780,128
Other liabilities		425,576		464,242

Total Liabilities		20,486,434		21,942,750


Stockholders' Equity:
Common stock: par value $.10 per share
	September 30, 2010		December 31, 2009
Class A					47,894	47,894
Authorized:		700,000		700,000
Issued:		478,940		478,940
Treasury:		36,407		36,407

Class B					353,055	352,755
Authorized:		10,000,000		10,000,000
Issued:		3,530,547		3,527,547
Treasury:		570,400		570,400

Additional paid-in capital		4,672,366			4,636,633
Retained earnings		6,625,935			6,855,088
Accumulated other comprehensive loss (Note 9)		(2,795,238	)		(2,799,464	)
Treasury stock (at cost)		(3,129,388	)		(3,129,388	)

Total Presidential Realty Corporation stockholders' equity		5,774,624			5,963,518
Noncontrolling interest (Note 7)		(486,054	)		(264,656	)

Total Stockholders' Equity		5,288,570			5,698,862

Total Liabilities and Stockholders' Equity	$	25,775,004		$	27,641,612

See notes to consolidated financial statements.

Index

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,

	2010			2009			2010			2009
Revenues:
Rental	$	959,402		$	991,839		$	3,119,138		$	3,086,685
Interest on mortgages - notes receivable		211,499			103,451			360,121			350,833
Other revenues		13			12			18,617			23,626

Total		1,170,914			1,095,302			3,497,876			3,461,144

Costs and Expenses:
General and administrative		826,372			865,834			2,364,328			2,748,724
Depreciation on non-rental property		8,772			10,518			26,393			31,419
Rental property:
Operating expenses		482,067			484,260			1,498,849			1,451,232
Interest on mortgage debt		370,598			370,160			1,099,406			1,098,135
Real estate taxes		122,714			111,280			345,274			245,897
Depreciation on real estate		113,532			110,237			338,288			325,735
Amortization of in-place lease values and mortgage costs		7,668			12,469			25,554			43,664

Total		1,931,723			1,964,758			5,698,092			5,944,806

Other Income (Loss):
Investment income		23,466			31,486			54,264			63,868
Equity in the loss from joint ventures (Note 4)		(205,355	)		(466,127	)		(614,724	)		(1,052,005	)
Gain on settlement of joint venture loans (Notes 3 and 4)		150,000			-			150,000			3,979,289

Income (loss) from continuing operations		(792,698	)		(1,304,097	)		(2,610,676	)		507,490

Discontinued Operations (Note 5):
Income from discontinued operations		40,379			30,950			96,571			155,081
Net gain from sales of discontinued operations		1,764,313			-			2,063,554			3,208,336

Total income from discontinued operations		1,804,692			30,950			2,160,125			3,363,417

Net income (loss)		1,011,994			(1,273,147	)		(450,551	)		3,870,907

Add: Net loss from noncontrolling interest (Note 7)		102,545			87,936			221,398			171,552

Net Income (Loss) attributable to Presidential Realty Corporation	$	1,114,539		$	(1,185,211	)	$	(229,153	)	$	4,042,459


Earnings per Common Share attributable to Presidential
Realty Corporation (basic and diluted) (Note 10):
Income (loss) from continuing operations	$	(0.20	)	$	(0.36	)	$	(0.70	)	$	0.20

Discontinued Operations:
Income from discontinued operations		0.01			0.01			0.02			0.05
Net gain from sales of discontinued operations		0.52			-			0.61			0.95

Total income from discontinued operations		0.53			0.01			0.63			1.00

Net Income (Loss) per Common Share - basic	$	0.33		$	(0.35	)	$	(0.07	)	$	1.20
- diluted	$	0.33		$	(0.35	)	$	(0.07	)	$	1.19

Weighted Average Number of Shares Outstanding - basic		3,393,482			3,381,982			3,391,277			3,380,667
- diluted		3,393,482			3,381,982			3,391,277			3,399,592

Amounts attributable to Presidential Realty Corporation
Common Shareholders:
Income (loss) from continuing operations	$	(690,153	)	$	(1,216,161	)	$	(2,389,278	)	$	679,042
Total income from discontinued operations		1,804,692			30,950			2,160,125			3,363,417
Net Income (Loss)	$	1,114,539		$	(1,185,211	)	$	(229,153	)	$	4,042,459

See notes to consolidated financial statements.

Index

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

	Presidential Realty Corporation Stockholders
	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Noncontrolling Interest			Comprehensive Loss			Total Stockholders' Equity

Balance at January 1, 2010	$	400,649	$	4,636,633	$	6,855,088		$	(2,799,464	)	$	(3,129,388	)	$	(264,656	)				$	5,698,862

Issuance and vesting of restricted stock		300		35,733		-			-			-			-						36,033
Comprehensive loss:
Net loss		-		-		(229,153	)		-			-			(221,398	)	$	(450,551	)		(450,551	)
Other comprehensive income (loss) -
Net unrealized gain on securities available for sale		-		-		-			27,675			-			-			27,675			27,675
Adjustment for contractual postretirement benefits		-		-		-			(23,449	)		-			-			(23,449	)		(23,449	)
Comprehensive loss																		(446,325	)
Comprehensive loss attributable to noncontrolling interest																		221,398
Comprehensive loss attributable to Presidential Realty Corporation																	$	(224,927	)

Balance at September 30, 2010	$	400,949	$	4,672,366	$	6,625,935		$	(2,795,238	)	$	(3,129,388	)	$	(486,054	)				$	5,288,570

Index

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	NINE MONTHS ENDED SEPTEMBER 30,

	2010			2009
Cash Flows from Operating Activities:
Cash received from rental properties	$	3,975,458		$	4,269,683
Interest received		465,141			394,170
Miscellaneous income		10,042			10,942
Interest paid on rental property mortgage debt		(891,742	)		(944,782	)
Cash disbursed for rental property operations		(2,897,223	)		(2,602,299	)
Cash disbursed for general and administrative costs		(2,245,100	)		(3,143,968	)

Net cash used in operating activities		(1,583,424	)		(2,016,254	)

Cash Flows from Investing Activities:
Payments received on notes receivable		23,850			107,839
Proceeds from sales of properties		2,349,850			1,545,851
Payments received on settlement of joint venture loans		650,000			65,289
Payments disbursed for additions and improvements		(124,417	)		(392,995	)
Purchase of securities available for sale		-			(4,431,622	)
Proceeds from sales of securities		750,900			804,766

Net cash provided by (used in) investing activities		3,650,183			(2,300,872	)

Cash Flows from Financing Activities:
Principal payments on mortgage debt		(2,574,552	)		(303,683	)
Proceeds of mortgage refinancing		1,250,000			-
Payments disbursed for mortgage costs		(40,660	)		(1,500	)

Net cash used in financing activities		(1,365,212	)		(305,183	)


Net Increase (Decrease) in Cash and Cash Equivalents		701,547			(4,622,309	)

Cash and Cash Equivalents, Beginning of Period		784,674			5,984,550

Cash and Cash Equivalents, End of Period	$	1,486,221		$	1,362,241

See notes to consolidated financial statements.

Index

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	NINE MONTHS ENDED SEPTEMBER 30,

	2010			2009


Reconciliation of Net Income (Loss) to Net Cash Used in Operating Activities

Net Income (Loss)	$	(450,551	)	$	3,870,907

Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net gain from sales of discontinued operations		(2,063,554	)		(3,208,336	)
Gain on settlement of joint venture loans		(150,000	)		(3,979,289	)
Equity in the loss from joint ventures		614,724			1,052,005
Depreciation and amortization		409,181			461,612
Net change in revenue related to acquired lease rights/obligations and deferred rent receivable		(546	)		(25,300	)
Amortization of discounts on notes and fees		(13,998	)		(62,570	)
Issuance of stock to directors and officers		35,531			37,644

Changes in assets and liabilities:
Decrease (increase) in other receivables		(96,112	)		142,453
Decrease in accounts payable and accrued liabilities		(132,395	)		(393,062	)
Increase (decrease) in other liabilities		24,787			(75,587	)
Decrease in prepaid expenses, deposits in escrow and deferred charges		220,969			170,664
Other		18,540			(7,395	)

Total adjustments		(1,132,873	)		(5,887,161	)

Net cash used in operating activities	$	(1,583,424	)	$	(2,016,254	)



SUPPLEMENTAL NONCASH DISCLOSURES:

Fair value of assets received in settlement of notes receivable due from joint ventures:
50% partnership interest in IATG Puerto Rico, LLC				$	3,250,000
Note receivable					664,000
				$	3,914,000

Satisfaction of mortgage debt as a result of assumption of the mortgage debt by purchaser				$	2,053,964

See notes to consolidated financial statements.

Index

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 (UNAUDITED)

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

Management believes that, barring any unforeseen circumstances, the Company has sufficient liquidity and capital resources to carry on its existing business and to pay any dividends required to maintain REIT status. However, in the current ongoing economic downturn, given our continuing decline in revenues, expected losses from continuing operations and negative cash flows from operating activities, management believes that Presidential might have insufficient liquidity and capital resources to operate in future years without sales of its assets. As a result, the Board of Directors has determined to seek shareholder approval for a plan of liquidation of the Company or to seek other strategic alternatives with interested parties.

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Principles of Consolidation – The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, the consolidated financial statements include 100% of the account balances of PDL, Inc. and Associates Limited Co-Partnership (the “Hato Rey Partnership”). PDL, Inc. (a wholly owned subsidiary of Presidential and the general partner of the Hato Rey Partnership) and Presidential own an aggregate 60% general and limited partnership interest in the Hato Rey Partnership (see Note 7). All significant intercompany balances and transactions have been eliminated.

B. Net Income (Loss) Per Share – Basic net income (loss) per share data is computed by dividing net income (loss) by the weighted average number of shares of Class A and Class B common stock outstanding (excluding nonvested shares) during each period. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of nonvested shares. (See Note 10.)

C. Basis of Presentation – The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The results for such interim periods are not necessarily indicative of the results to be expected for the year. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results for the respective periods have been reflected. These consolidated financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2009.

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

Index

E. Securities Available for Sale – The Company’s investments are in marketable equity and debt securities consisting primarily of notes and bonds of agencies of the federal government. Disposition of such securities may be appropriate for either liquidity management or in response to changing economic conditions, so they are classified as securities available for sale.

Securities available for sale are reported at fair value in accordance with the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The valuation of securities available for sale was determined to be Level 1 financial assets within the valuation hierarchy in this topic, and is based on current market quotes received from financial sources that trade such securities. Unrealized gains and losses are reported as other comprehensive income in the consolidated statement of stockholders’ equity until realized. The Company evaluates these investments for other-than-temporary declines in value, and, if such declines were other than temporary, the Company would record a loss on the investments. Gains and losses on sales of securities are determined using the specific identification method.

F. Discontinued Operations – The Company follows the guidance of the Presentation and Property, Plant, and Equipment Topics of the ASC, with respect to long-lived assets classified as held for sale. The ASC requires that the results of operations, including impairment, gains and losses related to the properties that have been sold or properties that are intended to be sold, be presented as discontinued operations in the statements of operations for all periods presented and the assets and liabilities of properties intended to be sold are to be separately classified on the balance sheet. Properties designated as held for sale are carried at the lower of cost or fair value less costs to sell and are not depreciated.

G. Equity Method – The Company accounts for its investments in joint ventures using the equity method of accounting.

H. Accounting for Uncertainty in Income Taxes – The Company follows the guidance for the recognition of current and deferred income tax accounts, including accrued interest and penalties, in accordance with ASC 740-10-25. If the Company’s tax positions in relation to certain transactions were examined and were not ultimately upheld, the Company would be required to pay an income tax assessment and related interest. Alternatively, the Company could elect to pay a deficiency dividend in order to continue to qualify as a REIT and the related interest assessment to the taxing authorities.

I. Recently Adopted Accounting Standards – In June, 2009, the FASB issued new provisions to the Consolidated Topic of the ASC, which modified the existing quantitative guidance used in determining the primary beneficiary of a variable interest entity (“VIE”) by requiring entities to qualitatively assess whether an enterprise is a primary beneficiary, based on whether the entity has (i) power over the significant activities of the VIE, and (ii) an obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. These new provisions became effective for all new and existing VIEs on January 1, 2010. The Company’s adoption of these provisions on January 1, 2010 had no impact on the Company’s consolidated financial statements.

Index

In January, 2010, the FASB issued a new accounting standard for distributions to stockholders with components of stock and cash. The guidance clarifies that in calculating earnings per share, an entity should account for the stock portion of the distribution as a stock issuance and not as a stock dividend. The new standard was effective for fiscal years and interim periods ending after December 15, 2009 and should be applied on a retrospective basis. The Company’s adoption of the new standard on December 31, 2009 had no impact on the Company’s consolidated financial statements.

2.	REAL ESTATE

Real estate is comprised of the following:

	September 30,		December 31,
	2010		2009

Land	$	1,906,466	$	1,995,982
Buildings		13,745,829		14,563,891
Furniture and equipment		6,375		36,125

Total real estate	$	15,658,670	$	16,595,998

3.	MORTGAGE PORTFOLIO

The components of the mortgage portfolio are as follows:

	September 30,		December 31,
	2010		2009

Note receivable held for sale	$	2,074,994	$	-

Notes receivable	$	817,262	$	2,917,134
Less: Discounts		21,186		36,212

Net mortgage portfolio	$	796,076	$	2,880,922

At September 30, 2010, all of the notes in the Company’s mortgage portfolio are current in accordance with their terms, as modified.

Mortgage Portfolio Held for Sale

On February 27, 2009, the Company completed a Settlement Agreement with The Lightstone Group (“Lightstone”) and David Lichtenstein regarding various claims the Company had asserted against them. Under the terms of the Settlement Agreement, an affiliate of Lightstone, which is the debtor on an existing loan from the Company in the outstanding principal amount of $2,074,994, assumed $10,000,006 of indebtedness under the $9,500,000 and $8,600,000 mezzanine loans due from Lightstone. The total indebtedness was consolidated into a nonrecourse loan in the outstanding principal amount of $12,075,000 (the “Consolidated Note”). The Consolidated Note is secured by the ownership interests in entities owning nine apartment properties (1,056 apartment units) located in Virginia (which had previously secured the $2,074,994 indebtedness) and 75% of the ownership interests in entities owning nine additional apartment properties (931 apartment units) located in Virginia and North Carolina.

Index

The carrying value of the $12,075,000 Consolidated Note on the Company’s consolidated balance sheet is $2,074,994. This is the same carrying value of the $2,074,994 note that was on the Company’s consolidated balance sheet prior to the consolidation of that note with the additional $10,000,006 indebtedness assumed by the affiliate of Lightstone pursuant to the Settlement Agreement. The $10,000,006 additional portion of the Consolidated Note was received in partial settlement of the $9,500,000 and $8,600,000 mezzanine loans held by the Company, which had a net carrying value of $0 on the Company’s consolidated balance sheet at December 31, 2008. Accordingly, in 2009, there was no adjustment on the Company’s consolidated balance sheet and no gain or loss was recorded on the Company’s consolidated financial statements as a result of the receipt of the Consolidated Note.

However, the Company believes that the monthly interest due on the $2,074,994 portion of the note will be paid in accordance with the terms of the note and, as a result, the Company will accrue the interest on this portion of the note. For the nine months ended September 30, 2010, the Company received the interest due on the $2,074,994 portion of the Note.

The interest due on the $10,000,006 portion of the note is being recorded in income on a cash basis as interest is received and the balance of the interest due on the $10,000,006 is deferred and is due at maturity of the note. For the nine months ended September 30, 2010, the Company received $141,064 of interest payments on this portion of the Consolidated Note and the unaccrued deferred interest was $1,874,327.

During the quarter ended September 30, 2010, the Company began to market the $12,075,000 Consolidated Note for sale and at September 30, 2010, classified the note as held for sale on its consolidated balance sheet. Based on indications of interest received by the Company, management believes it will sell the Consolidated Note in excess of its $2,074,994 carrying value.

Net Mortgage Portfolio

Under the terms of the Settlement Agreement, the Company also received a $750,000 non-interest bearing, nonrecourse note originally due on January 31, 2010, which is secured by a 25% ownership interest in IATG Puerto Rico, LLC (“IATG”) (see Note 4). In May, 2010, the Company extended the maturity date of the note to December 31, 2010 and received a $10,000 fee.

In March, 2009, the Company had preliminarily estimated the fair value of the $750,000 note to be $200,000 and the Company recorded the $200,000 note receivable on its consolidated balance sheet and recognized a gain on settlement of joint venture loans of $200,000 in its consolidated financial statements at March 31, 2009. Subsequently, the Company received an independent appraisal of the IATG property (see Note 4) and based upon that appraisal, the Company estimated the fair value of the $750,000 note to be $664,000 ($750,000 note receivable less a discount on the note receivable of $86,000). Accordingly, in June, 2009, the Company recorded an additional $464,000 for the note receivable on its consolidated balance sheet and recognized an additional gain of $464,000 on settlement of joint venture loans in its consolidated financial statements. For the nine months ended September 30, 2010, the Company recognized in interest income $8,329 of the amortization of discount recorded on the note receivable.

Index

4.	INVESTMENTS IN JOINT VENTURES

At September 30, 2010 the Company’s only joint venture investment with Lightstone and David Lichtenstein is a $1,980,879 investment in IATG (as further described below) and it also has two loans due from entities controlled by Mr. Lichtenstein in the outstanding principal amounts of $12,075,000 and $750,000 with an aggregate net carrying value of $2,824,994 (as described in Note 3 above). The $4,805,873 net carrying value of these investments constitutes approximately 19% of the Company’s total assets at September 30, 2010.

As part of the February 27, 2009 Settlement Agreement, the Company received a 50% ownership interest in IATG, the Lightstone affiliate that owns The Las Piedras Industrial Complex, an industrial property located in Las Piedras, Puerto Rico consisting of approximately 68 acres of land and 380,800 square feet of rentable space contained in several buildings in the complex. The property is substantially vacant and the owners may attempt to sell the property. The property is managed by a Lightstone affiliate and Lightstone has agreed to advance funds to pay any negative cash flow from the operations of the property until a sale can be accomplished and has agreed that if it does not do so, it will transfer its remaining 49% interest in the property to Presidential.

For the quarter ended March 31, 2009, the Company recorded its investment in IATG at an estimated fair value of $1,500,000, which estimate was based on information that the Company had available to it at the time, and recognized a gain on settlement of joint venture loans. During the quarter ended June 30, 2009, the Company obtained an independent appraisal of the property owned by IATG and based on the appraised value of $6,500,000, the Company adjusted the preliminary estimate of the value of its 50% ownership interest in the IATG property from $1,500,000 to $3,250,000 on its consolidated financial statements. In the quarter ended June 30, 2009, the Company recorded an additional $1,750,000 investment in joint ventures and recognized an additional $1,750,000 gain on the settlement of joint venture loans. While management believes that the $6,500,000 appraised value of the IATG property is a reasonable value, there can be no assurance that if and when the property is sold, it can be sold for its appraised value.

At December 31, 2009, the Company had investments in joint ventures in two entities that are controlled by Lightstone and David Lichtenstein; a 50% interest in IATG and a 29% interest in Lightstone II.

Index

In January, 2009, Lightstone defaulted on payments of interest due on the $7,835,000 loan and pursuant to the Settlement Agreement, the Company received a personal guaranty from Mr. Lichtenstein of certain amounts due under the Company’s $7,835,000 mezzanine loan (relating to the Shawnee/Brazos Malls), which personal guaranty was limited to $500,000. At December 31, 2009, the Company recognized a $500,000 gain on settlement of joint venture loans in its consolidated financial statements and recorded a $500,000 receivable due from Mr. Lichtenstein on its consolidated balance sheet, which payment was received in March, 2010. On September 15, 2010, the Company entered into an agreement with Lightstone II and Mr. Lichtenstein, whereby the Company received a $150,000 payment in satisfaction of the mezzanine loan and assigned its 29% interest in Lightstone II to Lightstone. At September 30, 2010, the Company recognized a $150,000 gain on settlement of joint venture loans in its consolidated financial statements.

The Company accounts for investments in joint ventures using the equity method. Activity in investments in joint ventures for the period ended September 30, 2010 is as follows:

	Balance at December 31, 2009		Equity in the Loss from Joint Ventures			Balance at September 30, 2010

IATG (1)	$	2,595,603	$	(614,724	)	$	1,980,879
Shawnee/Brazos
Malls (2)		-		-			-

	$	2,595,603	$	(614,724	)	$	1,980,879

Equity in the loss from joint ventures is as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

IATG (1)	$	(205,355	)	$	(201,787	)	$	(614,724	)	$	(429,629	)
Shawnee/Brazos
Malls (2)		-			(264,340	)		-			(622,376	)

	$	(205,355	)	$	(466,127	)	$	(614,724	)	$	(1,052,005	)

(1) The Company recorded its 50% share of the loss from IATG for the nine months ended September 30, 2010 and for the seven months ended September 30, 2009.

(2) At September 30, 2010, the Company no longer has an investment in Lightstone II. For the 2009 periods, interest income earned by the Company at the rate of 11% per annum on the outstanding $7,835,000 loan from the Company to Lightstone II was included in the calculation of the Company’s share of the loss from joint ventures for the Shawnee/Brazos Malls. At December 31, 2009, the Company’s investment in the Shawnee/Brazos Malls was reduced by distributions and losses to zero.

Index

The summary financial information for IATG is as follows:

	September 30,			December 31,
	2010			2009
	(Amounts in thousands)

Condensed Balance Sheets
Net real estate	$	5,373		$	5,506
Cash and cash equivalents		38			43
Accounts receivable		98			4
Deferred expenses		183			203
Prepaid expenses		-			14

Total Assets	$	5,692		$	5,770

Note payable (1)	$	8,502		$	7,748
Other liabilities		2,854			2,456

Total Liabilities		11,356			10,204
Members’ Deficit		(5,664	)		(4,434	)

Total Liabilities and Members’ Deficit	$	5,692		$	5,770

(1) The note payable is payable to an affiliate of Lightstone and payment thereof is subordinate to the Company’s right to receive its share of the proceeds of a sale or refinancing.

	Three Months Ended September 30,			Three Months Ended September 30,			Nine Months Ended September 30,			Seven Months Ended September 30,
	2010			2009			2010			2009
	(Amounts in thousands)

Condensed Statements of Operations
Revenues	$	252		$	158		$	711		$	465
Interest on note payable		(250	)		(220	)		(728	)		(503	)
Other expenses		(362	)		(289	)		(1,055	)		(698	)

Loss before depreciation and amortization		(360	)		(351	)		(1,072	)		(736	)
Depreciation and amortization		(51	)		(52	)		(157	)		(123	)

Net Loss	$	(411	)	$	(403	)	$	(1,229	)	$	(859	)

Index

The summary financial information for the Shawnee/Brazos Malls is as follows:

	December 31,
	2009
	(Amounts in thousands)

Condensed Balance Sheets
Net real estate	$	38,714
In-place lease values and acquired lease rights		607
Prepaid expenses and deposits in escrow		3,903
Cash and cash equivalents		1,311
Deferred financing costs		643
Other assets		1,069

Total Assets	$	46,247

Nonrecourse mortgage debt	$	39,061
Mezzanine notes payable (1)		39,373
Other liabilities		7,960

Total Liabilities		86,394
Members’ Deficit		(40,147	)

Total Liabilities and Members’ Deficit	$	46,247

(1) The mezzanine notes payable included a $7,835,000 mezzanine note which was payable to the Company and the balance was payable to an affiliate of Lightstone. The payment due to the affiliate of Lightstone was subordinate to the Company’s mezzanine note.

	Three Months Ended September 30,			Nine Months Ended September 30,
	2009			2009
	(Amounts in thousands)
Condensed Statements of Operations
Revenues	$	2,344		$	7,378
Interest on mortgage debt and other debt		(1,591	)		(4,625	)
Other expenses		(1,446	)		(4,242	)

Loss before depreciation and amortization		(693	)		(1,489	)
Depreciation and amortization		(758	)		(2,257	)

Net Loss	$	(1,451	)	$	(3,746	)

5.	DISCONTINUED OPERATIONS

For the periods ended September 30, 2010 and 2009, income from discontinued operations includes the Building Industries Center in White Plains, New York (which consists of 23,500 square feet of commercial space), the Mapletree Industrial Center property in Palmer, Massachusetts (which consists of 385,000 square feet of commercial space), two cooperative apartment units in Riverdale, New York and two cooperative apartment units in New York, New York. The Building Industries Center property was sold on September 30, 2010. The two cooperative apartment units in Riverdale, New York and the two cooperative apartment units in New York, New York were sold in June, 2010. In addition, income from discontinued operations for the periods ended September 30, 2009 included the Crown Court property in New Haven, Connecticut (105 apartment units and 2,000 square feet of commercial space) and one cooperative apartment unit in Riverdale, New York which were sold in April, 2009 and October, 2009, respectively.

Index

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009

Revenues:
Rental	$	295,630	$	324,795	$	913,686	$	1,115,446

Rental property expenses:
Operating expenses		183,531		210,708		602,379		633,149
Interest on mortgage debt		19,866		15,164		54,935		82,133
Real estate taxes		47,653		46,116		141,154		184,584
Depreciation		-		20,928		7,566		56,714
Amortization of mortgage costs		4,372		1,001		11,380		4,079

Total		255,422		293,917		817,414		960,659

Other income:
Investment income		171		72		299		294

Income from discontinued operations		40,379		30,950		96,571		155,081

Net gain from sales of discontinued operations		1,764,313		-		2,063,554		3,208,336

Total income from discontinued operations	$	1,804,692	$	30,950	$	2,160,125	$	3,363,417

During the quarter ended December 31, 2009, the Company began to market the Building Industries Center property in White Plains, New York for sale and designated it as held for sale. In March, 2010, the Company obtained a new $1,250,000 mortgage on the property and repaid the $1,038,086 outstanding balance of the prior mortgage. The new mortgage bore interest at the rate of 6.25% per annum, required monthly payments of principal and interest of $8,317 and had a balloon payment of $1,184,606 due at maturity on March 23, 2013. In July, 2010, the Company entered into a contract to sell the Building Industries Center property for a sales price of $2,150,000 and completed its sale on September 30, 2010. The net proceeds of sale were $780,664 (after repayment of the first mortgage of $1,241,752 and expenses of sale) and the gain from sale for financial reporting purposes was $1,764,313.

Index

During the quarter ended March 31, 2010, the Company designated its Mapletree Industrial Center in Palmer, Massachusetts as held for sale. The carrying value of the property at September 30, 2010 was $683,623, net of accumulated depreciation of $330,482. The property is subject to a first mortgage in the outstanding principal amount of $22,763 at September 30, 2010. The mortgage bears interest at the rate of 3.25% per annum, requires monthly payments of principal and interest of $2,564 and matures on June 24, 2011. The property is currently being marketed for sale and, although no assurances can be given, the Company expects to sell the property for net proceeds in excess of its carrying value.

During the quarter ended March 31, 2010, the Company also designated two cooperative apartment units in New York, New York and one cooperative apartment unit in Riverdale, New York as held for sale. The Company had previously designated one cooperative apartment unit in Riverdale, New York as held for sale during the three months ended June 30, 2009. In June, 2010, the Company completed the sale for these four cooperative apartment units for a sales price of $403,500. The net proceeds of sale were $327,434 and the gain from sale for financial reporting purposes was $299,241.

In April, 2009, the Company sold its Crown Court property in New Haven, Connecticut for a purchase price of $1,635,000 over the outstanding principal mortgage balance of $2,053,964. The net proceeds of sale were $1,545,851 and the gain from sale for financial reporting purposes was $3,208,336.

In October, 2009, the Company sold a cooperative apartment unit in Riverdale, New York for a sales price of $154,000. The net proceeds of sale were $145,738 and the gain from sale for financial reporting purposes was $121,144.

The combined assets and liabilities of the properties held for sale at September 30, 2010 and the assets and liabilities of the properties held for sale at December 31, 2009 are segregated in the consolidated balance sheets. The components are as follows:

	September 30,			December 31,
	2010			2009

Assets related to discontinued operations:
Land	$	79,100		$	62,601
Buildings		905,255			1,324,074
Furniture and equipment		29,750			44,705
Less: accumulated depreciation		(330,482	)		(1,199,567	)

Net real estate		683,623			231,813
Other assets		93			-

	$	683,716		$	231,813

Liabilities related to discontinued operations:
Mortgage debt	$	22,763		$	1,045,867

Index

6.	SECURITIES AVAILABLE FOR SALE

The tables below summarize the Company’s securities available for sale:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

September 30, 2010

U.S. Government Agencies notes and bonds maturing within one year	$	927,794	$	-	$	(15,608	)	$	912,186
U.S. Government Agencies notes and bonds maturing from one to three years		1,929,280		20,474		(2,284	)		1,947,470
Common stock of REITS		2,011		10,558		-			12,569

	$	2,859,085	$	31,032	$	(17,892	)	$	2,872,225

December 31, 2009

U.S. Government Agencies notes and bonds maturing within one year	$	719,591	$	-	$	(12,402	)	$	707,189
U.S. Government Agencies notes and bonds maturing from one to four years		2,907,046		5,683		(16,270	)		2,896,459
Common stock of REITS		2,011		8,454		-			10,465

	$	3,628,648	$	14,137	$	(28,672	)	$	3,614,113

Sales activity results for securities available for sale are as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2009			2010			2009

Gross sales proceeds	$	-	$	804,766		$	750,900		$	804,766

Gross realized gains		-		343			228			343
Gross realized losses		-		(562	)		(18,891	)		(562	)

Net realized loss	$	-	$	(219	)	$	(18,663	)	$	(219	)

7.	HATO REY PARTNERSHIP

PDL, Inc. (a wholly owned subsidiary of Presidential) is the general partner of the Hato Rey Partnership. Presidential and PDL, Inc. have an aggregate 60% general and limited partner interest in the Hato Rey Partnership. The Company exercises effective control over the partnership through its ability to manage the affairs of the partnership in the ordinary course of business. Accordingly, the Company consolidates the Hato Rey Partnership in the accompanying consolidated financial statements.

Index

The Hato Rey Partnership owns and operates the Hato Rey Center, an office building with 207,000 square feet of commercial space, located in Hato Rey, Puerto Rico. The Company agreed to lend up to $2,500,000 to the Hato Rey Partnership to pay for the cost of improvements to the building and fund any negative cash flows from the operation of the property. The loan, which is advanced from time to time as funds are needed, bears interest at the rate of 13% 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. In July, 2009, the Company agreed to loan an additional $250,000 to the Hato Rey Partnership which increased the agreed upon $2,500,000 loan to $2,750,000. The additional $250,000 will be advanced to the Partnership as funds are needed and will have the same terms as the $2,500,000 loan. At September 30, 2010, the Company had advanced $2,670,000 of the loan to the Hato Rey Partnership. The $2,670,000 loan and accrued interest in the amount of $1,086,578 have been eliminated in consolidation.

On January 1, 2009, the Company adopted ASC 810-10-65 which requires amounts attributable to noncontrolling interests to be reported separately. For the nine months ended September 30, 2010 and 2009, the Hato Rey Partnership had a loss of $553,496 and $428,880, respectively. For the nine months ended September 30, 2010 and 2009, the consolidated financial statements reflect the separate disclosure of the noncontrolling interest’s share (40%) of the loss of $221,398 and $171,552, respectively.

8.	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.

In accordance with ASC 740-10-25, if the Company’s tax positions in relation to a transaction were to be examined and not ultimately upheld, the Company would be required to pay an income tax assessment and related interest. Alternatively, the Company could elect to pay a deficiency dividend to its shareholders in order to continue to qualify as a REIT and the related interest assessment to the taxing authorities. As of September 30, 2010, the tax years that remain open to examination by the federal, state and local taxing authorities are the 2007 - 2009 tax years and the Company was not required to accrue any liability for those years.

Upon filing its income tax return for the year ended December 31, 2009, the Company reported a tax loss of approximately $5,002,000 ($1.47 per share), which is comprised of an ordinary loss of approximately $7,142,000 ($2.10 per share) and capital gains of approximately $2,140,000 ($0.63 per share).

For the nine months ended September 30, 2010, the Company had a tax loss of approximately $3,084,000 ($0.90 per share), which is comprised of an ordinary loss of approximately $5,182,000 ($1.52 per share) and capital gains of approximately $2,098,000 ($0.62 per share).

Index

9.	ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows:

	September 30,			December 31,
	2010			2009

Defined benefit plan liability	$	(3,739,084	)	$	(3,739,084	)
Contractual postretirement benefits liability		168,355			191,804
Minimum contractual pension benefit liability		762,351			762,351
Net unrealized gain (loss) on securities available for sale		13,140			(14,535	)

Total accumulated other comprehensive loss	$	(2,795,238	)	$	(2,799,464	)

The Company’s other comprehensive income (loss) consists of the changes in the net unrealized gain (loss) on securities available for sale and the adjustments to the pension liabilities and the postretirement benefits liability, if any. Thus, comprehensive income (loss), which consists of net income (loss) plus or minus other comprehensive income, is as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Net income (loss)	$	1,011,994		$	(1,273,147	)	$	(450,551	)	$	3,870,907

Other comprehensive income (loss)-
Net unrealized gain (loss) on securities available for sale		(2,613	)		20,669			27,675			(2,327	)
Adjustment for contractual postretirement benefits		(7,816	)		(6,165	)		(23,449	)		(18,494	)

Comprehensive income (loss)		1,001,565			(1,258,643	)		(446,325	)		3,850,086

Comprehensive loss attributable to noncontrolling interest		102,545			87,936			221,398			171,552

Comprehensive income (loss) attributable to Presidential Realty Corporation	$	1,104,110		$	(1,170,707	)	$	(224,927	)	$	4,021,638

Index

10.	EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted income (loss) per share attributable to Presidential Realty Corporation:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Income (loss) from continuing operations	$	(792,698	)	$	(1,304,097	)	$	(2,610,676	)	$	507,490

Discontinued Operations:
Income from discontinued operations		40,379			30,950			96,571			155,081
Net gain from sales of discontinued operations		1,764,313			-			2,063,554			3,208,336

Total income from discontinued operations		1,804,692			30,950			2,160,125			3,363,417

Net income (loss)		1,011,994			(1,273,147	)		(450,551	)		3,870,907

Add: Net loss from noncontrolling interest		102,545			87,936			221,398			171,552

Net Income (Loss) attributable to Presidential Realty Corporation	$	1,114,539		$	(1,185,211	)	$	(229,153	)	$	4,042,459

Earnings per Common Share attributable to Presidential Realty Corporation basic:
Income (loss) from continuing operations	$	(0.20	)	$	(0.36	)	$	(0.70	)	$	0.20

Discontinued Operations:
Income from discontinued operations		0.01			0.01			0.02			0.05
Net gain from sales of discontinued operations		0.52			-			0.61			0.95

Total income from discontinued operations		0.53			0.01			0.63			1.00

Net Income (Loss) per Common Share – basic	$	0.33		$	(0.35	)	$	(0.07	)	$	1.20

Index

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Earnings per Common Share attributable to Presidential Realty Corporation diluted:
Income (loss) from continuing operations	$	(0.20	)	$	(0.36	)	$	(0.70	)	$	0.20

Discontinued Operations:
Income from discontinued operations		0.01			.01			0.02			0.05
Net gain from sales of discontinued operations		0.52			-			0.61			0.94

Total income from discontinued operations		0.53			0.01			0.63			0.99

Net Income (Loss) per Common Share – diluted	$	0.33		$	(0.35	)	$	(0.07	)	$	1.19

Weighted average number of shares outstanding:
Basic		3,393,482			3,381,982			3,391,277			3,380,667
Effect of dilutive securities – restricted stock		-			-			-			18,925

Diluted		3,393,482			3,381,982			3,391,277			3,399,592

For the three months and nine months ended September 30, 2010, the weighted average shares outstanding as used in the calculation for diluted loss per share does not include 8,600 of restricted shares not yet vested, as their inclusion would be antidilutive. For the three months ended September 30, 2009, the weighted average shares outstanding as used in the calculation for diluted loss per share does not include 17,100 of restricted shares not yet vested, as their inclusion would be antidilutive.

11.	COMMITMENTS AND CONTINGENCIES

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

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

The Company is involved in an environmental remediation process for contaminated soil found on its Mapletree Industrial Center property in Palmer, Massachusetts. The land area involved is approximately 1.25 acres. Since the most serious identified threat on the site is to songbirds, the proposed remediation consisted of removing all exposed materials and a layer of soil. The Company estimated that the costs of the cleanup will not exceed $1,000,000. In accordance with the provisions of ASC Contingencies Topic, in the fourth quarter of 2006, the Company accrued a $1,000,000 liability, which was discounted by $145,546, and charged $854,454 to expense. The discount rate used was 4.625%, which was the interest rate on 10 year Treasury Bonds. At September 30, 2010, the accrued liability balance was $197,770 and the discount balance was $110,083 for a net accrued liability of $87,687.

Index

The remediation must comply with the requirements of the Massachusetts Department of Environmental Protection (“MADEP”) and during the three months ended March 31, 2009, the Company obtained the consent of MADEP to a specific plan of remediation. During the second quarter of 2010, the Company completed the plan of remediation work, submitted the required reports to the MADEP and subsequently received a Response Action Outcome (“RAO”) in October, 2010, and as required by the MADEP, the Company has established a $5,200 environmental escrow account for future maintenance of the disposal area. The Company will continue to monitor and test the site until it receives a Class A RAO and, while these final costs have not been determined, management believes that it will be less than the balance of the net accrued liability at September 30, 2010.

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

12.	CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Service cost	$	-		$	-		$	-		$	-
Interest cost		7,531			19,450			22,595			58,349
Amortization of prior service cost		-			(7,730	)		-			(23,191	)
Recognized actuarial (gain) loss		(11,831	)		14,029			(35,493	)		42,089

Net periodic benefit cost	$	(4,300	)	$	25,749		$	(12,898	)	$	77,247

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Service cost	$	444		$	406		$	1,333		$	1,217
Interest cost		5,471			6,701			16,412			20,102
Amortization of prior service cost		926			925			2,777			2,776
Recognized actuarial (gain) loss		(9,533	)		(8,194	)		(28,600	)		(24,581	)

Net periodic benefit cost	$	(2,692	)	$	(162	)	$	(8,078	)	$	(486	)

During the nine months ended September 30, 2010, the Company made contributions of $11,576 for postretirement benefits. The Company anticipates additional contributions of $4,562 for postretirement benefits for the remainder of 2010.

Index

13.	DEFINED BENEFIT PLAN

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

Service cost	$	-		$	39,393		$	-		$	118,178
Interest cost		123,900			69,452			371,701			208,358
Expected return on plan assets		(122,863	)		(36,891	)		(368,590	)		(110,674	)
Amortization of prior service cost		-			3,154			-			9,462
Amortization of accumulated loss		72,872			63,183			218,615			189,549

Net periodic benefit cost	$	73,909		$	138,291		$	221,726		$	414,873

The Company’s funding policy for the defined benefit plan is based on contributions that comply with the minimum and maximum amounts required by law. During the nine months ended September 30, 2010, the Company did not make a contribution to the defined benefit plan. In October, 2010, the Company made a $100,000 contribution to the plan.

14.	ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimated fair values of the Company’s financial instruments as of September 30, 2010 and December 31, 2009 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.

Index

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

	September 30, 2010				December 31, 2009

	Net Carrying Value (1)		Estimated Fair Value		Net Carrying Value (1)		Estimated Fair Value
	(Amounts in thousands)
Assets:
Cash and cash equivalents	$	1,486	$	1,486	$	785	$	785
Securities available for sale		2,872		2,872		3,614		3,614
Notes receivable held for sale		2,075		2,171		-		-
Notes receivable		796		810		2,881		2,973

Liabilities:
Mortgage debt		14,668		19,791		14,970		20,239

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

The fair value estimates presented above are based on pertinent information available to management as of September 30, 2010 and December 31, 2009. 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 September 30, 2010 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.

Securities Available for Sale – The fair value of securities available for sale was determined to be Level 1 financial assets within the valuation hierarchy established by the ASC Fair Value Measurements and Disclosures Topic, and is based on current market quotes received from financial sources that trade such securities.

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.

Index

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

Forward-Looking Statements

Certain statements made in this report that are not historical fact 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, including the Board of Directors’ intention to seek the approval of the Company’s shareholders for the sale of all or substantially all of the Company’s assets and the adoption of a plan of liquidation, which forward-looking statements 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:

continuing generally adverse economic and business conditions, which, among other things (a) affect the demand for apartments, retail and office space at properties owned by the Company or which are security for loans made by the Company and (b) affect the availability and creditworthiness of prospective tenants and the rental rates obtainable at the properties;

continuing adverse conditions in the real estate markets, including a severe tightening of the availability of credit, which adversely affect the ability of the Company or the joint ventures in which the Company is a member to sell, or refinance the mortgages on, their properties and which may also affect the ability of prospective tenants to rent space at these properties;

if the Board of Directors seeks shareholder approval of the sale of all or substantially all of the Company’s assets and the adoption of a plan of liquidation, the risk that such approval is not obtained, or if obtained, that management may not be able to execute the plan of liquidation;

general risks of real estate ownership and operation;

governmental actions and initiatives;

environmental and safety requirements; and

failure to comply with continuing listing standards of the NYSE AMEX.

Overview

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

During the past three years, the downturn in the economy, higher unemployment and lack of consumer confidence have adversely affected the operating results of the shopping mall properties in which the Company invested. These conditions, among others, resulted in defaults in 2008 and in 2009 on three of the mezzanine loans made by the Company to joint ventures owning nine shopping mall properties and in defaults on the first mortgage loans secured by eight of these properties. (See Liquidity and Capital Resources – Joint Venture Mezzanine Loans and Settlement Agreement below.)

Index

In addition, the turmoil in the credit markets has made it very difficult for the Company and its joint venture partners to obtain refinancing of the mortgage loans on some of its properties on satisfactory terms. For example, the Company was unable to refinance the existing $14,668,159 first mortgage on its Hato Rey Center office building in May, 2008 when the terms of the mortgage anticipated repayment. As a result, while the mortgage is not in default, the annual interest rate was increased by 200 basis points (the payment of which is deferred until maturity) and the mortgagee is entitled to receive all net cash flow from the property to reduce the outstanding principal balance. There has been no net cash flow available to reduce the principal balance of the mortgage and no assurances can be given that there will be any net cash flow available in 2010. (See Hato Rey Partnership below.)

The restrictive credit markets also adversely affect the ability of the Company and the joint ventures to sell properties owned by them on satisfactory terms because of the inability of prospective purchasers to obtain financing on satisfactory terms.

From time to time in the Company’s recent history, the Company has considered various strategic alternatives in an attempt to maximize shareholder value, including a merger or consolidation with another company or a tender offer for the Company’s shares. In the past, no appropriate opportunity has been found but the Board of Directors and management will always consider reasonable proposals and are currently engaged in discussions with a number of parties towards this end.

The Company also from time to time may sell one or more of its assets if reasonable prices can be determined and obtained in the current economic environment. As discussed elsewhere in this Form 10-Q, in addition to selling four cooperative apartments in the second quarter, in September 2010, the Company sold its Building Industries Center property in White Plains, New York. In addition, it has listed its Mapletree Industrial Center property in Palmer, Massachusetts and its $12,075,000 Consolidated Note for sale.

In light of, among other reasons, the continuing adverse economic conditions in the real estate markets and the economy generally, and the unlikelihood of the Company being able to return to a period of growth and operating profitability, the Board of Directors has determined to seek shareholder approval of the liquidation of the Company. In August, 2010, the Company filed a preliminary proxy statement with the Securities and Exchange Commission in which, among other matters, it presented its plan of liquidation proposal, which provides for the sale of all of the Company’s assets over time and the distribution of the net proceeds of sale to the shareholders after satisfaction of the Company’s liabilities. The shareholders meeting was originally scheduled for October 26, 2010. After filing the preliminary proxy statement, the Company continued to discuss potential strategic alternatives with interested parties but as of the date of filing of this Form 10-Q, no firm proposal has been presented to the Board of Directors for its consideration. Therefore, the Company intends to make final changes to the preliminary proxy statement and currently expects to hold its Annual Meeting of Shareholders at which the shareholders will consider approval of a plan of liquidation in the first quarter of 2011. Notwithstanding its intention to request such shareholder approval, the Board of Directors reserves the right to consider other strategic alternatives. There can be no assurance that the shareholders will approve any plan of liquidation, that the Company will be able to sell any of its assets at prices that the Board of Directors deems fair or that the Company will be able to enter into a satisfactory strategic transaction.

Index

Critical Accounting Policies

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), management is required to make estimates and assumptions that affect the financial statements and disclosures. These estimates require difficult, complex and subjective judgments. The Company’s critical accounting policies are described in its Form 10-K for the year ended December 31, 2009. There have been no significant changes in the Company’s critical accounting policies since December 31, 2009.

Results of Operations

Financial Information for the three months ended September 30, 2010 and 2009:

Continuing Operations:

Revenues increased by $75,612 primarily as a result of increases in interest income on mortgages–notes receivable.

Interest on mortgages-notes receivable increased by $108,048 primarily as a result of an increase of $133,418 in interest received on the $10,000,006 portion of the Consolidated Note. In the 2009 period, the Company received interest payments of $7,646 on the $10,000,006 portion of the $12,075,000 Consolidated Note. Interest due on the $10,000,006 portion of the note is recorded in income on a cash basis. This increase was partially offset by a $23,389 decrease in amortization of discount on the $750,000 note receivable received in the Settlement Agreement. See Liquidity and Capital Resources – Joint Venture Mezzanine Loans and Settlement Agreement below.

Costs and expenses decreased by $33,035 primarily due to decreases in general and administrative expenses, partially offset by increases in real estate tax expenses.

General and administrative expenses decreased by $39,462 primarily as a result of decreases in pension plan expenses of $96,961. These decreases were partially offset by increases in directors’ fees of $54,808. During 2010, a Special Committee of three independent Directors of the Company was formed to consider a Plan of Liquidation of the Company, or potential alternatives, and each Director was paid a $20,000 fee for these services.

Real estate tax expenses increased by $11,434 as a result of an $11,434 increase in real estate tax expense at the Hato Rey Center property.

Other income increased by $402,752 primarily as a result of a $150,000 gain recorded in 2010 upon the settlement of some joint venture loans to David Lichtenstein and The Lightstone Group (“Lightstone”). In addition, there was a $260,772 decrease in the loss from joint ventures in the 2010 period. In the 2009 period, the loss from joint ventures included a loss of $264,340 from the Company’s investment in the Shawnee/Brazos Malls. The Company’s basis in that investment was reduced to zero during 2009 and, as a result, the Company does not record any further losses from that investment.

Index

Loss from continuing operations decreased by $511,399 from a loss of $1,304,097 in 2009 to a loss of $792,698 in 2010. The $511,399 decrease in loss was a result of the $260,772 decrease in the loss from joint ventures and the $150,000 gain recorded in 2010 upon the settlement of some joint venture loans. In addition, interest on mortgages-notes receivable increased by $108,048 in the 2010 period.

Discontinued Operations:

In 2010, the Company had four properties that were classified as discontinued operations: the Building Industries Center in White Plains, New York (which consists of 23,500 square feet of commercial space); the Mapletree Industrial Center property in Palmer, Massachusetts (which consists of 385,000 square feet of commercial space); two cooperative apartment units in Riverdale, New York and two cooperative apartment units in New York, New York.

In May, 2010, the Company entered into a contract of sale for the four cooperative apartment units for a sales price of $403,500 and in June, 2010, completed the sale. The net proceeds of sale were $327,434 and the gain from sale for financial reporting purposes was $299,241.

In July, 2010, the Company entered into a contract to sell the Building Industries Center property for a sales price of $2,150,000 and in September, 2010, completed the sale. The net proceeds of sale were $780,664 (after repayment of the first mortgage of $1,241,752 and expenses of sale) and the gain from sale for financial reporting purposes was $1,764,313.

In 2009, the Company had two other properties that were classified as discontinued operations: the Crown Court property in New Haven, Connecticut (which consisted of 105 apartment units and 2,000 square feet of commercial space) and a cooperative apartment unit in Riverdale, New York. The Crown Court property was sold in April, 2009 and the cooperative apartment unit in Riverdale, New York was sold in October, 2009.

Index

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

	2010			2009

Income (loss) from discontinued operations:

Building Industries Center, White Plains, NY	$	(30,435	)	$	(28,375	)
Mapletree Industrial Center, Palmer, MA		70,814			62,466
Cooperative apartment units, Riverdale, NY		-			(3,304	)
Cooperative apartment units, New York, NY		-			163

Income from discontinued operations		40,379			30,950

Net gain from sales of discontinued operations:

Building Industries Center, White Plains, NY		1,764,313			-
Cooperative apartment units, Riverdale, NY		-			-
Cooperative apartment units, New York, NY		-			-

Net gain from sale of discontinued operations		1,764,313			-

Total income from discontinued operations	$	1,804,692		$	30,950

Financial Information for the nine months ended September 30, 2010 and 2009:

Continuing Operations:

Revenues increased by $36,732 primarily as a result of increases in rental revenues.

Rental revenues increased by $32,453 due to increased rental revenues at the Hato Rey Center property. The increased rental revenues at the Hato Rey Center property were primarily due to $133,385 of real estate tax reimbursements billed in the first and third quarters of 2010. In addition, all other rental revenue items increased by $110,504. These increases were partially offset by increased vacancy losses of $211,526.

Interest on mortgages-notes receivable increased by $9,288 primarily as a result of an increase of $58,398 in interest received on the $10,000,006 portion of the Consolidated Note. In the 2009 period, the Company received interest payments of $82,666 on the $10,000,006 portion of the Consolidated Note. This increase was partially offset by a $45,165 decrease in amortization of discount on the $750,000 note receivable received in the Settlement Agreement.

Costs and expenses decreased by $246,714 primarily due to decreases in general and administrative expenses, partially offset by increases in rental property operating expenses and real estate tax expenses.

General and administrative expenses decreased by $384,396 primarily as a result of decreases in salary and related payroll tax expenses of $138,929, which is attributable to the Company’s reduction in office staff during 2009 and 2010. In addition, there were also decreases in pension plan expenses of $290,884, and all other general and administrative expenses of $37,593. These decreases were partially offset by increases of $49,447 of directors’ fees as described above and professional fees of $33,563.

Index

Rental property operating expenses increased by $47,617 primarily as a result of an increase in electric expense of $74,590 at the Hato Rey Center property. These increases were partially offset by decreases in bad debt expense of $20,447 and repairs and maintenance expense of $9,091.

Real estate tax expenses increased by $99,377 as a result of an $99,377 increase in real estate tax expense at the Hato Rey Center property.

Other income decreased by $3,401,612 primarily as a result of a $3,979,289 gain recorded in 2009 upon the settlement of some joint venture loans to David Lichtenstein and Lightstone. This decrease was partially offset by a $437,281 decrease in the loss from joint ventures in the 2010 period. In the 2009 period, the loss from joint ventures included a loss of $622,376 from the Company’s investment in the Shawnee/Brazos Malls. In addition, in the 2010 period, there was a $150,000 gain recorded on the settlement of joint venture loans.

Loss from continuing operations increased by $3,118,166 from income of $507,490 in 2009 to a loss of $2,610,676 in 2010. The $3,118,166 decrease in income was a result of the $3,979,289 gain recorded in 2009 upon the settlement of some joint venture loans. This decrease was partially offset by a $437,281 decrease in the loss from joint ventures, the $150,000 gain recorded in 2010 upon the settlement of some joint venture loans and decreased costs and expenses of $246,714 in the 2010 period.

Discontinued Operations:

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

	2010			2009

Income (loss) from discontinued operations:

Building Industries Center, White Plains, NY	$	(82,593	)	$	(77,100	)
Mapletree Industrial Center, Palmer, MA		182,272			197,363
Cooperative apartment units, Riverdale, NY		(2,266	)		(10,206	)
Cooperative apartment units, New York, NY		(842	)		556
Crown Court, New Haven, CT		-			44,468

Income from discontinued operations		96,571			155,081

Net gain from sales of discontinued operations:

Building Industries Center, White Plains, NY		1,764,313
Cooperative apartment units, Riverdale, NY		63,827			-
Cooperative apartment units, New York, NY		235,414			-
Crown Court, New Haven, CT		-			3,208,336

Net gain from sales of discontinued operations		2,063,554			3,208,336

Total income from discontinued operations	$	2,160,125		$	3,363,417

Index

Balance Sheet

Net real estate decreased by $944,050 primarily as a result of the $686,993 of net real estate assets designated as held for sale during 2010. In 2010, the Company designated the Mapletree Industrial Center property and three cooperative apartment units as held for sale (see Assets Related to Discontinued Operations below). In addition, during 2010, additions and improvements were $81,231 and depreciation was $338,288.

Mortgage portfolio held for sale increased by $2,074,994 as a result of classifying the $2,074,994 carrying value of the $12,075,000 Consolidated Note as held for sale in the third quarter of 2010.

Net mortgage portfolio decreased by $2,084,846 primarily as a result of the reclassification of the $2,074,994 carrying value of the $12,075,000 Consolidated Note to mortgage portfolio held for sale.

Investments in joint ventures decreased by $614,724 as a result of the $614,724 loss from the IATG joint venture in the 2010 period.

Assets related to discontinued operations increased by $451,903 primarily as a result of designating the following properties as held for sale during the first quarter of 2010: the Mapletree Industrial Center, in Palmer, Massachusetts, one cooperative apartment unit in Riverdale, New York and two cooperative apartment units in New York, New York. The reclassification of these properties increased assets related to discontinued operations by $686,993. During the quarter ended June 30, 2010, the Company sold the cooperative apartment units and assets related to discontinued operations was decreased by $28,193. During the quarter ended September 30, 2010, the Company sold the Building Industries Center property and assets related to discontinued operations was decreased by $258,105. At September 30, 2010, assets related to discontinued operations were $683,716, all of which pertains to the Mapletree Industrial Center property.

Prepaid expenses and deposits in escrow decreased by $220,467 primarily as a result of decreases of $312,549 in deposits in escrow, partially offset by increases of $92,082 in prepaid expenses.

Other receivables decreased by $415,052 primarily as a result of the $500,000 payment received in the first quarter of 2010 from Mr. Lichtenstein with respect to the settlement on the joint venture loans. This decrease was partially offset by an $82,998 net increase in tenant accounts receivables and a $1,950 increase in other receivables.

Securities available for sale decreased by $741,888 as a result of the sale of $769,563 of securities, partially offset by the increase of $27,675 in the fair value of the securities.

Liabilities related to discontinued operations decreased by $1,023,104 primarily as a result of the sale of the Building Industries Center property and the repayment of the first mortgage loan on the property. This decrease was partially offset by the addition of the $37,633 first mortgage loan on the Mapletree Industrial Center property which was classified as held for sale in the first quarter of 2010.

Index

Accrued liabilities increased by $114,454 primarily as a result of $271,638 of increased accrued mortgage interest expense for the Hato Rey Center property mortgage, which was partially offset by the $182,750 decrease in accrued environmental expenses.

In March, 2010, three independent directors of the Company each received 1,000 shares of the Company’s Class B common stock as a partial payment of directors’ fees for the 2010 year. The shares were valued at $0.67 per share, which was the market value of the Class B common stock at the grant date, and, accordingly, the Company recorded $2,010 in prepaid directors’ fees (to be amortized during 2010) 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 $1,710 to additional paid-in capital.

Liquidity and Capital Resources

Presidential obtains funds for working capital and investment from its available cash and cash equivalents, from securities available for sale, 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.

Management believes that, barring any unforeseen circumstances, the Company has sufficient liquidity and capital resources to carry on its existing business and to pay any dividends required to maintain REIT status until the Company can effectuate a plan of liquidation or enter into a strategic transaction. However, in the current ongoing economic downturn, given our continuing decline in revenues, expected losses from continuing operations and negative cash flows from operating activities, management believes that Presidential might have insufficient liquidity and capital resources to operate in future years without sales of its assets. Except as discussed herein, management is not aware of any other trends, events, commitments or uncertainties that will have a significant effect on liquidity.

In the fourth quarter of 2008, the Company reduced its dividend from $.16 per share to $.08 per share. The decision of the Board of Directors of the Company to reduce the Company’s dividend at that time recognized, among other things, the adverse economic conditions currently affecting real estate markets, the existing defaults on two of the Company’s loans to affiliates of David Lichtenstein, the Company’s inability to refinance the Hato Rey Center office building mortgage and the desirability of conserving the Company’s cash resources under these circumstances. For these reasons, the Company did not declare a dividend in 2009 and does not expect to declare one in 2010.

To the extent that payments received on its mortgage portfolio or payments received from sales are taxable as capital gains, the Company has the option to distribute the gain to its shareholders or to retain the gain and pay Federal income tax on it. The Company does not have a specific policy as to the retention or distribution of capital gains. The Company’s dividend policy regarding capital gains for future periods will be based upon many factors including, but not limited to, the Company’s present and projected liquidity, its desire to retain funds available to pay operating expenses or for additional investment, and its ability to reduce taxes by paying dividends.

At September 30, 2010, Presidential had $1,486,221 in available cash and cash equivalents, an increase of $701,547 from the $784,674 at December 31, 2009. This increase in cash and cash equivalents was due to cash provided by investing activities of $3,650,183 partially offset by cash used in operating activities of $1,583,424 and cash used in financing activities of $1,365,212.

Index

Joint Venture Mezzanine Loans and Settlement Agreement

From 2004 through 2006, the Company made investments in and loans to four joint ventures and received 29% ownership interests in these joint ventures. The initial aggregate investment in the joint ventures (original principal amount of the loans made to and the investments in the joint ventures) was $27,373,410. The joint ventures owned nine shopping malls in seven states.

Starting in 2007, the shopping malls began to suffer from among other things, competition from other and, in some instances, newer shopping malls, the inability to attract new tenants and declining rental rates, which conditions worsened during the continuing economic downturn, and in 2008 and 2009, the joint ventures defaulted on the Presidential loans.

In 2008, Lightstone I and Lightstone III defaulted on payments of interest due on the $8,600,000 loan and on the $9,500,000 loan. Lightstone I also defaulted on payments of the preferential return of 11% due on the Company’s $1,438,410 investment in the Martinsburg Mall. In addition, Lightstone also defaulted on payments of interest due on the first mortgage loans covering the properties. The holders of the first mortgage loans commenced foreclosure proceedings and appointed receivers to operate the properties. The Company believed that the outstanding principal balances of the first mortgage loans substantially exceeded the then current value of the mall properties and that it would be unlikely that the Company would recover any amounts on its $18,100,000 mezzanine loans or its $1,438,410 investment.

The Company’s mezzanine loan in the amount of $7,835,000 to Lightstone II secured by interests in the Shawnee Mall and the Brazos Mall has been in default since January, 2009. The first mortgage loan on the properties became due on January 10, 2010 and the holder of the first mortgage loan has commenced foreclosure proceedings. The Company believes that it is likely that the first mortgage loan will be foreclosed and that the Company will not be able to obtain any recovery on its mezzanine loan other than the following amounts received. In March, 2010, the Company received a $500,000 payment from Mr. Lichtenstein on the guaranty received pursuant to the Settlement Agreement as described below. On September 15, 2010, the Company entered into an agreement with Lightstone II and Mr. Lichtenstein, whereby the Company received a $150,000 payment in satisfaction of the mezzanine loan and assigned its 29% interest in Lightstone II to Lightstone.

Subsequent to the defaults under the $9,500,000 and $8,600,000 mezzanine loans, the Company asserted various claims against Lightstone and Mr. Lichtenstein personally with respect to such loans and on February 27, 2009 completed a settlement of such claims (the “Settlement Agreement”). Under the Settlement Agreement:

(1) $10,000,006 of the indebtedness under the $9,500,000 mezzanine loan to Lightstone III and the $8,600,000 mezzanine loan to Lightstone I were assumed by an affiliate of Lightstone which is the debtor on an existing loan from the Company in the outstanding principal amount of $2,074,994. The total indebtedness was consolidated into a nonrecourse loan in the outstanding principal amount of $12,075,000 (the “Consolidated Note”) and is secured by the ownership interests in entities owning nine apartment properties (1,056 apartment units) located in Virginia (which had previously secured the $2,074,994 indebtedness) and 75% of the ownership interests in entities owning nine additional apartment properties (931 apartment units) located in Virginia and North Carolina.

Index

The Consolidated Note accrues interest at the rate of 13% per annum and is due on February 1, 2012. All net cash flow from the eighteen apartment properties will be utilized to pay the interest accrued on the Consolidated Note and to the extent that there is not sufficient cash flow to pay all accrued interest, the unpaid interest will be deferred until the maturity of the Consolidated Note. The Company anticipates that a substantial portion of the annual interest will not be paid currently and will be deferred in accordance with the terms of the Consolidated Note. The Company also anticipates that it is likely that on the maturity date of the Consolidated Note, the outstanding principal balance of the Consolidated Note plus any unpaid deferred interest thereon will exceed the value of the Company’s security therefore and, accordingly, since the Consolidated Note is a nonrecourse loan, the Company does not expect to obtain payment in full of the Consolidated Note on maturity.

(2) The Company obtained a 50% ownership interest in IATG Puerto Rico, LLC (“IATG”), the Lightstone affiliate that owns The Las Piedras Industrial Complex, an industrial property located in Las Piedras, Puerto Rico and consisting of approximately 68 acres of land and 380,800 square feet of rentable space contained in several buildings in the complex. The property is substantially vacant and the owners may attempt to sell the property. Lightstone has agreed to advance funds to pay any negative cash flow from the operations of the property until a sale can be accomplished and has agreed that if it does not do so, it will transfer its remaining 49% interest in the property to Presidential.

(3) The Company received at closing $250,000 in cash and a note from Mr. Lichtenstein in the amount of $750,000 payable without interest, which was originally due on January 31, 2010. Mr. Lichtenstein is not personally liable for payment of the $750,000 note, but the note is secured by a 25% ownership interest in the Las Piedras property. In May, 2010, the Company extended the maturity date of the note to December 31, 2010 and received a $10,000 fee.

(4) The Company received a personal guaranty from Mr. Lichtenstein that the Company will receive all accrued interest on the Company’s $7,835,000 mezzanine loan (relating to the Shawnee/Brazos Malls) through the date of repayment and $500,000 of the principal amount of the loan, which personal guaranty was limited to $500,000. Mr. Lichtenstein’s $500,000 guaranty, which was secured by his remaining interest in IATG, was paid to the Company in March, 2010 and the security for the guaranty was released. The carrying value on the Company’s consolidated financial statements of the $7,835,000 mezzanine loan and the Company’s minority interest in the entity owning the Shawnee/Brazos Malls was zero at December 31, 2009.

While under existing market conditions it was difficult to place a value on the assets and collateral received from Lightstone and Mr. Lichtenstein in settlement of the Company’s claims against them, management believes that the settlement was in the best interests of the Company taking into account the nature of the Company’s claims and the cost and unpredictability of litigation and collection of any judgment that might have been obtained.

Index

The defaults in payment of the Company’s $9,500,000 mezzanine loan to Lightstone III, the $8,600,000 mezzanine loan to Lightstone I, and the $7,835,000 mezzanine loan to Lightstone II have had and continue to have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

The principal effect of the transactions resulting from the Settlement Agreement on the Company’s consolidated financial statements in 2009 was as follows:

(i) The carrying value of the $12,075,000 Consolidated Note on the Company’s consolidated balance sheet is $2,074,994. This is the same carrying value of the $2,074,994 note that was on the Company’s consolidated balance sheet prior to the consolidation of this note with the additional $10,000,006 indebtedness received in the Settlement Agreement. The $10,000,006 additional portion of the note was received in partial settlement of the $9,500,000 and $8,600,000 mezzanine loans, which had a net carrying value of $0 on the Company’s consolidated balance sheet. Accordingly, there was no significant adjustment on the Company’s consolidated balance sheet in 2009 as a result of the receipt of the Consolidated Note. No gain or loss was recorded on the Company’s consolidated financial statements in connection with the consolidation of the $2,074,994 and $10,000,006 indebtedness and the substitution of the collateral for the $10,000,006 indebtedness.

(ii) The 50% membership interest in IATG obtained by the Company was recorded on the Company’s consolidated balance sheet at its fair value of $3,250,000 and a gain on the settlement of the joint venture loans in the amount of $3,250,000 was recognized on the Company’s consolidated financial statements.

(iii) The $750,000 non-interest bearing, nonrecourse note originally due on January 31, 2010, which is secured by an additional 25% ownership interest in IATG, was recorded on the Company’s consolidated balance sheet at its fair value of $664,000 ($750,000 note receivable less a discount on the note receivable of $86,000) and a gain on the settlement of the joint venture loans in the amount of $664,000 was recognized on the Company’s consolidated financial statements. In May, 2010, the Company extended the maturity date of the loan to December 31, 2010 and received a $10,000 fee.

In March, 2009, the Company’s preliminary estimate of the fair value of the 50% ownership interest in IATG was $1,500,000 and its preliminary estimate of the fair value of the $750,000 note was $200,000. The Company recorded a $1,500,000 investment in joint ventures and a $200,000 note receivable on its consolidated balance sheet and recognized a gain on settlement of joint venture loans of $1,700,000 in its consolidated financial statements at March 31, 2009.

The Company based the preliminary estimated fair value of its interest in the IATG property on information available to it at the time. During the quarter ended June 30, 2009, the Company obtained an independent appraisal of the property owned by IATG and based on the appraised value of $6,500,000, the Company adjusted the preliminary estimate of the value of its 50% ownership interest in the IATG property from $1,500,000 to $3,250,000 and its preliminary estimate of the $750,000 note receivable from $200,000 to $664,000. Accordingly, in June, 2009, the Company recorded an additional $1,750,000 in investments in joint ventures and an additional $464,000 for the note receivable on its consolidated balance sheet and recognized an additional gain of $2,214,000 on the gain on settlement of joint venture loans in its consolidated financial statements. While management believes that the $6,500,000 appraised value of the IATG property is a reasonable value, there can be no assurance that if and when the property is sold, it can be sold for its appraised value.

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(iv) At December 31, 2009, the Company recorded a $500,000 receivable due from Mr. Lichtenstein on its consolidated balance sheet and recognized a $500,000 gain on settlement of joint venture loans in its consolidated financial statements, which receivable was paid in the first quarter of 2010.

In summary, as a result of the Settlement Agreement, in 2009 the Company recorded assets of $4,414,000 on the Company’s consolidated balance sheet (a $500,000 receivable, a $750,000 note receivable less an $86,000 discount on the note receivable and a $3,250,000 investment in joint ventures) and recorded a $4,414,000 gain on the settlement of joint venture loans in its consolidated financial statements. The Company also received a net cash payment of $65,289 ($250,000 less $184,711 of expenses for the settlement), which was also recorded in gain on settlement of joint venture loans in its consolidated financial statements. In addition, for the period ended December 31, 2009, the Company recognized in interest income $77,671 of the amortization of discount recorded on the note receivable. Furthermore, in 2010, the Company recognized an additional $150,000 gain on settlement of joint venture loans in its consolidated financial statements.

Operating Activities

Cash from operating activities includes interest on the Company’s mortgage portfolio and net cash received from rental property operations. In 2010, cash received from interest on the Company’s mortgage portfolio was $465,141. Net cash received from rental property operations was $186,493. Net cash received from rental property operations is before additions and improvements and mortgage amortization.

Investing Activities

Presidential holds a portfolio of mortgage notes receivable. During 2010, the Company received principal payments of $23,850 on its mortgage portfolio.

During the first nine months of 2010, the Company received $2,349,850 of net proceeds from the sale of the Building Industries Center property and four cooperative apartment units.

In the first quarter of 2010, the Company received a $500,000 payment from Mr. Lichtenstein in payment of his guaranty received pursuant to the Settlement Agreement described above. In addition, the Company received a $150,000 payment from Lightstone in September, 2010 in satisfaction of the outstanding mezzanine loan from Lightstone II as described above.

During the first nine months of 2010, the Company invested $124,417 in additions and improvements to its properties.

During the quarter ended March 31, 2010, the Company received $750,900 of proceeds from the sale of securities.

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Financing Activities

The Company’s indebtedness at September 30, 2010, consisted of mortgage debt of $14,668,159 for continuing operations and $22,763 for discontinued operations. The mortgage debt is collateralized by individual properties. The $14,668,159 mortgage on the Hato Rey Center property is nonrecourse to the Company and the $22,763 Mapletree Industrial Center mortgage is recourse to Presidential. In addition, 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 2010, the Company made $2,574,552 of principal payments on mortgage debt.

The mortgages on the Company’s properties are at fixed rates of interest and the Mapletree Industrial Center mortgage will fully amortize by periodic principal payments.

In March, 2010, the Company obtained a new $1,250,000 mortgage on its Building Industries Center property and repaid the $1,038,086 outstanding principal balance of the prior mortgage. The new mortgage bore interest at the rate of 6.25% per annum, required monthly payments of principal and interest of $8,317 and had a balloon payment of $1,184,606 due at maturity on March 23, 2013. In connection with the sale of the property, the $1,241,752 balance of this new mortgage was repaid in September, 2010.

The $14,668,159 Hato Rey Center mortgage matures in May, 2028, has a fixed rate of interest of 9.38% and requires additional repayments of principal from surplus cash flows from operations of the property (see Hato Rey Partnership below).

Investments In Joint Ventures

At September 30, 2010, the Company’s only joint venture investment with Lightstone and David Lichtenstein is a $1,980,879 investment in IATG and it also has two loans due from entities controlled by Mr. Lichtenstein in the outstanding principal amounts of $12,075,000 and $750,000 with an aggregate net carrying value of $2,824,994. The $4,805,873 net carrying value of these investments constitutes approximately 19% of the Company’s total assets at September 30, 2010.

The Company’s investment in the joint venture consists of a 50% ownership interest in IATG, the Lightstone affiliate that owns the Las Piedras Industrial Complex. The Company’s estimate of the fair value of its 50% ownership interest in IATG is $3,250,000 and the Company recorded a $3,250,000 investment in joint ventures on its consolidated balance sheet and recognized a gain on settlement of joint venture loans of $3,250,000 in its consolidated financial statements in 2009 (see Joint Venture Mezzanine Loans and Settlement Agreement above).

At December 31, 2009, the Company had two investments in joint venture entities with Lightstone and David Lichtenstein; a 50% ownership interest in IATG and a 29% ownership interest in Lightstone II.

The Company had a mezzanine loan in the amount of $7,835,000 to Lightstone II which was secured by ownership interests in the Shawnee Mall and the Brazos Mall properties (“Shawnee/Brazos Malls”). In connection with this loan, the Company received a 29% ownership interest in Lightstone II. At December 31, 2009, the carrying value of this investment was zero. Pursuant to the Settlement Agreement, the Company received a $500,000 payment in March, 2010 and in September, 2010 the Company received $150,000 in satisfaction of the mezzanine loan and assigned its 29% interest in the joint venture to Lightstone (see Joint Venture Mezzanine Loans and Settlement Agreement above).

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The Company accounts for investments in joint ventures using the equity method. Activity in investments in joint ventures for the period ended September 30, 2010 is as follows:

	Balance at December 31, 2009		Equity in the Loss from Joint Ventures			Balance at September 30, 2010

IATG (1)	$	2,595,603	$	(614,724	)	$	1,980,879
Shawnee/Brazos
Malls (2)		-		-			-

	$	2,595,603	$	(614,724	)	$	1,980,879

Equity in the loss from joint ventures is as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009

IATG (1)	$	(205,355	)	$	(201,787	)	$	(614,724	)	$	(429,629	)
Shawnee/Brazos
Malls (2)		-			(264,340	)		-			(622,376	)

	$	(205,355	)	$	(466,127	)	$	(614,724	)	$	(1,052,005	)

(1) The Company recorded its 50% share of the loss from IATG for the nine months ended September 30, 2010 and for the seven months ended September 30, 2009.

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Hato Rey Partnership

At September 30, 2010 the Company has an aggregate 60% general and limited partnership interest in the Hato Rey Partnership. The Hato Rey Partnership owns and operates the Hato Rey Center, an office building in Hato Rey, Puerto Rico.

Over the past four years the vacancy rates at the Hato Rey Center have been fluctuating from a high of 48% in 2006 to a low of approximately 20% in January, 2009. However, as a result of local economic conditions and higher than historical vacancy rates in the Hato Rey area, the vacancy rate has increased to 28% at October 31, 2010. The Company is attempting various marketing methods to improve vacancy rates including reducing the per square footage rates in order to rent office space in the competitive rental market in the Hato Rey area.

Over the last four years, Presidential agreed to lend up to $2,750,000 to the owning partnership to fund negative cash flow from the operations of the property during the periods of high vacancy rates and to pay the costs of a modernization program. Interest accrues on the loan at the rate of 13% per annum, with interest and principal to be paid from the first positive cash flow from the property or upon a refinancing of the first mortgage on or sale of the property. At September 30, 2010, total advances under the loan were $2,670,000. The $2,670,000 loan and the accrued interest in the amount of $1,086,578 have been eliminated in consolidation.

The Company had expected to refinance the existing first mortgage on the building in the second quarter of 2008, when the terms of the existing mortgage were to be automatically modified to increase the interest rate thereon, but the combination of the slower than anticipated rent up and the turmoil in the lending markets made a refinancing unfeasible. The modification of the terms of the existing mortgage provided for an increase in its interest rate by 2% per annum (from 7.38% to 9.38%) and that payment of the additional 2% will be deferred until the maturity date of the mortgage in 2028. In addition, the modification provides that all net cash flow from the property will be utilized to repay the outstanding principal of the mortgage loan, which will be prepayable without penalty. The Company intends to refinance this mortgage when lending markets have returned to a more normal state and occupancy levels at the property improve and remain stable. However, until the first mortgage is refinanced, the Company will not receive any cash payments on its loan to the partnership since principal and interest on the Company’s loan are payable only out of operating cash flow or refinancing or sale proceeds and, under the terms of the modified mortgage, all net cash flow will be utilized to reduce principal on the first mortgage. Since the modification in 2008, there has not been any net cash flow available to reduce the principal on the first mortgage.

On January 1, 2009, the Company adopted ASC 810-10-65 which requires amounts attributable to noncontrolling interests to be reported separately. For the nine months ended September 30, 2010, the Hato Rey Partnership had a loss of $553,496. The consolidated financial statements reflect the separate disclosure of the noncontrolling interest’s share (40%) of the loss of $221,398.

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Environmental Matters

Mapletree Industrial Center – Palmer, Massachusetts

The Company is involved in an environmental remediation process for contaminated soil found on this property. The land area involved is approximately 1.25 acres. Since the most serious identified threat on the site is to songbirds, the proposed remediation consisted of removing all exposed metals and a layer of soil. The Company estimated that the costs of the cleanup will not exceed $1,000,000. In accordance with the provisions of ASC Contingencies Topic, in the fourth quarter of 2006, the Company accrued a $1,000,000 liability, which was discounted by $145,546, and charged $854,454 to expense. The discount rate used was 4.625%, which was the interest rate on 10 year Treasury Bonds. At September 30, 2010, the accrued liability balance was $197,770 and the discount balance was $110,083 for a net accrued liability of $87,687.

The remediation must comply with the requirements of the Massachusetts Department of Environmental Protection (“MADEP”) and during the three months ended March 31, 2009, the Company obtained the consent of MADEP to a specific plan of remediation. During the second quarter of 2010, the Company completed the plan of remediation work, submitted the required reports to the MADEP and subsequently received a Response Action Outcome (“RAO”) in October, 2010, and, as required by the MADEP, the Company has established a $5,200 environmental escrow account for future maintenance of the disposal area. The Company will continue to monitor and test the site until it receives a Class A RAO and, while these final costs have not been determined, management believes that it will be less than the balance of the net accrued liability at September 30, 2010.

Ivy Consolidated Loan

Presidential holds two nonrecourse loans (the “Ivy Consolidated Loan”), which it received in 1991 from Ivy Properties, Ltd. and its affiliates “(Ivy”). At September 30, 2010, the Ivy Consolidated Loan has an outstanding principal balance of $4,770,050 and a net carrying value of zero. Pursuant to existing agreements, the Company is entitled to receive, as payments of principal and interest on the Ivy Consolidated Loan, 25% of the cash flow of Scorpio Entertainment, Inc. (“Scorpio”), a company owned by two of the Ivy principals (Steven Baruch, an Executive Vice President and Director of Presidential and Thomas Viertel, an Executive Vice President, Chief Financial Officer and a Director of Presidential) to carry on theatrical productions. Amounts received by Presidential from Scorpio will be applied to unpaid and unaccrued interest on the Ivy Consolidated Loan and recognized as income. While these amounts have been material in the past, the Company believes that they will not be material in 2010. The profitability of theatrical production is by its nature uncertain and management believes that any estimate of payments from Scorpio on the Ivy Consolidated Loan for future periods is too speculative to project. During the nine months ended September 30, 2010 and 2009, the Company did not receive any payments from Scorpio. The Ivy Consolidated Loan bears interest at a rate equal to the JP Morgan Chase Prime rate, which was 3.25% at September 30, 2010. At September 30, 2010, the unpaid and unaccrued interest was $3,795,264 and such interest is not compounded.

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

While the Company is not required as a smaller reporting company to comply with this Item 3, it is providing the following general discussion of qualitative market risk.

The Company’s financial instruments consist primarily of notes receivable and mortgage notes payable. Substantially all of these instruments bear interest at fixed rates, so the Company’s cash flows from them are not directly impacted by changes in market rates of interest. However, changes in market rates of interest impact the fair values of these fixed rate assets and liabilities. 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, and, accordingly, any fluctuations in values do not impact the Company’s earnings, balance sheet or cash flows. The Company does not own any derivative financial instruments or engage in hedging activities.

ITEM 4.

CONTROLS AND PROCEDURES

As of the end of the period covered by this quarterly report on Form 10-Q, 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.

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

PART II – OTHER INFORMATION

ITEM 6.

Exhibits

31.1

Certification of Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2

Certification of Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1

Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

	PRESIDENTIAL REALTY CORPORATION
	(Registrant)


DATE: November 10, 2010	By:	/s/ Jeffrey F. Joseph
		Jeffrey F. Joseph
		President and Chief Executive Officer


DATE: November 10, 2010	By:	/s/ Elizabeth Delgado
		Elizabeth Delgado
		Treasurer

Attached files

PRESIDENTIAL REALTY CORP/DE/ Reports

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