Presidential Realty 10Q 2011 Q3 Quarterly report

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, 2011

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	(I.R.S. Employer
incorporation or organization)	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 x 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 x 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 x

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

The number of shares outstanding of each of the registrant’s classes of common stock as of November 10, 2011 was 442,533 shares of Class A common stock and 3,213,147 shares of Class B common stock.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

Index to Form 10-Q

For the Quarterly Period Ended

September 30, 2011

		Page

Part I	Financial Information (Unaudited)

Item 1.	Financial Statements
	Consolidated Statement of Net Assets- September 30, 2011 (Liquidation Basis- Unaudited)	1
	Consolidated Balance Sheet–December 31, 2010 (Going Concern Basis-Unaudited)	2
	Consolidated Statement of Changes in Net Assets for the Nine Months Ended September 30, 2011 (Liquidation Basis- Unaudited)	3
	Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2010 (Going Concern Basis-Unaudited)	4
	Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2010 (Going Concern Basis-Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 4.	Controls and Procedures	39

Part II	Other Information

Item 6.	Exhibits	40

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF NET ASSETS

(Liquidation Basis)

SEPTEMBER 30, 2011 (Unaudited)

	September 30,
	2011
Assets

Real estate held for sale	$	2,474,198
Notes receivable		32,530
Note receivable - related party		100,000
Investment in joint venture		750,000
Cash and cash equivalents		2,249,683
Securities available for sale		1,904,643
Receivables - net		58,212
Other assets		165,339

Total Assets		7,734,605

Liabilities

Contractual postretirement benefits liability		75,000
Accrued liabilities		2,541,592
Liability for estimated liquidation and operating costs in excess of estimated receipts		886,087
Accounts payable		39,899
Other liabilities		96,267

Total Liabilities		3,638,845

Net Assets in Liquidation	$	4,095,760

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Going Concern Basis)

DECEMBER 31, 2010 (Unaudited)

		December 31,
		2010
Assets

Real estate (Note 4)		$	15,694,660
Less: accumulated depreciation			1,637,924

Net real estate			14,056,736
Mortgage portfolio held for sale (Note 5)			2,074,994
Net mortgage portfolio (Note 5)			41,955
Investment in joint venture (Note 6)			1,762,225
Assets related to discontinued operations (Note 7)			686,401
Prepaid expenses and deposits in escrow			956,627
Other receivables (net of valuation allowance of $272,137)			342,344
Cash and cash equivalents			761,106
Securities available for sale (Note 8)			2,839,480
Other assets			416,397

Total Assets		$	23,938,265

Liabilities and Equity

Liabilities:
Mortgage debt (of which $372,984 is due within one year)		$	14,578,454
Liabilities related to discontinued operations (Note 7)			15,237
Contractual pension and postretirement benefits liabilities			344,479
Defined benefit plan liability			2,851,665
Accrued liabilities			3,528,563
Accounts payable			302,061
Other liabilities			360,357

Total Liabilities			21,980,816
Presidential Stockholders' Equity:
Common stock: par value $.10 per share

	December 31, 2010
Class A			47,894
Authorized:	700,000
Issued:	478,940
Treasury:	36,407

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

Additional paid-in capital			4,683,708
Retained earnings			4,619,254
Accumulated other comprehensive loss (Note 11)			(4,008,593	)
Treasury stock (at cost)			(3,129,388	)

Total Presidential stockholders' equity			2,565,930
Noncontrolling interest (Note 9)			(608,481	)

Total Equity			1,957,449

Total Liabilities and Equity		$	23,938,265

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(Liquidation Basis)

NINE MONTHS ENDED SEPTEMBER 30, 2011 (Unaudited)

	NINE MONTHS
	ENDED
	SEPTEMBER 30,
	2011

Presidential stockholders' equity at December 31, 2010 - going concern basis	$	2,565,930

Effects of adopting the liquidation basis of accounting:
Change in fair value of real estate investments		1,734,230
Change in fair value of notes receivable		5,210,256
Change in fair value of investment in joint venture		(1,012,225	)
Estimated liquidation and operating costs in excess of estimated receipts		(1,906,386	)
Other decreases to net assets		(16,021	)

Total effects of adopting the liquidation basis of accounting		4,009,854

Net assets in liquidation, January 1, 2011		6,575,784

Changes in net assets in liquidation:
Operating loss		(840,570	)
Change in estimated liquidation and operating costs in excess of estimated receipts		213,120

Changes in fair value of assets and liabilities:
Change in fair value of notes receivable		(1,945,532	)
Change in fair value of note receivable - related party		100,000
Change in market value of securities available for sale		(7,042	)

Total changes in net assets in liquidation		(2,480,024	)

Net assets in liquidation, September 30, 2011	$	4,095,760

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Going Concern Basis)

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2010 (Unaudited)

	THREE MONTHS			NINE MONTHS
	ENDED			ENDED
	SEPTEMBER 30,			SEPTEMBER 30,
	2010			2010
Revenues:
Rental	$	959,402		$	3,119,138
Interest on mortgages - notes receivable		211,499			360,121
Other revenues		13			18,617

Total		1,170,914			3,497,876

Costs and Expenses:
General and administrative		826,372			2,364,328
Depreciation on non-rental property		8,772			26,393
Rental property:
Operating expenses		482,067			1,498,849
Interest on mortgage debt		370,598			1,099,406
Real estate taxes		122,714			345,274
Depreciation on real estate		113,532			338,288
Amortization of in-place lease values and mortgage costs		7,668			25,554

Total		1,931,723			5,698,092

Other Income (Loss):
Investment income		23,466			54,264
Equity in the loss from joint ventures (Note 6)		(205,355	)		(614,724	)
Gain on settlement of joint venture loan		150,000			150,000

Loss from continuing operations		(792,698	)		(2,610,676	)

Discontinued Operations (Note 7):
Income from discontinued operations		40,379			96,571
Net gain from sales of discontinued operations		1,764,313			2,063,554

Total income from discontinued operations		1,804,692			2,160,125

Net income (loss)		1,011,994			(450,551	)

Add: Net loss from noncontrolling interest (Note 9)		102,545			221,398

Net Income (Loss) attributable to Presidential	$	1,114,539		$	(229,153	)

Earnings per Common Share attributable to Presidential (basic and diluted):
Loss from continuing operations	$	(0.20	)	$	(0.70	)

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

Total income from discontinued operations		0.53			0.63

Net Income (Loss) per Common Share - basic and diluted	$	0.33		$	(0.07	)

Weighted Average Number of Shares Outstanding - basic and diluted		3,393,482			3,391,277

Amounts attributable to Presidential Common Shareholders:
Loss from continuing operations	$	(690,153	)	$	(2,389,278	)
Total income from discontinued operations		1,804,692			2,160,125
Net Income (Loss )	$	1,114,539		$	(229,153	)

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Going Concern Basis)

NINE MONTHS ENDED SEPTEMBER 30, 2010 (Unaudited)

	NINE MONTHS
	ENDED
	SEPTEMBER 30,
	2010
Cash Flows from Operating Activities:
Cash received from rental properties	$	3,975,458
Interest received		465,141
Miscellaneous income		10,042
Interest paid on rental property mortgage debt		(891,742	)
Cash disbursed for rental property operations		(2,897,223	)
Cash disbursed for general and administrative costs		(2,245,100	)

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

Cash Flows from Investing Activities:
Payments received on notes receivable		23,850
Proceeds from sales of properties		2,349,850
Payments received on settlement of joint venture loan		650,000
Payments disbursed for additions and improvements		(124,417	)
Proceeds from sales of securities		750,900

Net cash provided by investing activities		3,650,183

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

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

Net Increase in Cash and Cash Equivalents		701,547

Cash and Cash Equivalents, Beginning of Period		784,674

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

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(Going Concern Basis)

NINE MONTHS ENDED SEPTEMBER 30, 2010 (Unaudited)

	NINE MONTHS
	ENDED
	SEPTEMBER 30,
	2010

Reconciliation of Net Loss to Net Cash
Used in Operating Activities

Net Loss	$	(450,551	)

Adjustments to reconcile net loss to net cash used in operating activities:
Net gain from sales of discontinued operations		(2,063,554	)
Gain on settlement of joint venture loan		(150,000	)
Equity in the loss from joint ventures		614,724
Depreciation and amortization		409,181
Net change in revenue related to acquired lease rights/obligations and deferred rent receivable		(546	)
Amortization of discounts on notes and fees		(13,998	)
Issuance of stock to directors and officers		35,531

Changes in assets and liabilities:
Increase in other receivables		(96,112	)
Decrease in accounts payable and accrued liabilities		(132,395	)
Increase in other liabilities		24,787
Decrease in prepaid expenses, deposits in escrow and deferred charges		220,969
Other		18,540

Total adjustments		(1,132,873	)

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

See notes to consolidated financial statements.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 (UNAUDITED)

1. DESCRIPTION OF BUSINESS

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.

2. PLAN OF LIQUIDATION

Due to the ongoing economic downturn, given our continuing decline in revenues, expected losses from continuing operations and negative cash flows from operating activities, the Board of Directors of Presidential were concerned in 2010 that Presidential would not have sufficient liquidity and capital resources to operate in future years without sales of its assets.

As a result, the Company and its Board of Directors sought stockholder approval for the liquidation of the Company, and on January 20, 2011, stockholders approved a plan of liquidation (“Plan of Liquidation”), 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 stockholders after satisfaction of the Company’s liabilities. Notwithstanding such stockholder approval, the Board of Directors reserves the right to consider other strategic alternatives. There can be no assurance 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. Furthermore, the Company intends to continue to operate in a manner to permit it to qualify as a REIT unless and until it liquidates. However, no assurance can be given that it will be able to continue to operate in such a manner or to remain qualified.

In connection with the approval of the Plan of Liquidation, the Company adopted the liquidation basis of accounting as of January 1, 2011. Under the liquidation basis of accounting, the Company’s assets are stated at their estimated net realizable value and the Company’s liabilities are stated at their estimated settlement amounts. Although the Plan of Liquidation was not approved by the stockholders until January 20, 2011, the Company is using the liquidation basis of accounting effective January 1, 2011. Any activity between January 1, 2011 and January 20, 2011 would not be materially different under the going concern basis.

On November 8, 2011, the Company entered into a strategic transaction and terminated its Plan of Liquidation (see Note 16 – Subsequent Event). As a result, in future reporting periods the Company will resume reporting its financial statements on a going concern basis.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Liquidation Basis of Accounting – As a result of the approval of the Plan of Liquidation, the Company adopted the liquidation basis of accounting, effective January 1, 2011. Under the liquidation basis of accounting the following financial statements are no longer presented (except for periods prior to the adoption of the liquidation basis of accounting): a consolidated balance sheet, a consolidated statement of operations and a consolidated statement of cash flows. The consolidated statement of net assets and the consolidated statement of changes in net assets are the principal financial statements presented under the liquidation basis of accounting. In addition, the account balances of the Hato Rey Partnership (as described below in Notes 3-B and 9), which were 100% consolidated in the financial statements of the Company at December 31, 2010, are not consolidated in net assets under the liquidation basis of accounting.

Under the liquidation basis of accounting, all of the Company’s assets have been stated at their estimated net realizable value and are based on current contracts, estimates and other indications of sales value net of estimated selling costs. All liabilities of the Company, including those estimated costs associated with implementing the Plan of Liquidation, have been stated at their estimated settlement amounts. These amounts are presented in the accompanying statement of net assets. These estimates will be periodically reviewed and adjusted as appropriate. There can be no assurance that these estimated values will be realized. Such amounts should not be taken as an indication of the timing or amount of future distributions or our liquidation. The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan of Liquidation. The actual values and costs associated with carrying out the Plan of Liquidation are expected to differ from amounts reflected in the accompanying financial statements because of the plan’s inherent uncertainty. These differences may be material. In particular, the estimates of our costs will vary with the length of time necessary to complete the Plan of Liquidation. Accordingly, it is not possible to predict with certainty the timing or aggregate amount which may ultimately be distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate presented in the accompanying statement of net assets in liquidation.

B. Principles of Consolidation – The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, prior to the adoption of the liquidation basis of accounting on January 1, 2011, the consolidated financial statements included 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 9). All significant intercompany balances and transactions were eliminated.

C. Net Income (Loss) Per Share – Prior to the adoption of the liquidation basis of accounting, the Company reported basic net income (loss) per share data 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 was computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of nonvested shares. The diluted net loss per share calculation for the three months and nine months ended September 30, 2010 did not include 8,600 of restricted shares not yet vested as their inclusion would have been antidilutive.

D. Basis of Presentation – The accompanying interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and under the liquidation basis of accounting effective January 1, 2011, in conjunction with the rules and regulations of the Securities and Exchange Commission. 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, 2010.

E. Management Estimates – In preparing the consolidated financial statements in conformity with GAAP and the liquidation basis of accounting, management is required to make estimates and assumptions that affect the reported amounts of assets, including net assets in liquidation, and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of income and expense for the reporting period. Actual results could differ from those estimates.

F. Securities Available for Sale – The Company’s investments are in marketable debt securities consisting of notes and bonds of agencies of the federal government. Prior to the adoption of the liquidation basis of accounting, disposition of such securities would have been appropriate for either liquidity management or in response to changing economic conditions, so they were classified as securities available for sale and 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 was based on then current market quotes received from financial sources that trade such securities. Unrealized gains and losses were reported as other comprehensive income in the consolidated statement of equity until realized. The Company evaluated these investments for other-than-temporary declines in value, and, if such declines were other than temporary, the Company would have recorded a loss on the investments. Gains and losses on sales of securities are determined using the specific identification method. Effective January 1, 2011, the securities available for sale have been continually marked to fair value, less estimated costs to sell with a corresponding charge to net assets in liquidation.

G. Discontinued Operations – Prior to the adoption of the liquidation basis of accounting, the Company followed 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 required that the results of operations, including impairment, gains and losses related to the properties that were sold or properties that were 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 were to be separately classified on the balance sheet. Properties designated as held for sale were carried at the lower of cost or fair value less costs to sell and were not depreciated.

H. Equity Method – Prior to the adoption of the liquidation basis of accounting, the Company accounted for its investments in joint ventures using the equity method of accounting.

I. 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.

4. REAL ESTATE

Prior to the adoption of the liquidation basis of accounting, real estate was comprised of the following at December 31, 2010:

	December 31,
	2010

Land	$	1,906,466
Buildings		13,781,819
Furniture and equipment		6,375

Total real estate	$	15,694,660

Upon the adoption of the liquidation basis of accounting, on January 1, 2011, real estate was adjusted to its estimated fair value less costs to sell. There were no changes to such valuation at September 30, 2011.

5. MORTGAGE PORTFOLIO

Prior to the adoption of the liquidation basis of accounting, the Company’s mortgage portfolio included the following categories of notes receivable: Mortgage Portfolio Held for Sale and Net Mortgage Portfolio.

Upon the adoption of the liquidation basis of accounting, on January 1, 2011, notes receivable were adjusted to their estimated fair value less costs to sell. During the nine months ended September 30, 2011, the Company decreased its fair value of Notes Receivable by $1,945,532 (see Consolidated Note below) and increased its fair value of Notes Receivable - Related Party by $100,000.

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 was 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 the $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 was secured by all of 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.

Prior to the adoption of the liquidation basis of accounting, the carrying value of the $12,075,000 Consolidated Note on the Company’s consolidated balance sheet was $2,074,994 at December 31, 2010. 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.

The Consolidated Note accrued interest at the rate of 13% per annum and was due to mature on February 1, 2012. All net cash flow from the eighteen apartment properties was to be utilized to pay the interest accrued on the Consolidated Note and to the extent that there was not sufficient cash flow to pay all accrued interest, the unpaid interest was to be deferred until the maturity of the Consolidated Note. The Company did not believe that there would be sufficient cash flow from the security for the Consolidated Note to pay all of the interest that was due on the note, the deferred interest that would be due at maturity and the $12,075,000 principal amount due at maturity.

However, the Company believed that the monthly interest due on the $2,074,994 portion of the note would be paid in accordance with the terms of the note and, as a result, the Company accrued 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 in the amount of $204,560.

The interest due on the $10,000,006 portion of the note was recorded in income on a cash basis as interest was received and the balance of the interest due on the $10,000,006 was deferred and was to be due at maturity of the note. For the nine months ended September 30, 2010, the Company did not receive any interest payments on this portion of the Consolidated Note and, at September 30, 2010, the unaccrued deferred interest was $2,015,391.

The Company marketed the Consolidated Note and/or a sale of the apartment properties underlying the Consolidated Note beginning in the third quarter of 2010 with the expectation of a net sales price between $7,500,000 and $9,000,000. Upon adoption of the liquidation basis of accounting, on January 1, 2011, the Company estimated the fair value less costs to sell of the Consolidated Note to be approximately $7,285,000.

Although there was interest in a sale of the Consolidated Note or the underlying collateral from several potential purchasers, it became apparent to the Company that the value of the Company’s Consolidated Note was substantially less than originally estimated.

On April 14, 2011, the Company sold the Consolidated Note to another affiliate of Lightstone for $5,500,000. In connection with the sale, Presidential paid a brokerage commission of $150,000 to a broker unaffiliated with either Presidential or Lightstone and incurred additional expenses of $10,282. The net proceeds from the sale of the note were $5,339,718.

Net Mortgage Portfolio

Under the terms of the Settlement Agreement, the Company also received a $750,000 non-interest bearing, nonrecourse note from Mr. Lichtenstein originally due on January 31, 2010, which is secured by a 25% ownership interest in IATG Puerto Rico, LLC (“IATG”) (see Note 6). In May, 2010, the Company extended the maturity date of the note to December 31, 2010 and received a $10,000 fee. The note matured on December 31, 2010. Payment on the note was not received and, as a result, the Company recorded a $750,000 valuation reserve for the $750,000 non-interest bearing, nonrecourse note and classified the note as impaired at December 31, 2010. The Company is currently negotiating either a further extension of this loan or failing that, a receipt of the underlying collateral. There can be no assurance that the Company will be able to negotiate an extension of the maturity date or the date of receipt of the underlying collateral.

The following table summarizes the components of the net mortgage portfolio prior to the adoption of the liquidation basis of accounting:

	Notes Receivable
			Cooperative
	Impaired		Apartment
	Loans		Units (1)		Total

December 31, 2010

Notes receivable	$	750,000	$	61,210	$	811,210
Less: Valuation Reserve		750,000		-		750,000
Discounts		-		19,255		19,255
Net	$	-	$	41,955	$	41,955

Due within one year	$	-	$	18,126	$	18,126
Long-term		-		23,829		23,829

Net	$	-	$	41,955	$	41,955

(1) Notes receivable from sales of cooperative apartment units. These notes generally have market interest rates and the majority of these notes amortize monthly with balloon payments due at maturity.

Note Receivable – Related Party

Presidential holds two nonrecourse loans (the “Ivy Consolidated Loan”), which it received in 1991 from Ivy Properties, Ltd. and its affiliates “(Ivy”). Prior to the adoption of the liquidation basis of accounting, at December 31, 2010, the Ivy Consolidated Loan had 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, a Director of Presidential and a former Executive Vice President, and Thomas Viertel, a Director of Presidential and a former Executive Vice President and the former Chief Financial Officer of Presidential) to carry on theatrical productions. Amounts received by Presidential from Scorpio are applied to unpaid and unaccrued interest on the Ivy Consolidated Loan and recognized as income. During the nine months ended September 30, 2010, 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.

In connection with the Plan of Liquidation, the unaffiliated directors approved an agreement with the principals of Scorpio that they would acquire, or cause the acquisition of, the Ivy Consolidated Loan for $100,000. In accordance with the liquidation basis of accounting, during the nine months ended September 30, 2011, the Company estimated the fair value of the Ivy Consolidated Loan at $100,000. In addition, in August, 2011, the Company received payments of $8,750 from Scorpio, which were recorded as interest income.

6. INVESTMENT IN JOINT VENTURE

The Company has a joint venture investment with Lightstone and David Lichtenstein in IATG (as further described below). At December 31, 2010, prior to the adoption of the liquidation basis of accounting, the net carrying value of the investment in IATG was $1,762,225.

Upon the adoption of the liquidation basis of accounting on January 1, 2011, the Company’s investment in the IATG joint venture was recorded at its estimated fair value less costs to sell. As a result of the adoption of the Plan of Liquidation, the Company’s time frame to market its 50% interest in the joint venture has been greatly reduced which resulted in a reduction of the Company’s investment in IATG to $750,000.

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. At December 31, 2010, the occupancy rate at the property was approximately 18%. 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.

In 2009, the Company obtained an independent appraisal of the property owned by IATG and based on the appraised value of $6,500,000 and the terms of the limited liability agreement of IATG, the Company estimated the value of its 50% ownership interest in the IATG property to be $3,250,000 on its consolidated financial statements. While management believed at the time that the $6,500,000 appraised value of the IATG property was a reasonable value, there can be no assurance that if and when the property is sold, it can be sold for its appraised value. Prior to the adoption of the liquidation basis of accounting, the Company accounted for its investment in the IATG joint venture using the equity method. At December 31, 2010, the carrying value of the original $3,250,000 investment in IATG was $1,762,225, after the Company had recorded its share of the losses of IATG since February 27, 2009. During the three months and nine months ended September 30, 2010, the Company’s 50% share of the loss of IATG was $205,355 and $614,724, respectively.

The summary financial information for IATG was as follows:

	December 31,
	2010
	(Amounts in thousands)

Condensed Balance Sheets
Net real estate	$	5,330
Cash and cash equivalents		27
Accounts receivable		57
Deferred expenses		176
Prepaid expenses		81

Total Assets	$	5,671

Note payable (1)	$	8,878
Other liabilities		2,894

Total Liabilities		11,772
Members’ Deficit		(6,101	)

Total Liabilities and Members’ Deficit	$	5,671

(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 any proceeds of a sale or refinancing.

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

Condensed Statements of Operations
Revenues	$	252		$	711
Interest on note payable		(250	)		(728	)
Other expenses		(362	)		(1,055	)
Loss before depreciation and amortization		(360	)		(1,072	)
Depreciation and amortization		(51	)		(157	)

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

7. DISCONTINUED OPERATIONS

Prior to the adoption of the liquidation basis of accounting, income from discontinued operations for the nine months ended September 30, 2010 included 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 in September, 2010. The four cooperative apartment units were sold in June, 2010.

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

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

Revenues:
Rental	$	295,630	$	913,686

Rental property expenses:
Operating expenses		183,531		602,379
Interest on mortgage debt		19,866		54,935
Real estate taxes		47,653		141,154
Depreciation		-		7,566
Amortization of mortgage costs		4,372		11,380

Total		255,422		817,414

Other income:
Investment income		171		299

Income from discontinued operations		40,379		96,571

Net gain from sales of discontinued operations		1,764,313		2,063,554

Total income from discontinued operations	$	1,804,692	$	2,160,125

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 December 31, 2010 was $686,341, net of accumulated depreciation of $330,482. The property was subject to a first mortgage in the outstanding principal amount of $15,237 at December 31, 2010. The mortgage bore interest at the rate of 3.25% per annum, required monthly payments of principal and interest of $2,564 and was repaid in full on June 24, 2011.

In September, 2010, the Company sold its Building Industries Center property in White Plains, New York for a sales price of $2,150,000. The net proceeds of sale were $780,664 (after repayment of the first mortgage on the property and expenses of sale) and the gain from sale for financial reporting purposes was $1,764,313.

In June, 2010, the Company sold four cooperative apartment units in Riverdale, New York and New York, New York 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.

The assets and liabilities of the Mapletree Industrial Center property are segregated in the consolidated balance sheet at December 31, 2010. The components are as follows:

	December 31,
	2010
Assets related to discontinued operations:
Land	$	79,100
Buildings		906,911
Furniture and equipment		30,812
Less: accumulated depreciation		(330,482	)

Net real estate		686,341
Other assets		60

	$	686,401

Liabilities related to discontinued operations:
Mortgage debt	$	15,237

8. SECURITIES AVAILABLE FOR SALE

The table below summarizes the Company’s securities available for sale, prior to the adoption of the liquidation basis of accounting:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

December 31, 2010

U.S. Government Agencies notes and bonds:
Maturing within one year	$	927,794	$	-	$	(21,293	)	$	906,501
Maturing from one to three years		1,929,280		13,646		(9,947	)	1,932,979

	$	2,857,074	$	13,646	$	(31,240	)	$	2,839,480

Sales activity results for securities available for sale for the nine months ended September 30, 2010 were as follows:

Gross sales proceeds	$	750,900

Gross realized gains	$	228
Gross realized losses		(18,891	)

Net realized loss	$	(18,663	)

During the nine months ended September 30, 2011, the Company received $899,769 of net proceeds upon maturity of $927,794 of securities available for sale. For the nine months ended September 30, 2011, the Company decreased its net assets by $7,042 as a result of changes in the fair value of the securities available for sale.

9. 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, prior to the adoption of the liquidation basis of accounting, the Company consolidated the Hato Rey Partnership in the accompanying consolidated financial statements.

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 $2,750,000 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 was advanced from time to time as funds were 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. At December 31, 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 $1,175,281 were eliminated in consolidation at December 31, 2010.

The first mortgage loan on the Hato Rey Center property is due on May 11, 2028 and, since May 11, 2008, provided for an interest rate on the loan of 9.38% per annum (of which 2% per annum is deferred until maturity) and all cash flow from the property, after payment of all operating expenses, to be applied to pay down the outstanding principal balance of the loan. There has been no net cash flow available to pay down the mortgage balance. At December 31, 2010, the outstanding principal balance of the first mortgage loan was $14,578,454 and the deferred interest was $912,389.

As a result of increased vacancies at the building in 2011, the net operating income from the property is not sufficient to pay the monthly installments due on the first mortgage loan on the property and the expenses of operating the property. Accordingly, although the first mortgage loan was not in default at December 31, 2010, the holder of the loan, at the request of the Company, agreed to appoint a special servicer to review the operation of the property and the status of the first mortgage loan and to consider a request by the owner for a modification of the loan. In April, 2011, the owner defaulted under the loan and the owner and the mortgagee have executed a standstill agreement applicable to the default, which standstill agreement has been extended on a month to month basis. There can be no assurance that the standstill agreement will continue to be extended or that the Company will be able to obtain a satisfactory modification of the first mortgage loan, and it is possible that the holder of the first mortgage will foreclose on the mortgage, which is nonrecourse other than customary carve out guarantees.

Prior to the adoption of the liquidation basis of accounting, the Company followed the guidance of ASC 810-10-65 which required 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 and the consolidated statement of operations reflects the separate disclosure of the noncontrolling interest’s share (40%) of the loss of $221,398. The consolidated balance sheet at December 31, 2010 reflects a cumulative loss attributable to the noncontrolling interest of $608,481.

As a result of the default on the first mortgage loan in April, 2011, the uncertainty of the outcome of a possible modification of the first mortgage loan and/or the possible foreclosure by the holder of the first mortgage loan, at January 1, 2011 and September 30, 2011 the Company has estimated the fair value of its 60% ownership interest in the Hato Rey Partnership at zero. In addition, the outstanding $2,670,000 loan due from the partnership to the Company and the $1,175,281 accrued interest thereon, were given a fair value of zero. These fair value estimates may change as circumstances evolve with the holder of the first mortgage loan.

10. 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.

The Company follows the guidance of ASC 740 which prescribes a more likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken. If the Company’s tax position in relation to a transaction was not likely to be upheld, the Company would be required to record the accrual for the tax and interest thereon. As of September 30, 2011, the tax years that remain open to examination by the federal, state and local taxing authorities are the 2008 – 2010 tax years and the Company was not required to accrue any liability for those tax years.

Upon filing its income tax return for the year ended December 31, 2010, the Company reported a tax loss of approximately $3,942,000 ($1.16 per share), which was comprised of an ordinary loss of approximately $6,029,000 ($1.77 per share) and capital gains of approximately $2,087,000 ($0.61 per share).

For the nine months ended September 30, 2011, the Company had a tax loss of approximately $6,079,000 ($1.78 per share), which is comprised of an ordinary loss of approximately $5,736,000 ($1.68 per share) and a capital loss of approximately $343,000 ($0.10 per share).

11. ACCUMULATED OTHER COMPREHENSIVE LOSS

Prior to the adoption of the liquidation basis of accounting, the components of accumulated other comprehensive loss were as follows:

	December 31,
	2010

Defined benefit plan liability	$	(4,439,735	)
Contractual postretirement benefits liability		408,086
Minimum contractual pension benefit liability		40,650
Net unrealized loss on securities available for sale		(17,594	)

Total accumulated other comprehensive loss	$	(4,008,593	)

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 consisted of net income (loss) plus or minus other comprehensive income, was as follows:

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

Net income (loss)	$	1,011,994		$	(450,551	)

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

Comprehensive income (loss)		1,001,565			(446,325	)

Comprehensive loss attributable to noncontrolling interest		102,545			221,398

Comprehensive income (loss) attributable to Presidential Realty Corporation	$	1,104,110		$	(224,927	)

12. 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 leases its office space under an operating lease for a monthly rental payment of $12,601. Under the terms of lease, the Company had the right to terminate the lease upon 180 days prior written notice and the Company gave notice to terminate the lease as of June 30, 2011. In April, 2011, the Company and the lessor agreed that notwithstanding such termination the lease would continue subject to the Company's right to terminate the lease subsequent to June 30, 2011 upon 90 days prior notice. The Company has terminated the lease effective October 19, 2011 and is currently in occupancy on a month to month basis.

The Company has been 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 would 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. During 2010, the environmental remediation was completed and the remaining costs to be incurred are for the continued monitoring and testing of the site. The accrued liability balance was $50,000 at December 31, 2010 and was $35,913 at September 30, 2011.

The remediation must comply with the requirements of the Massachusetts Department of Environmental Protection (“MADEP”), and during 2009, the Company obtained the consent of MADEP to a specific plan of remediation. During 2010, the Company completed the remediation work, submitted the required reports to the MADEP and received a Response Action Outcome (“RAO”). As required by the MADEP, the Company 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. While these final costs have not been determined, management believes that it will be less than the balance of the accrued liability at September 30, 2011.

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.

13. CONTRACTUAL PENSION AND POSTRETIREMENT BENEFITS

The following table sets forth the components of net periodic benefit costs for contractual pension benefits prior to the adoption of the liquidation basis of accounting:

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

Service cost	$	-		$	-
Interest cost		7,531			22,595
Amortization of prior service cost		-			-
Recognized actuarial (gain) loss		(11,831	)		(35,493	)
Net periodic benefit cost (income)	$	(4,300	)	$	(12,898	)

The following table sets forth the components of net periodic benefit costs for contractual postretirement benefits prior to the adoption of the liquidation basis of accounting:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2010			2010
Service cost	$	444		$	1,333
Interest cost		5,471			16,412
Amortization of prior service cost		926			2,777
Recognized actuarial (gain) loss		(9,533	)		(28,600	)
Net periodic benefit cost (income)	$	(2,692	)	$	(8,078	)

During the nine months ended September 30, 2010, the Company made contributions of $11,576 for postretirement benefits.

As a result of employee contractual amendments in 2010, and the adoption of the Plan of Liquidation in 2011, three officers of the Company will no longer receive benefits from the contractual pension and postretirement benefits plans. As a result of the adoption of the liquidation basis of accounting, benefits payable under the postretirement benefit plan were $84,681 at March 31, 2011 and $75,000 at September 30, 2011.

14. DEFINED BENEFIT PLAN

The following table sets forth the components of net periodic benefit costs for the defined benefit plan, prior to the adoption of the liquidation basis of accounting:

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

Interest cost	$	123,900		$	371,701
Expected return on plan assets		(122,863	)		(368,590	)
Amortization of accumulated loss		72,872			218,615

Net periodic benefit cost	$	73,909		$	221,726

Termination of Defined Benefit Plan

On November 5, 2010, the Company notified plan participants of its intention to terminate the defined benefit plan in a standard termination with a proposed termination date of January 7, 2011. In order to terminate the plan and pay the distributions required, the plan must be fully funded. In the second quarter of 2011, the Company notified plan participants that the termination date of the plan would be May 31, 2011.

The plan was terminated on May 31, 2011 and final distributions were made to all participants. In connection with the termination of the plan, during 2011 the Company funded a total of $3,320,932 to the plan ($230,000 in the quarter ended March 31, 2011 and $3,090,932 in the quarter ended June 30, 2011) and no further funding is required.

15. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Prior to the adoption of the liquidation basis of accounting, estimated fair values of the Company’s financial instruments as of December 31, 2010 were determined using available market information and various valuation estimation methodologies. Considerable judgment was 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.

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

	December 31, 2010
	(Amounts in thousands)
	Net		Estimated
	Carrying		Fair
	Value (1)		Value

Assets:
Cash and cash equivalents	$	761	$	761
Securities available for sale		2,839		2,839
Notes receivable held for sale		2,075		2,151
Notes receivable		42		56

Liabilities:
Mortgage debt		14,578		20,144

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

The fair value estimates presented above were based on pertinent information available to management as of December 31, 2010.

Fair value methods and assumptions were as follows:

Cash and Cash Equivalents – The estimated fair value approximated 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 was based on current market quotes received from financial sources that trade such securities.

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

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

16. SUBSEQUENT EVENT

On November 8, 2011, the Company and PDL Partnership, a New York general partnership (“PDL Partnership”), the general partners of which are Jeffrey F. Joseph (a director and officer of the Company), Steven Baruch (a director and former officer of the Company) and Thomas Viertel (a director and former officer of the Company), entered into a series of strategic transactions (collectively, the “Transactions”) with the investors identified below and Signature Community Investment Group LLC (together with its affiliates, “Signature”). These transactions are as follows:

·	The termination of the Company’s Plan of Liquidation adopted by the stockholders on January 20, 2011;

·	The acquisition by BBJ Family Irrevocable Trust of 177,013 shares of the Company’s Class A common stock, representing 40% of the outstanding Class A common stock, from PDL Partnership at a purchase price of $1.00 per share;

·	The sale by the Company of 250,000 newly issued shares of the Company’s Class B common stock at a purchase price of $1.00 per share;

·	Amendments to the provisions relating to payments upon termination of employment for Steven Baruch, Jeffrey F. Joseph and Thomas Viertel, as described below;

·	The resignation of Steven Baruch, Thomas Viertel and Mortimer M. Caplin as directors of the Company;

·	The appointment of Nickolas W. Jekogian, III, Alexander Ludwig and Jeffrey Rogers as directors of the Company;

Effective as of immediately following the filing of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, the resignations of the officers of the Company and the appointment of Mr. Jekogian as the Chairman and Chief Executive Officer and Mr. Ludwig as the President, Chief Operating Officer and Principal Financial Officer of the Company;

·	The declaration of a special dividend of $0.35 per share on the Class A and Class B common stock;

The entry by the Company into a property management agreement with Signature to be the exclusive managing and leasing agent for the Company’s Mapletree Industrial Center property and an asset management agreement with Signature to provide oversight of the Company’s Mapletree Industrial Center property and the Hato Rey Center property;

·	The entry by the Company into executive employment agreements with Nickolas W. Jekogian, III and Alexander Ludwig, as described below; and

·	The grant of non-qualified stock options to acquire 370,000 shares of Class B Common Stock at a price of $1.25 per share to each of Messrs. Jekogian and Ludwig pursuant to stock option agreements, as described below.

The foregoing transactions are further described in the Company’s Current Report on Form 8-K filed on November 9, 2011.

Amendments to Employment Agreements

Each of Mr. Steven Baruch, Mr. Jeffrey F. Joseph and Mr. Thomas Viertel agreed to reduce the overall amount payable to him pursuant to his existing agreements and to defer a portion of the remaining amount. Mr. Baruch agreed to reduce the Lump Sum Amount (as defined) payable to him from $617,900 to $463,425, of which $308,950 was paid on November 8, 2011, and the balance of $154,475 is payable on the third anniversary thereof. Mr. Joseph agreed to reduce the Lump Sum Amount payable to him from $1,106,700 to $830,025, of which $553,350 was paid on November 8, 2011, and the balance of $276,675 is payable on the third anniversary thereof. Mr. Viertel agreed to reduce the Lump Sum Amount payable to him from $650,400 to $487,800 of which $325,200 was paid on November 8, 2011, and the balance of $162,600 is payable on the third anniversary thereof. The aggregate amount waived or deferred by Messrs. Baruch, Joseph and Viertel is $1,187,500, of which $593,750 was waived permanently and payment of the balance of $593,750 was deferred for the three-year period. The amounts waived and deferred were in addition to the $1,941,019 aggregate reductions in the compensation otherwise payable to them upon termination of their employment that were agreed to in August 2010 in connection with the approval by the Board of the Plan of Liquidation.

Executive Employment Agreements

The Company and Mr. Jekogian entered into an employment agreement pursuant to which the Company employs Mr. Jekogian as a Director, Chairman of the Board of Directors and Chief Executive Officer of the Company. The employment agreement has a term of eighteen months and may be terminated at any time by the Board of Directors for “cause” or by Mr. Jekogian for “good reason,” each as defined therein. Mr. Jekogian will receive a base salary of $200,000 per annum for the first twelve months and $225,000 per annum for the last six months. Commencing with the fiscal year of the Company beginning January 1, 2012 and for each fiscal year thereafter during the term of the employment agreement, Mr. Jekogian will have the opportunity to earn a bonus of up to $200,000, with the amount determined by the Company’s Compensation Committee in its absolute discretion. However, the payment of the bonus and base salary will be deferred until a “Capital Event” occurs, which is defined as the receipt by the Company of at least $20,000,000 in cash or property from capital-raising activities.

Mr. Jekogian will not be exclusive to the Company. He will continue to own and operate Signature. As a result, Mr. Jekogian may be subject to conflicts of interest. The independent directors of the Board will review all transactions between the Company and Signature and the activities of Mr. Jekogian.

The Company also entered into an employment agreement with Mr. Ludwig pursuant to which the Company employs Mr. Ludwig as President and Chief Operating Officer of the Company. The employment agreement has a term of eighteen months and may be terminated at any time by the Board of Directors for “cause” or by Mr. Ludwig for “good reason,” each as defined therein. Mr. Ludwig will receive a base salary of $200,000 per annum for the first twelve months and $225,000 per annum for the last six months. Commencing with the fiscal year of the Company beginning January 1, 2012 and for each fiscal year thereafter during the Term, Mr. Ludwig will have the opportunity to earn a bonus of up to $200,000, with the amount determined by the Company’s Compensation Committee in its absolute discretion.

Mr. Ludwig will continue to provide consulting services to and receive compensation from Signature. As a result, Mr. Ludwig may be subject to conflicts of interest. Mr. Ludwig has agreed to keep the independent directors of the Board advised of his activities for and compensation from Signature.

On November 8, 2011 (the “Grant Date”), the Company entered into option agreements with each of Mr. Jekogian and Mr. Ludwig. Subject to the terms and conditions set forth in the option agreement, the Company granted to each of them the right and option to purchase 370,000 shares of the Company’s Class B common stock at a price of $1.25 per share (the “Option”), of which 74,000 may be purchased six months after the Grant Date, 148,000 may be purchased upon and after the occurrence of the Capital Event, and the rest may be purchased upon and after the consummation of an underwritten registered public offering of the Company’s common stock with gross proceeds of not less than $40,000,000. However, if there is a “Change of Control,” as defined therein, the Option shall automatically become fully vested and exercisable. The Option is not a qualified option within the meaning of the Internal Revenue Code of 1986 nor was it granted pursuant to any stock option plan as the Company does not have a stock option plan in effect. The Option has a term of ten years.

Sale of Ivy Consolidated Loan

On November 8, 2011, the Company assigned the Ivy Consolidated Loan to Patricia Daily, an individual employed in the theater industry, for $100,000.

PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company’s financial statements and notes appearing elsewhere in this Form 10-Q. Such financial statements and information have been prepared to reflect the Company’s net assets in liquidation as of September 30, 2011 (liquidation basis) and financial position at December 31, 2010 (going concern basis), together with statement of changes in net assets for the nine months ended September 30, 2011 (liquidation basis), the results of operations for the three months and nine months ended September 30, 2010 (going concern basis) and cash flows for the nine months ended September 30, 2010 (going concern basis). On November 8, 2011 in connection with entering into a strategic transaction, the Board of Directors of the Company terminated the Plan of Liquidation and, as a result, in future reporting periods the Company will resume reporting its financial statements on a going concern basis.

Overview

Presidential Realty Corporation is taxed for federal income tax purposes as a REIT. Presidential owns real estate directly and through a partnership and joint venture and holds loans secured by interests in real estate.

On August 26, 2010, the Company announced that the Company’s Special Committee of the Board of Directors (the “Special Committee”) and the entire Board of Directors had determined based on, among other reasons, the limited number and nature of the Company’s assets, limited revenues, continuing losses from operations and significant operating expenses relative to its assets, that a plan of liquidation proposal (the “Plan of Liquidation”) was advisable and substantively and procedurally fair to, and in the best interests of, Presidential and its stockholders including its unaffiliated stockholders, and recommended approval of the Plan of Liquidation by the stockholders. On January 20, 2011, the Company held its annual meeting of stockholders and received stockholder approval of the Plan of Liquidation. In connection with the approval of the Plan of Liquidation, the Company adopted the liquidation basis of accounting as of January 1, 2011. Under the liquidation basis of accounting, the Company’s net assets are stated at their estimated net realizable value and the Company’s liabilities are stated at their estimated settlement amounts. Although the Plan of Liquidation was not approved by the stockholders until January 20, 2011, the Company is using the liquidation basis of accounting as of January 1, 2011. Any activity between January 1, 2011 and January 20, 2011 would not be materially different under the going concern basis.

Signature Strategic Transaction

·	The termination of the Plan of Liquidation ;

·	The acquisition by BBJ Family Irrevocable Trust (the “Class A Purchaser”) of 177,013 shares (the “Class A Shares”) of the Company’s Class A common stock, representing 40% of the outstanding Class A common stock, from PDL Partnership at a purchase price of $1.00 per share;

The sale by the Company of 250,000 newly issued shares (the “Class B Shares”) of the Company’s Class B common stock at a purchase price of $1.00 per share. The 250,000 Class B shares represent 7.8% of the outstanding shares of Class B common stock and 6.8% of the total outstanding Class A and Class B common stock of the Company after taking the sale into account;

·	Amendments to the provisions relating to payments upon termination of employment for Steven Baruch, Jeffrey F. Joseph and Thomas Viertel, as described below;

·	The resignation of Steven Baruch, Thomas Viertel and Mortimer M. Caplin as directors of the Company;

·	The appointment of Nickolas W. Jekogian, III, Alexander Ludwig and Jeffrey Rogers as directors of the Company;

·	The declaration of a special dividend of $0.35 per share on the Class A and Class B common stock (the “Special Dividend”);

·	The entry by the Company into a property management agreement and an asset management agreement with Signature (the “Property Management Agreement” and the “Asset Management Agreement,” respectively);

·	The entry by the Company into executive employment agreements with Nickolas W. Jekogian, III and Alexander Ludwig on the terms described below; and

·	The grant of non-qualified stock options to acquire 370,000 shares of Class B Common Stock at a price of $1.25 per share to each of Messrs. Jekogian and Ludwig pursuant to stock option agreements as described below.

The foregoing transactions are further described in the Company’s Current Report on Form 8-K filed on November 9, 2011.

The sale of the Class A Shares, although not a sale of a majority of the outstanding Class A common stock, together with the other Transactions, may be considered a change in control of the Company within the meaning of the federal securities laws, primarily because the Class A Purchaser will be the largest single holder of Class A common stock. The holders of the Class A common stock have the right to elect two-thirds of the members of the Company’s Board of Directors. All directors, once elected, have equal authority and responsibility. On all other matters, the holders of the Class A common stock and the holders of the Class B common stock have one vote per share for all purposes. However, the foregoing statement is not an admission by any of the Company, the Class A Purchaser, the Class B Purchasers or Signature that a change in control of the Company has occurred for any purpose or pursuant to any legal or regulatory requirement.

Termination of Plan of Liquidation

On January 20, 2011, the Company’s stockholders approved the sale of all or substantially all of the Company’s assets in one or more transactions on such terms and subject to such conditions as the Company’s Board of Directors deemed appropriate, and authorized a plan of liquidation and dissolution of the Company, subject to the right of the Board of Directors, in its discretion, to terminate the Plan of Liquidation. In connection with the Transactions and in light of the plans for the Company presented to the Board of Directors by Messrs. Jekogian and Ludwig and a consideration of the alternatives available to the Company and other matters it deemed relevant, including the tax consequences of the Transactions, the Board of Directors determined that the Transactions will be more favorable to the stockholders of the Company than effecting a plan of liquidation and sale of all or substantially all of the assets of the Company, and pursuant to the discretion given to the Board of Directors by the stockholders in the Plan of Liquidation, terminated the Plan of Liquidation.

Amendments to Employment Agreements

In order to induce Signature, the Class A Purchaser and the purchasers of the Class B Shares to enter into the Transactions, and to provide liquidity to the Company to pay the Special Dividend, each of Mr. Steven Baruch, Mr. Jeffrey F. Joseph and Mr. Thomas Viertel agreed to reduce the overall amount payable to him pursuant to his existing agreements and to defer a portion of the remaining amount. Mr. Baruch agreed to reduce the Lump Sum Amount (as defined) payable to him from $617,900 to $463,425, of which $308,950 was paid on November 8, 2011, and the balance of $154,475 is payable on the third anniversary thereof. Mr. Joseph agreed to reduce the Lump Sum Amount payable to him from $1,106,700 to $830,025, of which $553,350 was paid on November 8, 2011, and the balance of $276,675 is payable on the third anniversary thereof. Mr. Viertel agreed to reduce the Lump Sum Amount payable to him from $650,400 to $487,800 of which $325,200 was paid on November 8, 2011, and the balance of $162,600 is payable on the third anniversary thereof. The aggregate amount waived or deferred by Messrs. Baruch, Joseph and Viertel is $1,187,500, of which $593,750 was waived permanently and payment of the balance of $593,750 was deferred for the three-year period. The amounts waived and deferred were in addition to the $1,941,019 aggregate reductions in the compensation otherwise payable to them upon termination of their employment that were agreed to in August 2010 in connection with the approval by the Board of the Plan of Liquidation and described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K).

In addition, Ms. Delgado’s employment agreement was amended to provide for termination as of the closing of the Transactions, and 1300 shares of restricted Class B Stock that were granted to her and that were not yet vested were deemed vested by the Company’s Board of Directors.

Property Management Agreement

On November 8, 2011, the Company and Signature entered into a Property Management Agreement pursuant to which the Company has retained Signature as the exclusive managing and leasing agent for the Company’s Mapletree Industrial Center property in Palmer, Massachusetts (the “Mapletree Property”). Signature shall manage the Mapletree Property in accordance with specific management guidelines and leasing guidelines and shall meet specific reporting requirements and vendor insurance requirements. Signature will receive a compensation of 5% of monthly rental income actually received from tenants at the Mapletree Property. The Company will reimburse Signature for all reasonable expenses incurred by Signature in performance of its duties under the Property Management Agreement that are either in accordance with the annual budget or which have been approved in writing by the Company. Such expense shall include, but not be limited to, Signature’s costs of the salaries, benefits and appropriate and prudent training for Signature’s employees who are engaged solely in management or operation of the Mapletree Property, but excluding certain expenses that will be borne by Signature, as specified in the Property Management Agreement. The Property Management Agreement has a term of one year and will be automatically renewable for one year terms until it is terminated by either party upon written notice.

Asset Management Agreement

On November 8, 2011, the Company and Signature entered into an Asset Management Agreement pursuant to which the Company engaged Signature to oversee the Company’s Mapletree Industrial Center property in Palmer, Massachusetts and an office building at Hato Rey, Puerto Rico (the “Properties”). Signature’s duties include leasing, marketing and advertising, financing, construction and dispositions of the Properties. Signature will receive a construction fee for any major renovations or capital projects, subject to the approval of the Company’s Board of Directors, an asset management fee of 1.5% of the monthly gross rental revenues collected for the Properties (provided that the monthly fee for the Hato Rey property will be accrued and not paid until the receipt of mortgage proceeds on the Mapletree Property), a finance fee of 1% on any debt placement, and a disposition fee of 1% on the sale of any assets, as specified in the Asset Management Agreement. The Asset Management Agreement has a term of one year and will be automatically renewable for one year terms until it is terminated by either party upon written notice.

Executive Employment Agreements

Special Dividend

On November 7, 2011, the Board declared a special dividend in cash to all holders of Common Stock of $0.35 per share, to stockholders of record on November 18, 2011, payable on November 28, 2011.

Sale of Ivy Consolidated Loan

As previously disclosed, the Company had a loan outstanding to certain affiliates of Ivy Properties, Ltd. (collectively “Ivy”), which is owned by Messrs. Baruch, Joseph and Viertel (the “Ivy Principals”). As part of a Settlement Agreement effectuated in November, 1991 between the Company and Ivy, certain of the Company’s outstanding nonrecourse loans to Ivy (most of which had previously been written down to zero) were modified and consolidated into two nonrecourse loans (collectively, the “Ivy Consolidated Loan”), which currently has an aggregate outstanding principal balance of $4,770,050 and a net carrying value of zero. In 1996, the Company and the Ivy Principals agreed to modify the Settlement Agreement to provide that the only payments required under the Ivy Consolidated Loan would be paid by the Ivy Principals in an amount equal to 25% of the operating cash flow (after provision for certain reserves) of Scorpio Entertainment, Inc., a company owned by Messrs. Baruch and Viertel, that acts as a producer of theatrical productions. At September 30, 2011, the total unpaid and unaccrued interest on the Ivy Consolidated Loan was $3,943,693. In August 2010, in connection with the amendment of the employment agreements with Messrs. Viertel and Baruch and the anticipated liquidation of the Company, the Company approved an agreement with the principals of Scorpio that they would acquire, or cause the acquisition of, the Ivy Consolidated Loan for $100,000. In accordance with the liquidation basis of accounting, during the nine months ended September 30, 2011, the Company fair valued the Ivy Consolidated Loan at $100,000. On November 8, 2011, the Company assigned the Ivy Consolidated Loan to Patricia Daily, an individual in the theater industry, for $100,000.

Over-the-Counter Trading

On June 17, 2011, the Company received notice from the NYSE AMEX LLC (the “Exchange”), that the Company was not in compliance with the Exchange’s continued listing standard set forth in Section 1003(a) (iii) of the Exchange’s Company Guide due to having stockholders’ equity of less than $6,000,000 at March 31, 2011 and losses from continuing operations in its five most recent fiscal years ended December 31, 2010. The Company submitted a plan to the Exchange to regain compliance with the Exchange’s continued listing standards, but on September 6, 2011, the Company received notification from the Exchange of its intent to strike the Class B common stock of the Company from the Exchange by filing a delisting application with the Securities and Exchange Commission (the “SEC”) pursuant to the Exchange’s Company Guide.

Effective the opening of trading on September 21, 2011, the Exchange suspended trading in the Company’s Class B common stock and subsequently submitted an application to the SEC to strike the Company’s Class B common stock from listing on the Exchange and registration under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is now deemed registered under Section 12(g) of the Exchange Act and will continue to file periodic and other reports pursuant to the requirements of the Exchange Act. (See the Company’s Report on Form 8-K and 8-K/A filed on September 6, 2011 and September 21, 2011 respectively.)

The Company’s Class B common stock and its Class A common stock currently trade in the over-the-counter market under the symbols PDNLB and PDNLA, respectively.

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. Such 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:

the risk that new management will not be able to stabilize the Company;

the risk that lenders on the Company’s property in Hato Rey, Puerto Rico may foreclose on that property;

the risk that the Company may not be able to raise capital or make real estate investments;

the risk and expense of stockholder litigation with respect to termination of the plan of liquidation;

continuing generally adverse economic and business conditions, which, among other things (a) affect the demand for retail and office space at properties owned 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, which affect the ability of the Company to sell, or refinance the mortgages on, its properties and which may also affect the ability of prospective tenants to rent space at these properties;

general risks of real estate ownership and operation;

governmental actions and initiatives;

environmental and safety requirements; and

the Company’s ability to continue as a REIT.

Critical Accounting Policies

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and under the liquidation basis of accounting, 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, prior to the adoption of the liquidation basis of accounting, are described in the 2010 Form 10-K.

Liquidation Basis of Accounting

As a result of the approval of the Plan of Liquidation, the Company adopted the liquidation basis of accounting, effective January 1, 2011. Under the liquidation basis of accounting, the following financial statements are no longer presented (except for periods prior to the adoption of the liquidation basis of accounting): a consolidated balance sheet, a consolidated statement of operations and a consolidated statement of cash flows. The consolidated statement of net assets and the consolidated statement of changes in net assets are the principal financial statements presented under the liquidation basis of accounting. In addition, the account balances of the Hato Rey Partnership (as described in Notes 3-B and 9 of Notes to the Consolidated Financial Statements), which were 100% consolidated in the financial statements of the Company at December 31, 2010, are not consolidated in net assets under the liquidation basis of accounting.

At September 30, 2011, under the liquidation basis of accounting, all of the Company’s assets were stated at their estimated net realizable value and were based on current contracts, estimates and other indications of sales value net of estimated selling costs. All liabilities of the Company, including those estimated costs associated with implementing the Plan of Liquidation, were stated at their estimated settlement amounts. These amounts are presented in the accompanying consolidated statement of net assets. Such amounts should not be taken as an indication of the timing or amount of future distributions. The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on facts and circumstances at the time, of the net realizable value of the assets and the costs associated with carrying out the Plan of Liquidation.

The Company has begun its initial review of the impact of returning to the going concern GAAP basis of accounting.

Net Assets in Liquidation

The following is a reconciliation of equity at December 31, 2010 under the going concern basis of accounting to net assets in liquidation from January 1, 2011 through September 30, 2011 under the liquidation basis of accounting:

Presidential stockholders’ equity at December 31, 2010-going concern basis	$	2,565,930

Effects of adopting the liquidation basis of accounting:

Change in fair value of real estate investments		1,734,230
Change in fair value of notes receivable		5,210,256
Change in fair value of investment in joint venture		(1,012,225	)
Estimated liquidation and operating costs in excess of estimated receipts		(1,906,386	)
Other decreases to net assets		(16,021	)

Total effects of adopting the liquidation basis of accounting		4,009,854

Net assets in liquidation, January 1, 2011		6,575,784

Changes in net assets in liquidation:

Operating loss and changes in estimated liquidation and operating costs		(627,450	)

Changes in fair value of assets and liabilities		(1,852,574	)

Total changes in net assets in liquidation		(2,480,024	)

Net assets in liquidation, September 30, 2011	$	4,095,760

The net assets in liquidation at January 1, 2011, would have resulted in liquidation distributions of approximately $1.93 per share. The net assets in liquidation at September 30, 2011 would result in liquidation distributions of approximately $1.20 per share. The estimates for liquidation distributions per share include projections of costs and expenses expected to be incurred during the period required to complete the Plan of Liquidation or a strategic transaction. These projections could change materially based on the timing of any sales, the performance of the underlying assets and changes in the underlying assumptions of the projected cash flows. Subsequent to September 30, 2011, the Board of Directors of the Company terminated the Plan of Liquidation and, accordingly, the foregoing projections will not be relevant in future periods (see Signature Strategic Transaction above).

Net assets in liquidation decreased by $2,480,024 during the nine months ended September 30, 2011, primarily due to a $1,945,282 decrease in the fair value of the Consolidated Note (see Sale of the Consolidated Note Receivable below).

Liquidity and Capital Resources

Presidential obtains funds for working capital from its available cash and cash equivalents, from securities available for sale, from operating activities, from sales of its real estate assets and from the sale of its notes receivables portfolio.

The Company has not paid a regular dividend since the fourth quarter of 2008. However in connection with the Transactions with Signature and related matters described herein, particularly the waiver and deferment of a total of $1,187,500 of compensation otherwise payable to three present and former officers of the Company upon their retirement, the Board of Directors determined that it was appropriate to pay the Special Dividend of $.35 per share payable on November 28, 2011 to stockholders of record on November 18, 2011. The Special Dividend will constitute a return of capital for federal income tax purposes.

The Company has no plans at this time to resume regular quarterly dividends except to the extent that a dividend may be required in order to maintain REIT status.

Management believes that, barring any unforeseen circumstances, the Company has sufficient liquidity and capital resources to carry on its existing business for at least the next twelve months. Except as discussed herein, management is not aware of any other trends, events, commitments or uncertainties that will have a significant effect on liquidity.

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’s current dividend policy regarding capital gains is 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 and its ability to reduce taxes by paying dividends.

At September 30, 2011, Presidential had total assets of $7,734,605 and net assets in liquidation of $4,095,760, including cash and cash equivalents of $2,249,683 and securities available for sale of $1,904,643.

Sale of the Consolidated Note Receivable

Although there was interest in a sale of the Consolidated Note or the underlying collateral from several potential purchasers, it became apparent to the Company that the value of the Company’s asset was substantially less than originally estimated.

On April 14, 2011, the Company sold its $12,075,000 Consolidated Note to another affiliate of The Lightstone Group (“Lightstone”) for $5,500,000. In connection with the sale, Presidential paid a brokerage commission of $150,000 to a broker unaffiliated with either Presidential or Lightstone and incurred additional expenses of $10,282. The $5,339,718 net proceeds from the sale of this note were utilized to fund the Company’s Defined Benefit Pension Plan and will be utilized to pay other operating and liquidating expenses.

Defined Benefit Pension Plan

On November 5, 2010, the Company notified plan participants of its intention to terminate the defined benefit plan (the “Pension Plan”) in a standard termination with a proposed termination date of January 7, 2011. In order to terminate the Pension Plan and pay the distributions required, the Pension Plan must be fully funded. In the second quarter of 2011, the Company notified plan participants that the termination date of the Pension Plan would be May 31, 2011.

The Pension Plan was terminated on May 31, 2011 and final distributions were made to all participants. In connection with the termination, during 2011 the Company funded a total of $3,320,932 to the Pension Plan ($230,000 in the quarter ended March 31, 2011 and $3,090,932 in the quarter ended June 30, 2011) and no further funding is required.

Contractual Pension and Postretirement Benefit Plans and Termination Payments

As a result of employee contractual amendments in August, 2010 (as described in our 2010 Form 10-K), and the adoption of the Plan of Liquidation in 2011, three officers of the Company will not receive any benefits from the contractual pension and postretirement benefits plans. As a result of the adoption of the liquidation basis of accounting on January 1, 2011, at September 30, 2011 benefits payable under the postretirement benefits plan were $75,000 and $-0- under the contractual pension plan.

In addition, as a result of the adoption of the liquidation basis of accounting on January 1, 2011, the Company also recorded a $1,106,700 severance amount for Mr. Joseph.

Settlement Agreement with The Lightstone Group and Mr. Lichtenstein

On February 27, 2009, the Company completed a Settlement Agreement with Lightstone and Mr. Lichtenstein with respect to defaults on $27,373,410 of loans and investments made to four joint ventures to Lightstone. For additional information about the history of the Company’s investment in and loans to the joint ventures controlled by Lightstone and the terms of the Settlement Agreement, see the Company’s Form 10-K for the year ended December 31, 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, which payment was received in 2010, 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.

On September 15, 2010, the Company entered into an agreement with Lightstone, whereby the Company received a $150,000 payment in satisfaction of one of the mezzanine loans and assigned its 29% interest in that joint venture to Lightstone. At September 30, 2010, the Company recognized a $150,000 gain on settlement of joint venture loans in its consolidated financial statements.

At December 31, 2010 the Company’s only remaining joint venture investment with Lightstone was an investment in IATG Puerto Rico, LLC (“IATG”). In addition, it also had two loans due from entities controlled by Mr. Lichtenstein in the outstanding principal amounts of $12,075,000 and $750,000. Prior to the adoption of the liquidation basis of accounting, at December 31, 2010, the investment in IATG was $1,762,255 and the two loans referred to above had an aggregate net carrying value of $2,074,994.

As part of the 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. 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.

In 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 estimated the value of its 50% ownership interest in the IATG property to be $3,250,000. While management believed at the time that the $6,500,000 appraised value of the IATG property was a reasonable value, there can be no assurance that if and when the property is sold, it can be sold for its appraised value. Prior to the adoption of the liquidation basis of accounting, at December 31, 2010 the carrying value of the original $3,250,000 investment in IATG was $1,762,255.

Under the terms of the Settlement Agreement, an affiliate of Lightstone, which was 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 $18,100,000 of 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 was secured by all of 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.

The carrying value of the $12,075,000 Consolidated Note on the Company’s consolidated balance sheet at December 31, 2010, was $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 Consolidated Note accrued interest at the rate of 13% per annum and was due on February 1, 2012.

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.

The Company marketed the Consolidated Note and/or a sale of the apartment properties underlying the Consolidated Note with the expectation of a net sales price between $7,500,000 and $9,000,000. Upon adoption of the liquidation basis of accounting, on January 1, 2011, the Company estimated the fair value less costs to sell of the Consolidated Note to be approximately $7,285,000.

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. In May, 2010, the Company extended the maturity date of the note to December 31, 2010 and received a $10,000 fee. The note matured on December 31, 2010, and payment on the note was not received, and, as a result, at December 31, 2010 the Company recorded a $750,000 valuation reserve and classified the note as impaired. The Company is currently negotiating either a further extension of this loan or failing that, a receipt of the underlying collateral. There can be no assurance that the Company will be able to negotiate an extension of the maturity date or the date of receipt of the underlying collateral.

Hato Rey Partnership

At September 30, 2011, 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 five 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 increased to 32% at December 31, 2010. Then in January, 2011, two tenants vacated a total of approximately 21,000 square feet at the building and the vacancy rate increased to 40% at November 1, 2011. The Company continues to try various marketing strategies 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.

In addition, Presidential loaned $2,670,000 to the owning partnership to fund negative cash flow from the operations of the property and to pay the costs of a modernization program. Interest accrued 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. The $2,670,000 loan and the accrued interest in the amount of $1,175,281 were eliminated in consolidation at December 31, 2010. There is no assurance that any sale or refinancing of the property will provide sufficient net proceeds to repay the outstanding principal balance and the interest on the loan. As discussed below, the first mortgage on the property is in default and there is no assurance that it can be satisfactorily modified.

The Company had expected to refinance the existing first mortgage on the building in 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. As a result of the increased vacancy at the building, the net operating income from the property is not sufficient to pay the monthly installments due on the first mortgage loan on the property and the expenses of operating the property. At the request of the Company, in February, 2011 the holder of the loan appointed a special servicer to review the operation of the property and the status of the first mortgage loan and to consider a request by the owner for a modification of the loan. In April, 2011, the special servicer permitted the owner to utilize funds from operations to pay some of the operating expenses without payment in full of the monthly installment due on the first mortgage. Accordingly, the first mortgage is in default but the owner and the mortgagee have executed a standstill agreement applicable to the default, which standstill agreement has been extended on a month to month basis. There can be no assurance that the standstill agreement will continue to be extended or that the Company will be able to obtain a satisfactory modification of the first mortgage loan, and it is possible that the holder of the first mortgage will foreclose on the mortgage, which is nonrecourse other than customary carve out guarantees.

Environmental Matters

Mapletree Industrial Center – Palmer, Massachusetts

The Company has been 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 would 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. During 2010, the environmental remediation was completed and the remaining costs to be incurred are for the continued monitoring and testing of the site. The accrued liability balance was $50,000 at December 31, 2010 and $35,913 at September 30, 2011.

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.

101	Interactive Data Files formatted in XBRL: (i) Consolidated Statement of Net Assets-September 30, 2011 (Liquidation Basis), (ii) Consolidated Balance Sheet–December 31, 2010 (Going Concern Basis), (iii) Consolidated Statement of Changes in Net Assets for the Nine Months Ended September 30, 2011 (Liquidation Basis), (iv) Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2010 (Going Concern Basis), (v) Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2010 (Going Concern Basis), and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text. In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

	101.INS XBRL Instance Document
	101.SCH XBRL Taxonomy Extension Schema Document
	101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB XBRL Taxonomy Extension Label Linkbase Document
	101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

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 16, 2011	By:	/s/ JEFFREY F. JOSEPH

		Jeffrey F. Joseph
		President and Chief Executive Officer

DATE: November 16, 2011	By:	/s/ ELIZABETH DELGADO

		Elizabeth Delgado
		Treasurer and Chief Financial Officer

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Presidential Realty (PDNLA) 10-Q2011 Q3 Quarterly report

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